Tupperware Brands Corp (TUP) 2002 Q2 法說會逐字稿

Please stand by, we're about to begin. Good day everyone and welcome to this Tupperware second quarter 2002 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions I'd like to turn the call over to the Chairman and Chief Executive Officer, Mr. Rick Goings. Please go ahead sir.

Good morning, and thank you very much. We know a number of you have many, many calls you're going to be on this morning, so we're going to move this along. I'm joined this morning by Pradeep Mathur, our Senior Vice President and Chief Financial Officer, and Jane Garrard, our Vice President of Investor Relations. We're going to be discussing the future outlook of the business, so I'm going to refer you to the company's position with regard to forward-looking statements. But you guys know this as well as I do.

As you saw in our release for the second quarter of 2002 we reported earnings in line with our expectation of 43 cents per share, before reengineering charges and gains on the sale of property, specifically property that we had been developing, plus some in Europe, and we'll get into those. Compared with 50 cents per share last year. When you net out also the impact of reengineering charges against the gains on the sale of property, earnings were 54 cents per share, compared to 47 cents last year.

We were down slightly in local currency sales, compared to 2001. We continue to see strong results in North America, while we have encountered a number of challenges in our international operations. Consequently, we continued to invest promotionally during the second quarter in Europe, a number of large Asia-Pacific markets, and Mexico. We do this because it enables us to keep our sales force active and to help us work toward gaining market share. We're also expecting to see some reduction in this spending in the third and fourth quarters.

We were particularly pleased as well with the progress on our balance sheet during the quarter. We had a significant reduction in debt, resulting in improved debt to cap ratio, Pradeep will get into that. Also, our team that has been leading the effort to develop and market property near our headquarters is making great progress, and we were pleased to see that they already closed on a number of transactions, and there's more to come.

Let me now drill down to another level with regard to our performance, and then update you on our growth levers. Turning first to the North American business, as you know, this includes Canada and the United States, performance continued to be strong, profit was up 29 percent on sales increase of nine percent. And this, by the way, was over a very strong quarter prior year, which included a five percent point spread benefit from distributors moving to our new business model.

Canada as part of the mix was down modestly as a result of a promotion. The U.S. sales were up by a strong 12 percent, including the benefit of the new model. Our U.S. sales reflect a solid trend with 11 consecutive quarters of sales and profit growth. It really does validate this new template, this new model is working. U.S. sales in the quarter for our integrated direct access channels increased 42 percent, or they again, increased 42 percent and IDA contributed six percent of U.S. sales, and that's up from four percent in the second quarter of last year.

Additionally, other important indicators in the U.S. business were positive, the sales force was up six percent, and the average active was up two percent. Also, for the first time in several years, we had a notable net increase in total distributors. This is important because the increase in the number of distributors confirms the success again of this new business model, as it reduces the distributor breakeven point. And what it says net net, it makes it easier to attract new leaders who are willing to invest in starting a Tupperware business.

We've mentioned the new business model implementation a number of times today and before, let me just briefly explain. The new business model, how it works, orders are processed directly with the sales force members, and that really takes away the administrative task from our distributors, and it frees them up to do the high value added items like recruiting, training and motivating the sales force and managers. In addition, it results in immediate cash for our orders, which over time reduces receivables and turns it into a cash business.

We made progress during the quarter in the U.S., with the number of distributors converted to this model. And we're fully on track to convert all of our U.S. distributors to this model by the end of this next year. Turning to Europe, Africa and the Middle East, sales were down four percent in local currency.

Our performance in Europe, particularly in Germany, continue to mirror macro economic trends there. But I am pleased to report that excluding Germany, Europe's sales were up three percent. As discussed in the first quarter, in Europe, we have intentionally continued to invest promotional dollars. As mentioned, it keeps the sales force momentum and activity and to maintain and even gain market share.

This resulted in an increase in the sales force size of six percent over last year, with an average active sales force up seven percent. The promotional spending contributed, though, to this operating profit decline of 27 percent. However, this is a sequential improvement in operating profit over the first quarter.

We do, looking forward, anticipate these higher spending levels through the third and fourth quarter, but at moderating levels. Turning to Latin America, early in the quarter we saw some weakness in Mexico, our largest market. However, June sales in Mexico were even with prior year, indicating improvement as the programs we put into place activity appear to be working.

Going forward, our growing sales force size advantage give us confidence in the continued strengthening of our business there. As indicated in previous quarters, in several of Latin America's other markets, sales comparisons were negatively impacted by a transition under the importer model. Where we went from many distributors at a higher price, to few distributors who we sell to at a lower price. But that positively impacts our over all value chain.

Sales in the quarter were down 11 percent, excluding the impact of the distributor model. Operating profit was five million, and that's off 2.9 million from last year. And after adjusting for $400,000 investment in the beauty control, we started off operation and a little bit to exchange rates. I might add, we're holding our own in Venezuela, feeling the impact of what's going on in Brazil, and we really have neutralized the negative impact of Argentina.

We continue to develop our beauty control strategy in Mexico. We've got a year now behind us, making progress. And we're now moving to more local manufacturing to customize our product offering to the population. And also to allow for more competitive pricing.

Asia Pacific, local currency sales there were flat in this region, which was a sequential improvement over the first quarter in both sales and profits. We're experiencing improving trends, I'm glad to report, in Japan, which is our largest market in terms of both sales and profit. Also, Australia, India, Indonesia, posted strong double-digit growth in sales and profits in this quarter.

This was somewhat offset by two of our large markets, this performance, and that's Korea and the Philippines. In both of these markets, we have announced and made management changes in the quarter and we implemented some sales and marketing initiatives aimed at reversing the trends.

For the entire Pacific Rim, operating profit declined 15 percent as we invested in marketing programs specifically in those later markets that I discussed.

Good news, we're seeing a payoff in this investment, our sales force has grown seven percent. And based on the trends in some of our primary markets in this region, we further expect it to see sequential improvement in the second half of this year. So as we go through the whole year, Asia Pacific is getting better and better.

Turning to BeautiControl. First in North America, we continued the momentum that we saw, that began in the fourth quarter of last year. And had another terrific quarter, up 22 percent in sales in the U.S. Operating profit, up almost two million. Net was a 21 percent increase.

The sales increase was really driven through both the leadership program that we introduced last year in the third quarter. Plus, I think some very significant merchandising programs that have increased productivity of the sales force. So it's not only growing in size, but productivity as well.

The profit comparison reflects the sales increase, along with the elimination of good will amortization in the current year under the new rule. Sales force continued to grow, as mentioned, 13 percent over the prior year.

Let me make just a couple of brief comments now on some of our strategic growth levers. And as you know, that's really talking about more channels of distribution, more products, more market.

I'll begin with more channels. In the second quarter in North America, we've doubled the number of retail access points, or total access points, to 340. That was compared with 150 last year. The increase is attributed to not only moving into more mall showcases, but expansion of super target stores, now up to 75, and there's more to come. Currently, we're also making progress with new marketing and merchandising programs to increase productivity. Looking ahead for the rest of the year, we're still on track to move this to 700 retail access points engaged for the fourth quarter of this year. And as we've stated in the past, our objective is, to get within three or four years, to 1,000, open 12 months a year.

We're also continuing to roll out the integrated direct access in Western Europe, which is similar characteristics and we're - our very strong Tupperware brand, Recognition, parallels the U.S. In the second quarter, we averaged 130 access points in Europe, and we plan to get to 300 by the fourth quarter of this year. A lot of progress, however, it's important to say that we're in Europe today where we were in the U.S. three years ago. And the good news is that mean a lot of opportunity for us to strengthen our business.

Our retail access points in Asia Pacific continues to grow throughout the region as well. Average number open in the second quarter doubled to 400, that's a significant increase from last year, it was only 200. And now in Asia Pacific, it's contributing two percent to our sales. A very important take away of all this with regard to integrated direct access, is yes it allows us to reach new consumers who have never had Tupperware, it allows us to reach stranded consumers, but also we know from research last year these sites are a major source of new recruits and half, in fact half of the new recruits we got in the U.S. last year came from these retail access points. So it's not either the party or these other channels, it's and.

Moving to the Internet. We had another strong quarter up 45 percent in the U.S. We've also here in the U.S. got an Internet presence on Amazon.com and Target.com and we're working at expanding the Internet shopping capability in Europe and as well we're doing some testing in Japan.

Regarding the T.V. Home Shopping Channel, we continue to build our brand there, and use it for recruit and selling. We're doing about three shows per month, so three one-hour Tupperware shows every single month moving forward with that same kind of approach in certain markets of Europe and in Asia. And what that does is it helps us build a brand, it's great for advertising, they've become a great partnership. And it also, on each one of these hour shows, we do recruiting as well.

Turning to new products, as we've said in the past, objective at Tupperware is 20 percent of our total sales coming from new products, and those are really defined as products introduced in the last two years. And we're on target, a little above it, there again. I'm not going to spend a lot of time on specific product successes, but let me comment on our strategic direction on product. Our first objective is to leverage the brand. And I've got to say, we currently manufacture 85 percent of our products.

Going forward, our objective is not to invest significantly in manufacturing, but to move more and more toward outsourcing and alliances. We believe being a brand are a big opportunities for Tupperware, not only in our current categories, but going into new categories as well. With our current categories we'll use new materials and new techniques to stay on the cutting edge. Additionally, with new categories, the strength of the brand and the power of the sales force to demonstrate new techniques, also gives us a great opportunity.

Let me give you an example, Samsung, a major manufacturer in Korea of white goods over there, particularly refrigerators, we've now developed a Tupperware kimchee keeper, and kimchee as you know a, is a fermented cabbage, and a staple for most Koreans. We developed a kimchee keeper, which is actually part of a Samsung refrigerator, and it, and it actually comes out. By the way, you know, it's in, it's in all of these new refrigerators, and our sales force participates in commission on all of these. There isn't a single channel that we sell Tupperware in that our distributors or managers don't in some way participate in sales and profits.

In Japan, we've done a little twist too, along with our partner there, Sharp Electronics, they have enabled us to introduce a Tupperware branded vacuum cleaner, which both cleans floors, but also filters the air, and there we're known as the brand that really brings freshness to your life. So we've introduced there in the last quarter a $750 vacuum cleaner and air freshener, and it has exceeded, as a matter of fact, we've had product shorts. In Europe, our success continues with Ovenworks, which is a unique polymer that has features that enable it to withstand temperature ranges from the freezer on one side, on low temperatures, to the highs of a conventional oven on the other side.

Also in Europe, we've introduced our own French press coffee maker. It's really a composite of some unique space-age ceramics and plastics, which holds the temperature of liquid longer than traditional methods, but it leverages again our very strong brand. Latin America, we're also moving there. We're more of a channel of distribution, as well as a brand there. There we're leveraging and moving more into consumable products in Latin America.

As we've said often in the past, the total market for Tupperware type category products is a little less than a billion dollars, but in personal care products it's nearly 18 billion, so you're going to see us more aggressively leverage our BeautiControl line as the first move there, but expect to get us into more personal care products in the future.

Regarding more sales force, more markets and more penetration, our third growth platform is also very important. Over the past 10 years we have expanded into an additional 20 markets, 20 countries. All of those markets, I'm pleased to report, are profitable.

Our sales force during that same period of time, has grown from just over 450,000 to now over 1.2 million. Our objective over the next four years, is to get it to two million. During the month of June, I personally went on a three-week trip to visit a number of our new emerging markets, Malaysia, Indonesia, India, Russia. Each of these markets has experienced dramatic growth.

And together with China, represents over half the world's population. And let me just tell you first hand what I saw. The dedication and the enthusiasm of our sales force there, the strength of our management team, we're supplying locally in almost all those markets. It's working well and the huge opportunity we have for sales and profit growth, as you know, we're very competitively positioned in those markets because they're very limited earnings opportunities, particularly for women.

And there's really a lack of a retail infrastructure. Today, those markets only represent four percent of our sales, but they're growing at a 40 percent growth rate. And we're experiencing, you know, very significant progress. It's going to be a bright future for us, based on what I saw there.

Let me turn it over to Pradeep and then I'll circle back and we'll handle Q&A.

Thank you Rick. I'm going to start by giving you a brief summary of our results and then get into the second quarter details.

As Rick discussed, we reported earnings for the second quarter in line with expectations, but are pulling back slightly on our full year guidance. However, in terms of reported GAP earnings per share, we expect to be 60 to 70 percent higher than a year ago.

We are pleased with our progress on the balance sheet and cash flow and expect this to continue through the remainder of this year. Let me turn to the second quarter details.

On our reported basis, we earned 54 cents per share versus 47 in the prior year. Excluding reengineering charges on the gains of sale of property, we earned 43 cents per share versus 50 last year. The seven-cent variance consisted of 10-cent lower earnings from operations offset by other cost saving initiatives.

Included in the operations line, was two cents for claim and insurance policy related to a minor equipment failure in our European business. During the second quarter, we incurred $19 million in reengineering costs, primarily related to the clustering of markets in our European segment and consolidation of the manufacturing and distribution facilities in Japan.

Clustering of the European markets will allow for a head count reduction of almost 140 people, by the end of this year. Which will result in future cost savings. In addition, it will facilitate best practices in streamlining the development of GAP logs, promotions, and other marketing and product programs.

We closed on the sale of the former Spain plant facility. The Tupperware invention center, and a parcel of land that, as Rick mentioned, we are developing around our headquarter site here in Orlando, resulting in $27 million on gains of sale of property.

These transactions, they're the gain on sale of property with the reengineering charges, result in a pretax net gain of $9.2 million for the quarter.

To date our engineering costs now are $72 million. This will be partially offset by the expected profits on the future sales of one of the Japan facilities, which I just told you we consolidated, which will bring the re-engineering costs within the planned $65 million range. With this phase of the re-engineering program this is over, however, we will continue to evaluate cost savings opportunities always as we go forward.

As discussed in the first quarter, we closed on the first parcel of the land and the development that we have for sale around our headquarters here in Orlando. This parcel consisted of 26 acres and the sale price was $6.8 million, resulting in a gain of approximately $5 million. Of this $5 million gain, only $700,000 was recorded in the second quarter and we expect to record the remainder in the second half of the year. As a reminder, we are now developing about 470 acres of commercial land and we expect proceeds of 80 to $90 million from this over the next three to five years.

Moving to the balance sheet. I'm pleased to report the progress on working capital, cash flow, and debt during the quarter. Let me start by talking about receivables. The year-over-year improvement is from a $14 million use of cash last year to $8 million in flow, resulting in a $22 million improvement in receivables management.

With regard to inventory, the inventory levels in Europe continue to be a challenge and clearly we have some work to do over there. However, let me assure you that this is getting the appropriate attention. We are encouraged, however, with the progress of reducing the balance in the other regions of the world and overall we've seen our day sales on hand actually decrease from 165 to 146 during this quarter.

Looking ahead at future projections, we normally have a seasonal build-up in the third quarter, but are targeting to have working capital even with prior year by the end of this year, resulting in no net use of cash and working capital. During the quarter, we realized 38 billion in proceeds from sale of the properties that I mentioned, and this together with cash from operations resulted in a 17 percent reduction in debt to $358 million, down from 417 million at the end of the first quarter.

Our debt to total capital ratio also improved to slightly below 70 percent, which was a big improvement over the 76 percent at the end of first quarter. And by the way, this is the first time we have had any debt reduction in the second quarter in about three years. Due to seasonality, we expect to see some increase in debt in the third quarter, but, as you probably know, the fourth quarter generates our strongest cash flow and we expect to see more debt reduction by the end of this year.

Our debt to door to capital ratio remains at 50 to 55 percent and we expect to reach this goal by the end of 2003. A key way to assess our debt level and capacity is our pre-tax interest coverage, which stands at a solid seven times. And this places us in the upper total S&P 500 companies with similar credit rating.

Now let me turn to our outlook. Our target for the year is a low single digit percent increase in sales and a two to four percent increase in earnings per share. This outlook is before any sale of property or re-engineering charges. The slight reduction in our folio forecast from our previous guidance is primarily a result of weakness in our European markets, particularly in Germany. However, as I said before on a GAAP basis, we expect earnings per diluted share to increase 60 to 70 percent over the $1.04 we recorded last year.

As you aware, our hedging program causes the 2002 impact from foreign exchange to be minimal, however, net changes as a result of currency fluctuations will fall to the bottom line next year. Looking forward, we are seeing improving operating turns, and we have confidence in the second half outlook. We believe our North American BeautiControl segments will continue with their positive current momentum. Europe will likely continue to encounter challenges, which we expect to result in sales flat to slightly down, and profits down low double-digits for the year.

Latin America, particularly Mexico, is showing signs of improvement, and we expect to see better results in the second half. Asia-Pacific's sequential improvement that Rick mentioned gives us confidence that this segment will continue to improve as we move through the remainder of this year. In summary, let me leave you with four key messages. One, our second quarter earnings were in line with expectations. Two, we are lowering our full year guidance a little bit, but on a reported basis, earnings are expected to be 60 to 70 percent over last year, and we have seen balance sheet improvement in the second quarter, and expect to see more by the end of this year.

Let me now turn the call over to questions. Thank you very much.

Thanks Pradeep. We will open the call to questions.

Thank you, Mr. Goings. Today's question and answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star key, followed by the digit one on your touchtone telephone. We'll proceed in the order that you signal, and we'll take as many questions as time permits. Once again, that is star one to ask a question. We'll pause just a moment to assemble our roster.

And we'll take our first question from , Midwest Research.

Good morning. Couple things, first of all, can you give us a sense for the momentum in Germany? Did it actually get worse in the second quarter, did it get better, is it the outlook for the second half that it's not going to get as better as you'd expected it to? Just put that a little bit in perspective for us if you would please?

Yes. Good morning . As we got through the second quarter, actually more of the weakness was in the early part of the second quarter, and had a, had a good June there. So we've got an advantage now in the size of the sales force. We did some shifting with regard to some of the leadership there, and so, you know, I'm looking forward to some improvement going forward in Germany.

, the key issue there is you've got 11 percent unemployment overall, but in the former DDR, East Germany, it's about 18 percent, so there's been a lot of pressure on disposable income. The other very good news coming forward is the euro has gone to parity with the U.S. dollars. We think that's going to have a very positive impact on our business, so that we won't have to continue to invest promotionally at the levels we are, have been forced to over the last three quarters.

Was it, was it worse or better in the second quarter versus the first quarter?

Better.

OK. OK. Secondly, two questions for Pradeep. Receivables continue to be up year over year. Can you give us a sense for why that is? With the change in the distributor model I would expect receivables to decline, because it turns into more of a cash business. When are we going to see receivables down on a year over year basis? Give us some color on that please.

Yes. Sure, . First of all, the new business model is only a U.S. thing, so the receivables decline in U.S. is continuing as we role out this. Remember, as we convert to a new distributor to this model, the reduction doesn't happen right away. It takes about 12 to 18 months for that to happen.

So it is happening. Our big challenge, as we reported in the first quarter, was in our European business and we've made great progress. I mean, just to give you a sense, if you compare in our reselling basis at the end of the first quarter, we were like $22 million higher than last year. At the end of the second quarter we were only two or three million dollars higher than last year.

So I think we have made a lot of progress on receivables and we do expect to continue this through the remainder of this year.

And then lastly, Pradeep, can you just give us a little bit better understanding on the hedge you recorded as an item in the income statement. Does it cost you money? Just help us understand the financial impact of the hedge. I understand that it pushes the currency gain out 12 months.

Right.

Help us understand the current quarter PNL impact of it.

Right. The balancing impact actually does not affect the segments, however, in total it offsets the impact of currencies on profits. Now as you mentioned, it does bring that impact back next year.

OK. Great. Very good. Thank you.

Thank you.

We'll go next to , Salomon Smith Barney.

Good morning. I have a question on Europe. I was pleased to see the pick up in the average active rep growth in the quarter, but I was still disappointed about the four percent decline in local sales.

So can you talk about what is negatively impacting your representative productivity? Is it still the consumer spending that we're seeing in Europe? And if so, why not continue to spend the same level of promotion activity that you saw in the first half, to again, encourage reps to go out and sell in the second half of the year?

, you're firstly - you're spot on, and that's what the issue has been. We've been able to recruit to people, but it costs a little bit more to get them active. And you've got to put some incentives against it. What they generally feel is a reluctance to go call on individuals, and to make it easier to invite people to a party or the other various ways, we through incentives at it. So they're more motivated to make the call and say, hey, come to this party here's what you'll get.

We're just - believe that as you see the Euro strengthen there, you don't have to put so much against it. Another issue we've had there is one of the great incentives we use from the sales force standpoint, are travel incentives. And with all of the issues going on in the world with regard to terrorism, there has been reluctance on the part of some Europeans to travel like they once did.

So we've had to find some other, more creative, ways to incent them.

Could you talk about more of the creativity that you're using to help drive rep growth?

Yes. You know, you go through standard, kind of, promotional programs that there, you know, when we now talk about to a consumer - we're now talking about buy this one, get this one free. We're talking about some offers that, if you come to a party, there's a special gift offer. And one of the most important ways, though, is when we - initially this is what we've learned in our U.S. business, moving to integrated direct access allowed us the opportunity to get to new consumers, and to get to some new recruits. We've really accelerated integrated direct access over there and that's going to get us to some different consumers segments so that our sales force isn't going selling to the same people.

OK. So do you expect in the second half of the year to still see the average active rep continuing to be up where you're going to see positive growth?

Yes, we do. But, part of the reason that we shaved a little bit off the estimate is we've made a decision there if we need to compete, keep this promotional investment level in Europe, particularly in Germany, it's worth it. Because once recovery starts to come there, if we're positioned with a very large sales force size advantage, you can make it back really quickly. And we've not only haven't lost share, but we gained share.

OK. And can you just remind us why inventory levels in Europe still pose a challenge to your business? Is it still the timing of your promotion activity that's going on?

, typically our plants product inventory in anticipation of sales and so, again, most of the challenge we're having is in our European business. In the first quarter there was sales came in lower than expectations and so it is taking us a little bit of time to recover. But even in Europe we expect to see the levels back in line with last year by the end of this year.

OK. And lastly, I think you mentioned in your comments about some management changes in Korea and the Philippines. Can you just talk further about why you made these changes, why these two markets, and how about our management team in Japan?

Well, first the management changed in Japan very strong management team. The area present of Asia Pacific was the was the former president of Japan and his head of sales and sales and marketing, is now the head of Japan. So there's a very close working relationship there. So we're pleased there.

What we decided to do, though with Korea and with the Philippines, is send in a couple of more seasoned managers there to really leverage the growth in that business. We have a very dynamic sales force there. So these were not try-outs there. We put in some proven sales management people to run those markets there.

We also had been working toward succession in our German business and put in an individual who was the head of our Eastern European portfolio and growing significantly. , he is now heading up our German business, has been very well received and we think has got all the skills to take Germany up to the next level.

OK. Great. Thank you.

Thank you, .

We'll go next to , Bear Stearns.

Hi guys. A couple of questions, and I may have missed this, you may covered it I had to jump off for a second. But, the IAD contribution in North America was six percent. That's down from eight percent in the first quarter. Is that due to seasonality or some promotions?

You mean Integrated Direct Access?

Yes.

Yes. I think it's more seasonality there. I mean, it, you know, June is not a particularly strong month for us in retailing and that kind of environment there. But I will tell you, , what's also happening is we're going, as we've expanded the number of particularly mall sites, we've, you get away from the "A" malls and get more to the "B" and the "B" minus malls. Their costs are lower there but also their sales are lower there. So it impacts some on productivity. But more importantly, to compare it to last year, it was only four percent IDA in the second quarter of last year and six percent. So we're looking at that as progress.

OK. OK. One other question, and again, I may have missed this. Your European active reps went from, it looks like 60,600 in the first quarter to 58,000 this quarter. And again, is that a seasonal thing, or could you just kind of walk me through why they dropped?

Part of it's seasonal, but part of it really, part of it really is the issue of the macroeconomics there, and mostly in our German business of the difficulty in keeping the sales force active when there's financial pressures out there as far as compression of consumer spending. You know, at the same time, what you get in the first part of the year is in January, we call it big weeks, it's totally artificial with regard to it's a push orientation, it's our desire to get the sales force active after Christmas. We generally get almost 100 percent activity levels there, and so it can distort it. There's nothing like that really in the second quarter.

I got you. All right. A couple last questions here. Debt levels, now obviously you've made great progress, thankfully, to bring your debt levels under 70 percent. Do you have a target by year-end, and also a target for DSOs?

we are targeting to be under 50 to 55 percent by the end of next year, and right now we are at little over 70 percent. So I think it'll be like a steady progression towards that.

OK. What about DSOs?

In terms of receivables?

Correct.

Again, we expect to be flat by the end of this year with receivables, and continue that trend.

OK. Thanks a lot.

, I might add on this, one of the things that has really been, I think, an opportunity that we've only now been able to talk about. When we spun the company from Premark, all this land that was around Tupperware had been on Premark's books, it was previously Tupperware's when the company was acquired, and we basically said as part of the relationship to spin it off, we had to have that. We had a very strong feeling of what the land was worth, but we really couldn't talk about it, and couldn't talk about it with you until we started to really, not only have contracts, but closed on some.

That land now, it's been confirmed as, you know, worth eight to ten percent of the entire market value of the company, and we're going to utilize that to get debt down, and as we've shown in the past, we have a very strong bias to repurchasing shares. We believe we can grow the company organically and don't need any other acquisitions. So that's going to also be helpful to us.

Great. Just one last question. India, I guess sell side firm raised issues with India recently. Could you just address that?

Sure. And you know, I just was in not only the old Madras, Chennai, and Delhi in the last three weeks. First, let me put this into context. India's less than one percent of our sales, however, having said that, our growth is substantial. Where I told you the growth rates in those markets are almost 40 percent, and we're profitable on those markets. What was received was a complaint, by the way, it confirmed that we're having an impact on a market, a lower level government official sent a complaint letter, which they believe was really the source of it, was generated by a competitor, who sees the growth of our business.

As a matter of fact, there just were some meetings with more senior government officials over the last two weeks, that basically said that first, that the choices in that letter were not the right choices, the intention of the letter was just to seek clarification on our activities, and after they reviewed a senior minister, the catalog, he made the assumption that he believed this had been instigated by competitors.

What you've had is a small-scale protected industry there. By the way, I got to say, even if it were a big issue, I mean, industry, I mean, India is a in size to us. But it's going to be a big business in the future. I'm pleased with what's going on there. And we're conforming to all government regulations.

It sounds like this may be something that other businesses experience as they enter the India market. It that right?

Yes. You know what, it's very much like in the former for me, living and working in Germany in the former life. You basically had protected industries there and all of the sudden when the wall comes down, these industries are exposed to higher standards, more efficiencies. And what they really try to do is keep out others.

And as we've seen, that's why it's cost 1.5 trillion in Germany - what they've found out is most of these competitors couldn't make it. So the Indian government likes what we're doing, because we're really raising the standards.

We're producing there, and we may even, in fact, use India as a manufacturing hub to supply that whole region of the world. So they're thrilled with what's happening with Tupperware there. And I'm telling you, every meeting I was at, there were a couple thousand people there. This is really, particularly for women, this is changing their lives.

They're starting to start their own business, and they're tasting great success.

Terrific.

Great. Thanks guys.

Thanks .

We'll go next to , Raymond James.

Good morning Rick.

Good morning .

Congratulations on the balance sheet progress. I like seeing that. I do have a couple of questions. Regarding the Asia, one of the eye popping things was the distributor gain in Asia of about 117 million distributors, if I read it right, from the first quarter.

And a couple hundred over the year over year. Can you kind of give us a flavor of where those distributors are and what the future implication of that is?

Yes. We're expanding distributors in a number of markets there. First from India, you know, we've got - goodness, Pradeep, what have we - Pradeep was responsible for opening India. We've got what, 70 something distributors in India now?

Yes. I think what the numbers account for, sales force count but yes ...

I'm talking about distributors, Pradeep.

Distributors, Pradeep.

Talking about 100,000.

Seven hundred and forty eight, versus 631 at the end of the first quarter.

OK. Yes. A lot of that is coming from our emerging markets, I mean, India, Indonesia, China. These are big contributors to the distributor increase, but we are expanding in the other markets as well.

Yes. And let me add to the texture of that. I think we've got 75 distributors in India and, you know, over a billion people there. You know, we were doing logs during our trip there. The belief there is we need somewhere under 750 number of distributors there. And the more they've come up with - they've launched there and I saw it when I was in Moscow too.

A Tupperware University, where they fast track - almost like the difference between somebody going to one of the military academies and going through a reserve office training program, they've come up with 13 week programs to train managers and convert those people into distributors. And so I was thrilled to see the progress and the graduation levels.

But additionally to that, we're adding distributors in some of our markets where we've been, like Japan. Where we had a lot of older distributors, they're breaking off new distributors in those markets as well. So it really has been a focus for us and nice to see that it's getting traction.

Yes. I remember when you opened up India, I think you did it with 30 or 35 original distributors in that, was it the Bombay course that you had?

You know we expanded from zero to about 15 to 20 in about a year and then we kept growing from there. So, yes, it was pretty dramatic.

So when I look at that 117 this quarter and the 200 year-over-year, can you kind of tell us, you know, can you tell, by order of magnitude where the importance was? Was it mostly India, was it mostly Japan or?

No, I think most of that came from Indonesia, India and a few in China. And there was a few BeautiControl distributors in the Philippines. So it's kind of a mix of those, but then there is, you know, some in every single market.

OK.

You know, something I do want to add, too, and some people would discount this as the soft side of our business, and it's not a spreadsheet issue. But one of the things I greatly saw over there. All the issues with regard to nine, eleven, it greatly impacted people all over the world and there is kind of a common theme throughout our business, particularly those markets over there. You know, Indonesia is the largest Muslim population in the world that you really can't have peace unless you've got prosperity. So there's a passion for them to share the opportunity. And that is really helping us grow to distributors over there. So it is a - it's a good time for the business over there.

OK. Also, to any - is there any way you can help us quantify what the cost of the, or the promotional impact on margins was in Europe and in Asia and give us any feel of what those additional or delta expenses might have been?

I guess the best way to look at it is been down to sequential improvement because I think what we are doing over is, I mean our sales have been kind of flatish in both of those regions so they've improved a little bit. But profits have improved more than that and I think that's a reflection of reduced spending levels there.

OK. I certainly saw that in Latin America. I wasn't sure, saw it OK in the others. And the last question I've got. Just help me, I know asked a question on the currency issue. When you look at the segment data, it looks like we've got at least, on a restated for last year, about a $2.3 million currency improvement this quarter. And we had a $1.1 million cost to hedge. So, would you net out the two to get the actual impact of currency in the quarter?

Yes. But, you know, I think most of the impact of currency is being offset by the hedging program because we have four major currencies impacted. One is, of course, the Euro, the Japanese Yes, the Mexican Peso and the Korean . So, while the peso is going the other way the Euro is strengthening. So, you know, the net impact of it is, as we've talked before, we wanted to remove the currencies out of the whole mix and get more predictability in our earnings, which is why we are doing it. So we continue to believe this is the right thing to do and of course the economic impact could always drop to the bottom line next year.

Yes, but am I wrong to read it that way? That there was like a two cent impact, a one point six cent impact, a ...

That's about right, .

I'm right? I am right on that.

You are right.

OK, and lastly, on the insurance. Would you repeat what you said about the insurance settlement? I missed that or didn't quite ...

We had actually equipment failure in Europe and we had two settlements, one in the first quarter, which was about a cent, and then we had a two cent impact this quarter. And this is the - we've closed that issue now.

So that was in the operating number for this quarter?

Correct.

OK. Thank, you .

But , what I might add though, is in one case it was a fire, and it impacted product that we were supposed to sell, it really was the operating, it impacted us. And it was their way of settling on that, so impact sales as well.

Which quarter did it impact sales? Was it, when did the, when did the ...

Both.

... when did the incident occur?

Both. It's, you know, when you talk about a product that the sales force is out there showing consumers, and you can't deliver it because of a fire, you know, it impacts it.

I understand that, I just was wondering when?

It happened in February .

Yes.

It happened in February. So it was a first quarter issue. OK. In terms of the impact there. I understand.

No, but the impact continued in the second because it destroyed some stock that we sell over a period of time.

I understand. OK. Thank you very much.

Yes. I might add too, on the hedging, we have, obviously we've talked to many of you analysts, and we try to listen, and what we have really tried to respond to is that people have said hey, we want, we would like to see you do something hedge-wise, so that a bet on Tupperware isn't a bet on what's going with currency. You're really just betting on the company. And this is an effort really to smooth that out. And we have the opportunity to rethink this every single year.

Understood. Thank you.

We'll go next to , Neuberger Berman.

Hi, good morning. Wanted to ask you if we can talk for another minute about the hedging, and whether this, I mean, it sounds like it's something that you want to continue on now for a while, or you continue to reevaluate that as, with the weakness in the dollar. Can you talk a little bit more about that, and if you're, you know, if you still feel that on a longer-term basis, that this is, you know, this is what you, this is the right way to go?

Yes, we do believe on a long-term basis this is the right way to go, because it improves predictability of our earnings in U.S. dollar terms. So who knows what's going to happen to currencies, and this just takes it out of the mix. And it doesn't take away the economic impact over a period of time, so we really, we continue to evaluate it of course, but we do believe it's the right thing to do at this point.

OK. Thank you.

We'll go next to , Standard and Poor's.

Yes, good morning gentlemen. Rick, in your opening remarks I believe you stated that you see a reduction in promotional spending in the third and fourth quarter, and I was wondering what factors will allow you to do that?

Yes, one of the key, the major areas where we had to invest promotionally were in Europe, to some degree in Mexico, and in a couple of our Asian markets. We think the opportunity is mostly there in Mexico and in Europe. In Europe driven by the euro getting back to parity with the U.S. dollar, and that's going to, you know, so many of the things that Europeans have been buying have been, have been dollarized, and as the euro gets to parity with the U.S. it's going to free up there. And then we won't have to incent them so much for customer's to come to parties, and for sales force to go out.

We're seeing some strengthening as we went through the quarter in Mexico as well, and that was very positive. We had, the real pressure there was that whole border area where the Maquiladoras are, but as we went through the second quarter, Mexico got stronger, recruiting improved. Additionally, as we've been more aggressive with our integrated direct access, that has helped us get to new consumer pools, and as you get to new consumer pools, you don't have to have the same promotional levels.

So I think we've taken the right approach with regard to our estimates for Europe, but we're hopeful that we can pull back some on this promotional spending.

Our objective for Europe is an ROS, you know, in the 20 percent and north ROS. Latin America is high teens.

OK. Thank you.

We'll go next to , GMC Capital.

Yes. Just give us the cap acts for the next couple of years, to the extent possible, '02 and '03.

Yes. We are around the 45 to $50 million range and we expect to stay there.

Thank you.

Yes. Alan and I would say also, in line with my comments earlier, leveraging the brand Tupperware, expect us to go much more the approach that Nike has, where you will see Tupperware products but they won't necessarily be made in a Tupperware facility.

About 85 percent of our product now, we produce. The objective is to get that down in five years to 50 percent. And one of the things that impacts is a reduction in your cap acts, but we're doing it more importantly for that. We think it allows us many more opportunities for revenue generation, to get into new categories without fixed investment.

And a good example of that is us getting into high quality cutlery this last year. Got a factory in China that's, you know, 700 people working there, but none of them are ours. And it's been a very well received new product category.

Thank you.

Thank you .

It appears there are no further questions at this time. I'll turn the conference back over to you for any additional or closing remarks.

Thank you. At any rate, let me just say that we knew going into 2002, after the events of September, it was going to be a bit of a challenging year. First half was especially difficult. We are pleased, though, with the continuing strength of our business model, particularly our U.S. model that we're exporting to Europe.

And with this beauty control acquisition, it's going to allow us very substantial opportunity to shift our Latin America and certain Asian businesses to a consumer products business of consumables. We're encouraged by that.

We believe the templates are right for future growth in both parts of the world, and we're going to stay to course. We're also very pleased with what's happening on the balance sheet side of the business. We thank all of you for your interest and for joining us.

That does conclude today's Tupperware second quarter 2002 earnings results conference call. We thank you for your participation. You may disconnect at this time.