Tupperware Brands Corp (TUP) 2002 Q3 法說會逐字稿

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

Yes, good morning everyone. This morning I'm joined by Pradeep Mathur, our senior V.P. and Chief Financial Officer, and Jane Garrard, our head of investor relations. We'll be discussing the future outlook of the business in my remarks this morning and so I refer you to the company's position on forward-looking statements as it appears in yesterday's press release. Last night in conjunction with our third quarter earnings release we also announced a substantial expansion of a relationship with Target to all 1100 Target stores, and that's an expansion, from the 82 Super Target stores we were in. This expanded relationship provides us and our sales force expanded access and the opportunity to sell our products, but also significant new ways to leverage our brand with Target through not only joint advertising opportunities but also integration with Target's bridal and baby registries so net/net it translates to millions of Target guests who will now become Tupperware customers. As mentioned also in the release we continue to partner with our sales force in this Target expansion. They earn income from this retail venue as with all access channels and in return they are available in the Target stores, especially on weekend or high traffic times to offer assistance in demonstrating our product and educating individuals about Tupperware, Tupperware parties and the opportunity to sell Tupperware. This partnership with our sales force and all retail access points, it continues to enhance our core party plan business and last year as we've mentioned, over half of our new recruits in the U.S. came from leads that were generated from these new access points. I will expand further on our progress with the access channels in other parts of the world and in the U.S. in a moment but let me turn to third quarter results. As you saw in our release we were up slightly in local currency and sales in the third quarter compared with 2001. Now, this does include, though, the positive impact on gains of land development that we've been working aggressively on since 1996. Earnings were 14 cents per share compared to a loss of 21 cents last year which included last year reengineering costs. Earnings before the gains on land development and reengineering were 9 cents compared with 12 last year. Our overall third quarter results were in the core business softer than expected really driven by two factors, first the impact on the sales or transitioning a very significant number of U.S. distributors, actually 70 or 20% of them to the new business model. This caused a distraction that really was -- was greater than we had anticipated. In addition, in the U.S. late in the quarter it was determined that BeautiControl's North America segment which has been growing and continues to grow had a much larger number of qualifiers for their leadership development program than anticipated and that impacted costs. It resulted in higher promotional costs, both of these issues had a short term impact but the good news is they really are good for the business, for the future. Taking a step back and looking at our business around the world, let me briefly summarize where we think we're making progress and where we continue to face challenges. On the plus side, I guess the most important thing for us is in the second quarter after a number of quarters of sales and profits decreases in Europe we have for the first time had a sales increase there and this was led by Germany. But there were many more markets up there as well. This increase is supported by not only the growth of the total sales force in Europe, Africa and the Middle East but also the growth of the active sales force. And it really does bode well with regard to our confidence in how that operating unit will deliver in the fourth quarter. Also in North America and increasingly in Europe, the access strategies are continuing to be rolled out. I'll get back to that later. And throughout the year, turning to the Pacific Rim, we've seen sequential improvement in both sales and profits, particularly in our, most important market there, Japan. Also in other areas of Asia Pacific we are seeing strengthening trends. BeautiControl, I mentioned earlier, it's growing, it's - it posted another double digit sales increase and its profits are increasing as well. So we're seeing progress in all these front that our business is on track, the strategies are working. The challenges really are mostly isolated to three markets, Mexico, Korea and the Philippines. The trends in these markets have impacted sales and profits and we're focused on making necessary changes to get all three of these back on track and I'll drill deeper on what we're doing there as I address each geographic segment. We also felt a lot of progress on the balance sheet and we're on target with our debt to total cap ratio and working capital gross, Pradeep will cover more information on that in just a minute. In addition we are making great progress on our land development initiative and expect positive earnings in cash flow from these efforts over the next three to five years, and, let me differentiate. This isn't an asset disposal. This is, you know, last fourth quarter we sold off our -- the second quarter we sold our Spanish facility and that was recorded against reengineering. This is proactive development of land that we really fought to get during the spin-off and we've gotten the zoning, we've broken into parcels and we expect to get a benefit of nearly 90 million over the next three to five years. I'll discuss a little bit more of this in detail. Let me go down to the performance by segment and then update you on the strategic growth [levers] before I turn it over to Pradeep. For Europe, Africa Middle East as mentioned sales were up 5% in local currency. This is a lot of progress and we're particularly pleased with the positive trends of our largest global market, Germany. The improvement really validates the promotional investment that we've been making the first half of the year to keep sales force momentum and as the Euro gets to much more parity with the dollar we think this is going to be helpful as well. And it's going to loosen up consumer spending. The sales force also has increased in size to 6% year over year and we've got an active average sales force growth there as well. The sales increase there didn't translate into comp on profits because of the higher cost of goods sold and this really is driven by lower plant capacity utilization related to our efforts to get our inventories down. Operating expenses were also up a bit as a result of unusually high warranty costs, particularly in Germany. By the way this warranty cost is basically an effort to get Germany on a better warranty standard program. We find significant disparity from one distributor to another in warranty costs, basically they can send back anything they don't sell. That doesn't have to do with product quality. And we brought them up to the standard that we use in the U.S. and we gave them an amnesty period in the third quarter and we received more back than we had estimated. Also, we had some duplicate administration cost in Europe during the third quarter due to the transition to a shared service center, and data center but that also is something that is going to have a positive effect for the future. So the net of all this is profit was off 4.9 million in local currency from the third quarter last year, however, these expense items have been addressed. We are gaining momentum in Europe and have this significant sales force advantage. So we're fairly optimistic about the fourth quarter and pleased even with what we've seen thus far in October there. Let me turn to North America. There our sales increase 2%, profits were flat compared to third quarter prior year and after excluding the 6% benefit of a new business model sales actually were down versus prior year 4%. It's important to note that profits, though, in the U.S. were up and they've been up now for 12 consecutive quarters. But let me really give you more information there because we still have very good momentum in the U.S. business. In the U.S. we continue firstly to move our distributors to what we call this new distributor model and through this model orders will be processed directly from the sales force. As a matter of fact 50% of all dealers now register their orders on line. This takes away the administrative task from the distributor and frees her really up to spend her time on the high value added areas of recruiting training and motivating. In addition, it results in needed cash to Tupperware for orders so over time it reduces receivables. Well, during the third quarter 70 distributors came on to this model and we're on track by the way to reach our goal of 100% on the new model by the end of 2003. This new model really resulted, though, this transition in the reduction, though, of fixed expenses and the break-even point so we really do as we tracked distributors of the new model against the old model, they are growing faster. At any rate, this shift of so many during the quarter caused a distraction and it did negatively impact sales. In addition, something else we did in the third quarter, we converted all remaining stocking distributors and this includes our largest ones from stocking to nonstocking and what that meant is we bought back all their inventory and it also impacted their ordering patterns late in September because they usually beef up orders for record breaker weeks in September. And they didn't have to do that because we keep the inventory. So that impacted sales as well. Nevertheless, we planned this unusually high level of conversions in the third quarter because it's our smallest quarter of the year and if you're going to have disruption have it when business isn't as brisk. So net/net we're confident that the U.S. business is still on track as evidenced by the increase in the sales force of 7% and the growth of the average active. Additionally I might add we're toward the end of October, it is the biggest sales month of the year for the U.S. business, and for what we've seen in the three weeks already under our belts it's showing strong sales increases which confirms its momentum from moving forward and bodes well for their fourth quarter results in the U.S. Sales in the quarter for the integrated direct access channels increased also in the U.S. 100%. This is due primarily to the expansion of our relationship with Target. This'll, you know, mean more year-round access point. I.D.A., by the way, contributed 14% of North American sales, up from 7% in 2001, although we did see productivity slippage in the third quarter. We'll talk more about that later. Turning to Latin America, sales in the quarter were flat excluding the impact of the importer distributor model and we're down 6% including that impact. The importer model really impacts revenue comparability but we get the benefit of lower operating costs so profits were down only a million and a half, excluding prior year reengineering costs. And some of this was due to the discounting to stimulate consumer spending in Mexico and continuing the challenges that we're having in some of the southern cone, particularly Brazil Argentina and Chile. By the way we also mentioned in the third quarter for Latin Americas that we expanded [Dequith's] responsibilities for BeautiControl North America to now also include Tupperware Latin America. Now this is consistent with -- as we previously mentioned to you our goal of really expanding BeautiControl in Latin America and converting Tupperware more in those parts of the world into a consumable business. As I turn to Asia Pacific on the plus side Japan, our largest market, showed sequential improvement in both sales and profits throughout the year. In addition, Australia, Malaysia, Singapore, they all continued to have good sales and profit trends. Along with some of our emerging markets, India, China, Indonesia, all were very brisk in their growth. However, these increases in all of those markets were offset by steep declines in two of our large markets, Korea and the Philippines. And that resulted in a decrease in local currency sales for the region of 4% with profits down 3%. Profits have improved, though, sequentially during 2002, in Asia Pacific. However, if I turn to Korea, we are feeling the challenges there resulting from a change required by the government in direct selling structures, and we made the changes in our compensation plan to combat these changes. However, it's been unsettling to the size of our total sales force and their productivity. We hope they - we get this thing settled out by the end of the first quarter of this next year. In the Philippines we've continued to have challenges with not only our sales force size but their activity and productivity as well, and we believe we've got the right people on the job to get this business back on track. From a management standpoint there, we have put our most experienced Pacific Rim manager over both Japan and Korea, and there is a managing director, too, in each of those markets, and we've assigned our strongest leadership individual oversight role in the Philippines. So we hope to get that turned around quickly. As I turn to BeautiControl in North America, we had an 11% sales force size growth, and a 21% increase in the average active sales force. And that resulted in a significant increase, 21%, also, in the sales in the quarter, and operating profits up as well. So this has been a wonderful acquisition and we've gotten this business turned around now and it's been less than well, I think we're coming on our second anniversary. During the quarter, by the way, we recorded a $2.3 million one-time benefit from a favorable resolution of a contingency that we conservatively put in during the acquisition. That resulted in total profit up of $3.1 million. By the way with regard to BeautiControl the sales force and the sales increase generated through the leadership promotional program last year really is what's driving that business and we've seen increased product productivity as well. The profit comparison also reflected an improved cost structure at BeautiControl along with the elimination of good will amortization in the current year under the new [FASDE] rule. Let me make just a couple brief comments on the strategic growth levers of more channels of more product categories and more sales force and markets. I already covered our national Target expansion so let me talk about our progress in other access locations. At the end of the third quarter in the U.S. we had 363 access points compared with 272 last year, an increase of 34%. We had progress, by the way, in the first and second quarter with regard to not only expansion of sites but we did pretty well with regard to our productivity. However, there was a noticeable drop in productivity in the third quarter in our U.S. access sites which is fairly consistent with what we've seen with other retailers, early signs in the fourth quarter appear to be strengthening, though. We anticipate finishing the fourth quarter for -- with over 1,600 sites in the U.S., including the holiday season locations and the new Target stores. We're also rolling out much more aggressively integrated direct access in Western Europe which has similar characteristics and where our strong Tupperware brand recognition really parallels what we see in the U.S. As in the U.S. we are partnering in all venues with our sales force where they earn money from all locations. By the way, with regard to retail partners just like Target we're currently experimenting with a couple partners [First Galleries] Lafayette, France, we're in 21 locations there and it looks very good, and we're also testing in some [Conifor] stores starting in Italy, by the way, Target is a $40 billion plus business, [Conifor] is nearly 70 billion and includes locations throughout Europe and in Latin America. So it's early days for these partners but the potential is significant. In the third quarter in Europe we averaged 100 access points and we are on target for 300 access points in the fourth quarter. So we're really beginning to see the impact of more access points in Europe. We're a couple of years behind in the U.S. but so far so good. And our real goal is to bring it to scale over the next several years. A comment about products, mostly from a strategic standpoint. Our product growth strategy continues to be new products and new product categories and as mentioned before, for North America and Europe we intend to stay close to our core product lines of storage, serving and preparation because we are more of a brand in these markets. While for Latin America and Asia Pacific, we are more of a channel of distribution so we'll be more aggressive in our expansion into other categories, particularly consumables. Moving into 2003 we have made a significant focus on innovation. First I remind you, we had $800 million worth of fully amortized molds at our disposal, and currently we are leveraging these molds to create classic updates of our historical product offerings because now we can use new colors, new materials, etchings, stenciling to appeal to consumers, so, two things happened, we can get many more products out there fast but we don't have to keep the same high level of mold spending. Secondly we are going to be increasing our third party sourcing the products much like the Nike model. To find the best products, we're going to private label them with Tupperware and bring them to market in our direct selling channel. Now, we've already had some experience with this but it's going to get more aggressive. For example, Forge knives that we created in the Far East, have worked very well. And in addition, a recent introduction of a Tupperware branded vacuum cleaner using a revolutionary new system which is really manufactured by Sharp in Japan has been our number one seller this year in Japan. So to strengthen this area we have brought aboard some recently experienced people with not only third party sourcing capability but merchandising capability. Finally, with regard to product, we continue to move to consumables like beauty products and nutritional products where appropriate. The direct selling industry, particularly in some Latin American market is comprised mostly of consumables while the market for durables is limited, frankly it makes all the sense in the world for us to take advantage of this opportunity, particularly when we know that the bulk of our sales force over 400,000 in Latin America carried brochures of other direct sellers of their consumable products and we want to knock them off our shelf space. And finally more sellers selling more in more markets. This our third growth platform. As I've mentioned we made progress in Europe and North America where the sales force is up, and the average active is up as well. We saw a decline in Latin America but that's really due to the shift to the importer model and it's largely isolated to Brazil and Argentina. In Asia Pacific really the change in the size of the sales force there, the decline is mostly isolated to the Philippine market because the other markets you exclude Korea and the Philippines, sales force and all other markets is up 24% so, robust. Additionally we have major initiatives all over the world to refresh the sales force opportunity and expand the base. Also, during the last quarter I went, a swing through much of our emerging markets and I've got to report that in our six emerging markets, India, Indonesia, China, Russia, Turkey, Poland, over half the world's population, growth has been robust, they're growing in their importance to us and they really speak to the potential of the business there in the future. Before turning it over to Pradeep, let me make a comment about our ongoing land development which started in 1996. We discussed this for the first time with all of you in the spring that we anticipated receiving 80 to 90 million in proceeds from the, actually it started at 1200 acres but of [developable] it's really 500 acres, we have developed it. Let me state that this land is an important initiative and we're going to continue to develop and report on it over the next three to five years. Let me turn to Pradeep and then I'll come back and we'll answer questions. Pradeep?

Rick, thank you very much. I'm going to start with the balance sheet where I'm pleased to report good progress on working capital, cash flow and debt levels. First let me remind you that due to the seasonality in our business we normally experience increases in working capital in the third quarter. That said, let me tell you the progress we've made in each of these areas. In regard to receivables as you might recall at the end of the first quarter they were about [$40] million higher than the last year. And by the second quarter we had narrowed that gap down to about $10 million. However, by the end of the third quarter, receivables were only 1.4 million higher than the prior year, representing significant improvement as the year progressed. For the first time this year days outstanding have actually improved over last year. Now, moving to inventory. Our balances were about four, $5.4 million higher than the last year in the first quarter and actually rose in the second quarter to about 14 million higher comparatively. At the end of the third quarter inventory balances were only 4.5 million higher, showing progress. In addition, this is also the first time that days outstanding compared to last year has actually decreased during 2002. Overall, cash flow continues to improve, year-to-date cash flow from operations and investing activities represent $67 million improvement over the prior year, including gains on land development and interest rate swaps. Even excluding these items we experienced a net improvement in cash flow just from operations of $20 million. At the end of the quarter, debt was $375 million. As you know, our debt to total capital ratio historically rises during the third quarter due to the seasonality I just mentioned. Consequently it rose slightly from 70% at the end of the second quarter to 72% at the end of this one. However, it is important to note that at the end of the third quarter the debt to total capital ratio was at the lowest point in five years, including the time period before the BeautiControl acquisition which as you know was funded entirely through debt. In addition, we experienced a smallest year-to-date increase in debt in 2002 for the past five years. Historically the fourth quarter is our strongest cash flow generating quarter and this will allow more debt reduction by year end and keep us on track and we are confident to reach our debt to total capital ratio of the 50 to 55% that we've indicated by the end of 2003. Additionally, and probably more importantly, our pretax interest coverage has improved slightly from seven times to seven and a half times which places us in the upper third of S&P 500 companies with similar credit ratings. Now, let me turn to our outlook. As Rick mentioned our land development initiative continues to make progress and we have actually closed another transaction which will be recorded during the fourth quarter. Including these expected gains and reengineering costs we expect full year reported earnings per share to be up 66 to 67% from prior year. Excluding these items earnings per share is expected to be down eight to 9% below last year. We are taking our previous guidance down due to primarily two

Factors, First, we expect the challenges that Rick mentioned in our large markets of Mexico, Korea and the Philippines to continue in the near term. Secondly, as we discussed in the fourth quarter of 2001, our sales in Europe included a high number of distributor orders in December for promotions that we normally have in January. We've decided to change our promotional plan slightly this year, which will result in fewer distributor orders in December this year than last year. This is, of course, only a timing difference and the benefit will be realized in the fourth quarter of 2003. So our full year outlook is for 17 to 19 million of unallocated expenses which has dropped slightly 20 to $22 million of interest expense. Capital expenditures which has also dropped a bit from -- to about a 45 to 47 million range and a tax rate of 19.5%, excluding the gains on land development and reengineering. As you're 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. In December, we've planned to update the fourth quarter and will provide an outlook for 2003. Thanks very much for listening and now we are happy to take questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question please do so by pressing the star key followed by the digit one on your touch tone telephone. If you are on a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment. And once again, that is star one to ask a question. Today's first question comes from Katherine [Aime] with Solomon Smith Barney

Hi, good morning, I just have some questions on your Target program. First of all, when did you start shipping to Target and then, secondly, just trying to figure out how to model this Target program, how big do you think Target can contribute to your overall sales and what's going to be the impact on your margins?

First, good morning, Katherine. We're not going to break out Target until we get a little bit more experience there. We've had 72 Super Target stores. As we start to get more confident and we have the right scale there at Target, it's probably going to be a year before we start breaking it out. I will say with regard to ordering at Target, there were some shipments in September to Target but at the same -- of the new packaging and if you all will go into a new Target you will see a whole new Tupperware section with new signage, new packaging, but we also had to net against that, we took back the inventory that they had in the former packagings, but it's going well thus far.

So the 14% of sales from your I.D.A. initiatives, did that include your initial sell into Target?.

Yes, it did but it also included returns to Target as well.

Okay, and do you have enough capacity right now to service the Target program.

Yes, we've got 15 factories around the world and it's, interesting, we have a fairly exciting but basic product line there with multiple molds so we can, we can ramp up even more. Important, though, it isn't going to overwhelm our U.S. business there, if you look at the square footage that we have there, I do believe and continue to believe, Katherine, as we've discussed in the past that if I moved it out five years, probably 40% of our U.S. business will be from these other access channels but still 60% will be from core Tupperware parties.

Okay. And then lastly, regarding your promotion spending we're seeing you've increased your promotion spending for both Europe and Asia and we're seeing robust average active rep growth in Europe yet we're seeing a fall off in Asia. So can you help explain what's the major difference that you're seeing in your recruitment efforts between Europe and Asia?

The first thing I'll turn to the Pacific Rim, it's largely isolated to issues that we've had with our Philippine business there and, again, I think as I mentioned if you take out Philippines and Korea the issues we've been feeling there, one is more a macro economic issue in the Philippines plus some internal issues, and in Korea it's more an issue with regard to government and legislation there on direct selling. If you take those out, the recruiting was up 24%, so but I think we've isolated what our issues are there. In Europe, it's been, we felt a requirement as the Euro was low and it was a sluggish environment there with regard to consumers spending, the need to get our sales force more active and so we increased our promotional activity there over the year. It's our hope that that's going to mitigate as we go forward, so we are seeing some very positive signs there as well, particularly in our largest global market in Germany.

Okay. Great. Thanks.

Thank you, Katherine.

Next is Bud Bugatch with Raymond James.

Good morning. A couple of questions, Pradeep, first, on September 5th you reaffirmed your previous guidance which was a couple of weeks before the end of the quarter. What changed between then and the end of the quarter to cause the guidance to drop so dramatically?

Well, Bud, the September is our by far the biggest month in the quarter. Now, of course, the quarter itself is very small but September has a big impact on the results and two things changed since then, one was the impact of the U.S., the conversion of the distributor that we frankly underestimated, and the second, was the BeautiControl leadership program and the promotional costs as a result of that because we had many more qualifiers which is a good thing but it did cause the third quarter earnings to drop. And those are the two factors and we kind of came in about 2 cents below where we thought we would be.

I understand that but the fourth quarter looks like the implication also dropped and I thought those were one time items that were pretty much over. I mean I understand that there may be some more distributor conversions but the leadership issue was I thought done.

You are talking about the fourth quarter guidance?

Yes.

The fourth quarter guidance changed for different reasons not for these two factors. I think the disruption in our business we're seeing in the three large markets of Mexico, Philippines and Korea, we took a good hard look and said, well, that's what the impact is going to be. The second thing is the impact of the promotional shipment to distributors because of the orders in our fourth quarter of last year, which because of the shift of a few weeks in our promotional calendar in 2003 is not going to happen. So that has a pretty significant impact, also, on the fourth quarter.

That was pretty well known when you reported back on the 29th of January last year, we kind of suspected that might happen this year. But, okay, let me move on to one other thing. BeautiControl, you had a reversal of $2.3 million. That is included in the 9 cents, that gain is included in the 9 cent operating number.

It is.

Okay. And that's about 2 cents I would've - I've calculated if I use a U.S. tax rate, is that correct.

It's about three, actually.

Okay. Third, can you quantify any of the level of warranty in administrative costs in Europe?

Yeah, we don't really want to break that out but let me tell you it's a significant number and it's mostly in Germany. And it was what Rick was talking about, there was abuse of the program and the good news was that it was isolated to a few distributors. If it was across the board then it would represent an inherent problem. It wasn't. It was isolated to a few distributors. We have changed the program over there as of October 1 and so we do not anticipate to continue to have those increased costs.

And there's no way to take that cost and model it out or take it out as a one time number so we could have known what it is.

Yeah, I would take it out as a one time number.

Well I would but I would like to know how much it is.

Yeah, we are really not comfortable breaking it out.

Okay. Just a couple of other housekeeping questions, one, do you know what the debt will be or do you have a plan for what the debt will be at year end?

Bud, as you know we don't give focus on cash flow but our fourth quarter is a big cash generating quarter so I expect to see significant improvement there.

Okay, but, do you think you will get halfway to your goal of 55% debt to cap?

I won't comment on it.

Okay, with the one thing, you are talking about more out-sourcing, will that reduce capital expenditures going forward?

Yes, it will, two things it will do, it will enable us to convert some of those assets, those 15 factories to sell them off, and, yes, there will be pressure on getting cap X. down. As a matter of fact we've had all of our product development people in Orlando this past weekend, that is the gospel.

So will cap X. be significantly below depreciation going forward or when will that, when will we start to see the impact.

It's early days, we are just starting down the road.

When do you think we will see the impact?

Well, I think the impact you see is you see the contribution of new products growing in the company with our cap X staying flat. So it hasn't been rising. And it, we would hope to start seeing it moving in the other direction.

It's still above depreciation I think it was in this quarter.

No but you have to look at it for a full year basis and this year actually we've lowered our guidance on capital expenditures from 45 to 47, so that is below depreciation.

Okay. Thank you very much.

One again it's star one to ask a question and we'll go to Omar [Olean] with Midwest Research.

Yes, good morning, two questions, first, on Latin America, what, I guess you've talked about poor consumer spending, what was the, I guess when did the change take place during the quarter and what's the momentum looking like early here in 4-Q?

Well, good morning, Omar. We really started to see at the end of the second quarter's in our southern core businesses a lack of momentum there and it's, then you know it further is spreading out in Venezuela with the political distribution there and we really were enable to get our expenses low enough so the loss will be greater than what we anticipated in that. And it really has to do with not only the size of the sales force but their productivity. However, the largest piece of that is really our Mexico business where we are feeling the impact of the, particularly this area, this band that's close to the U.S. border where the [Miqueldoros] are, of those regions there having significant drops in sales force size and productivity, and as a matter of fact that's where we've had two teams down there really working on new promotional programs to expanded the size of the sales force, it's fairly flat in Mexico, so we need to get that sales force up to eight to 10% sales force size advantage and at the same time to increase their productivity. We saw some progress in the third quarter in Mexico but that was largely as a result of increased promotional spending and simply stated we told our management team, you've got to find a way to do that without simply buying the sales.

Have you seen, have you seen positive performance in terms of the promotional aspect in recruiting in Mexico, have you seen that turn a bit? I guess your outlook in terms of easing off on that and you'll be able to sustain some recruiting growth in Mexico?

Yeah, we did feel some traction in September, later in September and some early October but I've got to say what, as Pradeep was saying, as we got closer to really digging into their fourth quarter, we grew less confident that they were going to be able to deliver that and which is why we took the guidance down for that area. Could we be surprised? Sure, but I don't think so. I think they've got some real work to do to plow back and to get to the momentum. But it's been a significant growth area for us. By the way we've got a great management team in place, a large sales force down there and we are expanding our BeautiControl business. So net/net I feel good about our Mexico business and think it's largely isolated to the next quarters.

Okay. Similar question, Rick, on Asia, when did momentum change there and, second piece of that, you've mentioned in Korea the change in the structure there affecting your sales force, how confident are you that that situation will be fixable by 1Q '03.

Well, there's two stories in Asia Pacific, first of all it is all other markets and then the story of really Korea and the Philippines because the all other markets were doing very, very well in and we were particularly pleased to see in spite of a sluggish economy in Japan, the size of our sales force and the dynamics of our new product program has been such that we really are starting to get growth back in that business again. The issues largely, these two markets, in Korea first, they came out with basic new legislation and it was really aimed at multi-level marketing businesses and we are not, we are a single level organization. But it required us making some modifications to our compensation, particularly with regard to managers and it largely caused us to lose a bunch of managers as we went through the shift. That's the bad news. The good news is we've been through this kind of transition in Germany when they went through with regard to registration, we've been through it in Italy and in a number of markets, and history basically tells us we can work, kind of the pig works through the python in two quarters, so I'm hopefully we'll start to see traction toward the end of the first quarter for Korea. I think it's a longer-term issue in our Philippine business there. We've got a lot of things there we've got to work on, primary opportunity for us in the Philippines is, get that business converted to more consumables business and so the lead time for that transition are a little more substantial.

Okay, and last question, Rick, in terms of the shipment in the fourth quarter in Europe, as you discussed earlier, it was the timing issue there, how much of the revision in your fourth quarter guidance is due to this fact? Can you quantify that roughly?

No, we are not going to break the number out but it's a big number, Omar, it's basically what happens is as they refine their promotional -- and that's driven by the market, what we really see that there are weren't going to be the level of preshipments. As you know in a direct sales business you've got to be able to deliver the products when you sell them to a consumer and products short are a huge demotivator, and I think what we are learning there is much more to ship to adjust in time, we are getting a lot better, we built an $8 million new facility for distribution there some years ago and are we are utilizing that and by the way that really does help our local distributor not have to have so much in their warehouse actually it's a positive move to the business but it's simply a timing change.

Okay. Thank you.

We'll go to [Romo Deniseo] with Roth Capital.

Good morning, just with regards to inventories, there are a lot of moving parts there, you've got inventory reduction efforts in Europe and you are also launching new products and so forth, could you just talk about directionally where you might expect to see inventories at the end of the fourth quarter.

[Romo] my, we would expect our inventory to get even by the end of this year, that's what our goal is and that's everything we have.

And that's really primarily resulting from the European utilization or some other moving parts.

That, too, but also I mean the fourth quarter is our biggest quarter pretty much around the world and so, our goal is to, you know, adjust our manufacturing to the extent required to bring that stock level down.

Is that primarily in Europe, Pradeep?

It's pretty much around the globe.

Okay. Fair enough, thanks.

At this time we have no more questions in our queue. I'd like to turn the call back over to our speakers for any additional or closing remarks.

Thank you very much. Thanks, everybody, for joining us. I would say, we've conducted over the last several weeks our monthly progress review calls with all 12 of our regions in the world and we were pleased with regard to the underlying strength and momentum in a number of our markets, with the exception of those three that we've really isolated as issues. Going forward, I think we have growing confidence that these strategies are starting to take hold and we are going to be leveraging this plan more effectively feel good about the expansion now into Target and it should bode well for what we do in Europe, particularly with Galleries Lafayette and what may be the opportunities with [inaudible]. So we feel there's some good momentum. We are in the early days, too, of this shift to more consumables business in Latin America and I am looking forward to reporting progress as we go forward. So overall trends feel good for the business and we feel confident that this next year is going to be a better year. Thank you.

That does concludes today Tupperware conference call. We thank you for your participation. You may disconnect your line at this time.