Tupperware Brands Corp (TUP) 2002 Q4 法說會逐字稿

Good day, everyone, and welcome to the Tupperware fourth quarter earnings 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

Thank you. Good morning. I'm joined by Pradeep Mathur our CFO, and Jane Garrard Vice President of investors relations. Some of the discussions will involve the future outlook of our business, so I refer you to the company's position on forward-looking statements, as it appears in our recent press release and in our SEC filings. All of you know that on December 20th, we updated you on the likely results for the fourth quarter and the full year 2002.

As you have seen in our release, very little has changed since then, and we finished the year as expected.

To be mindful of your time, though, today, we would like to briefly -- therefore, review the past quarter and full year results and really try to use the bulk of today's time to share with you our outlook for the full year, and to go into a little more detail on the issues that we've had and experienced in Mexico, Venezuela, Korea, and in the Philippines, and importantly the actions we have taken there to mitigate the declines in those markets.

Let me first reiterate that we do business in about 100 countries. The bulk of those countries had a good year. In fact, the profit decline in the problem markets that I just mentioned amounted themselves to 45 cents per share in earnings, and Pradeep will comment on that more later.

I'll come back to those markets also. But we believe that it's important to remember that90-plus of our countries are doing well. What this really meets, net/net, are that our strategies are working, and our problems as said in December, our problem markets are isolated. We believe also to a degree temporary.

Briefly, let me review the year. Our sales for the full year were down 2% in local currency. Profits from our core operations were $1.30 a share, compared to $1.60 in 2001.

However, earnings per share were $1.54, including the income we generated from our real estate development initiatives and the gains on sales of manufacturing facilities. Sales in the fourth quarter were off 5% in local currency, while net income increased 21% to $34.5m.

Earnings from core operations were below last year 23%. Let me go through some of the areas. For Europe, we're pleased to report that the positive momentum we discussed in December has continued. We began the year with the wind in our face in many of those markets as a result of the macro economic environment there. To com bad this throughout the year, we continued to heighten or promotional spending to expand the size of the sales force.

Also, we wanted to increase their activity and productivity, and at the same time customers, we wanted to motivate to come to a party and to buy Tupperware. We also continued to expand our new integrated direct access initiatives in order to tap into customers in Europe, Africa and the Middle East who were preferly either stranded or unserved. These initiatives have been working.

As mentioned early in 2002, we expected that once we started to feel attraction in Europe, we'd be able to pull back on our promotional spending. This, in fact, has happened, and we've improved sequentially throughout 2002 on that promotional investment. Also, we now have a 5% sales force size advantage in that part of the world over prior year.

It's worth noting, too, that while Germany is continuing in leading the way in this momentum shift, we are also seeing positive momentum in many of our established European markets, such as Belgium, the Netherlands Portugal, all of the Nordic portfolio, and that's four countries, and even down into South Africa.

Also, the new emerging markets, Russia and turkey, their growth rates have accelerated. Going forward, while Europe is still experiencing a soft economic environment, we believe that we have enough initiatives in place to return us to growth this year in sales and in profits.

Looking to North America, clearly our growth appears to have slowed, and while sluggish consumer spending over all hasn't helped, it is important to put our U.S. business into perspective.

We are now lapping three years of strong growth rates in our U.S.. Growth rates that the U.S. business hasn't experienced since the early '80s, so the comparisons have been getting tougher and tougher.

The business template we have established for North America is we are convinced the direct-selling model that we will use in the future, and many others who have strong brands will adapt to.

It provides consumers from all socioeconomic levels expanded accesses to our products, while not throwing out the baby, in this case the Tupperware party, out with the bathwater. So it's really about the power of "and", not "or." The parties continues to represents the bulk of our sales in North America, yet we are learning that as we have launched the new initiatives, the mall can I Kiosks, target sites, the Internet, as we've launched these and asked the sales force to take on these additional responsibilities, what we have seen is that there is a learning curve and somewhat of a initial distraction factor.

It's important to put our sales force in context. Yes, we have more than 300 full-time distributors and managers in many thousands. However, though, the bulk of the sales force is, in-essence, part-time people, and what we've been doing here is taking part-time people and assisting them to build the required new skill set to operate and grow in Tupperware that's now a different Tupperware.

It's a multichannel business, and this is not a small challenge this sprung to. So together we are transitioning with the sales force and we are learning and we're evolving to this new business model. Our expectation is that we should be through this process by mid to late next year also, on North America, we at the same time have been moving a significant number of distributors to what we have expressed to you as the new business model.

This is an important move for Tupperware. In it, the distributor moves to a new operating model and their sales force converts basically to a web-based ordering system. There's a real positive to this, because it dramatically reduces distributor expenses and it's enabled us, in fact, to start expanding the number of distributors.

This past year, in fact, there was a 6% net gain in the number of distributors in the U.S. after many, many years of no increases in distributors. However, there's also with this transition a training and an adjustment period, which has had an impact on productivity in the near term.

As I said earlier, together with the sales force, we're transitioning and learning, but we know it's the right strategy to drive for not only sales growth, but it improves the entire value chain, because it reduces operating costs and puts them on to high value-added activities.

The new model also in the U.S. moves us to a cash business and reduces our receivables at point in time goes disappear. Additionally, it's improved our inventory management, and it's resulted, by the way, in us carrying less than half the inventory in the U.S. that we did six years ago, and today it's a much larger business, so it really has been a great change.

So there's a lot going on in the U.S. business, a lot of from/to change, but having said all this in 2003, while we're not likely to see the high growth rates in North America that we experienced in 2000, and in 2001 we feel very good about the prospects of our North American business, and we expect to see a growth rate that will be sustained over a long period of time we are also mindful that in the early '80s or business earned over $100m in profits itself, and it's our intention to get back to those levels with the corresponding sales increases.

Importantly, North America has really been the laboratory for creating, launching and refining the strategies which are also going to ensure continued growth in our European businesses, particularly western Europe, where there are similar market characteristics.

Let me turn to Latin America. Over the past two years, we've made progress in Latin America in a number of areas. We've reduced our expense base through the implementation of our imported distributor model, which lowers our fixed overhead levels there.

But as I've said numerous times in the past, it's never been a big business in Latin America for Tupperware, and for us to fully participate in Latin America's large, exciting direct-selling environment, we know we have to shift more to adding consumables to our product offerings. Keep in mind 75% of the direct-selling market in Latin America is consumables, and that's a $25b consumer market.

Less than half, by the way, of a billion dollars is spent on plastic storage products. So we plan in the future here on fishing in an ocean, not a pond. Mexico is our largest Latin America business. It produces the bulk every our Latin America sales and profits. Consumer spending there began to fall off late in the fall of 2001.

Not surprisingly, durables suffered the worst in such an environment, and first in such declines. This led us to challenges with recruiting activity and productivity of the sales force in Mexico. We launched immediately promotions beginning in the fall of 2001 to stimulate the business.

Unfortunately, thus far, very little has been effective at stemming the decline. Also, the incremental promotional spending has hurt operating margins in Mexico. We do -- and it's important to note -- have a solid management team on the ground in Mexico, and we believe they are focused on the right things.

They are primarily focusing their energy and assets in 2003 on growing the sales force, enhancing the activity and productivity. Now, the first half the year, it's going to be difficult, but our hope is to see some positive momentum in the second half of 2003.

The rest of Latin America as mentioned, is we have reconfigured our expense base to minimize the impact in the macro economic and political environment, particularly in those markets of Venezuela, Brazil and Argentina. By the way, our Venezuela business was having a good 2002 up-until the market shut down in the third quarter.

Let me turn to Asia Pacific. Overall we feel good about this area. Our largest market in terms of sales and profit is Japan. It got stronger in both sales and profits throughout last year in spite of a weak economy. As mentioned, our only problem markets in the entire portfolio of the Pacific Rim are Korea and the Philippines.

Let me address each of those and what we're doing to get those businesses on track. Again, they're isolated. In Korea, over the past year there have been government regulatory changes aimed at the direct-selling industry, and basically they're looking for new revenue sources and control, which required us to move to an alternative structure and a commission model.

It's been highly disruptive to our sales force. As a result, we lost some of our highly productive commissioned managers. Net/net the registration caused many to quit rather than be subject to new tax and mandatory withholding. They started looked for other opportunities outside of direct selling.

We believe the new compensation program that we have created and will be launched this quarter will work, but at the same time we don't expect stability in Korea until later this year. Until then, it's going to be a drain on its profits. It's still a profitable market, though. Regarding the Philippines, our issues there are not new. Rather, they continue.

Our business there has been in decline for a number of years, and the situation in the Philippines is somewhat similar to Mexico. For more than 25 years, we been selling durable Tupperware products in this market, a market where the per capita income is just about what it was in the mid 80s when I lived over there. It's still $979.

It was a thousand nearly 20 years ago. Our durable product line, coupled with a very high penetration level and a low disposable income, it makes a very challenging mix.

Again, we've got a good management team there who have been through similar problems in the past, and what they're focused on is expanding the size of the sales force so the average customer order may be less, but there's more people selling. They're expanding the product line, and particularly they're moving quicker into consumable products.

But, again, this is not a first half fix, but we see progress. The rest of Asia Pacific is an exciting story. We are pleased with our progress in most of the markets, including Japan, our largest market.

Malaysia, Singapore and Australia all continue to have strong business performance, and I just spent an hour with Christian Schroeder or Senior Vice President of emerging markets, and Christian has just been in each of our new markets over there of India, Indonesia and China, and he reports continued very, very strong revenue growth, so the overall Pacific Rim markets are expected to perform well in 2003.

A brief word on BeautiControl. Here in North America its been terrific year for then in nearly a decade with double digit sales increases and growth in profit contribution. This has been a good acquisition and it's going to provide us with not only a brand, but a story behind a brand, which we're going to leverage as we turn our Latin-American businesses more to consumable product businesses, to leverage the nearly half a million people we recruit there every single year.

Anyway, let me put this all through the wine press. Naturally, we are disappointed by the results in Mexico, Venezuela, Korea and the Philippines. And there no way to put a happy face there. It's offset the progress we have made in Europe, North America and many Asia Pacific markets. As we look to 2003, we expect continued momentum and growth in Europe, in North America. The bulk of our markets in Asia and in BeautiControl North America.

Partially offsetting these gains will be continuing challenges in those isolated markets of Mexico Venezuela, Korea and the Philippines. Despite the declines, Korea and Mexico are still quite profitable, and it's expected that Venezuela and Philippines will break even this year, so they're not significant bleeders.

It is also worth noting that it can take 12 to 18 months in a complex direct-selling business to diagnose and refine the solutions for some of these isolated markets as, again, I said they're unique and often they require different approaches. However, we have high confidence levels in the management team in each one of these markets to handle these turn-around situations, due to their experience and their leverage ability to effect change.

Importantly, too, as I said earlier and said in December the problem in thinks markets are isolated and to some degree temporary yet but we don't expect to see progress in those markets until late in 2003. We also don't expect to see further deterioration in these markets, and put against the progress we expect in other parts of the world, 2003 sales should be up for the entire corporation, up/low single digit range with profits slightly better in the low mid single digit range. Pradeep will talk more about that. We also expect improvement as we saw this last year with the management of the balance sheet and related cash flow, and I'm very proud of the job our management team did in this area this past year.

It gives us confidence in our ability to continue to not only invest in our business, but to pay down our debt according to the schedule that we have determined, and at the same time to continue going forward to support our very strong dividend yield.

We remain confident in the strategic growth levers of more channels, more access, more products and product categories and more sellers.

So we're going to be constant, because we're strong with regard to our belief that these are the right strategies. We believe we've reinvented Tupperware on how direct selling works with other channels of distribution, and now we're going to be expanding these strategies worldwide, and the growth and development of these in these other markets will take two to three years, but we believe importantly that the quicker we get to full implementation, the less vulnerability we have to such external disrupters as we saw this past year in these four markets. Now, let me turn it over to Pradeep, and we'll handle questions.

Good morning, Rick has already summarized the results for you in some detail, so let me focus on the balance sheet, working capital, cash flow, and then comment briefly on our outlook for the year. Overall, we are pleased with the progress we made on our balance sheet in 2002.

Our main focus clearly was on working capital management. We improved receivables sequentially throughout the year and ended with a year over year improvement of a $34m excluding the impact of exchange rates. Going forward, we believe we can maintain this current level of receivables. [Inaudible] we did have a year over year increase of over $6m after adjusting exchange rates.

Frankly, we could have done better if we had maintained the same promotional calendar in Europe, which impacted our year end shipments over there. Considering this impact, we were still quite pleased with the progress we made in this area. While we've had a significant cash inflow from working capital in 2002, our goal continues to be going forward to maintain this level.

Next, it is good to see the decline in capital expenditures of nearly $8m, which was one of our objectives for the year. We believe we can maintain the 2002 level of capital spending going forward.

All in all, cash from operating and investing activities improved from only $54m in 2001, to nearly $144m in 2002, a $90m delta. After paying dividends, the free cash flow was utilized to pay down debt, reducing debt from around $368m to 287, resulting in a debt to total capital ratio of 62%, which is down from 74% in the prior year. This is the best we have achieved in five years, even prior to the BeautiControl acquisition.

I would like to remind you that our working capital requirements and therefore our debt, has seasonal fluctuations and will increase at points throughout the year. However, on a year-over-year basis, we expect to see consistent reductions, as we move through 2003.

You're debt to total capital target ratio remains at the 50 to 55% level, and we remain confident that we can achieve this by the end of this year. Many of you have asked about our intention to continue the dividend at its current level. We remain committed to paying the current dividend of 88 cents per share, and are confident that we have the ability to do so. For example, in 2002, net income from core operations was $76.2m , of which we paid over $51m in dividends, still leaving $25m to serve as debt.

We are in compliance with all our debt covenants and have sufficient room within those covenants to ensure the continued payment of dividends. Additionally we plan to continue selling developed land that we own in Orlando, which will supplement our ability to pay down debt.

As a reminder, the total proceeds are expected to be in the $80-90m range over a three to five-year period, of which we have already recognized approximately $20m. I would also like to point out our consistence focus on expanse control. We have been successful in combining our Japanese facility to reduce the cost structure there, as well as restructured our business model in the U.K. to ensure profitable operations there going forward.

During 2003, we reduced over 150 positions in our European businesses by clustering our25-some markets over there into four groups and therefore not doing the same things in every single market. While we have made a lot of progress in improving the cost structure of our manufacturing operations, we still believe that we have opportunities in this area going forward.

Turning to the outlook, as we conformed in our press release, we are expecting a moderate sales increase in 2003 and earnings per share of $1.50 to $1.60.

This includes a one to eight cent improvement from operations 13 to 18 cents from anticipated profits on land developments and a 6 cent gain from foreign currency. [ inaudible ] that gives predictability to our foreign currency fluctuations this coming year.

However, beginning this January 2003, we are discontinuing this program, because the changes in interest rate have impacted the cost of this program. Consequently at this time we do not believe the predictability benefits outweigh the economic costs at this time. In summary, we are disappointed in our 2002 earnings due to the impact of the foreign markets, and together with the first decline in Germany, they impacted our earnings by 62 cents a share.

However, we are confident as Rick mentioned in the steps we are taking to fix the issues in this markets. The rest if our market really had a good year and improved earnings per share by 21 cents or 18%. The balance sheet is strong and has improved significantly. We have been successfully in reducing working capital, as well as capital expenditures resulting in increasing cash flow and reducing debt.

We are a strong cash generator, and we believe the dividend are secure. All in all we are pleased with the financial strengths of the company and look forward to this coming year. At this point, we'd like to turn the call over for questions.

Thank you, sir. If you'd like to ask a question on today’s call you may do so by press star-1 on your Touch-Tone telephone. Again that is star-1 to signal for question. And if you are on the speakerphone, please make sure your mute function is turned off. Once again that is star-1 to signal for a question. we'll take our first question from Eric Bosshard with Midwest research.

Good morning. Can you talk a little bit, Rick about the guidance in terms of 2003 indicate the first half is expected to be down, the second half is expected to be up. What needs to takes place in order for this stronger half to materialize.

Yes. Good morning, Eric. It really is isolated to the major piece of it to those four markets, and of the four markets it's really mostly about Mexico and the Korea. What we want to have is no more deterioration in those markets. I believe that we've put together their plans are fairly modest for this. We're not planning on a miracle happening early in these markets.

What has to happen is first we've got to get the sales force back to the size that it was, and then going forward, we think we can build off that in the second half of the year. We don't want to get ahead of ourselves with regard to those markets. So not a lot has to happen.

Secondly, can you give a little more color on the showcase counts 4 Q, what's going on in Europe, and expectations for the program in 2003?

We've been very pleased with the progress -- I know you all do wonderful research on how that's going. We're very pleased with the rollout in Europe. We're getting the same level of productivity from the showcases. Last year, we only had 100 showcases in Europe. This year, we have just under 200 showcases, and they did very well in the fourth quarter. Importantly, what they do is they lead us to new consumers, so the distributors are really buys in. We've had said before we're a couple years behind in Europe where we are in US the show case strategy. Importantly, too, in Asia Pacific we are growing there. The bulk of the show cases in Asia Pacific are retail show cases in China, and Christian has accelerated how that's going there.

Let me go back to the U.S. The target launch has been very successful. Each week, by the way, Target comes up with their expectations and for all our sites there and we come out with ours as well, and I can tell you that we've either been meeting week by week or significantly exceeding expectations there. So we're very pleased.

The important thing with regard to these targets locations are it's getting to new consumers. It's really helping us to brand build. We were on one of the covers of their 55m fliers last month and next month the same thing will happen again. So its having the wonderful brand building effect. We think that will positively enhance our recruiting as well. Now we're even merging into club we had and some of the other promotions at Target.

So it really is helping to make direct selling working with a retailing environment. And it's going to be a very important new income source for our distributors across the country.

And last question, Pradeep for clarification on currency, you're discontinuing the program which means in 2003, you'll realized currency gains that were deferred from last year, then on top of that incur what ever happens in the current years. Is the guidance on currency just assuming you get the gains from last year and no effect this year? Or what would the expected effect this years be at current rates?

Actually, going forward every month for the next 12 months, there is not going to be a 2003 impact of currencies, and we'll see that in 2004. So the six cents I mentioned is really the 2002 impact into this year. So that should be fairly close. As you know, we don't hedge every single currency, or even major one but there could be a slight change over there,but primarily that's about as close as we can get.

Then in 2004 is when you'll get deferred benefit and current year -- or deferred impact and current year impact, the first time that will happen is 2004?

Yes.

So while you terminated the program, that actually lives throughout 2003?

Yes, because as we said, every month in 2002, we've hedged our profits for the next 12 months right up until December.

Very good. Thank you.

We'll take our next question from Budd Bugatch with Raymond James and associates .

Good morning Pradeep. I'm a little confused about the U.S. with the target program. I know it just got started in the fourth quarter and revenues were essentially flat in the quarter, but operating profits were down about $6m. Maybe I just missed it, but can you tell me where that -- what caused that decline in operating profit?

I'll have Pradeep handle that piece and I will handle the revenue side.

Budd, as you might remember, the fourth quarter of last year, we had reversals of reserving as our receivables and our stock levels declined sharply in the U.S. and we had no further need for those, so the comparisons were tough going into this fourth quarter, but -- so combined with the impact of sales -- because sales declined -- after you exclude the fact of the new business mottle, about 7%. So combined with the impact of the sales decline and these reversals last year, that really accounts for the decline in profit.

The reversals last year, I'm not sure if I recall what they were.

They were basically receivable and inventory result reversals.

It was important, Budd, with the final fourth quarterearnings discussion and conference call, we expressed it that this includes in the U.S., word for word, what it was, and that it will not occur again next year.

Okay. I don't recall that, so I'll have to go back --

It's in the script.

I'll go back and look. When you look at the receivables what caused them to drop -- these are my numbers -- about eight days worth of sales in the fourth quarter.

You're talking about the company as a whole, right?

Yes, down from $133m last year to $103m at the end of 2002.

Right. There were two factors. One, as you might remember, again at the end of the fourth quarter of 2001 we had unusually high distributor orders in Europe, which didn't happen this past year, so that was part of the decline. It would probably be about half of it. The other half was genuine improvements throughout the company and receivables from our distributors.

Looking on a day sales outstanding basis, it looked like it went from 48 days in the third quarter to 29 days at the end of the year, and I'm just curious to why that dramatic improvement, even from third quarter to fourth quarter?

The third quarter we actually be called working capital in the third quarter, and it's primarily due to the timing of our promotions, so that's a normal phenomenon at the end of the year. That declines every year.

I understand, but it's still eight days better than it was this time last year. Okay. I hear you. When you look at Latin America, for the first half of the year, you said it would be difficult. So should we assume that mean continued loss in Latin America through the first half of the year?

Yes, we do expect declines in our Latin-American businesses in the first half of this year.

Those revenues were down about, at least as it was reported what about, 54% in the fourth quarter? What do you think that looks like going forward? I mean, is that the same level of decline? Or are we ready to moderate that?

We think as we get to the second half the year, we'll improve, but we won't be not going to be giving quarterly guidance. The other question back to the U.S. and on the revenue side of the question, the profitability of the U.S. business -- and this relates some to what I was saying with Eric, what we found out from interviews with many of our sales force is the learning curve and the price we pay as we adapt to these new channeling of distribution.

We went from just under 600 retail access points in the fourth quarter of the last year to about 1800 this year -- or 1700 this year. And the sale force, we basically the Tupperware parties are very productive, you get six to eight people there, and their productivity level if I spend an hour to two hour at a Tupperware party is much greater than if I spend an hour or two at a Kiosk or at a Target store.

When she basically asked is which do you want us to do, and we basically said both, and we're going through the issue of which does she do at that period of time? Initially she ran to those new Target sites. The good news about Target is we sell -- they're productive even when there's not a member of the sales force there, so she's learning how to do both.

Additionally, with regard to moving to the new business model, we in the past on Monday the typical sales force member would simply turn in her orders to a distributor of the distributor -- it was hard copied. The distributor then had to have an expense base there to do order entry, she needed staff, and then she had a warehouse initially there. Now, she simply puts the order in by her own computer, and that again that's been some distraction.

By the way, we have been measuring new business model sales people and distributors to traditional salespeople, and the new business model ones are much more productive. They're not only more productive but in fact the expense base is better. But there's this learning curve.

One last question. You talked about duty control. If I recall right, we put 60 or 65m of capital out to buy BeautiControl when you bought it. Do you have a projection to when that will be positive on an ROI basis or above-cost capital. I assume your cost of capital is somewhere around 8.5 to 9%, which means a requirement of about six or -- six or seven million dollars.

Budd, the funding of that acquisition was entirely through dat, so at this point we believe it's close to being nondilutive, and we do believe this coming year we will be nondilutive and we re control.

Budd Bugatch I have that as earnings per share Pradeep. It's just the capital returning that concern me. Obviously there's no more amortization of goodwill with the change of accounting, and I don't see it being productive on a capital expenditure basis the.

Yeah, but we are not at this time giving guidance for a segment-wise, but we do believe that's going to happen in the near future.

Okay. Thank you very much.

Once again, that is star-1 to ask a question. We'll take our next question from Catherine Imm from Salomon Smith Barney.

Hi, I don’t know if I herd this correctly but did you say that your retail initiatives represented about 7% of North American sales in the fourth quarter?

They were about 10% of sales.

Okay. So we saw a modest increase -- is that all attributable to your sales coming from Target, offset by some of the weaknesses that you talked about in terms of showcase productivity?

I think the offset in our core party business because the overall the ideal channels did grow, so it's the party business that suffered as a result of some of the things that Rick just mentioned.

Kathy, too, there was, with regard to the mall/kiosk we saw going through the fourth quarter soft comps year over year with regard -- starting even with just traffic and how it translated into sales, but it was still very productive.

Okay. Turning to Europe, I guess it was surprised in terms of your profit margins for the quarter, but looking at your average active rep trends they were about flat about year over year, so going into '03, do you think you have the right level of promotional activity in place to continue to drive rep productivity in 2003, so we'll hopefully expect to see some margin expansion for that region?

My short answer would be I think you're going to see some improvement there, maybe not to the level of improvement we have seen sequentially this past year. What the good news is, we start the year with a 5% total sales force advantage, even though, you know, it's flat average, active, but early reads are good there. We have been operating counter to what's going on in the market.

The last numbers we just saw in the major European economies, just for what it's worth, Germany’s economic growth was the lowest, they had recognized since 1993. The economy grew only 2/10 of 1%. The good news, there, though, is we got a significant advantage of our sales force there. The same things are starting to happen in our French business. We have the same as I mentioned in our Nordic portfolio. That gives us a lot of steam. Additionally, the doubling of the retail access points is going to help us as well.

So I like the momentum. It's been since '96 I think Pradeep and I said at the December call since we saw this kind of momentum start to come back to the European businesses.

Is it fair to say that Europe may be your faster growing market among all of your different geographic regions?

I think it’s goona be progress in Europe, I don't know whether it’s goona be the fastest growing, but we're feeling right now that it’s going to be a good year there. It's driven not by hail Maries, but basic block and tack also. The sales force is getting even stronger since the December 20th call, so it's coming out of the gate with good momentum there. Productivity is good.

Issue is to some degree you see activity, as you mentioned Kathy, and part of that is driven when there is still a very soft consumer environment, it's hard to get her to make the call to go out and see a lot of people, because she says they probably have as much economic pressure as I do. So that's where the work is needed.

I hope we can continue at the same level with regard to promotional investment, that we can keep getting more traction and back off. Again Europe, we like to see Europe in the 17, 18, 19, 20% ROS, and that's what we're going to drive it to.

In terms of your guidance for ‘03, your EPS guidance , the 6 cents benefit from foreign exchange, was that new or was that also included in your assumptions last month when you gave us the update?

That's not new, Kathy. It's basically the translation hedging program. Actually you can see it in a line that we identify. So it's just the impact of that which was a negative impact in 2002, not repeating in 2003.

Can you give me a little more clarification in terms of this penny to eight cents benefit from operations. What is that?

That's basically the improvement net of everything, with a decline in some of our -- the bigger markets we mentioned, combined with the improvement we expect in the others. That's the lower to mid single-digit improvement that Rick mentioned earlier.

Okay. So this is on top of any benefit’s that we are going to see from -- I guess I still don't understand. I mean, is this from the streamlining initiatives that have been in place at the company for a while, or --

It's basically from sales improvement.

Okay, then lastly, you mentioned keeping -- or you're going to maintain your dividend payout or at least the 88 cents per share. Can you talk about the rationale to why you're keeping your level of dividend payouts, given the challenges you're facing in many of your markets. Do you find you need the cash to reinvest, so possibly you may want to rethink your dividend policy?

No, Kathy, going forward, one of the wonderful things about a direct sales business is with the right value change, starting with 65% plus gross margins, it throws off a lot of cash. We believe we can get our growth organically.

The main driver of growth is the additional size of sales force, and there isn't a cost associated with the incremental growth and the size of the sales force, so therefore we don't need to make any more investments with regard to the acquisition. When we want to get a new product line, for example, we went into cookware, Cutlery, et cetera, we simply now are moving much more toward a Nike model, where someone else will make that for us, and we still get the gross margin because of the value added of the Tupperware name. So there really isn't a need there for that.

As a matter of fact, we're hoping the bill passes with regard to the double taxation of the dividend. It's what we particularly hear from our European investors, they love it, so there really isn't a need.

Okey, and when you were talking about the contract manufacturing how much of your business is already being outsourced.

To show you the shift there, in 1992, we were purely a manufacturing company. That was the attitude here. We made everything ourselves. As a matter of fact they tried to launch a cheese grater with plastic resin blades they were so purist about it. Now, more than 15% is made outside, and you'll see us at a point in time move that number to more than 50%. I don't know how long it's going to take us, but very clearly the Nike model is what to look to.

Thank you.

Once again, that is star-1 to signal for a question. We'll take our next question from Rommel Dionisio with Ross Capital.

Good morning, I have two quick questions. The last quarters have had fluctuation due to changes in promotional expenditures. I wonder if you can talk about the plans there for '03, whether you intend to keep a relatively high promotional level or low one? The second question I have is one thing that took me by surprise was a 27% decline in number of distributors. I wonder if you could discuss that issue.

That was distributors, that was not a question of loyalty, but astute in picking that up. That was that conversion to megadistributeors, in particularly in Brazil and Argentina, where basically we had a litany of smaller distributors which required us to have a bigger installed base, and fix overhead there, and we went to a few mega distributors in the area.

By the way, those smaller distributors are still smaller distributors under the mega. So we probably should have done a better job of explaining that shift.

Okay. That's fine.

I might add something else, Rommel, with regard to down there on shifting. There's a thing in here that's been written quite a bit in the last couple months, anytime you see economic slowdowns in some markets, they talk about in the U.S., they call it the lipstick effect, that basically it's interesting when individuals feel the pressure on disposable income, they stop buying dresses a lot of durable hard goods, but what they do is buy things that are feel-good things.

And interesting, lipstick sales are up 11% in the overall marketplace in the U.S. This is a big key in Latin America, why we're accelerate our development to our BeautiControl business down there, because what it does is take care of getting us not totally buttressed, but it does have this counter-cyclical impact when there are -- so therefore you can grow the size of the sales force and it's the kind of product she's buying at that time. So we want to take is some of this visibility and unpredictability out of the business model.

And your European promotions for '03?

We think pretty flat. We don't think we'll have to heighten them anymore, but let's see how we get through the first quarter with regard to that. What we believe is it's important to keep our powder dry there.

If we need to -- if we see some changing trends, to get in there very quickly to keep the sales force active and keep consumers buying, which is what we did over the last couple years, and you see it's starting to pay off, because we're then first to recover.

Thank you, Rick.

We'll take our next question from Michael Zimmerman with SAC capital.

Hi, guys. What percentage of the reps now are using the Internet, and when do you think -- will you ever get to 100%? When do you think you'll get there?

First of all, with the Internet, you're talking about web order entry ?

Yes, in terms of web order entry.

Okay. That initiative is only restricted to the U.S., so I'll comment on the U.S. percentage. We believe that [Inaudible] converted distributors about two thirds of our distributors will be converted to the new business model. We believe over 70-80% of our orders are coming through the web.

Will that over time be converted to the rest of the world?

Not at this time. We don't believe that model is totally appropriate for every country throughout the world.

Michael, you just don't have the penetration levels there. We do, you know, in Scandinavia, we have some in Germany and France, but it's not -- but we're already seeing it causes a distraction factor to it, so we're going to slowly evolve to it. We're doing some work on it in Japan, but we're not going to be too aggressive on that.

Just so I'm clear, the benefit is you reduce the receivable and also get the cash up front from the credit card usage versus a check?

Yeah. So at a point in time the U.S. receivable is just going to go away, which is really helpful to our business, but the other thing I think is important is, a distributor model in 1992, basically the break-even for a distributorship, which had to do a million one to a million three in volume, we stated this before and therefore these were like the aircraft carriers out there.

Now we've gotten the distributor break even. She doesn't even need an office. All this is done web order. She can rent halls, churches, synagogues, for holding her assemblies. What this means to us going to go forward is that we are going to dramatically expanding the number of distributors in the U.S. which will lead us to be able to dramatically expand the size of the sales force. I've said we've had a net increase of 6% in the U.S. We've only got 330 or so distributors in the U.S.. Avon has 2,000 district managers.

We think we could get up to as we stated in the past maybe 750. Well, when you start to think each one of them could have three to four or five hundred dealers, then you really start to say, hmm, more sellers selling more. It’s one of our strategies. So this was an enabling strategy to allow us to expand our distributors.

And can you give us some more quantification in terms of what the benefit to working capital will be this year?

We don't project that, Michael. We have no projection, but as I said, we are confident of reaching our debt levels and our 50 to 55% ratio definitely this year.

So the implication is, I guess that ROE is going to go up as this continues to evolve and that it should also --

Yes.

So the Internet is not only benefiting you from a cash perspective but also a growth driver in terms of driving more sales, because the break-even cost coming down.

It enables us to increase our distributors count, which is kind of the franchiser model of them.

Um-hmm. Thank you.

We'll take our next question from Howard Choe with Std and Poor's.

Yes. Good morning. I have two questions. First is my notes from back in December, I had the contribution -- this is for the '03 guidance, contribution from operations as in the range of five cents to eight cents. Is that correct?

That's correct, but we will have an increase in unallocated expenses, because we had a couple of factors. One, there were no bonuses for any of the worldwide people in 2002, so that's built into our plans, and then we have allocations of currencies to our markets, and that has some impact on non-allocated expenses as well.

Okay. My second question is, in terms of your [Toorgt] initiative, are you satisfied with the sales trends? I believe in the past you have emphasized that it was a great recruiting opportunity, but are you happy with the level of sales?

Yes, very happy with the level of sales, and our sales force, again I want to reiterate with each of these, Howard, whether it's internet, Target, kiosk, our sales force are distributors and managers, they earn income off all of those, but, yeah, the sales trends are very good there, and I think what's important about it is that -- even a more important question is, is Target happy with the sales trends?

You'll see next month that we are on the cover of their 55m circulation flier. Obviously they wouldn't put it there unless they knew products were going to sell. We have blown by some estimates significantly in certain weeks, but it's been wonderful learning experience for us as well.

Thank you very much

We'll take our next question from Steve Reese with Bear Stearns.

Hi, guys, could you share some further light on your U.K. strategy?

Yeah, the U.K. situation is there's a German phrase that translates to "enough is enough." We have invested for many years in the U.K. business. It's never been a very large Tupperware market for us. For many of those years, it's been unprofitable, and I want to contrast it to the U.S.

In the U.S. we were able to, we had a strong enough distributor base, to go through all the reconfiguration of what are the channels, what are the products, what is the value chain with regard to compensation of distributors, how do we distribute in and we were able to do this at the same time -- and I think we have in the past five or six years in the U.S, just shy of a hundred million dollar profit delta in the U.K. it's been a bleeder.

And what we've basically decided to do is take a break. It's going to have -- sales are minimal, profit impact this year because of this move will be positive, because it's basically been a drain, and what we have said to our management team there, we're not closing the U.K.

We have said now, we want you to step back, think out these channeling of distribution, who are our sales force over there, how are they compensated? And what does the product line look like? So I think we're taking an approach that is much more conservative and looks at putting strength on strength.

Okay. So do you anticipate maybe just at some point partnering up like a Target or something like that, and that will be the strategy.

Not only -- do I anticipate we'll continue to do brand building activities over there? Maybe some business-to-business, which are profitable to us that sprinkle the product out in the marketplace? Yes. Do I believe we will reenter with a direct sales party plan model? Absolutely that will be our core approach, but we want to do it right. But we want we can continue to do all that work while not being a drain on profit. So that's why we decided to pull it in the garage, close the door fix it, rather than continue this millions in losses.

Okay. Thank you.

Um-hmm. By the way, the brand, when we do research there, the brand is very highly rated in the U.K., we've just never been able to match the sales force to the consumers. And it's been since the beginning of Tupperware problem.

Mr. Goings, there appears to be no further questions at this time. I'll turn the call back over to you.

Thank you Sylvester. I want to thank everybody for their time this morning. We're going to update you on our results as we move into 2003. We think we have good momentum. I think it comes across in many of our markets really spurred by the growth levers. We're happy with what's going on in all of our businesses. We're pleased with what Keith and the guys have done at the BeautiControl business, and we are going to grow that and our product introductions are exciting, promotion plans look good. Now we need to built on the sales force size on Latin America and Asia Pacific. We're going to focus on these. We believe that long-term goals of 16-18% operating profits will still be achieved in the next three to five years, and we thank for you your time..

This does conclude today's conference call. At this time, you may disconnect.