Tupperware Brands Corp (TUP) 2003 Q4 法說會逐字稿

Good day everyone and welcome to the Tupperware year-end 2003 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. I'm joined this morning by Mike Poteshman, our Chief Financial Officer, and Jane Garrard, our VP of Investor Relations. Some of the discussions this morning will involve future outlook of the business, so I refer you to the company's position on forward-looking statements as it appears in our recent press release and in SEC filings.

Having said that, let me get into the results for this last year. Overall, we had mixed results in 2003, with North America facing challenges as we worked through the Target situation. But we made progress in all other areas, progress as we expected. In a moment, I will turn to the segment performance, but let me first review the progress we made with regard to our strategic initiatives really transformed Tupperware and position us for growth in the future. First, we continued to improve our brand equity. The new rankings for the Home Furnishing Network came out, and again Tupperware was ranked number 2 of the top 150 home product brands in the U.S. In 1995, by the way, we were number 5.

Additionally, we continued to receive awards for our products and designs, including recently a good products award from Good Housekeeping for introducing one of the seven most innovative products of the year. It was our Stuffables. Importantly, on this area, we continue to work to expand our product and to insure that Tupperware is never thought of as a commodity. This continues to support our strong gross margins.

Looking across all of our products, we made a lot of progress this past year too, in categories. In cookware we launched a whole new line, cutlery as well, kitchen gadgets, elegant serving lines. Now Tupperware is known for fashionable colors, designs, and space age materials. We also are making progress in our expansion into beauty and personal care. We're getting in this mostly for Latin America. Our North American BeautiControl business, however, is two-thirds larger than it was when we acquired the company a little more than three years ago. We are utilizing this important brand platform to really build a strong business for the corporation in Latin America.

Sales in Mexico of beauty products reached 7 percent of their total sales in 2003, so we are making progress there. We decided to make some additional investments this next year -- I will get into that in a moment -- to really ramp up the contribution of beauty in Latin America, also put in place a merchandising infrastructure, and to support the development of the brand. Regarding channel expansion, as we say, integrated direct access, we continue to move in that direction as well, particularly in the U.S. and in Europe. It enhances the Tupperware party, and mostly it's small showcases, but we also utilize the Internet and TV shopping. We have firmly established these channels in North America, and we continue to have progress in Europe and some in Asia-Pacific.

Our Target experience, as we have discussed on a number of calls, was clearly a disappointment and it set the boundaries for retail access. I will circle back to how we are doing in the U.S. with integrated direct access in a little bit.

Another important accomplishment this past year strategically is the growth we're seeing in our emerging markets. Our primary emerging markets of Russia, Turkey, Poland, China, India, and Indonesia, they contributed this past year 5 percent of sales, and all of them are growing very strong double-digit rates, and the bulk of them are operating profitably. We see significant growth opportunities in these markets, given the size of their population, and we're happy with our progress there. It is important and worth remembering that our products are important there, because a substantial amount of per capita income is spent in the food category, and food storage matters. It is also driven by largely the lack of a retail infrastructure and, even more important, limited earning opportunities especially for women.

Now, turning to another important initiative that is refreshing, the Tupperware party experience. We introduced what we call the Taste of Tupperware in North America mid year. It's called Savoir Faire in France, and in our BeautiControl business Spa Escape, and we're expanding these in other parts of the world. But they're prime examples of updating the party experience to be more fun and interactive. For those of you not familiar with our experience party, its key element is that our sales force number now actually leads attendees to the parties as they make simple yet creative tasty recipes using Tupperware products.

This makes being a Tupperware consultant a bit easier, and it raises the appeal of hosting and attending a Tupperware party. As a matter-of-fact, many of the attendees leave and they say, that felt just like a party, which is what it was. We're excited about this initiative and believe it is important in making us relevant to consumers. It's helping us also get up into the higher (indiscernible) income levels. It also is going to help us with building a more productive sales force. Those parties typically do better than our other parties. We're going to be, and I will talk about it in a moment, going to be upping our investment in public relations in a number of our key markets; the U.S., France and Germany, to expand consumer knowledge of this new party experience in 2004.

Turning to performance in 2003, as you know, North America had significant challenges during the year as our broad retail access to the Tupperware product line in Target stores. It was very successful with regard to consumers at Target and the sellthrough, but it impacted our party sales, leading to declines in sales at parties, recruits, and sales force size. It diminished our overall 2003 results.

However, turning to the globe, we had many positives during the year in other parts of the world. Beginning in Europe, we were very pleased with the momentum we had during 2003. That momentum continued in the fourth quarter, although at a more moderating pace, and this is largely because of more difficult comps. And comparisons moving forward are beginning to get more difficult, but we're also impacted in the fourth quarter by a European business-to-business sales level that was planned last year and decided not to do this year, and also the elimination of sales in our UK business.

The majority of the markets there in Europe contributed to sales and profit improvement, so it wasn't just a one-country story. Primary drivers were Germany, Italy, the Netherlands, (technical difficulty) Africa, Russia. France also continues to be an important market for us, and we were steady performance-wise during 2003 in France. In Europe, we're entering 2004 importantly with a 16 percent total sales force size advantage and a 12 percent average active sales force size advantage, and that positions us well for sales growth in this part of the world, in spite of these difficult comps.

I might add that sales in the fourth quarter, overall sales didn't match the increase in the average active seller growth, largely because of a mix shift in the larger contribution of emerging markets, which have a much lower party average, and that's almost entirely driven by a lower per capita GDP. For example, in Germany, the per capita GDP is 27,000 US$, whereas in Russia it is less than 10,000 US$. As our emerging markets grow in their contribution to the European segment, and they are growing, we're going to see lower productivity overall, but it is really a mix shift, and we will blend that but also explain it to you.

Additionally, we had a large, as I mentioned earlier, business to business transaction in the first quarter of 2003, which we are not going to repeat this year. Importantly, we have learned that if you do too many of these business-to-business transactions, just like a Target situation, it hurts the party, so we are very careful in that area. Importantly too, we finished the fourth quarter in Europe with a strong 27 percent ROS. We were at 20 percent ROS for the full year compared with 16 percent last year, excluding the gain on the sale of the Spain manufacturing facility last year.

This was due to lower promotional expenses and also to manufacturing efficiencies associated with higher sales volumes and the benefits of that prior re-engineering program. These actions also included headcount reductions and combining our marketing and merchandising functions more efficiently. And as we explained to you last year, we moved to more of a cluster model there, and that has added efficiencies. Also, in Europe, we were pleased with our progress in integrated direct access in the fourth quarter. We were up significantly in a number of showcases. This was primarily with regard to Germany and France. But we also have had an interesting initiative going on there in Greece.

Let me turn to the Pacific Rim. In mid 2003, we made some important changes and launched some important initiatives in three of our key markets that included some management changes; Korea, Philippines and Japan. We're already seeing the benefit. We ended the year with improving trends in the Philippines, and Korea reported its best results since the fourth quarter of 2002. So the worm there is starting to turn. Japan was down modestly in sales for the year, and we are working to build the sales force in this very important market, and also at the same time to shift the product mix to those with more favorable margins.

Some of the drop in margins really was a big ticket vacuum cleaner we sold that by the time we did the sellthrough of that product, a key competitor had a cheaper one on the market and we didn't want to have an inventory situation. We also see in Asia-Pacific progress in Australia, Malaysia, Singapore, and the important emerging markets of China, India, and Indonesia. For the full year 2003, the emerging markets of the Pacific Rim contributed 16 percent of Asia-Pacific sales, and all three are profitable. We expect the PAC Rim to contribute slightly to sales with even greater profit improvement in 2004.

By the way, the drag on sales still is coming from Japan as we are working to grow the sales force, and our margins and at the same time strengthen Korea and the Philippines and grow the emerging markets. It's worth noting too that we are beginning to see strengthening in Japan's economy, which will bode well for Tupperware in consumer spending.

Looking to Latin America, it was another difficult year yet it was a year on plan and a year filled with progress. Mexico is our largest market there and it is suffering from not only a soft economy which is largely driven by a higher unemployment rate. You all have been reading probably just like me that Mexico has really failed to really take full advantage of NAFTA and is losing an increasing number of jobs to lower paying countries in the Far East. Our Mexican business, we were pleased to see it get better as we got through the fourth quarter. We achieved positive comparisons versus the fourth quarter of last year, and by the way worth noting that is the first time since the second quarter of 2002 that we had positive comps in our largest market there.

Until we get beauty really though expanded to a level of scale, which we really think is going to take two to three years, our expectations for Mexico and the rest of Latin America sales growth there remain modest. Job one for us is to increase the contribution of our beauty business because that is where they spend their money. Consequently, this market will not contribute much incremental profit in 2004, while we heighten our investment to expand to a category that is more relevant to how their spending their income. And I might reiterate Latins spend 25 billion on personal care products and less than one billion in the food storage category.

Let me turn to North America. We're still working through the target tests and the effects of that. Working mostly to rebuild our sales force size. Currently, we believe it's going to be sometime in the second half of 2004 and more likely in the fourth quarter before we have positive comparisons in the sales force size. We clearly found with this target experience they were a great partner, but the boundary of our integrated direct access strategy and we learned that is too much retail access actually undermines the party, even though as a positive sellthrough.

We're going to continue though to utilize showcases; TV shopping which is just going gangbusters on QVC, and on the Internet which is also growing to obtain access to more consumer groups, but we will limit retail access to those activities where the sales force can have maximum involvement and interaction with the consumer to remind them that the party is really our most profitable form of business.

Speaking of the showcases, our number of showcases in the fourth quarter was down modestly this year versus last year as our distributors frankly were unable to take some of the financial risks given the overall decline in their sales and profitability and 2003. Additionally, we saw as everyone else did in malls, mall rent was higher for kiosks in 2003 making it even more difficult for them to make the financial commitments.

We are going to be evaluating, by the way, some interesting less expensive venues that will provide some incremental opportunity for more showcases this next year in the US.

We did, during the year, make some changes in the cost structure in North America to right size it to its appropriate sales level. We believe we have taken out somewhere between 15 and 20 million in cost. However, as mentioned, it is likely going to take most of the year to rebuild the sales force size in the US. You could do it in a quarter but they would be unproductive and with all of the focus on really the new Taste of Tupperware party we want to do this right.

It's unlikely we will see any sales growth in North America until the second half of the year, and perhaps not until the fourth quarter. Additionally, we're going to be significantly increasing our investment in the US in public relations to expand a consumer knowledge of the new parties. As a matter-of-fact, we reviewed it with our Proportionately firm yesterday and there are some very important things that are going to happen. It will get us more people wanting to attend our core party and help us break into A and B socioeconomic groups in the US. We're very excited about this initiative.

We believe this will provide sales and profit growth for the future for the U.S., however the upside for this is not built into our U.S. numbers in 2004.

Looking at BeautiControl in North America, we were again very pleased with the progress we have made in the sales force size and sales growth. Additionally, by year-end, promotional expenses were declining and our ROS was increasing as we had anticipated earlier in the year.

So, we entered 2004 with a nice sales force size advantage and expect a growth in the contribution to sales and profit from BeautiControl and importantly it's a helpful launch pad for Latin American beauty business where has we have received terrific, terrific support.

Overall, in the fourth quarter, I am pleased to report that excluding nonrecurring items, net income was flat with last year, which is a significant improvement from the first three quarters of the year. Additionally, our average active sales force improved from the third to the fourth quarter which is particularly important in North America where it moved from in the mid 30 percent range to 24 percent. Now, 24 percent down.

Let me turn it over to Mike Poteshman to discuss the balance sheet in more detail as well as providing you with some specific outlook for 2004.

Thanks Rick. First I would like to point out our continued balance sheet improvement. We reached our targeted debt to total capital ratio at 54 percent which is a significant improvement from 62 percent at the end of last year. This quarter in our press release, we reported net debt to total capital since we've build cash after essentially paying down our current debts. That ratio was 50 percent compared with 59 percent last year. An even better improvement. We will continue to report net debt to total capital going forward.

Additionally, we beat our cash flow target of net income equal to cash before financing activities by $25 million. We were able to beat this target through some improvements in working capital, proceeds from sales of land, and by holding capital spending below depreciation by approximately $13 million. We were pleased with the progress on receivables in inventory both of which contributed cash inflows.

Receivables days sales outstanding were 27 compared with 29 last year. And inventory days sales outstanding were 129 compared with 136 in the prior year.

Turning to the 2004 outlook, as we discussed in the earnings release, we expected low single digit increase in sales coming from Europe, Asia Pacific and BeautiControl. North America may have a slight decline depending on sales force trends as we move through the year.

Latin America is expected to be flattish in 2004 and is not expected to contribute much in sales growth as we work to enhance the contribution of beauty to the overall business there.

The segments contributing sales improvement are also expected and profit increases and we also expect to see profit improvement from North America related to the 15 to 20 million cost restructuring. However, we're planning to make a 15 million investment in 2004 to capitalize on a growth strategies and rationalize our manufacturing operations. We foresee these costs coming through evenly in the second, third and fourth quarters.

Related to the growth strategies, we're planning to invest in public relations to help build awareness of our refreshed party experience in North America, Germany and France. Additionally, we're expanding the merchandising infrastructure in Latin America to expand beauty more dramatically. These costs are expected to be recurring over the next few years as these are multiyear initiatives. These investments are expected to ultimately result in additional sales and return on sales, however this is not forecast in 2004.

As for the manufacturing rationalization component of these investments, it's our long-term strategic plan to move much more to a Nike (ph) model to outsource more production including core Tupperware products. This allows us to reduce the number of manufacturing facilities and related capital investment, will make us more flexible not only in terms of the products we sell, but also how we can react to fluctuations and volume requirements. These 15 million of investments along with an increase in unallocated and interest expense and increased tax rate will offset incremental profits from the segments during 2004.

Unallocated expenses are expected to be approximately 27 to $28 million with the increase from 2003's $25 million coming from our decision to expense stock options and additional costs to meet the requirements of Sarbanes-Oxley.

Interest expense will increase to 15 to $16 million as 2003 contained a onetime adjustment related the prior hedging activity. Additionally, the tax rate in 2004 will be 21 to 22 percent, compared with 15 percent in 2003. The 2003 tax rate was low due to a shift in the mix of where we earned our income and writing off investments to convert markets to importer models.

Wrapping this altogether, 2004 earnings per diluted share is expected to be $1.20 to $1.30 including approximately 18 cents of benefit from lower hedging costs, 12 cents of upside from the expected impact of foreign currency at 2003 year-end rates, and 6 to 8 cents from gains on land development. This results in an increase of reported EPS of almost 50 percent even including our $15 million investment to expand our growth strategies and work on rationalizing our manufacturing to achieve our long-term goals of consistent mid-single digit sales growth and pre tax income return on sales of 10 percent.

Let me take a minute to discuss the timing of the US cost restructuring in land sales. The US cost restructuring benefits will fall approximately 15 percent in the first quarter; 40 percent in the second; with the remainder split between the third and fourth quarters. Land sales are expected primary quarter with a small amount in the first quarter.

Net net the quarter reached lower earnings in 2004 will approximate 2003 with a modest shift in the first and second quarter to the third and fourth quarter.

First-quarter operating profits will be down significantly due to declines in North American sales in the profits. Sales comparisons in this segment are expected to be only slightly better in the first quarter of 2004 than the fourth quarter of 2003 due to the significant shortfall we have in a number of average active sellers going into the beginning of the year and the absence of sales at Target.

Additionally, in the first quarter, Asia-Pacific is expected to have negative profit comparisons as well while the Japanese business works to alter its product mix to higher margin items.

While Europe has a sales force size advantage, the shift in sales mix to the emerging markets which have a lower party average is expected to negatively impact productivity. Latin America and BeautiControl are expected to contribute slight sales and profit increases. Unallocated expenses will be higher in the first quarter compared to the prior year as well. However, first-quarter net income in earnings per share are expected to outpace prior year due to stronger foreign currencies and lower hedging costs.

In the absence of providing specific guidance, we're concerned that expectations for 2004 may be too high early in the year before we get momentum in the US sales force. So, please bear in mind the specifics we discussed today in quarterly expectations going forward.

Cash flow before financing activities in 2004 is expected to total 70 to $75 million reflecting no significant event in working capital and with CAPEX in the 45 to $50 million range, which allows for the stronger euro. At this time, we plan to use future cash flow to continue paying the dividend at its current level and strengthening our balance sheet. While we're no longer hedging the P&L under the translation program we utilized in 2003, given the strength of the euro, we felt it was prudent to protect the US dollar value of our euro denominated equity and cash flows.

Consequently, we've entered into net equity hedges through options to provide insurance against the decrease in the value of the euro below a floor of 118. The cost of the program will be approximately $2 million. With that, we're going to turn the call over for questions.

(OPERATOR INSTRUCTIONS) Eric Bosshard with Midwest Research.

Good morning. Two questions. First, the $15 million of spend on PR and manufacturing, can you give us some sense in terms of when you will get payback on that. It doesn't sound like it is a 2004 event. It seems like 2004 is a net investment but when do you think you get payback for that spending?

Good morning Eric. Actually it is a multiyear investment, and we presented this actually to our Board in November. 2004, 2005 and six were going to be making that level of investment and really there is an offense and a defense side of it. First on the defense side, we're going to work to accelerate the exit from some of our manufacturing facilities. Our goal is to get down from the mid teen number of facilities to the five or six manufacturing facilities as we go more to a Nike model.

So, we have been working down that road and we have made the decision we want to accelerate that some. There will be a charge involved with that. But, we want to be mindful and do these things at the right time so we can insure supply.

On the positive side of that, we're really going to up the public relations and focus in three areas, the United States which will be the prime movement there, France, and Germany. In the United States it will be really aimed at getting out the whole concept that there is a different Tupperware party out there; the products are much different. It will involve a lot of road shows and some aspects that will really going to surprise people coming out of Tupperware.

In France and Germany, the focus of this Eric, is really to begin to crack more upscale working women in the more urban areas of those markets where we are underpenetrated.

Second, with regard to investment, we want to get to be higher level of sales and Latin America, and simply stated, we want to accelerate this shift in the contribution of the beauty business there so we're going to put in place; A, much more of a merchandising infrastructure because more of those products are sold through sharing brochures and it will require some investment, and at the same time, what we want to do is begin brand building. There, Malaysia, Singapore, and in the Philippines, and if you look at other large direct sellers, that is key markets for them because spending is high.

Last area of investment, we're going to be in the US as part of our whole transformation of Tupperware launching a new compensation model in one of our regions of the market here. Beginning this year, we will test it out in part of next year, and hopefully by the end of next year to take it nationally.

By the way, it's very similar to in my former life at Avon, the compensation model shift we made in the US which was critical, and I noticed that last year of the $160 million sales increase in the US, 145 million of it came from people on that new test. So that is the initiatives and it's going to require some investment.

But, three years in a row were going to be making these kinds of investments. Forgive the long answer.

That's fine. Is the US half of that $15 million investment? Have you looked at that -- can you share with us that detail?

A significant part of these things are US related, but I don't think we're going to lay it out in that kind of detail.

Directionally you're right.

Mike, your comments about 2004 guidance that you felt -- the guidance that you gave for the year 120, 130 is obviously well ahead of where current consensus is yet you indicated you thought consensus expectations in the first half were too high. Can you just help us understand how earnings play out through the year that would sort of result in that type of a scenario?

We weren't really making a comment on the consensus; we were just saying that we were giving guidance for the full year and kind directionally for the first quarter. And we wanted to make sure what people were hearing was reflecting what we were saying.

So, we said that the flow would be similar to what it was in 2003 kind of in percentage terms with a shift, a modest shift from the first and second quarter relationship to the third and fourth.

Okay. I guess that would mean that earnings growth would be stronger in the second half than in the first half. What is different within the business to make that take place?

It some of the comparisons we talked about the U.S. business, and the situation of where we are year-over-year with the total sales force and the active sales force, so we're working to rebuild that. We've have good recruiting, but we're starting to lap where we were much higher last year.

The best quarter they had last year was in regards to sales was the first quarter and we want people to be mindful of that, Eric. What was really pleasing for us to see is the average active sales force, the reduction in comps were much better in the fourth quarter, but it's going to take I think until the third and perhaps the early part of the fourth quarter before they lap that and we get a better sized sales force.

Very good. Thank you.

Doug Lane of Avondale Partners.

Good morning. Starting with Latin America, and the good performance ex-currency in the fourth quarter at least year-over-year, I guess a lot of that's because the comparison was easy. But, excluding currency, is Latin America now in a position where we should be seeing positive numbers on a go-forward basis or will it just be kind of lumpy depending on what the year ago comparison was?

You're going to see progress in Latin America although what I want is to modulate expectations because if we were just meeting with our Latin American management team, the most important thing for us in Latin America right now is to keep the recruiting machine alive while we go through really enhancing the contribution of beauty sales in Latin America.

This is a company that has tried for 40 years to make a dent and Latin America with food storage, and it is not where they spend their money. So their real emphasis here is a productive shift to the beauty business. But, I don't it's going to be lumpy going forward. The management team has done the right things, firstly by shifting to an importer model where we had high risk. Next, I think they've done a nice job in Brazil in getting the cost structure in line and that was a real bleeder for us in the past.

We are going through, by the way, the Government Registration in Brazil for beauty products and it's a fairly lengthy process there.

Turning to Venezuela we made great progress in Venezuela, but yet it's a real question mark with regard to the government in Venezuela, and it's a nice profitable business for us. But, where I was pleased is we're starting to really get traction again in Mexico again. This is in the light of a very, very difficult economy; so longer-term for Latin America, I feel very good about our potential there. The beauty productline, BeautiControl as a brand has been well accepted.

Our sales force likes it, they are selling more and more of it, but you just can't move too quickly. We're really changing our whole business there from selling plastic bowls to being a beauty company down there and we're trying to do without a sales decline.

That is a big effort. Can you give us the percentage of the Latin America sales that were beauty in the fourth quarter? I think you mentioned a seven percent number but that was for the full year?

It was about the same. It was about seven percent in the fourth quarter in Mexico.

How long do you think it will take for you to get the clearance to move the beauty business into Brazil?

Two years before I'd really think you'll see a start to move more there. We have the opportunity to go faster in Venezuela because we can use --there is not the registration requirements, and we can use the same packaging, it's Spanish there obviously, and not Portuguese that we have to go through in Brazil.

But, Venezuela is a good beauty business for competitors as well. You know what is really happened, Doug that we are pleased to see, is that team down there has shifted from all supply coming out of our manufacturing facility in Dallas, to over 75 percent of products are now supplied in Mexico. Which is net for us, we're selling products with a lower net per unit, but higher margins for us down there, so they got that supply infrastructure and made a lot of progress on that.

Where you're going to see us have to invest is more in training down there, but we want to do this right. We know how to recruit 3 to 400,000 people a year in Latin America. We just never had the right productline to sell down there.

Right. That makes a lot of sense. Lastly, with a lot of these cross currents going on the cost savings offset by the increased investment in North America, should we can we look for a breakeven year in 2004? Or is that a little optimistic from where we stand now?

We aren't going to give guidance by segment, but it is -- it will be tough to get.

It's a Hail Mary, Doug. We hope it goes faster, sometimes it does in direct selling. But, we often learn things take time longer and cost more so I went to be prudent in the kind -- we are going to be giving you all quarterly guidance. I don't want you to be disappointed. You can bet though that they are leaning into it to get there sooner rather than later.

Okay. Thank you all.

Budd Bugatch of Raymond James.

Good morning Rick. Good morning Mike. A couple of questions. Can you give us any progress on recruiting in the U.S. during the quarter? How did it go month-by-month? And how is it looking now? Are you starting to see some progress there?

Yes. It was up 46 percent in the fourth quarter. The only issue why we didn't get more traction with regard to the total sales force in the U.S. is kind of a pig working its way through the python, we had a lot of deletions still going through in the business. But we did start to see that movement in average active go from the mid 30 range down to the 20 some percent range. By the way, Budd, I understand they did a Taste of Tupperware party over there. How did it go?

It was very good, Rick, and that kind of leads me to my next question. Can you give us idea of the percentage of parties in the U.S. that are now Taste of Tupperware? What are you looking to get to in the next year and how is a running now?

The bulk of our orders in the U.S. first of all are Web based and there is a box where they can mark how what kind of the party they did. We're getting reports back that it is in the mid 20 percent range. We don't know if that is accurate right now. So we're trying to drill down and validate more.

As I think I mentioned before, after we introduced Spa parties at BeautiControl, even after a year was only at about the 25 percent level. Because if you have been exposed in the past, one of the great challenges is getting a sales force member who has been a ten-year manager used to doing one kind of a party where she had total control to do this new kind of a party which feels like chaos to her but it is a party. So, how we're trying to help there is videos, training programs, seminars, but I think we're getting some traction there.

Could you quantify for us the B-to-B comparison we're up against in Europe in the first over and maybe what it was. I know that also there B to B (ph) business not done in the fourth quarter as well versus last year, is that correct?

I will have Mike quantify but let me comment again why we don't want too many of them. We're really did learn that some of these B-to-B's have been some kind of an infinity program with a chain in Austria for example which was brand building and there was a co-pack, if you did this, you got this, and it helped us get a new product out in the marketplace, but if you do too much of that to sales force you may get these leads for the consumers but the sales force starts to think that Oh my gosh you are competing with them so we basically said in most markets we really we only want to see you do one a year.

In terms of the comparison in the first quarter, last year we talked in the first quarter in Europe about having 3 million or so being unusual or extra. The comparison number is somewhere in that range for 2004 first quarter.

A couple of other quick questions, I hope. You gave us the number for emerging market sales in the Asia-Pacific Rim, I take it that looks like if my numbers are right about 35 million this year versus last year. Can you give us what the comparison was for last year?

I don't have those as a percentage although they have been growing very quickly.

You said the emerging markets are growing 10 percent, or double digits. I would hope we get a little -- that gives us a large range. And what it was in the emerging markets of China and India and Indonesia.

As you can see, we've started to give that percentage now, and as I said, we had fast growth in 2003. So, we don't have the percentage for last year. We can take a look at that.

Okay. A couple of other questions. On the $15 million of expenditures at least in this year where you are going to look like you use it, if I did my numbers right, 5 million in each of the second, third and fourth quarters? Can you give us a feel of how much of that will flow into the operating income number and how much will flow into if you are reducing facilities, you are going to have some in the reengineering column?

Yes, of course we have to report it GAAP wise and we talked about the kind of the offensive thing, the public relations and so on as being multi-year. It is somewhere around two-thirds, one-third thirds. Two-thirds of the brand building and the Proportionately, and one-third (multiple speakers)

But of the 2004 expenditures were about 10 million will be the brand building?

Yes.

In the years forward almost all that will be brand building?

Right. We will be looking at the manufacturer rationalization it is a little bit more discreet as we look at particular actions to take.

I take it that 10 million will flow into the divisional reported numbers and not be separately account for?

Most of it. Yes.

All right.

By the way, on the side of the facilities out there, we really want to reiterate we want a measured approach and be opportunistic here. There are certain markets that if we exit these markets too quickly, there would be huge consequences, and we don't want to do those with regard to a write-down. We're really going to evolve to this and really try to be sensitive and opportunistic. So don't plan on us having a lot of big write-offs.

Rick, I totally concur with that. I think that is the way you should run the business. I agree with that. But that tells me that some of the monies in 2005 and 2006 will come in the same place as you are able to evolve away from that full manufacturing model?

Yes.

Last question I would like to ask is -- if I did the numbers right on the stock options, on the pro forma basis, it was $7 million for 2002. We don't know what the 2003 pro forma would have been. You said I think $2 million, Mike, I thought that under 148 you're not going to adopt prospectively but you are going to adopt all -- at least that's the way that (indiscernible) is proposing to do it or are you just doing prospective adoptions of the expense so that are going to do it over the vesting period.

Yes. These numbers reflect prospectives so we had a relatively small amount in 2003 because our normal grants are in the November timeframe.

So these numbers do include some stock option expense as well in this year?

Yes, expense related to grants in 2003.

Right. So it will be 2 million in 2004 or maybe 4 million in 2005 and what is the vesting period?

Three years.

So basically a third of that total number in each of the next three years?

Yes, the 2004 number includes a full year, the 2003 grants and a little bit of the 2004 grants.

Okay. I understand. Thank you very much.

Kelly Nash at McDonald Investments.

I just have a few questions. Going back to the Taste of Tupperware, can you give any specific metrics that you're seeing from the success of the parties such as an increase in leads per party, average party sales or average spend per person?

We're not breaking those out right now but directionally, what were finding is that the average sale is higher. I want to get some more time under our belts before we start breaking those out, but I am not negative to doing it. Once we have got this under our belt for a year. Here's what we are seeing though, a big change in the datings per party. One of the things you really try to do in the business is get at least usually have a cancellation rate of 20 to 30 percent so you want to date 1.2 to 1.3 parties for every party you give, just so you breakeven. The party that replaces itself. We're getting much higher than that with the Taste of Tupperware. Also, better recruiting leads. But it's taking time.

On the new compensation program that you mentioned you would putting into tests, what more specifically are you hoping to accomplish that is maybe not being done with the current plan?

The current plan is kind of the top-down plan that if you have the franchise for Kansas City and you're a distributor, you have it. And everybody in Kansas City works for you and imagine if you had the McDonald's there, everybody -- the best you can be is a manager within a McDonald's. If you go to a tiered confrontation you allow what are called breakaway bonuses, and that is that you can in fact -- anyone can build a large distributorship in Kansas City and by the way, none of our distributors have exclusives, so you are able to attract a higher quality individual as far as when I say and A or B, college educated, wants to earn more money; by the way what we've learned in our BeautiControl business, we can seriously talk to someone that if she wants to making 8 to 10,000 a month in earnings, working 20 hours a week, you can do it with the BeautiControl formula.

So, it's moving from a compensation program that is largely in Tupperware today focused on just selling to more compensation program that is blended but you get it for selling but also developing other leadership people.

So then would you expect to see a decrease in the number of distributors over time?

No, as a matter-of-fact, it goes the opposite way. We have in the US about 300 distributors right now. The equivalent of Avon is called a district sales manager. They are at 2000 because of the nature of the product lines that they are consumable, I don't think we need 2000, but I would think in the 750 to 1000 range is likely. We have a penetration. There are states right now -- there is not a single Tupperware distributor so it really is filling in that potential. That is why BeautiControl is growing. We went in there and they went from being pure product focused to product and opportunity focused. That is what we have been lacking. Tupperware has never been a big opportunity focused company and you ought to be able to have both.

So in looking at the compensation structure, would it be mostly affecting the distributers then or the managers and consultants or really across the board?

Across the board, and it doesn't negatively affect the distributors, Christa Hart (ph), who is leading that program for us she has built in what is called a Legacy program so that they have got a step up and added advantage for being a distributor. There always will be Legacy distributors, so we're not replacing them; we're just allowing other people the opportunity to get to these levels.

Okay.

We think our distributors, Kelly, will end up making more money this way that's why we're doing it.

Okay. Would the distributor then be engaged in more of the party sales aspect of it?

No. She would -- you will find more of our distributors engaged in really developing other leadership people. That is what it's all about. It's interesting to get to this, this road the U.S. has been going down, there have been a number of things that we had to do to get to this. Shift to a new business model, you couldn't do it if you didn't Web order entering, etc. If everybody needed their own pile of them, you can't do it. We've got all of that stuff out of the way and the last thing we need to do now is go with this new structure.

Regarding a new venue you mentioned as far as a different types of showcases per se, can you discuss about this in any more detail, including how these might be different than the Target locations?

I can't right now. I don't want to get ahead of ourselves. We are in some discussions on these but they are some very interesting -- it involves showcases but in different kinds of venues. I just want to kind of keep our powder dry until we refine this more.

My last question is on Korea. You mentioned that they were showing progress in the quarter. Is this relative to the new compensation plan and is this kind of progress sustainable?

I think it is. We've got a terrific managing director there who is Australian. We've had him -- he did a great turnaround in our Australian business, and he was our CFO of Europe, Africa, Middle East for a while. What he has done is a combination of things. First of all, I think what Charles has really done is reinstalled standards into the business again, and a new motivational level. I was there with him about two months ago and I was very pleased to see the traction starting to take hold and he has been reporting week after week of sales increases, which we haven't seen for two years in Korea. So, he's committed to being there for quite a few years, so I think that is a great direct sales market.

Great. Thank you,

Rommel Dionisio of Roth capital.

Good morning. I was hoping to discuss this move to more outsource production. First of all, with regard to the timing of that over the next few years; second will this be a source of cash over the next year's as you perhaps worked on inventories, passing off some of the inventory risk for these outsource providers.

And finally, will this negatively impact new pro development? I know you have spent a lot of money developing these new molds and how these outsource partners be expected to develop those new products?

I will answer part of that and Mike, if I don't answer you finish it. Very clearly, first of all, the main driver for us to do this is the change from product lifecycles. It's gone from having a product lifecycle almost to product spikes, and we are not a commodity of manufacturers. So what we have found is new and different matters more than it ever has. Therefore, you really want to reduce your capital expenditure firstly on those kinds of products which are more limited life in our product line. That is the first point out where we will leverage outside supply here.

So, where I think you will start to see it is the benefit will come, not too much in inventory, but the benefit will come in capital expenditures right now. We spend about half our CAPEX on molds right now. When we introduce new and different products, we often don't have to do that. The whole cutlery line, the cookware line, a lot of our kitchen tools and gadgets, we didn't have to spend on those. It's interesting, our CAPEX level is half what it was 10 years ago, and yet we introduced many, at least double the number of products that we did then. So it's more of that mix there.

I think the other thing to keep in mind is when we talk about outsourcing, we are not only talking about products that are not what you might typically think of as Tupperware or molded products but it's also contract manufacturing where the outsourcer would still be using our molds. We would be setting how much we wanted them to make and so on. So for that reason, it wouldn't directly necessarily impact the inventory level, but like Rick said, it comes back to the investment in the molding machines themselves and the factory facilities, and a big part of the initiative here is the flexibility.

Thanks very much.

One thing I might add, I have seen -- we have got Morgan Hare (ph) as our Global Head of Marketing and we have seen great progress in her area of not having these four silos out there of when you introduce a colander, every area of the world introduces a different colander. We had one time in Europe ten different blues used and now we are down to just a couple of different blues. A lot of progress.

Thank you Rick.

John Tucker (ph) of Edward Jones.

Good morning gentleman. I appreciate your --. A couple of conference calls ago you mentioned that you were going to take and concentrate on two things. One is reducing debt, and then potentially raising the dividend, and I think I am paraphrasing you when you say because of the new regulations. Particularly vis-à-vis reducing debt, what do you see coming up.

Our debt structure right now is basically made up of two long-term pieces. We have 100 million of debt becomes due in 2006 and then 150 million that comes due in 2011. So at the end of the year we have basically paid down all of our current debt or short-term debt. So, you shouldn't expect to see any movement really there over the next couple of years. I think what we said today was that we would continue to pay our current dividend, and we would look at possibly using the cash that we generate to strengthen the balance sheet in terms of some of the liabilities that we have.

Okay. Thank you.

Rob Schwartz (ph) of J. L. advisers.

Hi guys congratulations on a good quarter. Just a follow-up on the last question, with the increased free cash flow --I think it was up over 65 million, is there a time here where you'd look at repurchasing the stock with the excess free cash flow as an option?

What we have done in the past, we have shown and the Board has shown a positive bias, we had a 5 million repurchase program in place and it is certainly one of the things -- but not at this time. I can tell you one of the things that we are not going to do. We don't need to do any acquisitions. We really looked at all of the other new product categories to get into, and we don't have to buy the company to get those products because we have the channel.

BeautiControl was a special situation even though there were some other companies that wanted to provide us with beauty products. We didn't want to build somebody else's beauty brand out there. We wanted a brand that already had a story. We know right now, Rob, we are not going to do any special dividends that doesn't make any sense; and so you really start to sit there and say it is the usual laundry list of things, you would consider doing. We think what is our debt level, what is the interest in share repurchase, and what might we do with regard to that dividend? So, you go through the last.

Sounds good. Secondly, just on the North American business, I was very impressed with the progress you made on the average active sales force this past order. Even though the first half we're still up against the Target compares from last year, and so you wouldn't expect sales to turn positive. Should we expect continued improvement in the average active sales force quarter-by-quarter?

Absolutely, but I think what you'll see though is I would hope somewhere in the mid to high teens in the first quarter, when that is all over, a little more improvement that second quarter and then it accelerates and our hopes is that turning point happens in the second half of the year. Probably either late in the third or early in the fourth quarter. When the comps turn positive.

So first quarter you expect to go from down 25 percent to down high teens?

I don't want to give quarterly guidance even though I partially just did there. We don't give guidance. I am getting a bunch of negative faces at me because I even said that.

Thanks and good luck with the progress.

Doug Lane of Avondale Partners.

Mike, back on the cash flow questions. You mentioned 70 to 75 million, that is sort of a free cash flow estimate that you were giving, right? That is after CAPEX and after working capital. Correct?

That is before financing activity.

Right. That does not include benefit from land sales?

That would be in net income so that is blended in there. We said six to eight cents from land sales, so it's not a huge number.

But that is part of the 70 to 75?

Yes.

Okay. The dividend is what? 50 million or so?

Just over.

It sounds like what you are trying to tell us is that until further notice your interest is in building your cash balance and particularly since you decided to talk about your balance sheet on a net debt to capital basis? Is that a fair statement?

I guess so. Because since we can't pay down any more of this debt, it seems to make more sense to look at it on a net basis.

Right. Because the cash will be going up and at least you credit for in some fashion and that make sense to me. But at some point, obviously building cash balances at a 1 percent interest rate environment is not the most efficient use of capital. So, how about if I push a little further and ask you to rank your uses a free cash flow, based on the items you gave me. You said no special dividend. But let's rank them and you can't really pay down debt until 2006? Is that what you are indicating by that 100 million that is due in 2006? If not, you can't prepay that in any way?

Not economically, because you would just have to make the difference but I think Rick was going to comment.

We don't want to rank right now. We've got first of all its moved usually because the flow of our year, and the needs for working capital that is the second half of the year, the discussion to have and we would be happy to have it at that time. What I want do is report progress in the first quarter right now, and it will be a good problem to have.

I see. So just because from a seasonality standpoint the real cash generating quarter is going to be the fourth quarter.

That is when it always is. It's our kind of beast. It's the nature of the beast thing with us and Avon and others like us.

So it makes more sense to have this conversation in six months or so.

We will have -- we would welcome that kind of a conversation, and input.

Okay. Thanks Rick. Thanks Mike.

Budd Bugatch of Raymond James.

Just a couple of other questions. Rick or Mike, you talked about 40 to 45 of CAPEX expected for 2004?

Actually I said 45 to 50 million.

45 to 50 million so up from this year. I am confused, if we are moving to a less of the manufacturing model and I realize that is a multiyear process and we spend half on molds, are we going to continue to supply the molds to our outsourcing partners? Is that who is going to own those molds?

We would do that and potentially as our product mix would move more to noncore plastic products that could shift over time. We kind of see that we talked about our expectations for 2003 of 45 million for CAPEX is kind of a normalized amount and then with the stronger euro as well, that is having an impact on what we're seeing.

I'm curious what you are spending on the other half of that CAPEX on?

It is a variety of things; it includes capitalized software, it includes repairs and upkeep on buildings, machinery, the normal sorts of things.

There are 15th factories out there, new roofs, yes.

On the hedging program that you're going to install, the $2 million you are going to spend that is that income statement affected. I take it this is to keep the euro denominated assets at the level that they're at now?

Yes, the 2 million is what would go through the income statement and then the point is to protect the euro assets which also locks in the cash flow for the year.

(multiple speakers) What the gain in translation was from Q3 to Q4. It is not in the release and I know it will be in the final audited numbers. On the translation impact on the equity account?

While they are looking, let me comment on something else on that. The real focus of that is really hedging the cash flow because at the end of the day that is what really matters cash and there is. Conventional wisdom right now is that the euro is overvalued and they can't stand keeping it at this level with regard to the impact as you know, of exports.

But to used to do that with a natural hedge with the liability side of the balance sheet as well. I take it maybe you can't do that anymore that something structurally has changed.

We do have that, but if you look at our net assets overall, we have more assets than liabilities, and this is potentially you look at it more on this is where the euro is right now. We generate so much of our earnings right now over in Europe, and we just thought it prudent to protect the downside on that equity and also importantly on the cash flow.

More importantly on the cash flow.

But not the earnings. It won't have an earnings hedge. The earnings hedge was discontinued in that fourth quarter last year, right?

That's right. Yes.

So the amount of the translation impact in Q4 over Q3?

You're asking on the balance sheet, right?

Yes sir. Because in the other comprehensive income account, it would be up and we don't have that.

We will have to dig that out. As you can see that it went up about 50 million or less negative, 50 million for the year on the balance sheet but we will have to dig out the impact on the --.

That's great. Thank you.

At this time we have no further questions. I would like to turn the conference over to the speakers for any additional or closing remarks.

Thank you very much. I think the most important thing is how we are all feeling here, we enter 2004 with more momentum than we have had in resent years, and interesting, we ended 2003 and didn't have to have a lot of pressure for results. Shipments were actually fairly soft the last weeks of December, so that showed that this wasn't driving to make the numbers then.

Europe, it's where we make most of our money. It is our strongest area. We have a lot of work to do in the U.S. We think were going to have more improvement in Asia-Pacific. We counted a lot of growth in our BeautiControl business. And to confirm our direction in Latin America, it really is this conversion of more of our sales to the beauty business.

So, overall, we feel good about the year. Again one of our great concerns as Mike said, we don't want the market to get ahead of us too early in the year. There is a modest shift quarterly flow of earnings from the first to the second quarter. But we will see the sales force really start to take off in the second half of the year. We look forward to reporting on a lot of progress, so when we talk again in April. Thank you for your time today.

That does conclude today's conference. We thank you for your participation and you may disconnect at this time.