Tupperware Brands Corp (TUP) 2004 Q1 法說會逐字稿

Good day, everyone, and welcome to the Tupperware first-quarter 2004 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.

Thank you and good morning, everyone. I am joined this morning by Mike Poteshman, our CFO, and Jane Garrard, our Head of Investor Relations. A disclaimer. Some of the discussions will involve the future outlook of the business, so I refer you to the Company's position on forward-looking statements.

We are pleased with the results in our first quarter coming in better than we anticipated in January. Three of our five business units contributed. Importantly, the first quarter really set the tone for the year in direct selling, so it bodes well for what kind of a year this will be. We also benefited from foreign exchange, lower corporate interest cost, plus made a lot of progress with regard to real estate development and the balance sheet. Mike will talk more about that a little bit later.

Turning to Europe first, we continued to have good results in many of our markets, including Germany, Italy, the Netherlands, South Africa; also our emerging markets of Russia, Turkey, Poland. By the way, these three emerging markets contributed 6 percent of sales in Europe in the first quarter, and that is double what it was last year at 3 percent. And all of them, importantly, were profitable.

Also, as we have mentioned before, due to the lower per capita GDP in these emerging markets, we generally have a much lower party average, but it is still effective for these markets. Anyway, this factor, along with a lower level of sales productivity in some of our Western European markets as they absorb some new higher number of sellers, led to the low single digit sales increase in local currency during the quarter in Europe, even though the sales force was up 15 percent.

Europe also achieved an average active sales force size of 73,000 in the quarter. Worth noting is this is the largest that we have had in a decade in Europe, which is great progress on one of our primary objectives, expanding the sales force, particularly the average active sales force. This advantage also gives us confidence in the sales and profit growth picture for Europe as we move forward. However, it is going to be impacted to some degree by lower productivity, so you won't see a clear translation from average active sales force growth to sales growth.

Regarding some of the other growth initiatives in Europe, I spent some time in Europe during the first quarter and took a look at all of these. But integrated direct access continues to be important for us there, and we're pleased to see that the number of Showcase locations increased 30 percent in the first quarter from a year ago. And as you have heard us say before, the primary purpose of pursuing integrated direct access is really to drive the party business. It enables us to not only recruit more dealers, but it also helps us to schedule parties with new circles of customers. And that is important so you're not fishing in the same pond all the time. Also the markets, each of them are making progress in formatting a more interactive and contemporary Tupperware party which is really suitable for their culture in their country.

Let me move to North America. While there was some sequential improvement in North America, sales and profits were down significantly in the first quarter, as we anticipated. That was really driven by the sales force deficit versus last year. We did not see the sequential improvement we wanted to see in the average active sales force, and therefore, we were cautious about the timing of positive sales force number comparisons, and we now believe this may not occur until the first half of 2005. And when you filter that in, that means that the 2004 losses, even though we have instituted cost-cutting, which we will talk about later, they are likely to be more significant than what we forecast in January.

As you also might imagine, regaining the momentum we had in the U.S. prior to that retail test is taking longer than any of us would like, but it is taking the time it takes. We could have a mass recruiting exercise in a quarter, but we would have a difficult time then converting those to a productive sales force, so we're trying to take a slower but more steady approach. At the same time, I might add, it is not inhibiting us from the implementation of the strategic initiatives we have been working on for the past number of years in the U.S. And what we are really trying to do is combine a competitive business opportunity for the people that we recruit in the sales force, plus those that are already part of it, with a contemporized party for consumers along with our innovative products.

Building (ph) on the conversion to a sales force direct ordering model that we initiated three years ago, North America is now ready, we believe, to move to the second stage of enhancing the earnings opportunity for sales force members and new recruits. We are currently working on a new multi-tiered compensation plan, not unlike BeautiControl's, that is expected to start up in the second half of 2004. I might add too, to help avoid disruption while we introduce this plan, we will be maintaining our existing compensation plan in parallel.

This new compensation plan for the U.S. business really has, when you put it through the winepress, three fundamental features. First, it moves from temporary payouts to lifetime payouts off anybody that you might recruit into the business. And there are some specific sales performance standards that go along with this. Second, it breaks down in a geographic boundary within the country -- and net-net, what that means is you can recruit people anywhere in the country and develop them using some of the new technology available and earn an override. And finally -- this is a very important one -- it allows any sales force member a self-promote proposition. And again, what this means is you know you don't have to wait to get to the next level for somebody else to approve that. You go to the next level based on your own performance.

We believe this improved compensation plan will provide a better business opportunity for our sales force and allow us to more effectively compete in this U.S. direct selling market. By the way, the majority of U.S. direct sellers have shifted to a multi-tiered compensation plan, and we went through stage one of this about three years ago with one of our regions, and now it is time for the second stage. The new plan, by the way, is self-funded and it is really served by redeploying compensation and promotion expenses to more effective areas. There will be some initial rollout costs to this that are included in the $15 million investment we talked about in the first quarter, and we have already factored all of that into the 2004 outlook.

By the way, to advance the new party format, what we call in the U.S. business the "Taste of Tupperware" party experience, we continue to train consistently. And all new consultants now, their entry kit contains only the "Taste of Tupperware" party format. Also, we are focusing our public relations efforts on this new party format to help convert sales force members to new party formats and to educate consumers that it is a new and different Tupperware format. It provides not only an educational environment but also it is entertaining. By the way, as part of that public relations, you will see some celebrity chef events across the country and we will alert you to those, so you may want to participate.

Regarding in the U.S. business, the integrated direct access strategy, it continues to be an important component. I think we were down 1 percent in the number of locations of Showcases. However, the Internet and QVC continue to help us get access to more consumers that are interested in joining a Tupperware party but simply don't have access. I might add, too, that once you strip out that failed retail test for the first quarter last year, the IDA (ph) percentage in North America was 8 percent in the first quarter of this year, compared with 5 percent last year.

Let me move to the Pacific rim. In Asia-Pacific, the majority of our countries there are doing quite well -- Australia, Malaysia, Singapore, China, India, all performing exceptionally well. Additionally, we are pleased to say that Korea and the Philippines, which have been in the penalty box, have stabilized, and both contributed positive profit comparisons in the first quarter. Japan, which is our largest market in the Pacific rim, did have a sales and profit decline with prior year.

However, I was there in the first quarter as well. Under the new leadership of one of our strongest managing directors, who we moved into the Japanese market and who has been very well-received there, we are focusing on really enhancing the business opportunity -- it is a very entrepreneurial market -- and this includes converting more of our customer buyer types to really sellers, as well as expansion of the sales force. Again I was there in the first quarter and I came away with heightened confidence in what is ahead. Again, this is our largest market and the number two direct selling market as far as total size of direct sales in the entire world.

We also continued in the Pacific rim to expand our Beauty business, and our launch market there really is the Malaysia/Singapore area. In the first quarter, pleased to report that Beauty contributed 11 percent of sales in those two countries, compared with only 5 percent last year. And so we're getting the template together that we will be using for some other markets in Asia-Pacific and these sales have been incremental. That is important.

Additionally, the emerging markets in the Pacific rim of China and India continued strong growth in the first quarter. These markets, along with Indonesia, contributed 18 percent of sales in the first quarter, compared to only 16 percent this past year. While on the subject of Indonesia, I must say, though, that over the last three quarters we have encountered some issues with a declining sales force there, and that has caused us to really modify some of our merchandising strategy to work to communicate better the business opportunity in this market. Additionally, we are strengthening the party hostess program, so I think we've got the right things in place.

So net-net for the Pacific rim, we expect it to contribute both sales and profit improvements during 2004, and we look forward to continued growth in these emerging markets and in Beauty in that part of the world.

Moving to Latin America, we experienced improved performance in the first quarter, particularly in profit. Mexico, our largest market, is stabilizing. We are glad to see that. And the sales for active sales force has been improving. We have had an increase in the number of orders also in Mexico, resulting from improved grocer (ph) merchandising and a focus on promoting new sales leader. That bodes well for the future.

Also importantly, the sales contribution of Beauty continues to grow. In fact, in the first quarter in Mexico it was 9 percent of Mexico's sales, compared with only 6 percent this past year, so we're really gaining traction. And I believe underlying this, even more important, approximately 60 percent of all orders from Mexican sales force members now contain at least an order for one BeautiControl product, which is a positive sign regarding the acceptance of our product line and the integration of the Beauty business into our core business. As we have said to many of you, we know that over 70 percent of our sales force has in the past carried a competitor's beauty products, and so our whole issue here is knocking them off our shelf and getting that shelf space back ourselves.

We are moving forward also to really enhance the BeautiControl performance through brand building. And largely what we're going to be doing in Mexico is an initiative that involves sampling aimed at increasing the sales volume. We've got now 60 percent of them ordering something. We wanted them ordering more, and the best way to do that is to let them sample the products. It also enables us to recruit sellers from other direct sales companies. This is expected to help us expand the sales contribution from Beauty in Latin America. Once again, it's going to take time to provide substantial growth and the related return on sales.

However, long-term, we're confident this is the right strategy for Latin America. Remember again, 55 percent of all beauty products in Latin America are bought through direct selling, and its personal care products is a $25 billion market there, so we're making progress. Worth noting too is that both Mexico and Brazil have refined their cost structures to maximize profits. And Venezuela also contributed nicely to sales and profits in spite of the continued the unstable external environment.

Turning to BeautiControl in North America, this business continues to grow robustly. I might add too the return on sales, when you peel out the onetime charges with some executive retirement costs and a legal accrual, which is $2.5 million -- the combination of both of these -- the ROS actually went up one percent from last year. But we're continuing to invest in promotions to get that top line and get the scale we want at BeautiControl. The BeautiControl acquisition continues to provide a good strategic investment, and not only establishing that as a business in the U.S. and allowing it to grow to its full potential, but also to help us to compete more effectively in Latin America and Asia-Pacific, where the spending for beauty products is substantially higher.

On another point regarding BeautiControl -- I mentioned it earlier -- their compensation program at BeautiControl contains a very strong self-promote component, along with the ability to recruit anywhere. And we are looking to transfer some of those same components to our North American business, so we have got a very good template to adapt from.

Before I turn it over to Mike, let me make a couple comments, though, on the product area. I have mentioned in the past we've been pleased that we've moved this brand, particularly in the U.S., from number 11 most respected to the top five, to number two over the past decade. But product is an important part of that, and we have made a lot of progress in converting this brand from primarily a storage container business to a contemporary brand which provides innovative quality and fashionable products in multiple categories. And we just did an analysis and we believe we're really moving forward even more aggressively there. Particularly, we're making a lot of progress with instituting an architecture that really helps us approach innovation in a more effective way.

What we have really done is we have established five platforms for innovation which are going to help utilize innovation as a lever for growth. The platforms are basically this. Number one, seasonal products. Expect to see more from us, and that's basically on tabletop items. You will see themes like Springtime, Christmas, Hanukkah -- and we've never used much of that at Tupperware in the past. It was a more purist approach. Second platform for innovation, art and design statements. Here you'll see sometimes products from Tupperware that are not out of resins, but sometimes stainless, just to show what Tupperware can do.

Third, what we call surprising solutions. And we have always been about solutions, but now there is a focus on in Europe a new ergonomic line of products from everything from nutcrackers that we're launching there to jar openers. I might also say even in our core product category, we used surprising solutions. The product that we launched this past year called Stuffables (tm), which is really an expandable field so that when you go to really store products for reheating later, it allows the lid to expand. We have been pleased with the response there. As a matter-of-fact, Good Housekeeping called it one of the seven best new product innovations of this past year. So work in solutions.

The fourth area of innovation will be what we -- it's called brand building products, and that is cookware, cutlery, a lot of the high-tech products that you see us do in Europe and in markets like Japan. And then finally, more and more emphasis on technological advancements. I will give you an idea. Cheese is a big part of the European staple, and we have introduced a product there are called Cheese Smart (ph), which is really a new approach to storing cheese that allows cheese to breathe, to get some of the humidity out of there and to stay fresh longer, and it has been tested and the product works. It's a new innovation.

Now, what's really important is when you put these innovations together, many retailers or those who only sell in a retail environment, there's no way to demonstrate these innovations. And when you combine this innovation with the Tupperware party and the format where we can demonstrate this innovation, it supports these 65 percent gross margins that we are used to and it keeps us out of the commodity business. So a lot of focus will be -- and I might recommend that some of you visit our design center in Orlando on a case-by-case basis and we will show you what we're doing in this, because there is a lot of new innovation there.

Let me turn it over to Mike Poteshman and then we will open it for Q&A.

Let me first start with the balance sheet, where we made some nice progress on receivables. We reduced DSO from 34 days in the first quarter last year to 28 days this year. And this reduction in receivables, along with increased net income, contributed to a fairly significant increase of $29 million in net cash provided by operating activities during the quarter, compared with the same quarter last year. Additionally, the net debt to total capital ratio improved from March, 2003 by 13 percentage points to 49 percent, so we were quite pleased with this progress.

Turning to the outlook for the remainder of the year, as indicated in our earnings release, Europe, Asia-Pacific, Latin America and BeautiControl North America are all expected to contribute sales and profit improvements in 2004 compared with last year. However, declining sales volume in North America, due to a large salesforce deficit that did not continue to improve sequentially in the quarter, leads us to expect a significant loss in this business in 2004, which offsets the improvement from our previous outlook in the other segments.

The resulting full year guidance is $1.28 to $1.38 per share, which includes a 5 cent increase in our expectation for pending gains on land development. We closed on our parcel of land in the first quarter and we are better able to determine the gains associated with this to be realized in the third quarter. With this increase, we are now expecting 11 to 13 cents of earnings per share this year from land development, 2 cents of which was recognized in the first quarter, with the remainder expected in the third quarter.

Additionally, we continue to plan to make investments in the business this year, with an approximate cost of $15 million, which includes $5 million related to manufacturing rationalization and $10 million to advanced strategy. As was the case when we spoke with you in January, we expect these costs to be spread fairly evenly through the second, third, and fourth quarters, with the approximate one-third, or $5 million, related manufacturing rationalization to be incurred in the second quarter and the $10 million to be spread between the third and fourth quarters.

Our full year guidance versus what we said in January also includes a 3 cent upside for more favorable foreign currency exchange rates. The rates used in developing our outlook were the actual rates used for the first quarter and our end of March rates for the remainder of the year. Of course, the dollar has strengthened significantly since the end of March, and this will have a negative impact our results if it stays at this level or strengthens further.

Let me take a minute to update you on other components of our outlook. Our expectations for both full year unallocated expenses and interest costs remain the same as in our January outlook, at 27 to $28 million for unallocated and 50 to $60 million for interest. Although unallocated expenses were less than expected in the first quarter, much of this related to a timing shift and will flow through later in the year. Additionally, we are leaving the full year interest outlook the same in spite of incurring less than expected in the first quarter in anticipation of rising interest rates. We continue to expect our full year effective tax rate to be 21 to 22 percent.

Our full year expectation for cash flow before financing activities was about $75 million, reflecting no significant movement in year-over-year working capital balances, and capital spending in the $48 million to $53 million range. The capital spending outlook rose moderately from our January guidance, reflecting spending associated with our land development.

As indicated in the press release, the outlook for sales in the second quarter is for a low single digit increase. Excluding the positive impact of foreign currency, sales are expected to decrease low single digit. Net income and earnings per share are expected to increase significantly due to higher profit, primarily from Europe and BeautiControl North America, lower hedging costs of 4 cents and of course an upside from the impact of stronger currency -- although again, this is at end of March exchange rates, when foreign currencies were stronger. Going the other way is the continuing negative trend in the Tupperware North America business.

The net of all this is we expect 21 to 23 percent of our full year earnings outlook to be realized in the second quarter. As I said a moment ago, this outlook for the quarter includes our anticipated manufacturing rationalization costs of approximately $5 million, or 6 to 7 cents. Now with that, we're going to turn the call over to questions.

(OPERATOR INSTRUCTIONS) Doug Lane of Avondale Partners.

Good morning, Rick and Mike. The question is on the compensation system transition. If you could just drill down a little bit more the mechanics of implementing that, particularly in the context of your system, where you have -- and pardon me if I don't get the terminology right -- but I think it's district managers -- or there's somebody that in charge of geographical regions. And how would it impact them, given that it sounds like you're going to a more seamless kind of model for the whole country?

First, they're called distributors in the U.S. Firstly, I want to clarify that the multi-tiered compensation programs, when you look at global direct sellers, they are more the accepted method of compensation for North America and certain markets of Asia-Pacific -- primarily it is a very important method in Japan. We will not be doing this in most of our other markets. But it is very important in the U.S. The important piece, Doug, of why we're putting together a parallel program is you want existing -- first of all, we are going to start out with a number of distributors who go forward on this program on a consent basis that they sign up for, and they said, we want to do this.

We want to be able to develop beyond our local area. They will be allowed compensation-wise to run in parallel with the previous compensation program. And one overtakes the other, that is when they will make the conversion. Not to mention other companies, but that's the last thing I was deeply involved in, is the creation of that compensation program at Avon, and the important thing we did there was we ran a parallel program so you wouldn't alienate the current sales organization. But that's what we're going to do, so that you have to have them behind it or it simply doesn't work.

Is the concept of geographical regions ultimately going to go away?

No, you'll have a local group that you work with, that you recruit, train, and motivate. So a local distributor, for example, in Nashville would have a tendency to work with the local organization. But so many people now went to school elsewhere, were raised elsewhere. They will now have the opportunity to recruit and organization in there. So for example, a roommate in college, and they will stay in touch via phone, e-mail and other technology.

By the way, if you look at our BeautiControl business, a basic BeautiControl sales leader will have a core organization that she works with locally, but as she moves along in the business, she develops a business across the country based on other people she knows -- and she earns an override off those people. Technology has been a great enabler of this.

Right. And what has the reception been down the line, from your more senior distributors to your newer reps? Can you get any kind of gauge for the reception of this new plan?

I think the reception is fine with them, because they don't have to do it. So if they want to participate in this kind of a compensation program, then it is an option that we open for them. Importantly, Doug, we have over 300 distributors in the U.S. We will probably have 50 to 100 who will sign up for the second phase of this -- because we have been working on this for three years. And I think what you will find is 250 will watch what happens with those, and as they have progress -- that was the experience, by the way, at Avon.

Okay, great. Thanks.

Budd Bugatch of Raymond James.

Rick, if you could, maybe just give us a little more color on what's going on in some of the emerging markets, China in particular -- what is the progress there? I know you said it's profitable.

It is profitable. It is still small, though, but I'll tell you what's happened there, Budd, because direct selling per se has been outlawed there. So what we use is a storefront approach. And we have been opening hundreds of storefront in China, to the point that -- Jane just handed me a piece of paper -- it's even more than I thought it is right now. We are at 986 storefronts in China right now. And so this is entrepreneurs that set up their own business there.

Now, what the government -- we have very good relations -- has allowed us to do is have "preferred customers" who can work out of those stores, so those are modified sellers if you will. So we're making great progress in the context of how China allows you to do business. Importantly, it has been big brand building and it is happening all over China. I think the important number I gave you too was the growth in the contribution of those emerging markets. It is really starting to get more serious as we go quarter by quarter, Budd.

You mentioned -- and I don't remember hearing this before -- of a legal issue at BeautiControl. Can we get a little more -- did I miss something or is there a little more color (multiple speakers)?

I think there's still negotiation. It would be inappropriate for me to comment. But we generally take a prudent and conservative approach with regard to reserves where there may be some pending litigation, and that was the decision on that. That's about all I can say right now.

Has there been a lawsuit filed -- anything formally filed?

It was there when we acquired the company. There is nothing new.

And finally, maybe Mike can address -- I know you have the additional gains this year on land sales. Is there any change in the overall view over a multiyear issue of what land sales will be in terms of its potential profit?

No, that really hasn't changed. We're still looking at the 80 to $90 million, and would hope to have that program complete by 2007.

So what has happened now is you been able to accelerate some gains into this year (multiple speakers) out of the tail end?

Right. We closed on a price and got a better handle on what the number would be for this year.

I might add on that, too, that if anything's changed, we are still keeping at our 80 to 90 million -- but we had one deal over the past year fell through, and when it went back on the market again, it went on for a lot higher price. So as we move forward, I think we have taken a prudent but a conservative approach with regard to the selling price per acre. So with many of these, it is likely to go up.

Okay, thank you.

Rommel Dionisio of Roth Capital.

Rick, just a couple of questions with regard to the (indiscernible) sales force and distributor base in Europe. I have noticed you seen 15 percent increases in average activity in the total sales force, but distributor bases remained the same. And I just wonder, are you undergoing some sort of rationalization there and combining this (ph), similar to what you did in Latin America, I think last year? Is there anything unusual going on there? Especially as you're moving into Eastern Europe, I would have though that the distributor base would increase as well.

No, what we did last year, we closed down that UK business and all of a sudden that left a big deficit there. No, in Western Europe, we've got distributors primarily everywhere they need to be, so there is not a huge penetration opportunity. We had converted in some of our markets -- down in the Balkans -- we made a decision in the Balkans -- there were so many issues with regard to accounts receivable down there that we didn't want the risk of that. So we did what we did in some of our smaller Latin American markets. We converted to an importer. So that would mean a deficit on distributors. But you went to one master distributor rather than many little distributors, so that distorts the numbers.

But in markets like Germany we are about the same on distributors. By the way, in most of our markets, you generally have 10 to 15 percent of your distributors which will turn over per year, and it's usually age, retirement that drives about half; performance retirement that drives the other half. Now the expansion obviously is happening in Poland and everything in the former Soviet bloc.

Okay, thanks very much.

John Tucker (ph) of Edward Jones.

Great quarter. I was hoping you could expand more on the U.S. market, which seems to be sort of the anchor on profits right now, and how you plan to build it up and what you are projecting over the next year.

I think, John, you're right that this is a big opportunity for us. And we are trying to rebuild the sales force and we have said now that we think it will be into the first half of 2005 before we see the positive comparisons. And I think that is what you should be watching going forward, is how we do each quarter in looking at the year-over-year trends. In terms of catalysts for that, we think the "New Taste of Tupperware" experience party will help, and then a little bit longer term, this compensation model. So that is what we are working on.

Well, you talked about cost reductions. What do you see for that?

Well, we talked, yes, last year about 15 to $20 million in cost reductions and we are seeing those starting to come through. We did have a shift of some of those. We got some in the first quarter -- not quite as much as we thought we would -- and we're looking to get those later in the year. And then, given the trend in sales, we are looking to see what we can do further in the value chain.

Could you comment on why you're having a little trouble recruiting or why is it slow recruiting?

I might add on that, we have seen an improvement with regard to -- the recruiting trends have been good, however deletions have been higher too, as we've been flushing some of the sales force from this past year. I think we are going down the right road there. The real balance right now, John, is we don't want to get so many -- and generally you try to recruit 2000 to 3000 per week, and every once in a while you get those spike weeks at 7000. You have a very difficult time absorbing those and getting the right kind of training, so it drags down productivity. So actually, we're pushing our U.S. management team. Glenn (ph) is very much so to expand the numbers, but not at a point so much that it diminishes their activity and productivity. So the real number we're looking for is growth in average active sales force.

Okay, thank you very much.

Grace Hosig (ph) of Axia Capital.

You might have already touched on this, but could you explore a little bit more in Europe the difference between the growth in the average active sales force and the growth in revenues x the currency? Is that the distributor base that you talked about? Is there a big lag there? Is it a productivity issue? I don't know if I really get that. The second question is could you just quantify the negative impact of hedging in the second quarter of '03?

On the first piece, Europe is a basket of different markets. Obviously, many of the recruits happen in Western Europe. But the more dynamic growth businesses are the newer markets, particularly countries like Russia. The per capita GDP in Russia is 1/5 of what it is in Germany. So you'll get this tremendous increase in the size of the sales force there, but the average party in Russia tends to be about 1/4 of what it is in a Germany, so you won't get the same kind of sales growth comparisons. And that is what I tried to articulate. It is a mix of these lower GDP markets plus the Germanys and the Frances. And that is why the best way for us to explain it to you is just be apparent with, hey, some of it is coming from here, some of it is coming from here.

By the way, if it was a Germany and you saw an average active sales force up seven or eight percent, you would likely see a sales increase of three or four percent. Most of the sales force increase would be converted to a sales increase. Not so much so once you mix in the smaller per capita income markets.

Is that what the number is in Germany? Is it up seven to eight percent?

We don't break out individually on that. I just wanted to give the feeling, okay?

And then the hedging number?

On the hedging, it is about a 4 cent impact year-over-year. So we were doing the P&L hedging translation hedging last year, and in this year, we talked about in January a program where we are hedging really the balance sheet and it has a cash flow impact, and there's a (indiscernible) cost to that.

That 4 cents, that was the negative impact in the second quarter of last year? That was my (indiscernible) question.

Well, it was a little bit higher because there is a small cost this year for the program we're on now. So it is the net number.

Okay, thank you.

Importantly, the program we're on now, though, is not a translation hedge. It is -- when we saw where the euro was going -- it was at 1.27 -- we said at least lock in cash. And I think we locked in somewhere around 1.22, isn't it Michael?

We did when the euro was 1.24 and we locked in at 1.18.

All right. Thank you.

James Hardeman (ph) of Midwest Research.

You talked about four or five areas of innovation, and it sounded like some of them were already in the works. Some of them are probably a little bit further down the line. Could you give us a little bit more color in terms of rollout schedules for some of these items, as well as if the geography in which some of them will be available?

Yes. Within each of those five categories or platforms of innovation, there are some things that are here and now in all of those, and there is a natural pipeline of some things we are working out out there. Very clearly, with regard to technological advances, we are working very closely with a number of major suppliers in the technology field with regard to smart kitchens. We have worked closely with NASA in the past on the space station. So those kinds of things that can, in fact, have a trickle down effect into our core business. But what we are really interested in is, okay, what does that mean this year. And in most every market there is some products that I could comment -- and that's what I tried to do with some of those.

I think you are going to see more and more us go to third -- and I have commented this in the past -- to products where we don't necessarily manufacture the products. Again, the Nike model, that we find a product category that we believe often through design and innovation we can add value, but we have somebody else make that product for us and it doesn't require the capital investment. So I have been very pleased to see progress on everyone of these areas.

And again the best way to really to figure this out is come down to Orlando. You can meet our head of design and marketing and go through the technology center and you see what we can show you in the works that we're not sensitive to.

Okay and I'm sure it's a little bit early still, but is there any way to get an idea of the relative scale of some of these items in terms of potential market sizes relative to maybe some of your current product lines?

Well, what it is here is a constant shift to get us away -- people will ask us what about Gladware and those kind of things. We are not in the commodity business out there, and one of the ways that we can protect this large gross margin that we get and the desire for an individual to represent Tupperware is to have innovative products out there. So what we're trying to do is find more ways to compete in more categories. For example, when we go into beauty, we've been basically dealing with a product category in Latin America with our core Tupperware line that is less than $1 billion. As we shift to beauty, we're going into a $25 billion category. As we shift into kitchen tools and gadgets in the U.S. from just core food storage, it opens up another $2 billion category. So each one of these we've been pitching together across the world.

Great, thanks.

Rob Short (ph) of JL Advisors.

Congratulations on managing through a difficult quarter with good numbers. A couple quick questions. I would like to focus on North America for a minute. I'm just a little confused -- I guess it looked like the average active sales force was flat in year-over-year decreases from the fourth quarter to the first quarter, and yet we're rolling out the Taste of Tupperware parties throughout the corporation. Can you give out any data points that supports -- I guess two call ago you were seeing I think it was 15 or 20 percent increases in party production when the Taste of Tupperware party was used. Can you give as any data points to support this rollout?

I think that it really at this point is still directional, so in some markets like the U.S. where we're getting sales directly to us from the sales force, we do get an indication of are they doing a Taste of Tupperware party, but it is self-reported and it's not clear always if they really fully integrated the process. So at this point unfortunately I think it's still directional.

And in us building our models, probably the best thing I can say on that, Rob, is we're seeing almost in all cases when they self-report, the party is 15 percent plus greater in size than it was. However the thing we are really looking for is what recruits come out, because Glenn Drake often talks about the party as a great multiplier, and you get not only sales at a party, you get half your recruits or more at a party and the party dates another party. And what we are noticing that those are getting better, but --

I understand that, so it seems like you sort of still believe there's a 15 percent number maybe, but yet average active salesforce was flat. So either if you do believe the Taste of Tupperware parties are also resulting in increased recruiting, where -- are we losing more recruits than we're gaining?

Here, we mentioned this two calls ago, and we learned it from our BeautiControl business. Just because we launch it and we talk to you about it, don't assume you've got that many people doing it. The gestation period to get a sales force converted to a new method, it takes a long time. After a year of us during spa parties, which were incredibly successful at BeautiControl, it was still 24 percent of the sales force are doing it. And they still think it's less than 35 percent, and it's now two years.

Understandable, but you believe that the people that are doing it are seeing a nice 15 percent-ish boost in party results and increasing recruits?

Yes, but it is all over the place and they are self-reporting, so we can't validate that. We know it directionally is the right approach because that is what we're getting from consumers on feedback. They like it, yes.

Sounds good. Can you just draw the timeline? We are seeing now that North America will have positive year-over-year results in the first half '05. Should we see sequential improvement each quarter until then, or is there an investment process over the next quarters that will suddenly take -- ? How should we be looking at it to measure progress over the next 1.5 years?

Obviously, what we are looking for is improvement sequentially, but I can't tell you whether that's the second or third quarter right now. Very important -- January is a big month for the first quarter for us because it sets the tone in the U.S. business. May is a very important month and we're not there yet for them. It is a promotional month, and I would like to see more before I predict any more than that. So we're really keeping our powder dry on this. And generally, you learn -- it was the right approach of testing this retail approach and it was the right thing to get out of it within six months. But my goodness gracious, it is hurting two years of the U.S. business. But we sure answered once and for all can you do direct sales in a mass retail approach. No with a capital N.

Okay. And then the last question is just on the cost reductions. I guess you said you didn't see the cost reductions you were expecting in the first quarter. But those shouldn't affect the bottom line because they were all going to be reinvested, right? So do you decrease the amount of reinvestment in the business this year or should we still expect $15 million of investment?

The guidance we gave today, we confirmed that we thought we would spend $10 million on the offensive types of investments. Those aren't all in the U.S. business. That includes expanding Beauty. It does include the new comp plan in the U.S. and some PR moves around the world. So we do expect to still incur the $10 million and we're still working on the cost savings, so they're not directly connected in that way.

And the $10 million, that is including -- then there is another $5 million of one time, so it's still the same $15 million number?

Correct.

Okay, great. Thanks a lot.

(OPERATOR INSTRUCTIONS) Michael Prober of Clovis Capital Management.

I have two questions. The first question is could you comment -- it looks like the average active sales force in Latin America was down in the quarter. It may have missed the comments in the prepared remarks.

Michael, what we did, most of that was a real emphasis in Mexico to let's get more quality there. They've done a great job in the past of recruiting quantity, but a poor job of converting it to quality, so we said we want to see some improvements in training and productivity. And that is what they got and so they flushed a lot of people in the sales organization there. As a matter of fact you see positive improvements with regard to sales for active, and yet the total sales force is down. I think you're going to see that lap going forward. I like the trends I have been seeing there.

The other question I had was for Mike. You commented a couple times, of these are our guidance based on the exchange rate at the end of March. And it looks like the exchange rates moved about 4 percent since the end of March. So could you just go through what happens for every percent that the dollar/euro exchange rate changes, what happens too earnings?

Of course, that depends on where you are in the year, so we have had the better exchange rates in the first quarter and we will see what happens the rest of the year. But roughly speaking, in Europe last year we made $100 million plus, so if you had a one percentage point change in the value of the euro -- it's not all euro but mostly -- that would be $1 million and that's about 1.5 pennies. So it's that kind of dynamic. You saw what we earned in the first quarter already this year versus last year, and so depending on what you have assumed for the full year, that is what's left to come.

And there's no hedges, even if the dollar really appreciates -- there's no major hedges anymore?

There is no hedge on the translation. We've got the option that we put in early in the year that does protect us from a cash flow and a balance sheet point of view.

Terrific, great.

Michael, I think interesting. We were talking about it this morning, Mike Poteshman and I, but between '97 and 2000, we lost one dollar on FX. Unprecedented. We've got this natural market basket out there, so it would be nice to see two or three years that go the other way. I spent a brief amount of time yesterday with a member of the Council of Economic Advisers who said there's a whole school out there that thinks the euro might even go to 1.40. Who's to tell? We're not going to hedge the P&L, though.

Okay, great. Thanks.

At this time, there are no further questions. Mr. Goings, I would like to turn the conference back over to you for any additional or closing remarks.

I will wrap it up. Thanks, everybody, for your time. I mentioned earlier this morning in my comments that there's an old European saying that as the morning goes, so goes the day. Direct sales is very much a momentum business, and having three out of our five businesses positive in the first quarter was helpful. We believe looking forward this year, four out of the five will be positive, and the anchor really is the U.S. business. But we see under that some great things going on. We have more good things going on than challenges out there. This party has been picked up and I am seeing it. I traveled during the first quarter to Japan, Australia, a number of markets in Europe, Spain, and I will tell you, they are all adapting it, so that gives me a lot of good feeling about that.

Secondly, we did a review of product, and I really liked what is on the drawing board, and more importantly, what they're launching this quarter, this year. So product looks good. Beauty is getting traction. And it's great that the U.S. BeautiControl business is up; it continues to be double-digit. We like the movement on their ROS. But the real goal there is to use that as a launch pad so that we really contribute most importantly in Latin America.

Integrated direct access, it is doing nicely in the U.S., continues to be an important strategy, but it is also picking up in Europe. Again, I've got to congratulate management last year in Europe, when we were doing the test in retail here and Carrefour's wanted to do it there, that management was smart enough to say, hey, let's find out how the one works in the U.S. But integrated direct picks up 30 percent.

Total sales force -- or average active sales force up 4 percent. Feel good about that. And I have to also comment. I think Mike and his team have been doing just a great job managing the balance sheet. We've got that net debt down to 49 percent. So we have some more lifting to do there, but what we are really going to be working on is getting it even lower and then at that point, we will sit there and consider what are we going to do with our cash at that time. One of the things to take off your list is we don't see the need to do an acquisition; so we will consider the right things to do at that time. Anyway, thank you for your time this morning, and I hope we can report the same kind of a quarter at the end of the second quarter.

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