Tupperware Brands Corp (TUP) 2005 Q1 法說會逐字稿

Good day, everyone and welcome to the Tupperware first-quarter 2005 earnings results conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Rick Goings. Please go ahead, sir.

Thank you very much. And thanks to all of you who have joined us this morning. I'm here this morning with Mike Poteshman, our CFO and Jane Garrard, our VP of Investor Relations. Some of the discussions will involve future outlook of our business so I refer you to the Company's position on forward-looking statements as it appears in our recent press release and in our SEC filings.

As you might expect, we are pleased with the sales and profits coming in significantly ahead of our earlier guidance in last year and that makes our fifth consecutive quarter of EPS growth. Our business transformation is progressing nicely and I am going to begin our commentary this morning by talking a little bit about our global strategic initiatives and then I will make a few comments with regard to what we're doing to really build the sales force and sales force fundamentals in some of our more important markets.

As mentioned at our last conference call, we have shifted away in these kinds of calls from -- we're not going to waste your time reading the details. You have already seen in a release. Mike will take the opportunity to amplify the quarterly numbers, a little bit more text here, and also to give you a better feeling of the outlook going forward.

Turning to our beauty business first, we continue to make great strides in BeautiControl in North America. There we are really driving the business by growing the total and average active sales force. The total sales force was up 31% and the average active was up 24% in the quarter. We're in the midst here of a two-month spring recruiting campaign. We do it every year in the spring and two months in the fall.

Right now I have got to say too that we have had the best March ever at BeautiControl. In March, the business was up with regard to recruiting over 80% last year versus last year. The experience party that we use at BeautiControl called the Spa ESACAPEs, together with the viability of the earnings opportunity continues to really be the key driver in providing this momentum we are seeing in that business.

We have, we believe, going forward significant opportunity for growth in beauty both here domestically and internationally. Let me comment a bit on international beauty business. We report it as part of our Tupperware business in those markets. Beauty in Mexico grew 26%. In Malaysia/Singapore, it was up 65%. These are versus last year. Bringing beauty as a percentage of our total business to 12% of Tupperware's business, compared with 9% last year.

We are looking forward to further expansion in beauty in 2005 and we're going to be going -- we have already had an initial soft launch in Venezuela and this fall we will be launching in the Philippines. We believe expanding this consumable product category provides us an opportunity for more significant growth in a growing industry in markets where a significant amount of consumer spending is spent in the category and it also has the effect of reducing the volatility from the Tupperware durables business because you have the opportunity here for repeat clientele.

As we know with Tupperware, our new product program is important but our products are guaranteed for life or infinity, whichever is longer. And sometimes that makes it difficult to go back to the same customer.

Now let me turn to our Tupperware business, first to the emerging markets. Here we continue to have strong momentum particularly in Russia and in China with the number of outlets in China growing to 1500 this quarter. Now despite the uncertainty, and there is constantly something in the press it seems like with regard to China's direct selling regulations, we are calm here because we've got a model in place that can leverage our business that is really not affected by the regulatory environments. We have these base retail outlets where we have the opportunity to recruit a sales force and that matches with Chinese legislation.

We are also making solid progress in Turkey, Poland, and India, and we're pleased to see also this quarter we're getting back to growth again in Indonesia.

Sales for our emerging markets globally were up 33% and were 7% of total sales, compared to 5% last year. A comment on these two strategies, the expansion of beauty and the growth of Tupperware in emerging markets. We believe going forward that these are likely together to contribute about 50% of our sales growth over the next few years.

Now the significance of these two, beauty and emerging markets for Tupperware, the significance of these actual results are that they are very real. I mention this because clearly many don't believe in the investment community that we can ever turn around the U.S. business and that Europe at some point will follow. And by the way, given the spotty results and the difficulty in the U.S., you have every reason to not believe in that now.

We would not buy into that because we are really working to contemporize the U.S. business. We are working here with a new product program, a new party, and a new compensation structure. So net-net, we believe eventually you're going to see growth return back to the U.S. business and you're not going to see this decline in Europe. However, even if we are wrong or it takes longer than we anticipated to get back to growth, we have two strong growth vehicles within Tupperware, beauty and emerging markets, which can offset that.

Now let me turn to integrated direct access. We continue to utilize mall showcases, television shopping, the Internet, and business-to-business relationships as important tools to not only sell a product but really more importantly, to gain access to new and stranded customers. Now in the U.S., we are transitioning to the new compensation and sales force structure. It clearly has dampened the number of showcase locations; however, those that are opened are doing well. In Europe, the growth in the locations and their productivity has been impressive, so this continues to be an important initiative.

Regarding business-to-business transactions, let me explain how that works. More often than not we partner with a grocery chain or a department store to provide them products to really fuel their consumer loyalty programs. We do this on a temporary basis. These initiatives not only support our core party plan business through a bounce-back offer to the party which helps the local sales force, but it offers that sales force the ability to date and recruit in the store. So it has helped.

Summing up the integrated direct access, these channels are helping. They are leading us to new consumer groups and helping us with gain access to stranded customers. And we really do believe we are going to continue to carefully use these to support our direct selling party plan system and our sales force in the future.

A word or two about Tupperware and our product strategy. Here we have made great strides and continue to do so. Our real initiative here is to move away from primarily food storage as a category, although it is still important, to other categories which are more lucrative, including food preparation, serving, cutlery, and kitchen tools and gadgets. And the move there has gone very well. We have moved from a pure functional line to one that includes fashion and technology in these new, innovative categories.

In this age of $55 per barrel oil, the more differentiated our product line is, the higher margin that we can command and this really reduces the impact of resin prices. Additionally, we see an opportunity to rationalize the size of our productline by focusing more on those innovative products. So quite frankly we're going to go narrower and deeper with regard to these other categories.

It is clear out there that the battle for share in the categories like buckets, trash cans, drain boards, and even cheap food storage containers is just full of low margin. It is a place we don't want to go. We're going to continue to differentiate our products and it allows a 65% gross margins.

But even in the food storage categories, I am really proud of what our people have done there. For example, people moved away from commodity food storage items and the success has been evidenced by the numerous recent -- even as late as in this last quarter -- awards that we are achieving as the most innovative in that category. Additionally, we are also pleased to see that the Tupperware brand name continues to be among the top five most respected in the entire household category. And this strong brand allows us to leverage not only the categories we go into but our PR efforts.

And we are investing here again this year to inform consumers that the productline and the party has changed. As a matter of fact, there is a big event tonight in New York City at a new hotspot called COZ (ph), from 9 to midnight. Expect to see us show up in unexpected places this year because even though we changed the productline and the party, in the mind of many consumers, Tupperware is what Tupperware was. As a matter of fact, you might have seen us last month in Life and Style Magazine where from time to time you're going to see us sponsor what is called the party of the week. It's not a Tupperware party but whatever celebrity's best party of the week, the whole pages are sponsored by Tupperware to get us though of in a new and different way.

About the U.S. compensation plan, let me say a few words. On April 1, we completed the rollout into all regions. Now virtually all of our distributors in the United States have adopted the plan and we find that it has been well received. They like the new program and it also speaks very well to the effectiveness of the U.S. management team in communicating the strategies to the sales force on what the benefits are. So there has been very, very strong buy in.

However, I must say it is still early days and we really right now can't anticipate what the impact is going to be this quarter and the third quarter as a result of the new plan. There is quite an amount of shifting from what we were doing to what we are now doing and that involves really some dissipation of energy.

We believe that this is the right direction because 80% of the direct sellers in the U.S. utilize multi-tiered compensation plans. And additionally, direct selling in the U.S. has not been shrinking. As a matter of fact it has grown at the rate of 7% over the last ten years.

We have also seen the benefit of a multi-tiered compensation plan in our BeautiControl North America business segment. There a lot of focus is on doing the right kind of an experience party but also presenting an opportunity to build leaders in the business by focusing on the earning opportunity. As you can see, we have basically almost doubled the size of the BeautiControl sales force and clearly have doubled the size of sales. So it is not ground that we haven't been over before.

We expect to capitalize in the U.S. on the compensation plan changes as the year progresses; however, we anticipate that the second quarter and even the third quarter we're still going to be working through this transition.

Let me make a couple of comments about the party itself, which is the key multiplier of our business at both Tupperware and BeautiControl. It is where we sell. It is where we date other parties and get other customers, and it is where we recruit. I mentioned BeautiControl has capitalized on their very successful Spa ESCAPE parties. We are continuing to even refine that more. But now we are also even getting more intense and learning from BeautiControl to replicate that experience at Tupperware. It takes time to do it and we are really still working to find that right party that engages the senses and creates an environment for fun and education surrounding our products. I think we have made great progress there but we are not to bright yet.

It was clearly easier at BeautiControl, though, to introduce the new party format, the Spa ESCAPEs, because simply they did not have a historical baggage of what is a BeautiControl Spa ESCAPEs like Tupperware does. With Tupperware, we have updated the party but we are in the early stages now of updating the consumer perception of what a Tupperware party is. Ditto with regard to what the Tupperware opportunity is. I believe these PR efforts that you're going to be seeing new and unexpected places are really going to be the kinds of things that will change the image of Tupperware party experience.

And as we mention so much in management meetings, you saw the experience with Cadillac that for years tried to change the image to a younger person by having younger people like Fred Couples wear Cadillac on their shirts and yet still the image of the Cadillac was an older couple from the Northeast who moved to Florida. It was not a young person's vehicle and it finally took them coming up with the right product, the Escalade, and getting the right people to drive it, beginning with celebrities and rap stars, to try to change the image of -- really Cadillac.

It is interesting to note I've got a 13-year-old, Nico, who his dream car picture is up on the wall and it is a Cadillac. Who would have ever thought that was possible? That's the same kind of shift we need to make at Tupperware.

Now before I turn the call over to Mike, let me make some comments regarding the sales force and some things we're doing in some of our important markets. The key driver always is the average after sales force for these kinds of businesses and here we've had pluses and minuses around the world. Let me make a couple of comments on those.

First in Germany, we have a gap in the size of the average active sales force compared to last year but we've got a terrific management team in place and they have launched I think some very impressive programs to close that gap through a recruiting promotion and new dealer development plans and I think we are going to get that closed before the year is ended.

Regarding our transition in Japan, another important market, there we're still experiencing declines while we convert the business really back to a real party plan business and we are confident that it is going to grow in the future. I must say that we are really focusing on three elements in this transition. First, a move from catalogs back to Tupperware parties; second, a conversion of the sales force for more an MLM (ph) buying club to real true sellers.

And third, we are really focusing on getting back to a better mix of core Tupperware products with less discounting where we had really evolved into about six hits a year with big-ticket, third party sourced items. Again a terrific management team in place led by one of our strongest managing directors and we see progress, however, it is going to be later this year before we start to really get the traction in Japan.

We have also made some important changes in our Mexican market. You've seen the growth there but we are really working to promote managers and setting stricter standards, which is leading to a more productive sales force. Now that has really hurt the size of the average active sales force, but the smaller sales force is much more productive now, and we are going to be leveraging off that base.

Here and North America, a comment on the size of the sales force. We have transitioned to the new compensation plan. We have made these business model changes. And what it has really done is we have moved away from a weekly promotional business to a monthly business and this has distorted what the comps are with regard to average active sales force. We think we'll have a better handle for reporting it to you as we go on in the year.

Overall though with regard to sales force, we finished the quarter with a 4% sales force size advantage; however the average active sales force which is an important business indicator was down 4%. This isn't where we want to be and it is the key focus of our management teams around the world. And I do believe that they have got the right fundamentals in place to build the quality and the consistency.

Shifting gears just for a moment before I turn it over to Mike, I want to reemphasize the increasing financial strength of the Company. Our cash flow continues to be strong. Our debt-to-cap ratio is now in the low 30s. The dividend yields is a healthy 4% and we have the ability to continue to support that and to make the investments we need and we continued the execution of strategies and we are getting traction in many markets of the world. We believe our prospects for expansion of our price earnings ratio are also good.

Mike, let me turn it over to you. You will dig into some more of the details in the quarter and talk a little bit about the balance sheet and the outlook, if you would.

Thanks, Rick. First let me walk through some of the moving parts during the quarter. As you saw from our release, we reported EPS $0.40 versus our previous guidance of $0.16 to $0.20. The primary differences there were first a sales increase of 6% in local currency versus our expectation of being down slightly. And the upside there came from all of our segments with the biggest dollar contribution from Europe, where we had better results in France and Russia than we had foreseen and also from the B-to-B sales.

Latin American Tupperware and North American BeautiControl all were up nicely as well. These sales increases led to segment profit improvements, as you would expect, and beyond that we benefited from more value chain improvements from the U.S. than we had anticipated in our January outlook.

Additionally, we were expecting $0.09 of re-engineering costs in the quarter as a result shifting capacity out of our North America plants; however, we only incurred $0.06 in the first quarter. This was partially offset from $0.03 from a land sale gain which had been anticipated to occur after the first quarter. So versus our guidance that we gave in January, we came in $0.06 better on a GAAP basis for these unusual items.

Regarding sales for the quarter, approximately half of the local currency increase of 6% was due to calendar impacts that included an upside from an additional week. We had a 14-week quarter this year based on our calendar and the downside from the shift in the Easter holiday into the first quarter.

Other important factors in the increase were the higher European B-to-B sales of $3.7 million, more productive sellers in Mexico, and strong growth in sales force and sales in BeautiControl North America.

Looking out each of the segments individually versus last year, Europe came in with a nice mid single digit sales increase that included the B-to-B sales. Just a reminder that these transactions are really utilized on an opportunistic basis to build a brand and give our sales force a way to reach new people and need to be done in a way that does not interfere with our direct sales force, so they can be choppy from quarter-to-quarter.

Our largest market, Germany, was down moderately on a smaller active sales force over France, Russia, and the Nordics came in strongly and we are very pleased with progress in these markets. For the full year, then in Europe, we are expecting to be about flat in sales and to have a small profit decrease reflecting strategic and promotional investment.

Turning to Asia-Pacific, we had a nice mid single digit local currency sales increase here as well led by Australia and China. We turned the sales increase into an even greater profit increase as we brought about 30% of the higher sales down to the bottom line. We expect overall improvement in sales and profit in Asia this year as progress in many of our markets will offset the decline in Japan resulting from the transition that Rick discussed earlier.

Regarding Latin America, we have made significant progress in developing the sales force in this area by really focusing on promoting managers and setting stricter standards including a more productive sales force. This led to a local currency increase in sales of 24% and profit was up even more.

While we continue to expect nice improvements in this market in sales, the comps will get more difficult as the year progresses and we are making some strategic investments in Mexico to expand beauty more rapidly going forward because we believe this is where our biggest growth opportunity is. We expect sales improvement in Latin America this year. Profit as well is expected to be up, although less than the sales, reflecting the cost of these strategic investments.

North America incurred a sales decline although not as severe as we had anticipated. The improvement versus our expectations stem largely from QVC sales that had been expected in the second quarter and the pull from strong promotional offers. Value chain improvements were significant, resulting in a 71% decrease and a loss compared with last year even with the lower sales. These improvements came primarily from headcount reductions, promotional cost containment, and to a smaller extent margin improvement.

North America also benefited from a $1.6 million reduction in LIFO reserves as the result of reducing inventory in advance of implementing the shift in capacity out of our South Carolina plant that we announced in January. That is really starting to kick in in the second quarter.

As we move through the year, additional LIFO reductions will occur as a result of this shift. We will identify those amounts in our non-GAAP disclosures since they are not in the ordinary course of business. Pay results and the replacement of U.S.-produced inventory with nondomestic production.

We continue to expect a decline of sales this year in Tupperware North America with improvement in segment profit and are targeting breakeven in 2006.

Turning to BeautiControl North America, this segment continues to grow significantly by capitalizing on the sales force size advantages gained through dramatically higher recruiting. Additionally, ROF (ph) in this segment improved to 8% although this came largely from the absence of 2.5 million of expenses incurred last year for a legal matter and executive retirement. Given the sales force trends in this market, we continue to expect significant sales and profit growth in 2005.

Our unallocated expense for the quarter included an insurance recovery related to an environmental issue offset by higher incentive accruals both in the $1 million range. The full year expectation for unallocated expenses remains at 25 to $27 million.

Wrapping all of this up, our outlook for 2005 is now for all segments except Tupperware North America to have sales increases in all segments to achieve higher profit. However in Europe, this is only due to stronger currency as excluding this factor there, we see a small decrease due to promotional and strategic investments as I mentioned. We still perceive though a 20% plus return on sales in Europe.

Our full year EPS outlook is $1.55 to $1.65 which is $0.10 higher than our January guidance due to the first quarter upside. This also considers a decline in the favorable impact of foreign currency which fell from $0.12 in the outlook we gave in January to $0.09 now. We continue to expect an effective tax rate of 22%. We recognized a $0.03 gain on land sales in the first quarter and still expect another $0.05 later in the year consistent with our January estimate of $0.08 for the full year.

Additionally although we did not recognize the $0.09 of re-engineering costs that we included in our first-quarter outlook in January, we did recognize $0.06. For the remainder of the year, we expect an additional net $0.02 upside from the reductions in LIFO inventories in the second quarter forward, net of further re-engineering costs. So net-net, land sales gains partially offset by re-engineering costs are still expected to be $0.04 positive for the year which is what we also said in January.

Looking to the second quarter, we're expecting to be up slightly in local currency sales, reflecting increases in Europe, BeautiControl, and Latin America partially offset by decline in Tupperware North America.

EPS is expected to be $0.40 to $0.43 compared with last year's $0.40 although this outlook reflects a $0.05 positive impact of foreign exchange on the comparison. We also expect $0.02 to $0.03 of re-engineering and after excluding these costs, expect EPS to be $0.42 to $0.45 versus $0.41 last year.

Turning now to the balance sheet and cash flow, we generated $7 million of cash from operating activities. This was $9 million less than last year's first quarter mainly due to a much greater payout of year-end payables due to timing. We continued to do well with receivables management with days outstanding down one from last March and we improved inventory days to 139 from 161 last March.

Our net debt to total capital ratio was 33% compared with 49% last year as we continued to build equity in cash in the absence of any debt maturities. We still expect full-year cash flow from operating activities net of cash from financing activities in the 75 to $80 million range. Consequently we expect to end the year with more cash than last year with our strongest cash flow occurring in the fourth quarter.

As we generate the cash flow over time, we often get asked about our options for the use of that cash flow. They are dividends, debt repayment, possible share purchases, and strategic investments either through operating expenses or acquisitions consistent with our existing strategies.

And with that, we're going to turn the call over to questions.

(OPERATOR INSTRUCTIONS) Eric Bosshard, FTN Midwest.

A couple of questions. First of all in terms of recruiting, Rick, I understand what is going on in Latin America and I understand what's going on in the U.S., but the contraction in the active sales force in Europe is something we have not seen in a number of years. Can you help us understand more of what is going on within that and how you're going to counteract that issue?

Yes. Good morning, Eric. Where we are really seeing it is the bulk of that is in our German business there and I will give you little backdrop on that. We continue to have in the former West Germany about 9% unemployment and you really get down to about 19% in former East Germany, so the country is between 11 and 12% unemployment. Now, there's this countercyclical piece of it that basically, when you have higher unemployment, it makes it a little easier to recruit because there's the available prospects. However, if it continues over a substantial period of time, it starts to really wane the positives. And we're starting to feel some of that right now in that, yes, you can recruit them in, but you can't convert them to active sales force because of the consumer resistance they have of people coming to a party, and it is harder for them to then, therefore, be successful.

We're starting to feel the effects of that. Now, what you do is you first come back with recruiting campaigns and efforts to increase the numbers of people that you're bringing into the franchise, and then new dealer development programs that motivate not only the person to go out but promotional incentives to the consumer to buy, so that they start to taste some success. So that is the headwind we are really dealing with.

Related, and my second question is -- can you help me understand -- the first-quarter sales were better-than-expected, and the outlook for the year is similar to what you gave in the fourth quarter despite this 1Q better-than-expected sales number. And the recruiting has got to be meaningfully less than expected. Can you help me understand how you still end up with the sales outlook you have? And I don't know if this is related to productivity, but I guess I'm trying to just make some sense of better-than-expected first-quarter sales, in-line year sales guidance, and the weaker recruiting numbers coming out of the first quarter.

I don't understand the question. Say it again.

(multiple speakers) The question is, as you came out of the year (indiscernible), you're going to have flat sales in local currency for 2005. The first-quarter sales were meaningfully better-than-expected and you said, we still think we're going to have flat sales for the year. And I guess the explanation for why does this 1Q positive sales surprise not translate into the full year better sales, and I guess it is related to recruiting. I guess when I then look at recruiting, the numbers that are, I guess I think that the sales numbers could potentially be a little bit more worse than what you had previously expected.

I've really got to isolate it there. First of all, you've got to put it into context of our Europe-Africa-Middle East businesses has many parts. There's four regions in it. We have only got one of them right now that is a bit soft on the recruiting side, and that is Germany. If you take our, what we call Central, that includes Russia, Poland, most of the former Soviet bloc, they are just going gangbusters over there, and their numbers are good over there. But you don't get -- the average dollar of a sale or party in Russia, for example, is a lot lower than it is in Germany. The Western region, which includes the biggest market there is France, but it has the Benelux as well, they are doing quite well, and we like what we're seeing there. The Southern includes not only the Mediterranean market, some of the Middle East and Southern Africa doing extremely well.

So we have had times over there, Eric, where Germany was doing -- and there was a number of years in the middle '90s where Germany was doing well, and two of the others were not doing well, and they were the dragon. So that is some of the distortion of it. (multiple speakers) All, our European market. (multiple speakers)

Given the events of the additional week in the quarter, can you give us a sense of what the contribution was? You somewhat referenced the impact on sales, but the impact on sales and the impact of earnings of that extra week, does that now mean you end up with an extra week for the full year of 2005?

Yes, Eric. I guess we had the two calendar impact going on this quarter in Europe particularly, which where the extra week and the impact of Easter getting pulled forward and I think in contrast to retailers having Easter is a negative for us just because of what the salesforce is up to. So I think when you net those two together, we saw a few million upside in Europe in sales and then you would have the dropthrough on that to profit. And as you look at the other segments, we had obviously the extra week in all of them and a fairly minor impact from Easter. So that is how the pieces come together from that comment that about half of our 6% upside in total was from the calendar impacts.

You really do -- you have a put in the call on that. Easter is a big negative when it is in the first quarter because the sales force shuts down in Europe but the plus is the extra week.

And then in 2Q, we should have a benefit from having Easter shifted out of 2Q into 1Q? Is that the right way to think about it?

That is true, yes.

Also for the full year then, this will be a year that has an extra week?

That is correct. The extra week is between Christmas and New Years. (multiple speakers).

But it ends up as a 53-week versus a 52-week year?

Yes, just as a point being that that is a fairly small week between Christmas and New Years.

There's not many parties held between Christmas and New Year's -- or there's many parties but they are not Tupperware parties. Eric, one more comment on Germany as well to get some context to it, is we have had a very significant productivity of the people who are average active sales force and their activity and the party, so when you really look at Germany year-to-date, I just saw the numbers. They are flattish. We don't have a melt-down going on in Germany.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Doug Lane, Avondale Partners.

A couple of questions. First can you give us some sort of characterization about resin costs impacted the first quarter and how does the rising resin costs impact your outlook for the remainder of the year, or did it change at all?

I guess starting with the second question, our outlook really hasn't changed. We have talked about having a mid single digit possible impact in kind of a normal situation and this is truly abnormal so the impact is greater. When we look at the first quarter it was a few million dollars and you have heard us talk before about how we try and work with that in terms of pricing in line with inflation which protects our sales force earning opportunity and also gives us the advantage of being able to take some of that into account.

There is certainly also a mix difference, a mix that you can aim for with some resins going up more quickly than others. The more highly engineered resins have not increased in price as much as the more basic resins. Also frankly as you have seen a greater percentage of our sales come from beauty, that obviously takes us proportionately less into the resin market. So those are just some of the things going on.

Do you actively hedge resins?

No, we don't hedge in the markets. We will under our purchase arrangements sometimes buy a bit more if the prices are going to go up the next quarter.

Doug, one of the advantages of our globals structure and our global purchasing of resins is they have really got a purchasing council that meets on a regular basis and it will really take advantage of what is happening in spot markets out there. So they have done a great job over the past three to five years of managing resin costs.

And this is by the way, times like this we're at $55 a barrel oil you're happy you're in a 65% gross margin business and that we have put so much focus on differentiated products out there where the resin impact isn't that big for the product we're selling. Many of our top-selling products are not even resin products. We're now in cutlery, cookware and when you do get the hottest selling product in Germany is polycarbonate. It is Lexan which is a more highly engineered resin, so it has been the right kind of shift.

I see, that's helpful. Speaking of BeautiControl, I know you said BeautiControl was up in Mexico. I did not get the number-- 20 something percent. If you could repeat that number and then give us a feel for what BeautiControl is overall as a percent of your Mexican business.

It was a 26%. You know, we are starting from a fairly low base. It is running 10 or 15% of our business right now.

And the overall business is growing, though. But we're pleased with the acceptance of the productline. What we have been trying to do, Doug, here is grow the Tupperware Mexican business and our beauty business. But don't undermine the Tupperware business there while we are doing it. So it has been an evolution and as we mentioned, we are about to step up our investment level in beauty to accelerate it because I think we are comfortable. We have got an approach now that will be nondisruptive.

Okay, last question. Rick, regarding the comp plan in North America, you've been in direct selling for a long time. Can you give us an example or some sort of strategic context? Have you ever seen another company of your size say $100 million or greater in the U.S. completely overhaul its compensation system like this? Are there any sort of examples or benchmarks that we can put to gauge whether this will be successful or not?

Yes, Doug. In the late -- when I came back from being Group VP, Asia-Pacific at Avon to President of Avon, focus on North America, that's what we really worked on and I would tell you but before I left in '92 we had launched it. It was called Avon Ace, Avon Career Enhancement. Now they call it Leadership. Not all members of senior management were for it and supported it, but it was already launched and it couldn't be killed even when I left and joined Tupperware.

And it has become -- I can tell you that I do know that three years ago of the $160 million -- this is memory -- sales increase, they had (technical difficulty) if a company that was a 1.5 billion plus in the U.S. could make the transition, I was confident we could make it at Tupperware.

But it is gut-wrenching change for an organization and, Doug, I would say the three big pieces of the change here is you had to change the productline to get away from where these commodity companies were going. We have done that. You had to change the party so it was not these 10 to 12 parties in the morning for women who do not work, to now busy, educated women who don't have a lot of time, we have done that. We have learned it from BeautiControl. We still don't have the image change because most people still think it is what it was.

And thirdly, you had to change the compensation program from one that just focused on here come sell Tupperware, too hey, you can come sell Tupperware but why don't you recruit, train, and motivate your own sales organization and we can tell you that they see our BeautiControl business and they see women there earning from 10 to $50,000 a month in income who just started with a kit. So the reception has been very positive, although letting go of on trapeze and going to the other is challenging. But I've got to say, we don't have any option.

If we don't do these three things, we don't have a U.S. business. And we think with a brand that is top five most respected, you've got to make these changes.

Okay, thank you.

David Leibowitz, Burnham.

Mike Carlotti (ph), of Palmira Capital (ph).

Just curious on the tax rate, it was down a bit year-over-year. What is the expectations for tax rate for fiscal '05?

We expect it to be about 22%. We were very low last year and low 20s is more normal for us.

Okay, thank you.

Doug MacLean (ph), Sirius Capital Management (ph).

Just a few quick ones here; just housekeeping. On the reporting from the -- of the different segments, can you just remind me why -- how the restatement goes and why the overall revenue was up a couple million from how it was reported last year? In the March quarter last year you reported (multiple speakers)

We reclassified how we were reporting some of our catalog sales. So we had been netting them out as promotional costs on a net basis. So just gross that up.

It should gross up for the next three quarters to add a couple of million back?

Right.

Just on a comparison standpoint, okay.

They became more material in really working with PWC (ph). They say, hey this is the way they ought to go these days. So it was really from guidance from them.

Okay, and on the LIFO impact, was that $0.02 in this first quarter?

Yes.

Did you say another $0.02 for the rest of the year? I just want to be clear on that.

Well, it is netted in our re-engineering costs so we are saying that for the year we'll have a net of $0.04 of engineering costs and includes -- we had six actually in the first quarter and so the net for the rest of the year will be positive $0.02. So there's amounts going in both directions there.

Okay, so the LIFO will add another -- I'm guessing here quick -- $0.02 to $0.03 for the rest of the year? As you work that down?

Yes, the LIFO part of it is probably about $0.05.

Okay, so $0.05 just to gross, okay. And then also could you walk me through just how I should think about this allowance for doubtful accounts? I guess if we'd use the same rate as last year, just as a quick house here, added about $0.09 to the quarter year-over-year? Allowances as a percentage of receivables is 14% this year, and about 20% last year. Should I be using that 14% going forward? Just -- also could you walk me through kind of the gives and takes there of how we're getting down kind of 600 basis points year-over-year?

Sure, I guess the first point I would make is that we don't have income coming through our statements for that. What you're seeing is that we wrote off some receivables against the reserves compared with where we were in March, 2004. And so as you do, we look at each customer individually and see if we have a collection problem and record reserves accordingly. So given where we are today, my expectation would not really be for any dramatic movement but we have to evaluate that every quarter.

It looked like the last three quarters the allowance has been taken down in order of 700, 800, and now 600 basis points. Was that just one bad customer that you kept on the books for a year or --?

No, it was several customers in different markets where we had been trying to pursue collection opportunities at the same time we had significant reserves because we knew it was not that likely and at some point we said we were just not going to make it and we did the write-off. So it is really a non-event in that sense.

Doug, if we're going through individual line items -- (multiple speakers) follow up, but let me Mike follow up with you or I will have Jane give you a buzz after the call, okay? Do you understand? We can take as much time as we need, okay?

I was just wanted to know, because it's a pretty big swing.

(OPERATOR INSTRUCTIONS) Budd Bugatch, Raymond James.

This is actually Chris Thornsberry on behalf of Budd. Congratulations. Good quarter. (multiple speakers).

For the first time ever, I hear Budd's name pronounced right. Nobody ever pronounces Eric's name right or Budd's.

Just a couple of quick questions, if I may. The first one is, Mike, you mentioned that the LIFO liquidation I guess benefit was about $0.02 in this quarter. I think if I remember correctly, we were looking for close to $0.08 to $0.10 I guess for the whole year and we weren't expecting much in Q1. Can you kind of go through what happened in Q1 where you got that earlier and you said you're looking for $0.05 for the rest of the year? Is that a little bit lower than you expected?

What we had been really talking about were reductions in the LIFO reserve associated with the shipping capacity so we where we would be sourcing the inventory from outside of the U.S., and what we saw in the first quarter was a significant reduction of just overall inventory going down, so we needed those reserves. And so that is the few cents coming through the first quarter.

The $0.05 that we are expecting for the rest of the year is in line with our expectations and that's what we included in the pro forma guidance that we gave in January.

Is that going to be something more of a -- we will see it kind of earlier than later then, instead of toward the back half of the year?

It will be starting in the second quarter. As we shift that where we are making the inventory.

Okay. And looking at the Latin American segment, you had pretty good growth about 24% local currency this quarter and year-over-year. Is that all party plan growth or are there some other alternative distribution channels that are growing there as well? Could you go into some more depth on that?

We really don't do a lot IDA, integrated direct access, in Latin America. So that is party plan growth.

So no catalogs, nothing like that? It's mostly going to be the parties?

Exactly and it reflects, as we have been talking about of course, the acceleration in the beauty in Mexico.

And the B-to-B sales in Europe shifting there, that was 3.7 million this quarter. Now was that included in your prior outlook? I think you were saying that -- pardon me if I'm wrong -- but that you were not expecting much by the way of B-to-B sales when you had last given guidance?

No. That was one of the upsides and the 3.7 million is actually the incremental versus last year.

Okay and it seems like the B-to-B sales would have a longer lead time that you may know that's coming beforehand or is that just something that kind of pops up at the end of the quarter?

They tend to have a long negotiation time and then it depends on when they want it to be shipped and so on so that is part of what goes on there.

So is that anything expected for Q2 that is being shifted into Q1 because it got done earlier or is that just something that was just brand new?

No, not really.

We really stay on top of not letting countries do too many B-to-Bs because it has an adverse effect. Every once in awhile doing it, it helps the sales organization, it helps brand building out there. Doing it too much creates the same kind of target effect that -- Oh, are you guys retail? So that is why we will turn down quite a few offers where countries want to do a business-to-business.

So the impact of that is likely to be minimal for the rest of this year?

Yes. It is never going to be --. You know it is -- each of these things the showcases, Internet, and B-to-B, these are all -- or QVC, all are contributors a little bit but they are single-digit contributors.

All right, one final question and I will yield to others. Before you stated and I think in prior calls, you have stated the initiative for brand building for promotional spending, marketing and public relations. We're seeing the impact of that come through now. We're seeing much more public relations, and much more by way of promotions. You mentioned Rick, in your prepared comments. I think the number was close to 10 or 15 million incremental spending of that nature in 2005. Is that still the target? And I remember correctly it was basically split between mostly North America and Latin America but it looks like you're doing more in Europe. Could you break that out for us and give us a sense for what to expect this year?

Firstly, it wasn't totally prepared comments. If you look at Jane Garrard's (indiscernible) that I touched on -- we read the script -- and talk but we hoped we follow the guidelines on it. The 10 to 15 million was incremental investments we were going to make in a number of our strategic initiatives and one of those investment areas was public relations. The most significant investment area was accelerating beauty, particularly in Latin America, Mexico, and in Malaysia/Singapore and the Philippine launch.

So we are on track about the same spending level with regard to this public relations as last year. I would say that what you're starting to see that -- what we have done in the U.S., it is a lot edgier now. So we've gotten away from the basic block and tackle public relations of just pure product placements, etc., to now things where it is the unexpected places. Now is this going to pay off? I don't know, but I do know that we can't spend enough money to do it on an advertising basis and public relations to get it done in the normal way, so we have got to go some unexpected ways.

Okay, so just looking at that if I had to kind of eyeball a breakdown, most of that, the majority is going to be in BeautiControl. So if we have to break it out by geographic segment, maybe 50% or 60% in Latin America and maybe 20 in each of North America and Europe?

It is built into our guidance.

It is, so we are not going to break that out on it. But -- when we say beauty, I don't mean specifically BeautiControl, although because in Mexico that gets reported as Tupperware's business there.

All right, thank you very much.

Mimi Sokolowski, Sidoti & Co.

Two things. I have been off and on the conference call, so I apologize for any redundancy. Jane, I would like to follow up with you later when you have a chance. And Mike, you probably covered this like I said, but the sharp decline as a percentage of sales and the delivery sales and admin expense, to what should I attribute that?

Well, a lot of that is the upsides that we have had in the U.S. as we really tried to work on the value chain, and so I mentioned that we were being more effective in our promotional spending and so that is in there. And then there is also impact from headcount reductions. That is the biggest factor.

Great, that's all I have. Thank you very much.

I might add, Mimi, on this whole approach with regard to the U.S. though, it isn't just pressure in the U.S. to take out expense because your sales are at a lower level. It is as we go to this different kind of a compensation structure; we have already gone through the business model change there. You don't need as many people there. It is interesting. When I joined the Company here, there were almost 600 people in the U.S. business. And I have got to say right now we were just talking about it this morning on this headquarters campus including the team that manages global, all of the staff functions, corporately and Latin American management team and the U.S., there's only 300 people.

So we are moving to new and different ways that we manage these businesses out there. So that was not -- and I think it is important strategically for you to understand why we made that shift.

Eric Bosshard, FTN Midwest.

Rick, can you talk a little bit about how you feel about the sales momentum from this point coming out of 1Q and as we go through the balance of the year kind of across the business? I guess I am a little bit unclear on how we ought to be thinking about the sales momentum of the business. And you can talk about the important markets if you like.

First I will ask Mike to give you where our guidance is again for the year and I'll talk more specifically.

All right, I guess I would characterize our guidance as fairly soft, so we said that we were going to be up in sales in all of our segments except for Tupperware North America and so that is how specifically we have been so far.

Yes, and let me drill down on that. If I was to say -- Europe, you read the puts and cause in Europe as I want to get to -- I would like to get to a sales increase in Germany right now but Germany is down to flattish right now. But all the other segments over there we're really planning on being up. Latin America, continuation of the trends we're seeing there with regard to growth.

Asia-Pacific, there's really two things going on in Asia-Pacific. There's Japan that will continue but it is significant, the size of Japan, so it distorts it. Japan is going to have a sales decline this year but I have got to say what they're doing is again shifting from these customer reps to real sellers. We're following the same; very much like the question Doug Lane asked earlier about have I ever seen a compensation change work for a big company? The same thing they are doing in Japan led by Rose Robertson, she did in Australia and we are the biggest and most successful direct sales Company in Australia. And it was our Company of the Year for three of a last five years.

Rose is in Japan doing the same things and it took 18 months before she got traction on it. So it will still be -- Japan won't be soft. Japan will be a sales decline this year. However the rest of Asia-Pacific I think you're going to see positive, even Korea won't be a drag. But the real significant growth in Asia-Pacific is really going to be China, India, Philippines, and continuing in Australia which re-circles back to the U.S.

The Tupperware U.S. business will be down but should moderate. The down should moderate toward the end of the year, but the BeautiControl business up very significantly. Interesting, I characterize the BeautiControl business, they had a conference in February which is you had to be a manager, a VIP manager or above to be there. Last year anybody could go and they had 3000 people attend. This year you had to be one of those levels to go and it was standing room only and it was more than 3000 people, so their momentum is incredible there.

So when I put it all together, soft -- flattish in Europe; up in Latin America; up in Asia-Pacific and those parts that are not Japan; down Tupperware U.S.; up significantly BeautiControl.

That's right. Let me make one clarification on Europe. While we are saying we're going to be up in all the segments except Tupperware North America, in Europe that is really because of FX, foreign exchange. On a local currency, we would be down a little bit.

Okay, thank you.

David Leibowitz, Burnham. We'll go back to Budd Bugatch, Raymond James.

Chris Thornsberry again. Just a quick follow-up on your answer to Eric there. With Japan, I know you have a lot of things in place to try to turn that around and you said its going to see a decline this year. Looking out longer-term, where are you planning to see really a turnaround in sales overall dollars and also in the active salesforce numbers?

You mean in Japan?

Yes, in Japan. Sorry.

Firstly, the reason we're putting so much attention on this market, it is based on just the consumer patterns. It is the second-largest direct sales market in the world. They like to buy this way and it really speaks to the inefficiency of the value chain in retailing. That's why everything is so expensive over there and direct selling over there is unlike most places in the world, it is a more efficient value chain. The real key is going to become the growth in the size of an average active salesforce but it has to start at the core of us getting back to demonstrating products in a Tupperware party.

What we believe is going to happen is the declines will mitigate toward the end of the year. Seeing what I have seen now I would expect us to start seeing a sales increase this next year because I think she will have gotten to the bottom this year. She has already put forth standards. They are already starting to teach and train to a party. She has already -- by the way, some of the sales decline we're getting there, Chris, right now is we stopped selling vibrating lounge chairs for $1500, which it would be a big pop but it would make it the hits business and it would undermine the direct selling nature of it.

So gone are some of those one-time hits. And by the way we asked Rose. We said, Rose, do the right thing. And if that undermines it, it's okay to have a sales decline. So this next year I think will be a nice balance between core Tupperware, third-party sourced products, a focus on the party, and a focus on your sellers, not just buyers, when things are on discount. So we will make money there this year I would expect. But I would expect next year you get a sales increase and make more money.

Okay, now is the party format -- is that going to be similar to the (indiscernible) Tupperware we see here in the states or is going to be somewhat different?

The difference there is the cultural difference that size of kitchens are often very, very small. So what you'll do is they will do a thing called kitchen visits there where you find the people who have the bigger kitchens and you'll do those there. So it's not exactly the same.

Okay, and how far in percentage terms would you say -- how many, how much of the sales would come from that type of party format?

I don't know. I can tell you a year ago nobody ever held a party and hadn't held a party in ten years in Japan and some are now. I don't know what the numbers are right now. Rose is a fundamentalist on you cannot -- if you do not demonstrate products, if you don't demonstrate products, then you've got to end up selling off-price and you are commoditized. And if you are going to demonstrate products, the more efficient way to do it is not one-on-one, but have a group. She is really getting a growing base of distributors to -- aha -- get it.

Okay, thanks.

Gentlemen, it appears we have no further questions. Mr. Goings, I will turn the conference back to you for any additional and closing comments.

Thanks. Everybody, thanks for your time this morning. Obviously we are pleased and I guess the keyword I'm saying, we're making progress. We are probably two-thirds, 80 some percent of the way there on a lot of the transformation but there is still stuff to do. And we are always going to have in this global portfolio puts and calls out there.

I think the key point I would like to reiterate again is that we truly believe we can turn this U.S. business around because we are not sitting on our hands. The guys there that changed the productline, they are changing what the party looks like and now they have made this big gut-wrenching change of the whole field structure and compensation. And that really is a precursor to protecting our European businesses. By the way many of the things we've learned about here is the new products we've got to sell and here is the way the party is going to have to be operating, we are already implementing those things in Europe. So we don't expect we're going down that same road in Europe.

However, putting all of that through the wine press, I truly believe if it takes longer, we've got some stuff that with regard to beauty and our emerging markets that will offset that. Now if they both hit, then we have an incredible multiple upcoming. So that's what we are working toward internally. Any way, thanks for your time, everyone.

That will conclude today's conference. Thank you for joining us.