Tupperware Brands Corp (TUP) 2005 Q4 法說會逐字稿

Good day everyone and welcome to the Tupperware fourth 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 conference over to Mr. Rick Goings. Please go ahead, sir.

Thank you and good morning everyone. As usual, Mike Poteshman is here with me, our CFO, and Jane Garrard, our VP of Investor Relations.

And as usual, some of our discussion will involve the future outlook of our business, so I refer you to the company's position on forward-looking statements as it appears on our recent press release and SEC filings. Again, I'm not going waste your time this morning reading the release you should have in front of you. Rather, I'd like to start by taking a review of the year for all of our segments, as well as to update you on the progress on a number of our strategic initiatives. Then I'll turn it over to Mike who will drill down on the quarter and, of course, discuss full year end of first quarter along 2006, some other issues and balance sheet details.

Also, unless needed, we're not going to take the time this morning to reiterate the benefits of our recent acquisition since I think we covered that in detail at our analyst meeting in New York in December. However, if there are any additional questions about the strategy or the rationale behind the acquisition, we'll be happy to cover it during the Q&A session.

Overall, we're pleased to report growth in our full year local currency and sales and EPS, excluding adjustments, and even without the new International Beauty segment, which was only part of the corporation for a month. I say this because the number of global direct sellers are experiencing a lot of turmoil in the market these days. Our BeautiControl division finished the year with a 24% sales growth over 27% in 2004. Segment profit was up as well, 76% versus 2004, and although the segment sales growth moderated to some degree in the fourth quarter, we still did report a 5% top line increase, and that was on top of a 30%, 7% sales growth for the same quarter last year.

Now, after considering an impact on the quarter's comparisons from the timing of the start of the fourth quarter, BeautiControl had a mid-teens sales growth in both the third and the fourth quarter when you compare 2005 versus 2004. Simply stated there, a full week of extra ordering went into the third quarter this year and that was based on our accounting calendar. This was even with a drag on the sales force productivity in the second half of the year, with the negative impact of the summer's hurricanes. So we were pleased to see the continued double-digit sales growth in the third and fourth quarter when you adjusted this.

We were also pleased to finish the year with a 20% sales for size advantage for BeautiControl North America and a 17% active sales force advantage in the fourth quarter, which bodes well for results as we move into 2006. Having said that, we expect to grow sales this year, double-digit and keeping in mind we're coming off a full year 24% sales increase. So I would expect to see double-digit growth, but at a lower level. Additionally, we expect to make gains in BeautiControl's return on sales this year.

BeautiControl continues to capitalize on this spa escape party, which they created, and combined it also with the outstanding earnings opportunity that they offer so many and high tech products. We're excited about the opportunity in 2006 to take the party and the earnings opportunity leverage that we have developed at BeautiControl North America into our similar multi-tiered business, Neutra Medics, in Australia.

Another important contributor to sales growth in 2005 was Latin America, where we had sequential improvement every quarter in the average active sales force, and we finished the year with a fourth quarter advantage of 9%. All markets in Latin America contributed to the sales growth, with the largest improvements coming in Mexico. Segment profit improved in line with the sales growth in this area, as well. We did make some investment in 2005 in Mexico, with our BeautiControl business there, and that paid off with a 20% sales increase for the beauty segment.

Going forward, we have made a decision to put all of Tupperware's markets in Latin America except Mexico, under our International Beauty division, which reports to Simon [Emas], and we do this so we can capitalize on the catalog merchandising system that works so well in Latin America, as well as to gain some back end synergies. Tupperware, BeautiControl Mexico will continue, however, to be separate and be reported as part of Asia-Pacific.

Moving on to our next largest dollar contributor of local currency sales growth in 2005, it was Europe. Although we were down for the year in Germany, this was offset with growth in a number of other markets, including growth in emerging markets of Russia, Turkey, and Poland, along with nice progress in our large French business, where the largest direct seller there, and additionally, we had higher business to business sales this past year. It's also worth noting that our Southern Africa business continued to grow at a dynamic level.

Our investment in promotional spending to grow the sales force in Germany also has paid off, as we had sequential improvement in the sales force size deficit that we experienced for the first nine months of the year. As a matter of fact, we finished the year in Germany with a sales force size advantage of 7%. It came late enough in the year that we weren't able to convert that to sales, but this makes sales growth going forward more likely, even with the weaker productivity that we've also been experiencing there, because of the pressure on consumer spending.

We're also expecting 2006 European sales to be about even with 2005 in local currency, with continued growth really coming from emerging and the developing markets of Europe, Africa, and Middle East. We had a high level of business-to-business sales in 2005, which is not in our 2006 outlook and we will carefully manage these programs to ensure there's no conflict with our independent sales force. That's why it's difficult to predict business-to-business sales.

Moving on to Asia-Pacific, we had sales growth coming from China, Australia, Malaysia-Singapore, and Korea, and we continue to make real progress in Japan through the focus on product and the Tupperware party, more specifically in Japan. They did a good job of rebalancing our product mix to attain more sales from full price products versus the discounted items that we saw in previous times. And this resulted in better gross margins. Our programs also to encourage the sales force to sell product benefits rather than discount also seems to be getting traction. We also simplified the selling process and improved their catalogs and brochures in Japan to really to appeal more effectively to the end consumer.

These actions all support moving toward a direct selling force in Japan, where the real power is, rather than the wholesale buying club, which we are evolving into in the mid '90s. We are also pleased to finally see in the second half of the year in Japan a year-over-year average active sales force decline start to stabilize, and the sales growth productivity really started to turn positive. So we're cautiously optimistic about this important direct selling market.

Now, in line with our management reporting structure, going forward we're going to report, as I mentioned, Tupperware Mexico. We really call it their Tupperware BeautiControl Mexico, together with Asia-Pacific. For this overall portfolio, Asia-Pacific and Tupperware BeautiControl Mexico, we're expecting local currency sales and profits to be up low single-digit with continued growth, primarily coming from Australia, China, and Mexico, with still a little bit of an offset coming from Japan.

Let me move now to Tupperware North America. We made progress in 2005. We completed implementing our new multi-tiered compensation structure. As a matter of fact, we rolled it out everywhere in the country in April, but we have not seen the turnaround in the sales force size and the accompanying sales trend. A good sign is that our sales leader, we call them directors, are really starting to earn some real money. As a matter of fact, a number of them are really starting to record incomes in the six-figure range, and this bodes well for recruiting in the future and attracting others to the director pool.

We're also happy to see the sales force productivity is flat after experiencing a number of years of decline. We don't expect to make any money in the U.S. business in 2006, and we're expecting a single-digit percentage decline in sales. The model enhancements in the U.S. business have been implemented, and now we just need some more time for them to take hold. In the interim, we've been working, and I think the management team there has done a terrific job getting the expenses in line with the current sales level, while being mindful not to undermine their ability to support future growth of that business. So there is progress there.

Turning to our newest segment, International Beauty, we had 38 million in sales during the fourth quarter, highlighted by sales growth, particularly in Mexico, which is the largest business and in South Africa, with some offsets coming from the Australia Neutra Medics business and the Philippine business. As this business was put up for sale the first week of February this past year, many of the markets suffered from the uncertainty of ownership as the business was basically in play. And I've got to say, looking back, some did better than others in this time of uncertainty. We were pleased that Mexico, the largest business in particular, held strong momentum, while others like Neutra Medics Australia in the Philippines, really got weaker as the year progressed.

This uncertainty, together with other competitive factors, really has caused some of those former Sara Lee businesses to lose some momentum as we go into 2006, and it's going take a little bit of time to recover. But they are solid businesses.

The operating profit in 2005 was about offset by the interest expense. As I said, it was only reported for about a month, but the interest expense associated with funding the acquisition, so net-net, there was really no significant impact on this acquisition on our 2005 total company profit.

As mentioned, we've moved all of our Central and South America businesses, except Mexico, along with Tupperware Philippines business to be managed now by Simon [Emas] in the International Beauty group. In 2006, we will also focus on implementing some of the success factors that we have led to this very strong growth of BeautiControl into this Neutra Medics business, not only in Australia, which is the largest Neutra Medics business, but elsewhere in the world.

In 2006, we expect local currency sales for this International Beauty segment to increase in the 3 to 5% area. This is organic growth, with even greater growth and profits from the continuing good results in Mexico, and the lower investment in South America.

Now, before I turn it over to Mike, let me take a minute to update you on a couple of the other strategic initiatives. In our important emerging markets, we expect a one and a half to 2%, percentage points contribution to our overall long-term 5 to 7% top-line sales growth. By the way, our sales in these emerging markets were up 34% in the fourth quarter and 31% for the full year. These markets have achieved a cumulative average growth rate over the last five years of about 30%, with the real standouts being China and Russia. Russia, by the way, was up again this fourth quarter north of 50%, and China we ended the year with an increase in retail store fronts of over 50%. So now we've got more than 2000, and the good news also is with higher productivity. We're very pleased with the progress in this emerging market and we look forward to the same kind of momentum going forward.

Our product strategy, by the way, has continued to be strong, with us focusing on redefining functionality in our core categories, and that really means doing our best to go where competition is not. As so many in the food storage category have been commoditized, having a direct sales force, we can go where bad English with good sense, we can go where they ain't. Additionally, we continue to expand categories beyond storage to kitchen preparation, microwave, and serving, and we've been pleased that we consistently have been meeting our goal of 20% of our sales coming from new products.

By the way, during the year, we had great success in many of our markets, with the new Flat Out product, which was the collapsible plastic storage container. Additionally, our new microwave and kitchen tools and gadgets are doing very well.

Regarding beauty products, as we've indicated, our product line now is about 35% beauty and the 2006 product pipeline for beauty looks strong. A lot of innovations. We are continually introducing new spa products to support the T party, as well as spa-quality facial products that are really an at-home alternative to expensive dermalogical procedures.

Now, let me turn it over to Mike, who will drill down with some quarterly details and the balance sheet. Mike?

Thanks, Rick.

I'll start with walking through the quarterly details and then provide some color on the outlook and the balance sheet. The quarter at $0.54 after adjustments came in toward the high end of the range we gave in October, although it did include a $0.04 benefit from implementing some tax planning strategies that have not been included in the October guidance. The tax upside brought our results up from the $0.50 low end of our range to the $0.54.

As you can see from the release, on a GAAP basis, we also had a significant income statement benefit of about $25 million, or $0.41related to resolution of pre-1996 tax liability with our former parent company. In total, we collected $46 million, which included 15.5 million recorded as a receivable on our balance sheet. Since this type of settlement with our former parent is not of a recurring nature, we've considered it one of our adjustment items. Clearly, this impact of the effective tax rate for 2005, the 2006 effective tax rate is expected to be about 24%.

Additionally in the quarter, we incurred $0.34 of acquisition and financing costs related to the acquisition of the International Beauty group. This is more than our original expectation due to a change in some of the tax treatment for the financing transactions.

The other adjustments during the quarter were restructuring costs of $0.13, which were mostly non-cash. These were mainly in our Tupperware North America business, related to warehousing and distribution. The net of all these takes us from our $0.51of GAAP fourth quarter earnings, up to the $0.54 EPS after adjustments.

Moving now to the balance sheet, we ended the year with $181 million in cash. This amount included about $121 million associated with the International Beauty acquisition that we expect to pay out in 2006. We ended the year with a debt balance of $753 million, which reflected the paydown of $30 million of the term loan borrowing we made in early December to fund the acquisition and repay our then existing borrowings. This paydown was possible using a portion of the proceeds from the tax-related settlement with our former parent. Our resulting debt-to-total capital ratio was 69%.

While the borrowings under our term loans all provide short-term interest rates, we've swapped about half of our total borrowings into long-term rates of three years or more in recognition of the time we expect some of these borrowings to be outstanding and also as required under our credit agreement.

Looking at the working capital lines, receivables and inventory days in the Tupperware businesses were about the same as the end of 2004. BeautiControl inventory grew modestly to support the larger business and, of course, we had working capital for the International Beauty segment.

Our cash flow from operating activities was in excess of $165 million, and after considering capital spending and other investing activities, except for the cost of acquiring International Beauty segment, was about $120 million, which exceeded our net income of $85.4 million and our previous guidance range of 75 to $80 million. A big factor in the upside was the tax-related collection in the fourth quarter.

Turning to the outlook for the full year 2006, we have taken our range after adjustments to $1.72 to $1.82, with the only change made versus the $1.65 to $1.75 range we gave in mid-December, to increase both ends by $0.07 in light of stronger foreign currencies versus the dollar.

I mentioned a moment ago that we foresee a tax rate of about 24% in 2006. This is the same as what we said in December. Our outlook remains the same as well for capital spending, at about $70 million, unallocated expenses of 30 to $33 million, interest expense at about $45 million, and cash provided by operating activities net of investing activities of 85 to $90 million.

The GAAP outlook increased by the same $0.07 for foreign currency, along with another $0.05 below our purchase accounting amortization, resulting in fully amortization of $0.22. The other items remain the same and include $0.12 of reengineering costs and $0.15 of gains from land sales.

The quarterly flow of earnings during the year includes International Beauty having more profit in the second and fourth quarters than the first and third, and for the total company compared with 2005, the percentage of full year profit earned by quarter is expected to be more in the fourth quarter, offset by less than the first quarter, with the second and third quarters relatively consistent. For the first quarter, sales will be 425 to $435 million, although sales from the Tupperware and BeautiControl businesses together are forecast down slightly from having one less week in the 2006 quarter based on the company's fiscal calendar, and softness in Europe and North America. Part of the issue in Europe is lower b-to-b sales, which we'll also see in the second quarter.

EPS is expected to be $0.22 to $0.24 on a GAAP basis and $0.35 to $0.37 after adjustments. This outlook includes a $0.03 negative impact from foreign currency versus 2005, and 2 to $3 million of an impact from one less week in 2006 versus 2005.

Finally, we've also raised our outlook for proceeds from our real estate development program from 80 to $90 million up to $125 million through2009. To date, we've had proceeds of $43 million. Our improved outlook is based upon the aggregate of completed contracts, contracts in process, and the expectation for the balance of the program.

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

Thank you. [OPERATOR INSTRUCTIONS]. Our first question comes from Doug Lane with Avondale Partners.

Hi, good morning, everybody.

Good morning, Doug.

Rick, I would like you to talk more about North America and the average active sales force, down 24% this year, accelerating to 28% in the fourth quarter. When do you think we'll see some stabilization in the average active sales force in North America?

Well, I would expect it to start to mitigate this gap toward the latter part of this year, but, Doug, let me put the U.S. business into perspective. I think as somebody, we were chatting yesterday with one of the board members, the question was are we getting traction as quick as we would like in the U.S. business? And the answer is obviously, no. And we're as impatient as others with regard to this. But the important thing to understand and appreciate is the magnitude of change we've needed to undergo in the U.S. business.

The original Tupperware model worked for 30 years, producing double-digit growth for all that period of time, but then it stopped working, mostly driven by external forces. Now, what we've been trying to do since '96 is take the whole thing apart, retool it, and then put it back together again. And what's one of the externals that's been difficult is we've been trying to do this as a public company. So there hasn't been one piece of this business we haven't touched from product to the party, to the dramatic change in the compensation program. But I really think, Doug, the heavy lifting is done and now it's a question of us being patient enough during this gestation period.

I think what the management team has done so effectively is to make this waiting a little bit more tolerable is to really reconfigure the expense base so that we're not hemorrhaging like we were in the U.S. business and you've seen a dramatic shift this year.

I think going forward here, the good news is we've got a strong leadership team. We've got hundreds of now entrepreneurial directors out there who are operating under this new model. So we're finished with that, and then finally, the buzz is really starting to happen about the product line and that's making it easier to recruit. So I'm going to be disappointed if you don't start to see us gaining much more traction on the recruiting side, and that's going to be the precursor to sales increase in the second half of this year.

Okay. Just a quick follow-up, Rick, just in talking, in looking at the numbers, at least versus my expectations, both Tupperware North America and BeautiControl were a little bit light in the quarter, and you mentioned the shift in the promotional program into the third quarter, but is there any other more exogenous macro-factors at work here in the U.S. and North America?

No. I think in the BeautiControl business we had 11, 12% of our-- that was a business started in Dallas, so the core sales force directors are in that gulf coast region, in Texas regions, and they were really dramatically impacted by the hurricanes.

The second piece is, because it is a multilevel business, and you really pay out commissions based on what you do on monthly volume, shifting of five days into the third quarter really stripped a lot of those work order sales into the third quarter and that's why we tried to normalize it there. But overall, the business is doing well. We spent a little bit of time in the third quarter, too. We relaunched our beauty line within BeautiControl, and we're working out, how do you work that in to a spa escape party, and that's going take a little bit of time.

Okay. Thank you.

By the way the biggest news, I would tell you there, the leadership pipeline of directors in qualification there is strong, so we feel good about that.

Okay. Thanks, Rick.

And our next question comes from Eric Bosshard with Midwest Research.

Good morning.

Hi, Eric.

Can you talk a little bit, there are three things I want to understand. First of all, Europe, it sounds like you're encouraged with some better recruiting in Germany, yet you're guiding for flat sales in '06. Can you give us a little better look under the covers, the underlying momentum and what you're thinking about in terms of that outlook for '06?

Okay, yeah. Yeah, well, the issue is we went through the years, Eric, we had a sales force size deficit in Germany. So-- and by the way, also had some productivity issues that were really driven by the significant pressure on disposable income. So as we went into the year, we started to heighten our investment. We have wonderful gross margins and operating margins in Germany, but we stepped up our investment in recruiting to close the size of the sales force gap, and additionally, we spent a little bit spurring that sales force to get active and consumers to come to the party.

There's a time lag between when you get the sales force in and when they start to become productive and it didn't happen in the first quarter. We're through January, and it's been okay through January, but I don't want to get ahead of ourselves. The economic environment is very, very difficult in Germany. I am really pleased with the productivity piece-- excuse me, with the sales force size piece, but I just don't know about the productivity piece as we go forward. Additionally, some of this flatness for Europe is we had a very significant business-to-business transaction this past year and really, based on our strategy, we don't push our operating units to do these too often because it undermines the sales force.

In terms of, I guess if you compared Europe relative to North America in the Tupperware business, which market do you believe will show a recovery in sales first?

Well, I have thought about it that way. You know, very clearly, I would believe Europe because we don't have many things to change in Europe. Most of the things that are issues in Europe right now are externals, and we have the levers so that we can adjust them. As you've seen in the past, the moment we get a sales force size advantage, we can back off on some of the promotional investment, and then it falls right to the bottom line. We've shown that in the past.

By the way, most of the learning we've had to go through for the U.S. on how you change the product line, how do you change the party to contemporize it, how do you modify it to some degree the earning opportunity, the U.S. was the learning laboratory, and so we were able to implement most of that stuff in Europe. So I don't think we're going go through the same kind of problems there that we did in the U.S.

And then a couple of follow-up questions for Mike or you, Rick. In terms of the North American loss, do you think that number can be single digit in '06 in terms of the dollar EBITD loss out of North America?

Mike, you comment on that, yeah.

Well, I think, Eric, we're still talking about a single-digit percentage shortfall in sales versus '05, and we do think we'll be able to see some improvement from having on the large side from both the things we've already implemented during 2005, we haven't completely lapped and some of the things we are doing right now and right at the end of the year. So we are comfortable saying we're going to see some improvement, but we're not going to be more specific than that at this point.

Okay, and then land, what's changed on, in the land situation, and are you comfortable with this almost 50% increase in the expectation for proceeds out of land?

Yeah, we--

Yeah, go ahead, Mike.

We really are. We've changed things a little bit where we're doing a little bit, we're going a little bit further down the road in terms of developments, but that doesn't mean building, but it means breaking up some of what we're doing into smaller pieces and being able to realize higher values there. Prices have gone up in the Orlando market, and this is where we see things at the moment.

Yeah, and I think what's helped that, too, Eric, is you've got now anchor properties all over the place on this original plot, and that really has helped attract-- it's been a magnet to others. So I think we've been fairly conservative in our projections with regard to that. So we feel very good about that number.

That's also part of the reason, the change in the approach, is part of the reason why we're saying now till 2009.

Okay. Then lastly, on the adjustment items you've talked about in '06, the $0.25 of amortization and the 12 or $0.13 of restructuring, can you talk about what those numbers look like beyond '06, what the expectation would be '07, '08 from those numbers?

Well, on the purchase accounting side, which is the $0.22 for 2006, we'll see a decreasing number. So the total amortizable number is between 60 and 70 million, and a lot of that will come fairly quickly. So you'll see that start to decrease. On the reengineering side, it's really case by case basis of what are the things that we need to do. So it's a bit more difficult really to predict what's going to happen year in and year out. We've talked about our philosophy or thought overtime that we'll probably do more outsourcing of our manufacturing and so on, and so you would-- we would expect to have some charges for that over time. But can't really project out when exactly those will be or how much.

And then the $0.22, does the 22 go to 15 and 10 and 5 and 0? Can you just give us a sense of how that might scale over in the future, directionally?

Yeah, directionally, that's probably right. We'll have to take a closer look and we'll be able to get more specifics on that as we write the 10 K.

Okay.

Eric, a side bar to your comment, your question about the U.S. business, I'll tell you how we're positioning it. It's a business that's really less than 15% of our business. It's the biggest consumer market in the world. This is like the never-ending story. It's the hardest thing we've ever worked on, but when you got a formula right, it worked for 30 years there. We can't have the top five most respected brand names getting all this buzz that it's really starting to get and the traction on that aspect without at some point it clicking.

But how we positioned it is we made this acquisition of these beauty businesses. That now puts almost 40% of our business in places where we can get top line growth and also risk mitigate some of our businesses in Europe. The U.S. business, we said at the very least, let's start looking at it as neutral and when it clicks, it will click. If it doesn't, we still have a lot of other growth possibilities, but we're still-- but we're not betting the ranch on it either, Eric. Although we have a high confidence level. We have terrific people, a lot of entrepreneurs out there and we start to see some really signs of life out there.

Great. Thank you very much.

Thanks, Eric.

[OPERATOR INSTRUCTIONS]. Moving on to Budd Bugatch with Raymond James.

Good morning, Rick, good morning, Mike.

Good morning, Bud.

I just want to follow up a little bit on some of the things Eric was working on. On Europe, you did talk about the b-to-b. I don't believe we've gotten a quantification, at least I don't recall what it was last year in the first quarter and what it might have been full year in 2005 that you're comparing against.

The full year number was about 15 million and think the first quarter was in the 4 million range of '05.

And so, Rick-- thank you, Mike. If I read your, what you said, now that you've got at least a sales force advantage I think with what you have done, is January-- are you positive so far this first quarter year-over-year including the b-to-b comparison or excluding it? How should we think about that?

Well, think Rick mentioned that January looked like it was okay, and we are also facing the fact that there's one less week in the quarter, and that's coming through most significantly in the first quarter versus the full year.

And okay should mean a plus sign to revenue comparison?

We just gave overall guidance for sales in the first quarter.

Okay. I'm just trying to make sure I understand what's going on in Europe and how you get there. I understand on the U.S. you want to be neutral, and I expect neutral to profits. What do you think is break-even? Is the cost model now where it needs to be?

Yeah, I, I think we're down to a point, Budd, that if we take much more out of the U.S. business, we're going to undermine our opportunity to really catch and start to grow sales. There's a certain scale you need to do this kind of a nationwide direct selling company. I think we're there. They are now working to improve-- we've got some opportunity to improve gross margin in the U.S. and through some better merchandising techniques. And so even without a sales increase, I think that will mitigate some of that, Budd.

So is breakeven the $165 million range? Annually where do you-- how should we think about that? Where is that number?

Well, I think based on what we said for '06, we're getting closer, and what we're seeing is even though we're going have-- we're saying lower sales, we're going to also have a lower loss. The things within the value chain that have to improve, we still need a better gross margin, and some of the things within the operating expenses that are variable still need to get fixed up a little bit. But I think Rick is saying that on the fixed costs, that we think we're pretty good, given the range of sales that we're expecting. We need to probably get a little bit more sales and fix up these things on the gross margin and in the variable expenses.

You're getting in the right range though, Bud.

And do you think-- do we think by mid-year you're going to be operating on a breakeven level essentially, maybe with the understanding that it will take you another couple quarters to get some of those operating expense items--

This is truly one of those things that if I knew, I would tell you, but nobody's ever done a total reconfiguration of a durable direct sales company in the U.S. So I have nothing to compare it to, so that's why we've said right now, get these expenses to the level so that, whatever this gestation period is, that we can endure it to that period of time. I do know that with our BeautiControl business, they went through four years of hell, but when we got their expenses in line, when it clicked, and it clicked fast. So we've seen that happen before. I don't know when it's going to happen here, though. I certainly hope it happens the latter part of this year.

And so it's not dependent on any of the other initiatives outside of the system? It's basically getting the system to be right?

Yeah. That's why I used, kind of [anecdotally], the moment you can start having people on stage and saying she's making $200,000 a year under this business model, all of a sudden that is a great start to other people out there that oh, my goodness gracious, this works and we're starting to get that. A year ago we didn't have those kinds of things. We just had the model of how it used to be. Now we are getting that.

A year ago when you got a recruiter into the business, there was a basic head-hunting fee for getting that recruit in the business. We're not paying those kind of fees now. What you get, you get the opportunity to include that person as part of your downline and earn override. So it's been a complete shift. And that's why we're still operating with some unknowns, Bud.

I understand. Couple of other just nitty kind of questions. One, the land sale issue, and I think the number is you've got about 70 or $70 some million window to your top level there to 2009. The cash, how is that going to equate to pre-tax or profits, Mike, what is the cost basis left of that additional cash flow?

Well, the book basis is fairly low. We do need to invest in some roads and other improvements in probably the low double-digit million range over time in order to realize the proceeds, and then it takes a, or gets a kind of a normal tax rate on a book basis, but we do have a higher tax basis. So we get some relief on the cash side of things.

So if it's a $77 million additional incremental cash window of proceeds, it's maybe something on the order of 58 million or so pre-tax or 60 million pretax?

I can't give you an exact number.

All right. Other question regarding reengineering, we constantly see the reengineering costs go in. We don't often hear you talk about what the benefit is coming out on a continuing basis. So we see-- we don't see it in the financials, I suspect it's sitting there if you're outsourcing, it's coming into the gross margin line. How do we think about that, and when do we see that, and how can you quantify that for us to help us through that?

Well, I guess I would look at it on an overall basis in where we're trying to go and that's with this ROS in Europe and the 20% range and in the other segments, we're working to get more towards 15%. And when you look at obviously the one that we have the biggest upside there would be North America, but when you look at the other segments, we're in the 10% or a little bit better kind of range, and so that's part of where you're going to see upsides as we go forward, as we work through various issues, including the benefit of some of the reengineering.

As we do some of these things on the plant side, it's partly avoiding having to make future investments because we're shifting the capacity to third parties that are better able to get other customers and so on, and locate geographically close to our market. So it's more avoiding future costs.

Is there any way, looking back, that you can kind of quantify for us what you've done in terms of reengineering expenses and then what ultimately you think you have gained so far of those expenses? I mean this program has gone on now for I guess more than five years.

I'm not sure that I would call it a program at this point. I think what we're identifying is when we have specific things that we need to do, we're saying this is what the cost of it is, and when we do things, we say why we're doing them.

A lot of the charges that we've had in the more recent past are related to the U.S. business, and clearly, as the sales base has shrunk, we've needed to do things that include severance of some people, and, also, as we've changed the model, and if it has gone to something that's basically cleaner for us not operating under several different systems, we've reduced head count accordingly. Where does that come through? In that case, that's certainly some of the movement from 31 million loss in '04 to a much smaller loss in '05. So it's those kinds of things.

Okay. And finally, you gave us the total sales force statistics for International Beauty at the end of the period. Will we get, as you go forward and operating in the full periods, will we get the average active for International Beauty on a periodic basis?

Yeah, we'll start putting that in.

Okay. Thank you very much. Good luck on the year.

Thanks.

Thanks, Bud.

[OPERATOR INSTRUCTIONS]. We do have a question from Mimi Sokolowski with Sidoti and Company.

Okay, thanks. I have a couple. Mike, did you comment at all on the delivery sales and admin line in the fourth quarter, the expense ratio there? According to my model, it was a little bit higher.

Yeah, in the fourth quarter, that really reflected the model change in the U.S. where we were paying commissions, and so that goes into that line in that we were up about 0.8 percentage points and that was the main factor.

Okay, that's what I have there. So shall we factor that in the next couple quarters, or do you think the impact of International Beauty is going to have-- is going to offset that?

Yeah, well, when you look at the International Beauty numbers that we talked about around the time of the acquisition, we had a segment profit return on sales there. I think it was 11% or so. So it's not a lot different than what you saw in the so-called existing businesses. When you talk about the commissions itself, we implemented about half the country for the U.S., for the model change as of April 1st, and the rest of it was, some of it was right at the beginning of '05 and towards the end of '04. So I guess that particular factor will still come into play in the first quarter, and then you should start to be more comparable, will be more comparable.

Okay, and just so I understand, it wasn't anything driven by externals; it was-- you really controlled your fate with that, with the commissions there?

It's just an element of how that model works differently from the more traditional way we run the Tupperware businesses, the way we operate still in Europe and a lot of other markets. So it's a geography kind of thing.

Okay. Thanks. A few more. Mike, I'm sorry, I didn't dial in-- excuse me, Rick, I didn't dial in exactly on time. Did you comment on the slowing growth of BeautiControl?

Yes, I did. And most of that is you are really going to see two factors. It was, we had five more days because of the accounting calendar in third quarter, and that's in those multilevel kind of businesses, toward the end of the month, that's where you get a load of your sales, and the other was the hurricane. So if you-- I mean you really, third and the fourth quarter were both double digit, if you moderated it or equalized it for that.

Okay.

But off-line, if you would like more information, call.

Okay.

I don't know, can you take a quick look at it and tell me how the second half then compared with the first half?

I just went over with everybody else on the line.

Okay.

I'll do it off line. I don't want to put them all through that.

All right, then. I'll save it.

Okay.

Can you tell me how the third quarter average active sales force numbers compared with the fourth quarter?

In BeautiControl?

Yeah, we were--

Yeah.

We were up 17% in actives in the fourth quarter, and I think we were somewhat comp--

I meant the Tupperware division.

Okay. Well, total Tupperware was up, or down 2%, we said in the third quarter.

I mean North American Tupperware.

Okay. 28% down in the fourth quarter.

Yeah.

And 25 in the third quarter.

Okay. So not dissimilar. That's it. Sorry for the confusion.

Oh, that's okay. Next?

Miss Sokolowski, was there anything else?

No, that was it. Thank you.

Okay. You're welcome. Moving on to Dara Mohsenian with J.P. Morgan.

Good morning.

Hi, Dara.

To start off with, just wanted to follow up on some earlier questions. The productivity issues in Europe, do you think that is more macro related in terms of consumer spending, or is the bigger impact lower productivity in some of the new recruits you're bringing in, and when do you expect productivity to turn in Europe?

Well, I think most, most of it is the previous. It's the external environment there, and because it makes it harder to get people to data party, harder to get groups to come to a party, and they spend less. So a lot of that's driven by this macro economic environment where you're averaging almost 12% unemployment in Germany. But certain markets do, or have been doing better than others. How you mitigate that mostly is get a larger size sales force. While shows won't be as productive and consumers won't buy many, you'll have more people out there. And so the net of it is you're able to withstand that.

Okay, and is that an issue throughout Europe, or is that more a few countries specifically?

It's an issue throughout western Europe, all of western Europe. All you have to do is find out what's going on in most of the large economies there for the [inaudible] France, Germany, down through the Mediterranean markets and even Scandinavia, they are all feeling it.

Okay, and you've seen significant margin deterioration in Europe the last couple quarters. What gives you confidence that return on sales will be flattish at the 20% level in 2006? I guess, what's specifically changing versus the back half of the year?

Well, actually, if you look at the fourth quarter, which is a high return on sales quarter, we were at about 24% for Europe, and we factored in, for instance, the resin price environment and run all that through our system, and while we think we're still going to need to spend somewhat significantly, that's what we were doing in 2005. So we think when we put that all together, that 2006 should also be flattish.

Okay. But I guess, in terms of looking at year-over-year margins, you saw a big compression in the back half of the year. So is it just less spending as you move into '06 than had you in the back half of '05?

Maybe to some extent because when you look at Germany, our largest market, and we do have the sales force size advantage, but again given that consumer spending environment Rick talked about, we don't expect it to go away and have ROS go back up, which is why we didn't give that kind of outlook. I think when you look at Germany as an example in just over the last week or so, a lot of the government indicators have been turning more positive, so we'll see how that comes into play.

Okay.

Yeah, the interest-- to highlight again what Mike said on this, starting the year with an average active sales force advantage in Europe is of real positive to us, and-- but I don't want to get ahead of ourselves. I mean the difficulty right now with the consumer spending environment, we may have to keep up the same kind of investment level to keep that sales force size advantage. Now, if we get the opportunity to back off on some of that, we will and that falls right to the bottom line.

Yeah, the other, I think one other positive I would cite is that we've talked about the growth in the emerging markets overall, and as we get more scale there, some of them already have had nice ROSs. As we get more scale there, that's an opportunity for us to win that will have more and more of an impact as those markets contribute a greater percentage.

Okay, and then on the other hand, BeautiControl margins look great, your best ever result, and I know seasonally margins are higher in the fourth quarter, but I'm wondering if you can run through the drivers of that, and what implications that has for '06 and longer-term in terms of your margin outlook.

Sure. Well, we did do better on sort of the lines margin, so gross margin percentage was better. We also saw a bit of a better mix in terms of commissionable sales. Some of our products the sales force doesn't earn commission on, and the mix shifted a little bit on that, which helped the ROS.

We saw kind of more normal promotional spending percentage, which had to do with-- we just had outside recruiting earlier in the year and, in a multi-tiered compensation system, a lot of the commission is driven off of your personal recruiting and also some of the prizes as well. And so that was kind of more normal. We've, as well as we did in the fourth quarter, we were still right around, well, a little bit short of 10%, I think, in return on sales for the year. We did say we thought we would see improvement moving into 2006, and we do think so.

And as I mentioned a minute ago, we really think that over time we ought to be able to be 15%, or mid teens in all of our segments other than Europe where we're already better. And so over time we're going to try and move in that direction.

Okay, great. And last, Rick, what's your viewpoint on the share repurchase program at this point post the increase debt with Sara Lee and now higher land sales expectations longer term?

It's not in our immediate future. Job one right now is-- I was-- before we did the acquisition, I'm a proponent of no debt. So I want to get our debt down to the right kind of levels, and then we'll start to look at what are we going to do with that excess cash? Do we do something with the dividend, do we do share repurchase, or is there something else out there? We'll consider those then. But job one for us right now is get that debt down.

Okay, fair enough.

And we'll take our next question from Doug Lane with Avondale Partners.

Hi, yeah, couple quick follow-up questions. Mike, can you give us what the impact of higher resin costs was to the fourth quarter and the 2005 as a whole, and then what the resin outlook is for 2006 versus 2005? Are we starting to make the turn towards less owners comparisons yet?

The impact in the fourth quarter was a couple of million dollars, and so that did start to reflect some lapping. For the full year, it was around 12 million, 11, $12 million, '05 versus '04, and the number included in our outlook is about 9 million for '06 versus '05. And that it would be more weighted towards the beginning of the year.

Okay. So we should see that-- well, it looks like, if I remember right, the fourth quarter was a little bit better than the third quarter, correct? So you maybe can look at the third quarter of '05 as kind of the year-over-year peak?

Yeah, you're referring to the comparison versus prior year. I think that that's probably right. I think the bigger escalation, that probably was the turning point in the middle of the year.

Okay, thank you. And lastly Rick since the December meeting, the sales for the year came in a little bit lighter, and the contribution from International Business, Beauty group was a little bit less than you would expect it back in the middle of December or early December, and so it sounds like just on a number of fronts, the year ended very softly, and I wanted to get some color on how the year ended, and why it was so soft, and how January started company-wide. Is that trend continued, or have you seen some firming in the business in January?

Mike, you comment first, because-- and then I want to comment-- I was asking Mike to comment first because his eyebrows are wrinkled, and he has something on his mind and I want to deal with it.

Yeah, I don't even recall that we gave an outlook for International Beauty in December, and I think, you know, we did come in at the low end of our range before that, the tax planning items, the $0.50, and I realize that's profit and not sales. I think we were-- we didn't do quite as well as we had hoped in North America if you compare the previous Tupperware North America versus the previous expectation. And Europe was probably also a little bit softer, but we mentioned that when we look at the first month in January, that Europe was kind of okay, and then you've heard our outlook for the first quarter.

I'm just-- just before you go on, Rick, the slide from the show in December was sales up 6 to 7%, and I think they came in up 4.5%. Then you said 4 percentage points from International Beauty, and it was more like 3 percentage points. So it sounds sort of like a broad-based kind of fall off at the end of December. And then I know you commented on January in Europe being okay, but can you make that same sort of comment system wide, not just on Europe?

Let me comment. Mike, did you get rid of that wrinkled brow? You got that explained? Okay.

What we gave in December, firstly, the International Beauty, let me put that aside. The Mexican business was stronger than we thought, but at the same time, as I had said in my prepared comments, the Philippine and the Australian Neutra Medics business, which are large pieces of the business, we saw the same kind of trend that we saw throughout the year deterioration with the uncertainty. And frankly what happened with a couple of these businesses, as competitors were saying that, hey, your business is for sale, they started going after the sales managers in that business, which had an impact on the size of the sales force. So that's with the work they have been doing, Simon and the guys, is to be regaining that.

But the Mexican business, which is the heart of that Sara Lee acquisition, has been performing quite strong. So that-- so there was a plus and a minus there.

The U.S. was a little bit softer as Mike said, but with, with regard to Europe, Europe was okay really in the fourth quarter, and I liked the continuing strength of the size of the sales force. It's a portfolio of many markets over there, but there were a lot of pluses in Europe.

Now, as we get to January, we do a thing in January in Europe called the biggest party, and what it is is, it's totally artificial, it is getting the sales force active again, and so we threw a lot of promotional dollars the month of January, but it's sitting-- some of these markets, January can be a fifth of the whole year that we throw so much toward. The trends there look good in January. It's real difficult for us to have a bad January in Europe and still pull out the first quarter and you're not hearing us say that.

Doug, when you look at the rest of the drilling down in terms of on a market basis in the rest of the segment, I mean really our guidance for the full year reflects how we see trends in the markets, of course, and so I would just refer back to that.

Okay. So things don't have to improve in order to make those, the full year numbers are very similar to what you talked about in December, so I'm seeing the numbers not quite come in where you thought in December, and I'm wondering if we really need trends to pick up from where we are so far in January or are we pretty much on course with what your full year outlook is?

I mean I think you look at where we are with the sales force at the end of the year, and you see Europe is up 13% in total sales force. The only one that's down is North America, down 20%, and so that's the shortfall. The others all have sales force advantages.

Okay. All right. Thank you.

At this time, we have no further questions. I'll turn the call back over to you for closing remarks or comments.

We're excited that this is going to give the portfolio some offsets, because as many markets we do business in, we're always going have puts and calls going on out there and I think what it does, is it gives us firstly the opportunity for some significant growth. One of our Senior VPs just came tobacco from Latin America, looking at that business there and came back very, very hopeful, said this is a good business for us to be in down there because finally we're going to have an operating model for Latin America. And that will offset some of the things going on in the rest of the world. So we think we're in good shape and well positioned for that, and we're hoping to have a lot of progress in this year.

Anyway, thank you for your support, everyone.

Once again, that does conclude today's conference. Thank you for your participation, and have a nice day.