Tupperware Brands Corp (TUP) 2006 Q1 法說會逐字稿

Good day, everyone, and welcome to the Tupperware Brands Corporation first quarter 2006 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions I'd like to turn the call over to Mr. Rick Goings.

Thanks for joining us. I'm here with Mike Poteshman, our CFO, and Jane Garrard, our VP of Investor Relations, and as usual some of the discussion will involve forward outlook of our business. So I refer you to our company's position on forward-looking statements as it appears in our press releases and our SEC filings. We finished the quarter in line with our outlook, and after adjustments with a positive year-over-year profit comparisons in all segments except Europe. Europe's profit was impacted primarily by lower sales due to the timing of promotions between the first and second quarter, an unfavorable sales mix in Germany. Additionally there were lower business-to-business sales there in Europe versus last year. As we've said in the past, business-to-business sales are an initiative that we utilize sparingly as we've learned from the past if we use too many of them they can affect our core direct selling business.

We were pleased in the quarter that we had sales growth in both our beauty brand segments bringing the beauty sales contribution for the quarter to 39%. And that's the direction we're heading. Another sales growth contributor during the quarter was our Asia/Pacific and Mexico segment and it was driven primarily of the emerging markets of China, India and Indonesia as well as positive comparisons, we're so pleased to say, in Japan, for the first time in more than 11 quarters.

Although Tupperware North America sales were down in line with our expectations, I must say that we were pleased to see the dramatic improvement in the sales trend over the fourth quarter. Additionally we saw a dramatic improvement in the active sales force comparisons in our North American business. And while we're still down 14%, this was a lot less than the 28% decrease we saw in the fourth quarter.

Europe's sales were down a bit as well, but I mentioned before primarily this is really due to the calendar differences that were most significant in Germany as well as these lower business-to-business sales and we can discuss that further in our Q and A session. It is worth noting that our sales force size comparisons were favorable overall in Europe by 17% and in Germany as well. In Germany, we were up 7% in total sellers at the end of the quarter which was the same advantage we had at the end of 2005.

Back again regarding North America, now that we've lapped our transition to the new, and it was April 1st last year, to the new compensation plan, let me just make a couple comments with regard to -- to the progress we're seeing there. While we've not seen yet the U.S. financial results turn positive, we are seeing strengthening of the business, particularly through improved performance metrics of our new sales leaders. And as you all know who have been following us, we've completely redefined the sales force structure and compensation, and although recruiting is still down a bit we've increased the proportion of recruits whose initial order is that what we consider the threshold level and that's what was in an important metric.

Another very important sign for the new compensation plan is an increase in our new directors' earnings levels and we've been monitoring that. Our new directors this year are earning approximately 20% more than last year. Now, this group, when they begin to experience earnings power it makes its easier to pull other sales force members to the top levels, which builds units of leadership in our shift from the old stocking distributor ship model to more a multi-tiered. This is the key to success.

Another important initiative that we are piloting in North America is a new consultant training system, which is a step-by-step training program designed to ensure that new recruits have the tools they need to succeed at the very early stages of the business. It's important when someone leaves, it's usually they don't have a pleasing experience or pleasing results, and this is designed to take care of both. It's really focused on selling techniques, party scheduling and sales force recruiting techniques. And the new system should help drive sales force retention and productivity. By the way, training has been one of the key success factors at BeautiControl North America and it was only natural that we felt that we needed to strengthen it in Tupperware's North American business as well.

Additionally, an important initiative in our U.S. business, over the past year, we launched and have been holding very intensive five-day training seminars here in Orlando for our new sales directors and our -- what we call our legacy -- veteran sales directors, 50 at a time. And we're pleased to say now that over half of them have already attended. So that's another very positive sign. They're learning the new architecture of the business and how to build it. So net/net on the U.S. business there are signs of strengthening and success and we'll keep reporting on that progress the rest of the year.

Looking to overall Tupperware brands and compensation plans globally, some people have asked, are we going to do the same thing elsewhere that we've done the U.S. and the answer is no. When we look at our compensation plans globally, we recognize there -- there are really three primary factors that influence the business architecture that we use from market to market and they're simply, what are the product categories for that market, the selling situation, i.e., is it a party or is it catalog selling and third, what's the compensation that really drives businesses and those markets?

That being said, although we've implemented this multi-tiered compensation plan in the U.S., we don't have plans to roll it out globally as we don't believe it is appropriate in a number of cultures. However, we -- we have adjusted some of our compensation plans where it makes sense and kind of affectionately Mike Poteshman here calls it our change in our comp plans lite because we have been making some changes. For example I was week before last with our South African businesses there. There we have a concept called team leaders where our distributors provide an override or commission to managers that develop other managers. So there's certain tiers to it. In this way it's -- there's an incentive to build units of leadership within the sales force and this helps create more consistent recruiting and a larger sales force and by the way, that South African business have been up very strong double digit for three years in a row, so it's working. At any rate we'll continue to evaluate all of our markets and their compensation plans to ensure that we're providing the sales force with a plan that works for their market, for their culture, and that we can be competitive with our earning opportunity.

Let me comment on our emerging markets. We continue to see strong growth in these markets. Included in emerging markets are China, India, Indonesia, Turkey, Russia and Poland. In the quarter, we had 34% sales growth at this group of companies and countries. This was ahead of our five-year compound annual growth targets of about 30%. Our strongest contributors from this group are Russia and China. Russia's sales were up 40%. By the way, worth noting is during the month of January, the average temperature in Moscow was between 40 and 50 below, and we've got a dramatic build in that sales force number and their effectiveness there. China was up over 75% and both of these markets, Russia and China have a very strong ROS, over 15%.

Turning to our beauty brands business, this is the first time that we're -- we call it International Beauty and this is the first time we're reporting a full quarter for International Beauty. We had organic sales growth in this segment with that largest business Fuller Cosmetico, Fuller Mexico coming in very strong. The trend has continued by the way, with Fuller Mexico and we've now achieved a sales force milestone there of more than 400,000 sales force members and we're -- we're the very strong number 2 in Mexico in closing the gap. In Nutrimetics Australia, we're positioning ourselves to capitalize on the programs that work so well at BeautiControl North America as those two business models are quite similar.

Turning to South America, there we're making progress with our beauty businesses and the step 1 for us, as we've said was to really gain back office synergies to do our best to share the product lines to increase the average order. We're also combining the back end operations in our Philippine businesses as well. So overall, the transition with these former Sarah Lee businesses is going quite smoothly.

BeautiControl North America which is primarily our domestic beauty business continued to grow as well. And even as we lapped a 37% increase in Q1 last year. This business is on a monthly promotional cycle where we'll get a heavy amount of ordering the last week of the month. Last year we had four monthly closes against the normal three. And we estimate this impacted BeautiControl sales line by 6% with this distorted comparison. We are about to complete our spring recruiting campaign at BeautiControl, which we expect also to be the largest -- or the second largest in the company's history. Last year was really the largest. The campaign will contribute to the new director pipeline, which is, we think, the most important precursor of what's to come. It has strengthened and it's important in building units of leadership.

Our beauty segments overall will continue to compromise a significant portion of Tupperware Brand's business and they're expected to be our primary growth engine contributing 3 to 4 percentage points overall. So this is pretty -- pretty positive. It's why we made the acquisition and it's why we're putting focus on it. Now, let me make a few comments on two of our more important markets. Germany and Japan. Just a few comments.

In Germany, Glenn Drake, the group president and I spent nearly a week there during the first quarter and I want to kind of report what we saw. We've spent intensive time with our top 25 members of our leadership team. They're strong and we're confident they're doing the right things. Germany made progress in the quarter with the sales force size, but there's still a party average drag. It's lower than last year and much of this really is a result of the compression of disposable income. So we're working very hard with that sales team to develop a new career plan to help them see that Tupperware can impact their earnings power and change their lives. So while Germany's not going to contribute strongly to top line growth in 2006, it should hold its own and continue to contribute a very strong ROS in 2006.

Regarding Japan, we are so pleased to say this transition is starting to get traction. There we've been working on the transformation from largely a -- a business of wholesale direct seller buyers to really people who are going out there and demonstrating Tupperware products. And we're seeing some signs of success. I said this is the first time in 11 quarters where we've seen top line growth, and the higher sales was really a result of an increase in the average sales force and the party average. We are, therefore, achieving this -- this change by changing the mind set of the sales force through a lot of, I think, very effective training and development. And so it's starting to show signs of success.

Now, before I turn it over to Mike Poteshman, let me make a few comments or observations. From conversations with a number of you, we know that our business from your end seems complex with a lot of working parts and we also understand that it's our responsibility to do our best to distill it down and communicate it in its simplest form. Regarding that, let me say that the vision for Tupperware Brands is fairly clear and fairly simple. It's to become the premier global direct seller of premium innovative products.

Additionally, regardless of the market, we're all clear in Tupperware that we rely on a number of drivers that will get us there to this premier direct seller status and largely, market to market, they are the same. It's building a larger, more active sales force. It's a consistent flow of new products. It's utilizing contemporary selling approaches be it catalog or be it party, and it's also effective training and dynamic incentives and recognition programs. So while it may seem like we've stitched together this tapestry of unlike businesses out there, we really look at our business as one large direct seller with a single focus and with a select group of about five key drivers and they're all the same market to market.

By the way, over the past 18 months, I've personally facilitated 15 3-day retreats with our business leaders and their high potential teams. We did this 25 people at a time and we did it in their markets all over the world and I've got to say, whether it was the former Sarah Lee businesses our businesses in China, our businesses in Europe, when you distill it down, we're all behind, this is the vision to become the premier global direct seller and we all share the same five drivers of the business so we'll do our best to communicate it in a more simple format as we go forward in the future. Mike, let me turn it over to you to amplify in some of the other aspects of the business.

Thank, Rick. Since Rick's already outlined the big segment-related sales and profit factors I won't touch on those. Looking at unallocated corporate expenses $2.7 million worse this year than last with most of the increase being due to a cost recovery on an environmental matter and higher foreign exchange expense. Our net interest expense was up as well by $7.2 million reflecting the borrowings we made to fund the International Beautify acquisition in December. Both the unallocated expenses and interest were in line with our expectations but together cost us $0.13 more than in 2005.

Turning now to cash flow, the first quarter is always a low cash flow quarter for us and as with 2005, this year we generated a smaller amount of cash from operating activities. Looking at the working cash flow lines the things that stand out are the big improvement in the payables and accruals line partially offset by an out flow from accounts receivable. In the case of payables and accruals the cause was lower amount in 2005 to be paid out this year along with higher accruals in 2006 for some promotional activities. On receivables the main reason for this year's outflow was the timing of sales toward the end of the quarter particularly in Europe.

If you had a look at our balance sheet you'll see that during the quarter we made a $10 million prepayment on our term loan so our overall debt was down to $741 million at the end of the quarter. This decreased our debt to total capital ratio to 67% compared with 69% at the end of 2005. Additionally during the quarter we made payments related to the International Beauty acquisition of approximately $80 million and expect to pay out about $25 million more this year. This is in line with our original expectations and it's part of the reason that we had $74 million of cash on our balance sheet at the end of the quarter which is a bit high for us.

Turning to the outlook you've seen what we included in our release. For the second quarter we're looking for sales of $445 million to $450 million and EPS after adjustments of $0.49 to $0.51. All segments are expected to contribute profit improvements from last year except Europe where it was a large business-to-business contribution last year. Our full year GAAP EPS outlook remained at $1.72 to $1.82 per share after adjustments and that's the same as what we said in January. Our overall sales outlook is the same as well at $1.75 billion to $1.8 billion.

Looking at the segments for the full year, we now foresee a slight decrease in local currency European sales and a slightly lower return on sales than 2005's 20%. In Asia/Pacific and Mexico we continue to foresee a slight increase in sales but are raising our profit guidance to a mid-single percentage increase versus 2005. The guidance for North American sales at a single-digit percentage decrease and a lower loss than 2005 has not changed. Looking at our beauty segments we continue to see a double-digit increase in BeautiControl North America's sales and an improved return on sales. Finally for the International Beauty segment, we still perceive 3% to 5% organic sales growth and a better ROS than 2005 from good results in Fuller Mexico and lower investments in the South American businesses.

We noted in January that the impact of higher resin prices in 2005 compared with 2004 was $11.5 million. At that time we included in our outlook a negative impact from resin in 2006 versus 2005 in the high-single digit millions. Based on pricing we had in the first quarter of 2006, arrangements that we have in place, and what we can see in the market, our outlook now includes a smaller slightly negative smaller impact. However, given the recent movements in the crude oil market, there could be some risks to this outlook as it relates to the second half of the year. Our outlook for capital expenditures tax rate, unallocated expenses, interest expense and cash flow from operating activities net of investing activities of $85 million to $90 million all remain the same as in January.

So in summary, our full-year outlook remains the same with an upside in Asia/Pacific and Mexico and a downside in Europe versus our January guidance. We expect the U.S. and Japan to continue to improve as we move through the year and our emerging markets in beauty to be our primary growth engine. Net/net, things are unfolding in line with our expectations. With that we'll turn the call over to questions.

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

Yes, hi. Good morning, everybody.

Good morning, Doug.

Mike, one of the adjustments you come up with the amortization for the Sarah Lee direct business, can you remind me again how that plays out? That's not an even straight line over seven years kind of a number, is it?

That's right, Doug. We -- in total we'll have 62 million and we had a couple of million in 2005. There's 24 million built into the outlook for 2006 and then it goes down from there 13 million, for instance, in 2007 and down from there and that's as we work through the sales force mainly that we had on the books when we did the acquisition.

Okay. So I guess by eliminating it then, you kind of take out a variable percentage change in profit growth just to get a better look at the underlying business. On the Sarah Lee direct business, can you talk a little bit about why the organic growth was only 1% in the first quarter and why we think that will accelerate as the year progresses?

Yeah, Doug. Firstly, I've got to say, I've met with almost all of these business units, they've been through these retreats. We acquired some great businesses here, but if I was putting it all through the wine press and looking back at this past year, the former Sarah Lee businesses were negatively impacted by 7 months of uncertainty of who was going to own them. The good news is the biggest piece of that business, the $250 million for the Fuller Cosmeticos business was the singular one that wasn't impacted and I think it had to do with the scale of that business, the momentum, and the strength of the management team, so regardless of other people trying to poach management and sales force members, they were well buttressed and could defend themselves. However, it wasn't the same case for most of the smaller pieces, so they lost a lot of momentum as it went through the year and so what we're in the process of doing is getting that -- well, firstly, getting the momentum back, but secondly, consolidating where we can the opportunities on the back office. So overall for the year, I feel good about how these businesses are going to do and -- and the percentage growth. Mike, you might add anything with regard to comparisons there.

Yeah, I think because of that, Doug, the comparisons get a little easier in the second half and in some of the specific markets we talked about how in Nutrimetics Australia we're already putting in some of the things that have worked well with BeautiControl North America and we look for those to help us. South America we've been in investment mode as they've opened those markets and so we're looking for things to get better there as well.

As a matter of fact, if I categorize these businesses, I think as we said in the initial acquisition call, there's not a single one of these businesses that is a broken business that we have to go do a turn around. There are businesses in there that we think there are significant opportunity for greater efficiency and effectiveness and for us to get much more dynamic top line and effective back ROS by consolidating some of the back office. The only one of those businesses where it wasn't making money was in Latin America where we were in the investment mode in our business in Brazil.

Speaking of that, can you give us an update on the realignment with the southern cone and then the Asia/Pacific Mexico being -- shifting around as far as the organizational structure is concerned? Were there any or do you expect any transition issues there and how has that been going so far?

Doug, I think as it relates to Asia/Pacific and Mexico, there really wasn't any change because the -- the business leaders in those particular units were already reporting to the same group president.

Okay.

The change was to move a few of the units into International Beauty where it made sense, so that was the -- the Tupperware businesses in South America and Central America, into Mexico, and then the Philippines unit. So I think that that's largely been done and now we're -- we're working to capitalize on the opportunity.

And Rick, can you talk about the strategy there? Are you looking to combine sales forces in South America between Tupperware and the old Sarah Lee businesses?

Yeah. In Tupperware as we've commented to you over the years, once you get south of Mexico, Tupperware has largely been unable to build strength in -- in our product category and we think a lot of that has to do with there's less than $1 billion spent in the overall category. Yet we've been effective at recruiting, training and motivating sales forces, so we have made the decision there to combine those sales forces down there. And by the way, as you know, Doug, in those parts of the world, not driven by what we want to do, but driven by the market dynamics, you don't have much of a retail infrastructure, so direct selling is a channel for distributing many kinds of products.

As a matter of fact, in the cosmetics area, over 50% is sold via direct selling, so the consumer is used to getting the catalog that includes cosmetics, home furnishing items sometimes intimate apparel. So we're going to capitalize on the consumers' attitude to buy that way by combining these forces and at the same time limited earnings opportunities for women, for us to make it a better earning opportunity because what we think we can do is raise the average order by her being able to not only sell Tupperware, but also sell beauty products as well. She's got a reason to go to see a consumer every three to four weeks with a new catalog on beauty products that are consumed and at the same time it's a platform to present new and different Tupperware products. But it's early days. We do know that many of the other -- there were -- the typical direct sales person in Latin America carries five catalogs of five different companies. So --

And Doug, just to be clear how that's playing out, so we didn't have currently a business -- a Tupperware business in Argentina so we put those products into that business and Brazil we've -- we've started selling the Tupperware products to the International Beauty sales force and we'll look to go the other way as soon as we can with the Tupperware sales force. So that's what we mean by combined there.

Okay.

So and then in Venezuela there isn't an International Beauty business.

So it sounds like what you did with Mexico with BeautiControl and Tupperware combining that in one catalog, you'll do that with the Sarah Lee beauty business in Tupperware and the southern cone?

Yes.

Okay. Thanks.

We'll take our next question from Eric Bosshard with Midwest Research.

Good morning. It's actually Mark Herbeck stepping in for Eric --

By the way, the volume has gone way down, Janie. Would you adjust something on your end? We can hardly hear any of the participants.

Can you hear me now okay, guys?

Great. You sound like a commercial.

I was hoping you can get back to the promotion situation in Germany. I think you guys highlighted that it was a calendar shift not necessarily something different with promotions and if this completely covers why Germany was soft and additionally, what are you doing to turn around the German business?

Yeah, on the sales line, I think that what we're seeing -- what we did see was largely a shift because of the timing of these promotional programs so I think that's a true statement. When we look at the profit we did invest some in terms of margins and sales specials, discounted products in order to -- to really drive the business. So that was what led to the lower profitability given the sales that we did have. But we think that we're in pretty good shape in the sense we had a 7% sales force size advantage at the end of the fourth quarter which was the same as what we had at the end of the first quarter. When we take a look at retail sales, sales to end consumers by our sales force, we were actually up a few points in Germany in the first quarter so we think that that's a good sign.

Yeah, it's interesting there that the key number for our -- for our German distributors is what's their average, what's their sales force size and what are their retail sales because they earned their money when they turn over, you know, the -- when they sell the product to the end user, that's when they collect that and that was up in the quarter. The issue on timing is, one of our second quarter promotions, they didn't need to stock in the first quarter so we didn't get that same level of reorder business. Kind of the pig goes through the pipeline a little bit later in the year, so that's why sometimes you'll get this distortion of it. If we have a big promotion coming up, these are stocking distributors there, two weeks or so before the promotion, they -- they've got to order up because they've got to be able to deliver and so we didn't get that.

Back to your second part of your question, what we're trying to focus on more in Germany is we don't want to be so dependent on -- on promotions that are discount and -- and have impact on not only the brand and the brand image in the marketplace, because over time that erodes that for other promotions there: purchase with purchase, gift with purchase. We want our sales force better trained at differentiating the features and benefits of Tupperware products. Because you can -- just like our Japanese business, you can have a sales force, they become overly dependent on promotions and all of a sudden you're a discount business. And some of the direct sales companies out there have as much as 85% of their -- not in Tupperware, but some other large direct sellers as much as 85% of their sales are products sold at discount and so we don't want to go down that road. And that's why the training is the key on that, on how to get the full price for the product.

Okay. And then one more question, if I could. Any color on your expectations for revenue growth in Europe in 2Q and then also the rest of the year and then also anything on top line growth in April, month to date, relative to how it ended in Q1 in Europe?

Yeah, we don't get real specific on the quarter other than the overall revenue expectations, so you saw that we expect to see -- be about flat in the Tupperware and BeautiControl North America businesses together. When we look at the full year, we're calling for a slight decrease in sales in Europe in local currency sales and so that will obviously take into account the first quarter in what we see for the rest of the year.

Okay. Thank you.

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

Good morning, Rick. Good morning, Mike.

Hey, Budd.

Couple of questions. I noticed in BeautiControl we had a pretty significant slowing in the growth of the sales force metrics this quarter year over year from a couple of earlier great years, I think down to the low teens, and you said I think you said it's going to grow at like 10% jump double digit for the full year. What kind of the long-term growth rate now for BeautiControl North America? What are we looking at coming off of the hyper growth years?

As we said in the comments, we're lapping this 37% we saw in this first and second quarter of this and last year and that makes it difficult to absorb that. Going forward, we're still expecting 10% growth and we said because of the timing of -- there were four closings that we lost 8 points on that so it would have been 8% if you added that back in on the BeautiControl business. And the key thing we look for, Budd, is new directors and qualification. What does the pipeline look like and you saw in the third quarter of this last year a little softening, but then you saw it come back and it's -- we like where it is right now. It's -- it's going to be difficult to keep doing obviously these 20% plus, but we're -- you know, we're clearly still believe that we're going to get 10% going forward.

But , philosophically, looking forward beyond this year, is 10% the right number for the next couple of years or do we get down to higher single digits?

Budd, the -- the longer range outlook we've given for 2007 forward as we've said kind of 5% to 7% growth for the company overall and that 3 or 4 points of that would come from beauty and we've said maybe 20% of that coming from BeautiControl, if you back into that that would imply, yeah, a high single or low double digit growth rate going forward.

Okay, and I'm confused a little bit on the International Beauty issue. I know you had 1% organic growth this quarter and I think the closing issue made it or the extra week issue made it 6% fully adjusted number if you made that -- that calendar shift. Then that business should shift into the second quarter. Your guidance is flat to 4% organic growth. Are you just being very conservative or is there something going on that we're missing?

The calendar shift that we talked about, the 6 points related to BeautiControl, the International Beauty outlook that we've given is 3% to 5% organic growth for the year, so we're at the 1% in the first quarter with that other question we were talking about the fact that the comparisons are a little bit easier later in the year, and the second and fourth quarters, still a comparison of course, but the second and fourth quarter tend to be the bigger quarters for the International Beauty business.

So IB did not have an extra week in the first quarter?

Well, that -- right, because that was really saying last year in 2005 they weren't -- no. It's not saying that.

I gotcha. Okay. A couple more quick questions if I could. I think Rick, did you mention that the North American average active sales force grew in the quarter year-over-year because I thought it looked on the reclass number it was down year-over-year.

No it did not grow.

It did not grow.

Yes because we're 14 down.

Yes, 14% down.

I wanted to make sure I didn't mishear that. And you talked a little bit, Mike, about the resin being less of an onerous thing at least as it looks right now without any of the new cost increases coming down the pike. Have you taken a price increase to cover those raw materials? I'm sure you have lots of pricing power I know as the business model.

We tend to look at pricing based on consumer markets and price in line with inflation. We have to look at things obviously on a market by market basis, but we don't -- you know, we don't do surcharges or things like that because of input costs.

Sure, I understand that, but have you -- have you recovered those costs? Have you done that? I know you would do it market by market. I understand.

In the normal way I mean we've taken price increases in some of the markets. Consumer inflation.

Okay, and just a couple of other housekeeping questions, the per percentage of active sales force in International Beauty was significantly higher this quarter than it was in the fourth quarter and I realize that's probably an acquisition issue when you acquired it and the timing issue. Is 50% about the right active penetration in International? Is that because of multilevel marketing? The way that they calculate it?

It is a lot higher in International Beauty. The fourth quarter number only had the -- I think it's a former Tupperware business. The former Tupperware business is in it at that time. We do -- we tend to see this higher activity level. It's not so much the multilevel as it is the single-level model where we're running a campaign structure, so it indicates the Fuller Mexico 26 campaigns a year and it's measured on how many people are turning in an order in each campaign cycle and then averaged and because it is -- people can go back to the same consumers and so on to sell, you get a different kind of dynamic so we would expect to see this kind of ratio.

So 50% or a little bit better is a normal ratio?

Yeah, we think so.

And I think you have -- one of the things that makes it hard right now to model is pro formas. We don't have quarterly pro formas with International Beauty and I know we've had this conversation. You've mentioned the organic growth. I didn't know whether that organic growth included the former Tupperware businesses that are now included in that seg or not and I wonder if you had a time frame for those pro forma quarterlies.

It did include all the businesses that are in International Beauty if the first quarter of '06 so it's the same for '05 and we do have that information now that we can give you supplementally.

Wonderful. I look forward to that. And finally I saw that the $79 million payment International Beauty, I think you mentioned a $24 million payment. I take it the offset the balance may have been settlement liabilities is that the other in the short term liabilities?

Well, the offset on the -- so you're -- other than the cash?

Other than the cash, but when you look at where that's coming out of, yeah.

Yeah. I think it -- it would be the 80 million came out of payable.

Okay. All right. Thank you very much. Good luck on the second quarter.

Thanks, Budd.

[OPERATOR INSTRUCTIONS] We'll go next to Dara Mohsenian with J P. Morgan.

Can you give the number of sales shift in Germany in the quarter?

Sorry, say that again.

The sales, the timing shift, that you mentioned, did you give an exact number?

No, we didn't.

Can you give that to us?

We're really not that specific on those segments by quarter. This I think when you look at it overall Germany is a large part and we said it wasn't going to have a big contribution for the sales force for the year and that in the segment overall we would be down slightly.

And the active sales force growth in Europe has been real solid the last few quarters yet revenue has been down substantially even on the currency neutral basis. So can you give us a sense of what's driving the lower sales force productivity and how you try to fix that going forward?

That's really a mix between the -- these new markets that are growing so rapidly like -- like Russia, Poland, turkey, and then you get into markets like the Sub Saharan Africa, you just don't get the same level of productivity from the sales force and that's largely driven by per capita GDP in those kinds of markets, so you get a distorted mix. You get the most dynamic recruiting for those markets because there are limited earnings opportunities for women, but you get a smaller level of sales and productivity. The typical party in a -- in a Russia is a fraction of what it is in the Germany. So that's what distorts it.

Okay. And then to clarify, you mention 1% organic International Beauty growth. Does that include or exclude currency?

That excludes.

Okay. Great. Thanks.

[OPERATOR INSTRUCTIONS] We'll go now to Greg Hillman with First Wilshire Securities.

Good morning, gentlemen. I had a question -- I'm relatively new to the story but it was about basically the cost of a recruit -- a new distributor over what that distributor will turn over his lifetime to the company. Do you have some sense of that? Do you understand my question?

Yes. We understand the question. Greg, largely in a direct sales, in this kind of a direct sales business, we'll have recruiting campaigns from time to time and there's some embedded costs in that, but we really don't have a -- a cost in the value chain of obtaining recruits. We'll do certain recruiting promotions throughout the year, but this usually happens at the distributor level of the business, so that's one of the dynamic things about you don't have this fixed expense to grow the sales force out there.

But in terms of your marketing budget, you engage in activities to help recruit distributors?

Yeah. No, yes, sales force members we -- not only to recruit, but to recruit, train and motivate them and that -- what is it we average? Around 18% on something like that, Mike?

Yeah, something like that.

Yeah.

Okay.

And some of it is for recruiting, some of it is -- but often it's to get them trained, to get them active and to keep them active in the business.

And also, in any cases are --

I guess Greg, what I'm looking for if you're looking for a particular number, we can't give you that on that. It varies across business units.

Okay. And then in terms of -- does the company recruit any distributors directly as opposed to your distributors recruiting other distributors?

No, we don't. The only time we've ever done that is we -- we did some aggressive when we opened in China and we did India -- yeah, in Philippines we did some of that. But the organic approach to the business is not the way we normally do it.

Okay. And I guess my last question or what I was trying to clarify is I guess in the developed world versus developing world, in terms of in Tupperware type products and cosmetics, how do they change as a percentage of overall sales in cosmetics? And for, you know, plastic containers?

I don't understand that.

Oh, I mean, typically, I -- I take it in a cosmetic -- in terms of cosmetic sales in the United States, what percent of cosmetics is sold during direct sales organization and how has that changed over time?

It's less than 5% in the U.S., but it's usually driven by sophistication by the retail infrastructure, you'll find largely markets like North America, Europe, those markets like Japan with a well developed retail infrastructure, cosmetics are basically sold mostly through retail channels, and the success of direct selling businesses is -- is more of a niche approach driven by the earning opportunity of people or unique products that need to be demonstrated and it's an effective way of doing it. Real direct selling, the beauty businesses are most dynamic in those developing nations where you don't have a retail infrastructure. And there you will find it like in Latin America over half cosmetic sales are via -- via direct selling and that isn't so much driven by that's consumer preference. It's driven by you get 100 miles outside of Buenas Aires and you haven't got much of a retail infrastructure. So we will service that. It's the same if you follow most of these developing nations, how they sell gum and cigarettes. It's by the individual stick, often.

Okay. And maybe just another point about your R&D level. You aspired to be the world leader of direct selling for innovative products and you're like in two general classes now, I guess beauty and plastic, you know, containers and I was wondering, do you have an R&D effort or do you have -- are you going to go into other areas any time soon? And are you you going to be opportunistic when people come to you with products and you'll be able to do a quick turn around?

Greg, our approach is not primarily research, but more applied research and design. So for example, on the Tupperware side of the business, we -- we have substantial partnerships -- we're one of the most significant users of highly engineered resins so that you would find BASF, GE, et cetera, they're the company we would often -- that we'd often go to to show what's new, what's different. We're working with a number of other suppliers on smart products and technology, even work with the -- you know, with NASA on products like that. So we can get -- this is so that we can come out with innovative products there that can be demonstrated. And most of the generic commodity manufacturers of plastic, whether it's food storage preparation or surveying, they're driven -- it's usually driven by whatever the product is and the price is through the Wal-Mart, Kmarts and this is where Greg we'll get 65%, 70% gross margins, they'll get 30%. We have a very substantial group of designers in house and relationship with those on the outside so we differentiate not only by function, but design. On the beauty side of the business, it's mostly applied research as well, working with a number of suppliers and laboratories, but we've got some people in-house as well.

Okay. Thanks very much.

We'll take our next question from Bob Clark Turner Investment Partners.

Two questions. First, we spent in the neighborhood of oh, let's say 600 million or so on the Sarah Lee business and I'm trying to get a sense of what -- what is it that makes you feel good about borrowing money for 3%, oh maybe ,5% growth in the business? Is that about all we should expect going forward?

Well, I think the 3% to 5% for this year reflects some of the -- some of the drag that Rick talked about coming out of last year when the business was up for sale.

Understood.

We think we can probably grow faster than that in places like South America which is some of our newer markets and the Nutrimetics business starting with the largest one in Australia with some of the things that we're bringing over with what's been so successful at BeautiControl and then we do think there's opportunities in terms of the return on sales as well. If you -- if you take out or -- or think about the purchase accounting outside of that number, we were at about a little over 9% in the first quarter and in terms of ROS in International Beauty and we think that over time we can try and move towards the mid teens.

So if you --

Bob, if you did a regression analysis of what their sales level were over the preceding half decade, it was closer to the double digit level. So -- but it's a fragile business with regard to the disruption of who's going to to own it and so I'm going to be disappointed, Bob, if we can't in a couple quarters get it back on track to a higher growth. But there's a -- the real good news underlying it is the biggest business unit which I believe was maybe worth the entire 500 plus million we spent was this Fuller Mexico business and it's -- of a sufficient scale and momentum that it blew right through all of that disruption this last year. So they're a -- they're a very significant top line contributor.

Okay. Good. Second one, very quickly. How's the Orlando real estate business?

Going well. We're on schedule. I think we took up our number, Tom, what did we do?

We said that we would be -- get 125 million of proceeds through 2009. We'd already done 43 million of that through the end of '05 so the rest of that is yet to come and then the guidance that we gave in January, which we confirmed yesterday was for 15 million of pretax profit this year coming out of the real estate.

So I'm sorry. Has the value changed since January then?

No.

Your assessment? Okay. Okay. Thank you.

Good news there also, Bob, is that the pipeline, there's a nice flow of contracts in the pipeline and if anybody came here and saw this -- what was originally 1200 plus acres, when you say the anchors that have been built on the particular properties, you'd see that this is high potential real estate values in the future.

And your timing is still about the same as it was in January. Right?

Yeah.

Okay. All right. Thank you.

[OPERATOR INSTRUCTIONS] And it appears that we have no further questions at this time, gentlemen. I'll turn the conference back over to you for additional or closing comments that you may have.

Thank you all for your time and I want to reiterate. What we said before is we're going to try to distill it down to make our business, which is on our end fairly simple out there as far as what we're trying to do in the four or five drivers of the business. We'll try to do our best to communicate that in a simpler way to you all in the future because we understand it's got to look complex on your end. Anyway, we thank you for your support and we think we're going to make great progress with this acquisition and what we've seen and I've been out there and seen the businesses, it has reaffirmed that we did the right thing there. Thank you very much.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time.