Tupperware Brands Corp (TUP) 2007 Q1 法說會逐字稿

Good day and welcome, everyone, to the Tupperware Brand Corporation's first quarter 2007 earnings results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Rick Goings. Please go ahead, Sir.

Thank you and good morning, everyone. With me this morning are Mike Poteshman, our CFO, and [James Gerard], our Vice President of Investor Relations.

As always some of what we will talk about today includes future outlook of the business. So I refer you to the Company's position and you know the rest of that drill.

We are pleased to finish this first quarter with local currency sales growth in all of our segments except Europe. And you know even without -- if we pulled Germany out of Europe the rest of Europe was up 10% but I'll drill down into that.

Also the Tupperware emerging markets continue to contribute strongly, up 35%. And additionally growth in many of our mature Tupperware markets -- including Japan, North America, Australia, New Zealand, Malaysia, South Africa -- were only partially offset by the continued weakness that we have seen in Germany. Asia-Pacific continued to improve on its return on sales while Tupperware U.S. and Canada made a lot of progress coming in with a much lower loss than in 2006. In fact they almost broke even in the quarter.

Tupperware brands I hope as you can begin to see is no longer the Tupperware Company, the Tupperware business, but today we are going increasingly into this global portfolio of independent branded direct selling companies. And I think that gives us a heightened potential for growth plus a more stable business platform. At least that is the way it is playing out.

We continue also to focus on three primary strategic growth initiatives. They are refreshing the core Tupperware markets -- we still think we have a lot of growth left there -- growing our emerging markets and then, thirdly, expanding into beauty.

Let me drill down on some market specifics first and then as usual I will turn it over to Mike to amplify a little bit further.

By the way I said on our last earnings release call, at no time since the IPO back in '96 have we had so many growth platforms, and at the same time, so few markets with performance issues and that remains the case today. At any rate, with that as a backdrop let me go through some of the business performance.

Begin with our important European market, Europe without Germany as I'd mentioned had a local sales increase of 10% and profits were up 15% with the strongest growth coming from as you would imagine the emerging markets. However a number of Europe's more mature markets did well in the quarter. Germany, as one of our largest European markets, made only limited progress this quarter in closing the GAAP on the sales size force from the first quarter to actually to about the same as it was. And that reflected in both a double-digit decline in sales and profits. And again as mentioned that was reflected in the GAAP in the size of the sales force.

I want to reiterate that we remained confident that the underlying actions are correct and will eventually get Germany back on track. We have got a lot going for us in Germany as Tupperware. We have a strong and dynamic senior management team there but that does strengthen management right down to the regional sales director level as well.

We have got a seasoned group of distributors that are very profitable as there is -- as seasoned as any group of distributors we have anywhere in the world and I think, most importantly, we have a brand that consumers aspire to own. The major issue for us in Germany is that this continued high unemployment for now five years has made it difficult for us to sustain much less grow the sales force size.

What we are doing as mentioned in the short term, we are not sitting on our hands. Our actions have involved some specific promotions for recruiting and activity and a more dynamic product program as well. I've seen their second quarter plans by the way. They've researched them in the marketplace and we feel good about them.

Longer term, as mentioned, we have strengthened the sales force structure with an additional management level we call Team Leader and, by the way, that is going very well and is on schedule. We believe that these actions together to impact the business performance will begin to be felt in the second half of this year. We have however lowered our expectation for the European segment for the year overall, primarily due to these German trends. We want to see traction before we modify our objectives going forward.

By the way, the macroeconomic picture for Germany for the next couple of years looks particularly good so we are starting to see that the economy is going to grow the strong attitude that the Chancellor has taken with regard to the leverage unions and her commitment to job creation. We think that is going to help us in Europe.

By the way, as a sidebar of that, the reaction to the French election really looks positive with regard to the macroeconomic environment in France. The final election will be held in two weeks and it is unlikely the Socialists will win. I was there with our business units this past week and by the way they are speaking of Sarkozy as being the Margaret Thatcher of France. So we hope that has that effect.

Turning back to the remainder of Europe, it is doing fine and we are focused on initiatives and the remainder of Europe that enhance our competitiveness. That is, firstly, a better party and we are pleased in France, particularly to see what they have done. They have launched a new party that's all designed around a chocolate theme with a major European chocolate supplier, Lindt. They are focused on also the rest of Europe and more competitive earning opportunity and we're pleased that [Glenn Drake] and his management team have launched the Team Leader program in now 10 countries in Europe. So that looks good.

Finally, we have improved the product marketing primarily to ensure a stronger flow of new products for the European team. So we are feeling good with that.

Now a couple of words about our Tupperware emerging market. Sales were up 35% in our key Tupperware emerging market this quarter and that really bodes well for this six-year CAGR of 30%. We continue to leverage our strong sales force earnings opportunity in our emerging markets, and by the way, they continue to represent about 45% of the world's population. So there is a lot of growth left there for us. Our penetration levels are low in all of these markets so the potential is significant.

In China we will realize that potential through outlet expansion. Our outlets now -- we are at 2,370 of these outlets. They are expected to more than double by 2012. In the former Soviet Union, now the Confederation of Independent States, it is growing at an incredible double-digit pace and we expect to double that business also over the past -- in the next five years.

In addition, Turkey, India and Indonesia all have powerful trends, large populations, and a bright future as our products and our opportunity have been well accepted there. By the way, sometimes on one-on-one meetings people will ask how in some of these low per capita income countries can people afford Tupperware products. And I think if you'll kind of look at Maslow's Hierarchy of Needs, that they are spending on food, clothing and shelter, you see that this is a category that really bodes well for them. As a matter of fact what we find out in developing markets, it frees her from daily food gathering and food preparation so that is why there has been such great attraction to the Tupperware brand.

Let me turn to the other Tupperware segments starting with North America. Tupperware U.S. and Canada continued to make progress. They had sales growth of 14% and as I mentioned, a significant reduction and loss as a matter of fact, almost broke even. This is the second quarter of double-digit sales growth in the U.S. and you will remember, we turned strongly positive in the third quarter of this last year. So we continue to expect to have full year sales growth and profit in the U.S. for 2007.

The average active sales force was slightly below last year in the first quarter. However we are really seeing sequential improvement and recruiting has been up strongly. Additionally the attendance at our regional sales force events in March and early April was stronger than last year; and this is a great precursor because it indicates a more engaged sales force and a precursor that good trends are likely to follow.

I think what also this is proving to us is the years of work on changing and contemporizing this Tupperware business model in the U.S. from not only to products that we sold, how we did the party, but the transformation of the earnings opportunity -- that is working. And we are able to translate that into certain other markets where needed. Tupperware Mexico, by the way which is now included in Tupperware North America's segment was also up in the quarter. It was helped by a B2B transaction and they are also getting very very nice recruiting.

By the way, I apologize for the confusion of this change in the segments, but the regulations when you are working with the SEC when you change operating reporting you have got to manifest it and reflect it the same way. So we are as frustrated with some of that as you may be.

Let me turn now to the emerging markets of China, India and Indonesia. They were all up 21% in local currency. The established markets of Japan Australia and Malaysia also had strong results; and as in Europe our strategy for growth centers in these markets around enhanced product line, the selling situation, be it a party or brochure selling, that is fun and more experiential and a sales force compensation model there has got to be compelling. Specifically now with regard to our sales force compensation models and what we're doing around the world now we have introduced this multi-tier compensation program -- similar to the U.S.'s.

Now we have done it in Singapore and it's had positive impact and we are going to launch it to the north of Singapore in Malaysia later this year and we are expecting results quicker than we saw in the U.S. The reason for this is first because those markets already had good momentum and, secondly, because we learned a lot in the U.S. on how to launch it right. So we are not expecting much disruption.

Also in Australia we've implemented a Team Leader concept similar to what we have done in South Africa and Germany; and that now is helping us to grow the average active sales force size there as well. And by the way that is one of our most dynamic and profitable markets.

In Japan, we have seen double-digit sales growth due to strong recruiting and the additional sales force productivity that is coming from improving the product offerings and as well as improving the sales force incentive. So [Luciana] Garcia, the new managing director there, is really getting that market back on track.

We have raised by the way our expectations for sales and profit growth in both Tupperware North America and Asia-Pacific versus what we'd said in January.

Let me now turn to our Beauty businesses. This is fast becoming 40% of our Company. We are very pleased with the mid single digits sales growth we saw in both Beauty segments. The standout performer in Beauty North America was Fuller Mexico which is growing solidly and we are probably the number 2 direct seller in Mexico. In South America, we continue to grow nicely as well. I did a leadership retreat with all the M.D.s and senior management this past month there. I am just amazed at the level of talent and enthusiasm that we have down there.

We are learning there how to increase the average customers through a panache of this Tupperware brand name, putting it together with the House of Fuller brand name.

You will recall the primary reason for acquiring Sara Lee direct selling businesses was to leverage our direct selling skills in Latin America, which we saw as a $25 billion Personal Care market and we knew that over half of these sales were coming through direct sales. We simply stated we wanted to compete in that market. We knew how to recruit, train and motivate there. We didn't have the right product line.

The acquisition has clearly established a beauty base in those markets which is combined with the Tupperware brand. And this is the only place in the world where we are putting them both together, because we are more a channel there than we are a brand. It provides a real compelling earnings opportunity for the sales force. We expect the South American and the Mexican Beauty businesses to become an even more important component of sales and profit for the Corporation down the road.

At BeautiControl North America, a word about that. We had a slow start in January and -- but we did see improvement as the quarter progressed, reflecting a very good March, which was the first month of a two-month recruiting campaign. However, because of the weak January, BeautiControl says we are flat for the quarter. The decline in profit there was actually from costs associated with opening and bringing online our new manufacturing and distribution center there, which was needed to really be able to service the back end of that business. We have, however, maintained a double-digit sales force size advantage in our BeautiControl business.

Sales force productivity in BeautiControl is currently the issue; and we are currently working on focusing, on building the consumer reorders and with a number of other actions as well in BeautiControl.

Turning to our other smaller Beauty businesses you may recall that we had some initial downturn once we did the acquisition; and as we transition there's a lot of distraction with the smaller businesses. Well, it's been about 16 months and I am pleased to report that we are starting to see our actions gaining traction in some of the most important of those businesses.

Nutrimetics Australia has been successful in recruiting now more sellers utilizing the same kind of strategies we used at BeautiControl North America. For the first time now, we have got sales back to flat with the previous year and, importantly, we have converted more of our recruits into actual sellers rather than wholesale buyers. So this is a very positive sign.

Avroy Schlain and [Suiss Gars] which are in South Africa and we pour into our Tupperware segment, they did make nice progress in the quarter in both sales and profits. Well if you put it all through the wine press our long-term sales growth target beginning in 2008 remains at this 5 to 7% level and we are continuing to look for a pretax return of 8 to 9%.

Mike, let me turn it over to you and then we will open it for Q&A.

Thank you, Rick. I will start by outlining how our first quarter actual results came out versus the outlook we gave in January.

Sales came in at $457 million or 5% in local currency at the high end of our +3 to 5% outlook range. Regarding profit, the improvement leading to earnings per share of $0.36 without items which was above our range of $0.27 to $0.32 came primarily from the Tupperware Asia-Pacific and North America segments, along with lower-than-expected interest expense. Our tax rate was higher than planned at 26% without items but we still expect it to be in the low 20% range for the full year. Earnings Per Share after adjustments for the quarter was flat with last year with $0.02 positive foreign exchange, offset by an increase in unallocated costs, both in line with our expectations. The profit benefit from our sales improvement compared with last year was offset by a lower return on sales in Europe, primarily related to Germany and in the Beauty segments.

Turning now to the balance sheet, we made additional progress on reducing debt, bringing it down $24 million from year end to $658 million, resulting in a debt to total capital ratio of 61% versus 63% at the end of 2006 and 67% at the end of last year's first quarter. Cash Flow From Operating Activities in the first quarter improved to $8 million from $4 million last year. And we are pleased with where we are in terms of working capital management.

For full year 2007, we now see Cash Flow From Operating Activities, net of investing activities to be about $100 million. This includes the land proceeds in our outlook of $8 million to $9 million and is up from the $90 million outlook we gave in January. This reflects $10 million of capital spending being financed by a capital lease and, therefore, not being included as a cash flow. Including this $10 million, we still see capital spending for the year at about $70 million, like we said in January.

Regarding the full year 2007 sales and profit outlook, we continue to expect overall sales to increase 3 to 5% in local currency and by 5 to 7% in dollar terms. We have raised the GAAP EPS guidance range to $1.69 to $1.74 versus the previous high end of the range at $1.61. The EPS range excluding items is raised to $1.84 to $1.89 compared with the previous high end of $1.79. Versus our January guidance this reflects lower interest expense of about $0.09, stronger foreign currency is accounting for $0.09 as well and in the case of the GAAP range, higher land and insurance gains of $0.02.

Going the other way, we have included $0.05 of dilution for more shares due to option exercises and higher stock prices.

At the segment level for Europe, we expect local currency sales and profit to be about even with 2006. This is versus the January expectation of a small increase in sales and ROS and reflects results in trends we have seen in the first quarter. For Tupperware Asia-Pacific and North America we see high single digit percentage local currency sales increases versus the mid single digit increases we spoke of in January. We now foresee that our return on sales in Asia-Pacific will improve slightly versus 16% in 2006, whereas in January, we thought it would be about flat with 2006.

In Tupperware North America, our outlook is now for a mid single digit return on sales in 2007 versus the 4 to 5% return on sales we had foreseen in January.

Here too are the changes that reflect the first quarter results in trend.

In line with the January outlook we continue to expect sales in both the Beauty segments to be up about 7%. We foresee a small decrease in ROS in Beauty North America reflecting higher manufacturing costs of BeautiControl and to be at about breakeven in the Beauty Other segment. Taking both Beauty segments together and comparing this with the outlook we gave in January with our previous segment structure, there has been no change in the full year expectation.

Overall, in comparing the current full year forecast with the forecast we gave in January for the segments, the property increase in Tupperware Asia-Pacific and North America is less than the decrease in profit expected from Europe.

As for the other elements of our forecast we continue to expect our unallocated costs to be in the $35 million to $37 million range. We now expect net interest expense to be about $44 million which is a reduction from the $52 million we said in January. The main cause for the reduction is our synthetically placing some of our debt into the euro and yen which carry lower interest rates than U.S. dollar denominated borrowings. And as I mentioned, we still expect our full year tax rate to be in the low 20% range versus 9% on a GAAP basis in 2006 and 12% on the basis that we show excluding certain items.

We now foresee pretax land and insurance gains totaling $10.1 million versus $7.6 million before, reflecting the $2.5 million first quarter insurance recovery that was not in January's guidance. Intangible asset amortization remains at $13.3 million and reengineering cost at $10 million.

For the second quarter we foresee a 3 to 5% local currency sales increase with EPS excluding items of $0.45 to $0.50. 2006 EPS excluding items was $0.49. Among the segments, the expectation is that versus 2006 higher profit by Tupperware North America will be offset by lower profit in Europe, primarily from Germany and BeautiOther segment.

An upside of $0.04 to $0.06 from stronger foreign currencies versus the U.S. dollar along with lower interest expense is expected to be mostly offset by higher unallocated expenses. Additionally, the forecast for the quarter is impacted negatively by $0.01 per share of dilution.

In the second quarter we expect $0.02 from the [LAN gain] and $0.05 of expense from intangible asset amortization and reengineering. Not included in our full year guidance are pretax gains from the sale of our former Belgian manufacturing facility which has being replaced by our new Center of Excellence of about $11 million and from an Orlando land sale of about $60 million which are under contract and are expected to close in late 2007 or early in 2008.

I will now turn the call over for Q&A.

(OPERATOR INSTRUCTIONS)

Doug Lane from Avondale Partners.

Mike, you mentioned the lower interest expense and what you did there. Can you talk about the $0.05 dilution for more shares? What's going on there?

As I am sure you can appreciate with the way the share calculation works is the share price goes up, your more common stock equivalents are assumed. We've also had some stock option exercises that we didn't use the proceeds to buy back shares so that increased the number of shares as well.

I see. And, Rick, can you drill a little bit more down into BeautiControl North America? It's been such a stellar performer over the years and we've seen some slowing of late. What is going on there? Any major changes on the horizon? How do you read that business after five or six years of good growth?

Yes. I think what we went through is that first initial phase of getting it right and getting it growing again. We tripled the size of the business and I think what we went through there is a little bit of a learning curve there kind of, and what's happened here is kind of the pig's working its way through the python. We had so many directors and qualifications and truly I think we slipped in our ability to convert these from the DIQs, Directors In Qualifications, to full directors and that's part of the issue there.

And I will tell you that's what we are really focusing on right now. They have had excellent training. I was with them at their -- just their leadership conference and they are focusing on all the right kinds of things. I think what it's playing out into is we have a nice double-digit sales force size advantage and I think it is something that is more a quarter away because you really start to see it play out in productivity levels.

So I think there are two major issues. We have got to be able to convert more of these directors from DIQ to actually becoming directors and that is where they really become career people. They focus the initiatives against that and then, secondly, get the productivity from the new sales force out there.

I think what we got caught and bit a little bit was for some rapid growth over a period of time. As a matter of fact that third thing we talked about here was the impact on profits, Q1, we had to open a new manufacturing facility. We really got hit at a point in time with a lot of shorts because the business grew so fast that we weren't able to supply. And you know, that is a death knell in a direct sales company when you can't supply what you sold. So some growing pains there. We feel very good about the business though.

By the way, on that too, Doug, that we have moved [Morgan Herr] who was -- Morgan was with me in my former direct sales beauty business life and Morgan was really the person who was the category manager, when this product Anew was birthed. Morgan ran all of our -- she was our Worldwide Head of Marketing here. And we have transferred Morgan now to the BeautiControl business where she will be our Senior VP of products. So she is really going to be helpful to them as well. Because you know we have to differentiate our earning opportunity, differentiate our party, the spa, but our product as well. So everybody is so excited to have Morgan there.

Did she move to Dallas or is she still in Orlando?

She is moving to Dallas.

Has there been any impact at all to BeautiControl from the acquisition of the Sara Lee businesses particularly the Mexican business?

No. There really -- the chalk and cheese, the Fuller business really if you take ABCD socioeconomic levels that really compete on the sea level whereas BeautiControl is pretty much an AB business there. One sells through very much into BeautiControl for the spa escape parties. High-tech training, big focus on earning opportunities whereas the Fuller business is more a merchandising business down there. So, no, not really.

It's just looking at the numbers here is just right in the fourth quarter of '05 is when BeautiControl started to really slow down. But I guess that's really judging from what you're saying nothing more than coincidence.

Yes, because one business is in Mexico and the other is in the U.S. So I mean I'm sure there is some action right around the border but they have nothing to do with one another. As a matter of fact, we run these businesses as I said as independent direct selling businesses. So they don't compete at all.

And that will be the same going forward even though they are reporting into the same segment?

Oh yes because what you will really start to see is that the business down there -- reporting in that, there's still -- there's separate management that runs a separate product line.

I will give you an example. A BeautiControl lipstick will be in the $7 range in our Tupperware BeautiControl Mexico business. Excuse me, yes and it will be in the $11 range in our U.S. business. So, no, that's not worth coming from.

It's more the issues in our BeautiControl business are our internal issues in BeautiControl. I don't even think there is anything going on externally to speak with.

Budd Bugatch with Raymond James.

You may have commented that BeautiControl, the Beauty business is -- pardon me -- are fast becoming 40% of the business. And I think they are like 35 or 36% this quarter. Now that you've got and I do agree and I congratulate you on getting some of the issues away, what are the various growth rates, longer-term growth rates of both segments today? What would you and in the foreseeable future in terms of topline and maybe then I will ask you about the returns on each segment too and ask you to refresh your opinion about that.

Yes, really we break it down into just three different groups there. I mean the Beauty businesses, Budd, we think will grow in the 7 to 10% range and by the way, the target there is a 15% ROS on there. The core Tupperware markets -- and this includes everything from our German business to Western Europe to even Australia -- those mature markets of blended rate we say were in 2% topline. And by the way, that speaks to some within there will be growing to 15% but we may find that what we are really getting in some Western European markets with high penetration rates that you sign up for flat in those markets.

But what we're looking for there is 15% overall, their ROS. By the way, if I split out the Europe, Western Europe sector we hope to be able to claw back closer to the 20% ROS there.

Then the third piece of how we segment our business is the emerging markets. We've said the CAGR now six years has been 30%. It was 35% this last quarter. Obviously, it is going to become more difficult to keep lapping those. So we don't expect that going forward. But it is likely to soon. We just had a Board retreat and we just talked about 25% growth for the next couple of years and then it may modulate to 15%.

But that's still is very strong double-digit growth and, again, ROS in the 15% range. Mike, would you comment on that, please?

Yes if you look at the sales force side on Beauty North America it was plus 11% at the end of the quarter; and so we think that we have the opportunity to hit that 7% to 10% going forward in that segment and certainly with some of the smaller markets in Beauty Other categories that have a lot of opportunities in South America as the BeautiControl like strategies kick in at Nutrimetics. When we look at the profitability side, we are already doing fairly well in terms of ROS and Beauty North America baked in these numbers will be in that midteens range. And clearly where we said Beauty Other would be somewhere around breakeven this year is where we got a lot of opportunity, we are continuing to feel at this point in best for instance in Brazil.

So as we get the growth and get the sales force on the ground that's the one that we will from front [to] point of view, have a big opportunity.

So let me just drill down a couple of issues. In the topline issues, you did refer to the sales force. Should we then also assume or believe that the sales force growth both total and average active will mirror the dollar growth, so no change in productivity or penetration?

I think probably over time, you've seen if you look at our numbers that there's -- always tends to be things going on in particular markets based on how we run to the recruiting programs and how people come in and, therefore, how productive they are. But I think, yes, over a period of time you would expect to attract the sales force, sure.

What distorts it to some degree is where you'll take a market like a Germany or Switzerland, Austria with (inaudible) in the mid $30,000 a year per capita GDP and you'll get a market like in the former Soviet Union where it is much more likely to be $3000 to $4000 a year. A party is $100 U.S. in Russia where you'll get it $400.

So the sales force, they look like they are not very productive in some of these developing markets, but relative to disposable income they are very productive and she has got a lot of purchase power with that. So that's what it's sometimes hard to do and that distorts it.

But I think, as Mike said, overall, our goal right now is in the near-term break the $2 million mark on sales force size. And that's going to -- you are going to start to see that then move the sales line.

Now in the past, I mean, I don't want to dredge up the past but we have not seen the Tupperware growth anywhere near that blended rate. You gave us 1 to 2 for the mature markets and somewhere I would say around 25 going forward for the emerging markets. That would blend up higher than what we have seen.

When is it an appropriate time to start making that expectation so that we would actually put it on paper?

Well, Budd, I guess we've reiterated our longer-term expectation which we had been saying we were looking for in '07 but we have not said that that would be in '08 and forward, which is the 5 to 7% for the whole Company -- which includes the 1 to 2% for the mature Tupperware market like Rick was saying and the emerging markets, at 25 to 30. We have given guidance this year for 3 to 5%. We hit that in the first quarter. We were up 5% in the Tupperware segments in local currency taken as a whole.

So we are not quite to that long-term expectation in '07 based on our current guidance; but we're getting there at least to the low end. And we would expect that going forward at this point in time from OE forward that that's what we think we can do.

And the return on sales? What do you think you'll get there? That was the other.

Well we've said 8 to 9% on a pretax return on sales in '06. We were at a little bit over 7, and based on the guidance we have given now at the high end we would be around that 8%. So we would expect that to be true going forward as well.

But you were talking about a return on sales at the operating line of, what, 15%?

Well we think what we've said is that we think any individual market ought to be able to earn a 15% ROI so we are not there in some and we are much better in others. So we will continue to work that way. But really the overall outlook as we've said it is that we think we will be at 8 to 9% pretax return on sales.

I think what changes between this past 10 years -- and you and I have talked individually on this -- it's the most challenging fabric selling business model change I have ever been through. But the heavy lifting is done. We have gone through totally changing the product line. The how we sell, whether it's brochure selling or the Tupperware kind of party, that has been totally overhauled; and the third and perhaps the most difficult, because of the resistance of change in people, is change in the sales force structure and compensation model.

Those are largely done and that's the major thing, Budd, that gives us more confidence that the future is not going to be like the past. But we had to go through that to change them.

I mean you know, you and I have talked on this point that when we tried to toy with any little thing on the sales force structure model in the mid '90s, my goodness, there was a class-action suit. We've gotten through this thing seamlessly now and now that the U.S. back growing again and people starting to earn money and, importantly, these directors in the U.S. are earning double-digit more than they were a year ago. So it is really starting to get traction.

Just a last question, just a nit. My calculation I guess on currency impact on EPS in the quarter is like $0.02. I don't think I saw that in the release. I missed it. I apologize. Is that correct?

Yes 2% -- $0.02 is right. Yes.

We talked about it, didn't we? Okay.

Mimi Noel from Sidoti & Co.

I have a much shorter-winded question Mike, if you wouldn't mind reminding me. What is the reason for the higher unallocated expenses? Does that have to do with the new manufacturing?

No, Mimi. There were three things that really grow that. One is having the structure now with the Chief Operating Officer cost us a little bit. We also put in some euro put early in the year that hedged our current year earnings and so those have $0.5 million cost for the whole year and a lot of that came through in the first quarter, given that the euro's gone up so much, those puts aren't worth as much.

Then we had some timing related to some tax consulting where we had more costs this year than last year in the first quarter. But I guess if you look at unallocated for the first full year last year we were at $36 million and our guidance -- excuse me, continues to be $35 million to $37 million.

So we will really be on track we think for the full year.

Okay and is it -- what about the second quarter? Is it the same story or are there other elements wading in?

The second quarter probably will be somewhat consistent with the first quarter and it was lower last year. So we would take a hit in the second quarter on a comparison basis.

Okay. And the lower interest expense in this new strategy that you implemented, why the change in between now and January?

Well, we looked at where we had our currency or where we had our debt was one element and really said, okay, we really generate a lot of cash in Europe. We generate some cash in Japan and when you look at the interest rate environment in those markets it's better and it's just made sense to take advantage of that given that we had the cash flow to support that.

Well, good decision. Thanks. That's all I have.

(OPERATOR INSTRUCTIONS).

John Emerich from Iron Works Capital.

Two unrelated questions so I will ask them separate if I can. First of all what was the share count exactly in the quarter? And what are you looking for for the year?

Well the diluted was 61.9 for the first quarter and the dilution numbers seems on average for the whole year we would have 63 million.

And the free cash flow of $100 million you will pay about $55 million dividends so what should we expect debt to be $45 million lower at year end than it was at December year end?

Yes, well, we are also adding the $10 million in debt from the capital lease that I mentioned. And then you might have seen in the cash flow statement in the first quarter, we've got about $11 million in proceeds from stock option exercises. So assuming that goes towards debt that would also be a bump there.

That kind of offset it?

Right. And, well, actually adding to it so that would allow us to decrease debt with that cash. And then we also started the year with $100 million in cash. At the end of the first quarter we had about $77 million. And so if we maintain that level of cash that would be another source to pay down debt.

(OPERATOR INSTRUCTIONS).

Greg Hillman from First Wilshire Securities Management.

Rick, I had a question about cross-country sponsorship in particular, (inaudible) Fuller Mexico sponsoring people in the United States and other type activities. Could you speak to that and other cross-country sponsorship opportunities?

Yes, Greg, largely we have not done as many multilevel marketing done -- companies have done and allowed sales force to have global networks. Most of them that do have that really have global networks of buyers rather than real sellers. Most of our two million person sales force -- you know, they are out there selling our products.

What we are going to be taking advantage of is with our Fuller Mexico business of letting that business come across the border. And you are going to be seeing that initiative in the first quarter of 2008 and there are -- as you know it is almost 25% to the GDP of Mexico is money being sent by relatives who live here in the U.S. to either legal or illegal aliens and they know our Fuller brand. They love it and we are going to leverage that.

So in particular we say that, Greg, as an opportunity in those coastal areas and we will be focusing more on California, Texas and the outlier, really, is Chicagoland which has one of the highest concentrations. So that is part of our growth strategy for Fuller Mexico.

So you are going to have a formal program whereby and promotions whereby people in Mexico could sponsor Fuller Mexico distributors in various pockets of Mexican-Americans?

Yes but it's much more likely to be as you would -- in the search business a headhunting fee rather than building a downline organization in another country.

That's helpful. And could you just, Rick, also just talk about Germany a little bit more? You talked about some of the macro factors that are improving. I noticed also I think Germany is the largest exporter in the world in terms of all the countries in the world right now, I believe. And I was just kind of wondering, could you just go a little bit deeper what you are doing to turn around Germany and what is going on there?

Yes. First thing is, we have a lot of things on our side there. As I said we have got a very strong management team there, a strong group of distributors there. We have been there 40 years. We have high penetration levels.

But what we have got to get better at is there's been just like you have seen in many other countries an urbanization in Germany whereas Germany used to get country made up of mostly small towns, you are getting movements towards the city. We have got to become better in our German business with regard to penetrating the big cities of Germany.

And by the way I think one of the ways we are going to do that is with this Team Leader program where, under distributors, she has really now stronger people who are working full-time in the business. That is our big opportunity.

We also had big opportunity in Germany with regard to product categories. Well over 90% of all Germans had microwave and yet it doesn't reflect that if you look at what kind of products that we sell in Germany. We are still primarily food storage. So you are really starting to see a couple of things we are really working on there.

We think Germany has a lot of life left in it and one might ask us, "Well hey, how come you are doing better in France? You don't have these kinds of declines in France." Well we've quite simply and France had half the penetration level in France that we have in Germany.

But we feel very good about that market and I might add even during a challenging period of time, Mike, unless I'm wrong, I still think we've got an ROS in Germany that's around 20%.

Yes. Germany has had a good ROS. Certainly it's been above the European average and it has continued there.

What would you say your fixed costs are for Germany? Or can you get into that?

Yes, we don't really talk about that by market, but I think by being able to highlight that we're above average, that the European ROS last year was overall was about 15.5% and Germany does better than that.

Okay, but I think earlier in the call, Rick, you said there was a double-digit decline seen in sales and profits in Germany, but was it still profitable? Or was it actually unprofitable?

No, it was -- it had an ROS above 20%. I mean that and I only say that for you to get the feeling of what a profitable big business that is. But at the same time, you know it's been higher than that in the past. What we have made a decision to do is reinvest in Germany and where we are reinvesting is in new promotions to get people recruiting and promotions to get people active, once we recruit them, incentives to consumers to come to a Tupperware party and those are more short-term.

Additionally what we have been doing for the long term is implementing this new sales force structure that blends in. You have got unit managers but now we put in team leaders above that which is very much like a subdistributor. So I think that is the kind of stuff giving us good traction.

By the way you know what -- you know -- Clifford [Grumm], one of our Board members, we often talk about when we have -- you get great momentum in a business. Don't get ahead of yourself. We really like what we're seeing in the kinds of actions in Germany and other markets, but we have only got one quarter under our belt and we have three quarters to go. And that is why you'll see us right now modulating our expectations for Germany.

Could it get better in the second quarter? Yes, it might. But we are not going to report that it has until we see it happen. I do know that there's been lots of attention of management in Germany and Simon and Glenn come back and the evaluation is they are doing all the right kinds of things. So I have a quiet confidence that you'll see it come back in Germany.

Did you say anywhere, Mike or Rick, whether Germany accounted for more than half of Europe's profits for the segment? Or is that a true statement -- the Germans more than half?

We don't break out the profit by unit. Germany was around 35% of sales, I believe, of Europe last year and like I said, it was above average in terms of the profitability.

Mimi Noel from Sidoti & Co.

Just one more thing, a more thoughtful question that I wanted to ask Rick. I guess in the context, or I guess I should ask it this way. Do you have any apprehensions about a multilevel compensation structure, I guess, in this regulatory environment, given the public perception and also with regard to visibility or transparency into your business?

Well firstly I think that is an important question that isn't asked enough about the whole different kind of compensation structures.

I think it is important to differentiate between a multilevel selling system and a multilevel compensation structure. We have multiple levels of compensation even in our core Tupperware but you'll get many of the direct selling companies today that are public. They are both multilevel compensation but multilevel selling, i.e., people pay $15 to $75 for a sales kit, not to go out and sell product but to become participants in the wholesale buying scheme. I use that in the British sense, scheme. Not in a pejorative tone.

I understand.

Now those businesses, by the way, I have often said they are episodic. They will go through their business opportunities mostly recruiting machines and they are not particularly well-suited I think to be a public company, because they go boom bust in markets. And it happens. The worm turns quickly.

So we will use and by the way, yes, in a regulatory environment for example like in a Europe environment, Europe generally has a jaded attitude if you get to the more strict countries like Germany with regard to multilevel selling and compensation structures. They generally don't like them. Because they started out -- and I think the direct selling association has done a wonderful job of cleaning that up -- of just being inventoried voting machines. The better companies have cleaned all that up, but it does tend to be a much more volatile kind of a business.

Ours is a slower build. But there is a much more predictable activity because she really has a kit and we didn't talk to her just about buying a kit so she can save money on products. We talk to her about selling product; and then we trained her how to do it.

Now let me add one further level to this and forgive the wordiness of it, but it is a complex question. There are certain markets of the world, for example, Latin America, where the consumer has generally rejected multilevel selling systems. She doesn't want a business opportunity. She wants an earning opportunity and that is why notice many of the big MLNs how singularly unsuccessful they have been in South America. They just don't work.

Now certain markets in Asia-Pacific, they work very well. Japan, Taiwan, but they don't work for example, in Philippines. Philippines is largely as a result of 200 years as a Spanish colony. It is a Hispanic market. But single level works there.

Mimi, you wouldn't believe how much time we spend on three elements. We say there are three keys to our model here. What products we sell. Secondly, what is the method we use to sell them and, thirdly, what is the compensation structure? Those are the three things in our business model that we need to -- we know when you have to shift to be appropriate and grow more dynamically in markets.

Depending on the different geographies and what is culturally accepted.

Yes, you said it. For example in Latin America we tried for years just the pure Tupperware product. They love Tupperware products but you can't come back in two weeks and offer them again because our products last forever -- or infinity whichever is longer. But you can come back in two weeks and bring her Beauty products. So our future growth in Latin America is oh, we had to make a change in our product category. Next, selling system. They don't do organized parties in Latin America. Generally her home is too small but they do like to do brochure selling.

And, third, compensation structure -- the single level works just great when you have a field manager that is the company employee that organizes it. So that is where our guys have really becoming specialists in how do you jigger those three components of the business model so that we can be the dominant or number two player in every market where we do business.

Yes that's -- the dynamic is nice to hear. So thank you for the answer.

Thank you for the question.

(OPERATOR INSTRUCTIONS).

We have no further questions at this time.

Okay. I will wrap it up and, everybody, thanks for your time. By the way I apologize for, again, change and modifying the structure but as we named Simon the President we really needed to be able to report out that way.

By the way I do want to report that that is working so well. Simon and I have worked together for years and the collaboration today is making this even a stronger company. Where Simon is focused on today, this week and this month and I am collaborating much more on leadership development and the strategic aspects of the business.

I did mention at the last call, though, that we really think this is a new era for Tupperware. We are no longer the Tupperware Company but this global portfolio of independent direct selling companies. I really believe we are finished with most of the major gutwrenching change. The product line, the method of selling, the compensation model. And I think we are at a place right now that Tupperware, we can expect that all of the ingredients are really here that will enhance our investment value.

We are largely finished with all of the overhauls. This acquisition is pretty much finished and we are -- and by the way, that has been as seamless as any I have ever seen. We continue to be very confident about our cash flow going forward. And I believe this not only supports paying off the debt but also support our dividend and we think there's the opportunity for multiple expansion right now because we are still trading below historic lows.

Are there still puts and calls in our business? Yes, there always will be, but we have got a lot more platforms right now and we are learning more about how to run this global business as we go forward.

So, anyway, thank you for your time and for your continued confidence.

This concludes today's teleconference. You may now disconnect your lines and have a great day.