Tupperware Brands Corp (TUP) 2007 Q4 法說會逐字稿

Good day everyone. Welcome to the Tupperware Brands year end 2007 earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Rick Goings. Please do go ahead, sir.

Thank you [Dana] and good morning everyone. I'm here with Mike Poteshman, our CFO and Teresa Burchfield, our VP of Investor Relations. As always, some of the discussion are going to involve forward-looking statements and anyway, you all know the drill on this.

Looking at the fourth quarter in 2007, we were again encouraged to see the transformation of this business from what you all know is primarily a food storage company ten years ago to now a global portfolio direct selling companies. Importantly, each of our direct selling companies do have their own brand names, sales force, product line and selling methods. And what we really try to do is match all of those to what's appropriate in their particular market. However, the underlying business drivers across the entire portfolio are basically the same.

Being a global portfolio is now - it is allowing us to leverage our strength across all of these markets and at the same time, we have been able to deliver better top line growth but also better bottom line profitability. Our portfolio, also, serves as a natural hedge to offset not only what's going on in currency but also negative trends that sometimes happen in isolated markets. As we said in our release yesterday, and you people on the call know better than us, investors appear to be concerned right now about the weakness of U.S. dollar and the economy. Therefore, it is a good place to be with our global direct selling portfolio. We only have 84 or excuse me, 16% of our sales in the U.S., 84% come from outside the U.S. And as you would expect to the extent the dollar declines further, we are going to see even more benefit from currency, but we had a great year even without the added impact of currency. We believe that we are only going to see modest impact on lower consumer spending in the U.S. and again, it is only 16% of our business. It is the Tupperware brands business in the U.S. and our BeautiControl business and importantly both of these had double digit sales growth in the fourth quarter.

It is also worth noting that it has been our experience that direct selling, this industry is some what counter cyclical, meaning generally we see higher recruiting as unemployment rises and individuals look for alternative ways to support the family. We provide that opportunity. However, in periods of sustained higher unemployment and established markets such as we have seen in Germany over the past decade, we can soft of feel the impact and as you would know, Germany is mostly a result of reunification in the early 90s. This is really when today with being the global portfolio has its benefit. For example, for the first three quarters of 2007, we didn't see a sales increase in our German business which is our larger Tupperware business. Our larger Beauty business is our Fuller business in Mexico. However, we were still able to deliver positive results. Double digit year-over-year increases in many of the other markets enabled us to close the year with company sales of 9% and segment profit up 18% in local currency excluding purchase accounting amortization.

By the way, you probably have noticed a modification in our earnings release format. We believe this format will provide a better platform from commentary on our specific business segments and the overall company. Having said that, I will do my best this morning not to be redundant on points we made in our release. I said we were with pleased with the finish of the fourth quarter with local currency growth in all of our segments, and actually double digit everywhere but Europe where we were still up 6%. Our guidance, by the way, in Q4 was going to be up 4% to 6% in local currency, and we came in at 11%. If I bifurcate that businesses, the Tupperware segments were up 9% and beauty segments were up 14% and Mike and I were just talking about it that we really haven't seen the kick in from some of the other Beauty businesses, Beauty other as a matter of fact, last year, we lost money. So, we have got a lot of potential going forward. With the added 8 percentage point of benefit from foreign exchange we were up 19% on a reported basis. By the way, the biggest plus is versus our outlook in Q4 were Germany, Australia, and the markets throughout Central and South America.

I want to turn to some of our strategic platforms, just for a quick update, so you get a feeling of how we are doing progress wise. As I've said before, we are certainly - I don't think we ever will declare victory. We will declare progress on this. As you know, refreshing the [core] of established Tupperware business has been a key initiative here, we were really focusing on three things. We are going to continue to, as I have said with our management team, the wolf is always out there in the yard. Sometimes, he is closer to the door than we want him be. So, we have to be really vigilant with these.

These three drivers are unique products, a dynamic selling situation and a lucrative sales force structure. We have to always continue to keep these contemporary. We are pleased that our established markets grew 5% in local currency for the quarter. And also, worth noting is we have double digit percentage growth in a number of our Tupperware and Beauty markets including both Tupperware USA and BeautiControl USA and Tupperware Australia. By the way, in Australia, we have been there 45 years. It shows that even in an established market if you do the right contemporization with products, selling situation and sales force structure, you can keep growing. We are also encouraged by Germany's fourth quarter. Germany achieved a 3% local currency sales increase following double digit declines in the first three quarters. I will say a little more about Germany in just a minute.

Our Tupperware U.S. business continues to gain traction in Q4. That was our sixth consecutive quarter of sales growth and the fourth with double digit growth. This, by the way, was inspite of a fire that we reported to you, that destroyed our Hemingway, South Carolina finished goods warehouse and all of the inventory in the U.S. on December 11th. The best news there is nobody was injured. The fire resulted in the total loss of that then storage in the inventory manufacturing capabilities, however, was not impacted. The management team immediately put in place a continuity procedure and we ramped up production in Hemingway and other locations, and we were pleased to see inventory started arriving from other facilities around the world in just a few days. We were also able to utilize an existing site warehouse that was underutilized. So in a matter of days, we were shipping orders once again to the sales force.

Now, when we began our January sales program for the U.S. business, we had available for shipment about 75% of the products that we had in the catalog. I am pleased to say that, as of today, we are up back to normal again with regard to our fulfillment capability. I just can't say enough about how the management team of the U.S. managed this crisis, how they managed communication, with the sales force, our sales force remained engaged. There was some disruption at lower levels in the sales force due to perception of no product availability. Fortunately, we were able to take advantage of the added size of the sales force. So, We are not expecting any long-term impact. By the way, it really spoke also to the culture up at our manufacturing and distribution facility in South Carolina.

So, in fact, we just closed our January sales cycle for the U.S. business last Saturday, and our results were right in line with the expectations. So, after a few years of investment and inspite of the fire, Tupperware U.S. is back on the grow again and profitable, not only for the quarter but for the full year. Antidoticly, what I see is when we have these recognition events, younger, enthusiastic people walking across the stage, and what's also nice is to see is a lot of long-serving veterans are arm in arm with them across the stage. So, we saved a lot of the talent as we went through the transition. And again, bravo to [Conwar] and the management team.

Regarding Germany, as I mentioned earlier, sales were up 3%, profit was down slightly from last year, and the decrease in profit was a result of the planned continual promotional activity that increased sales leadership. But that's really aimed at driving future top line growth. Here, very importantly, I am talking about incentives, not discounting. The total German sales force at the end of the year was just slightly below 2006. However, we are seeing increase in the average party sales as well as increasing in the manager count. That's really important because managers drive not only recruiting, but also they are most productive sellers in terms of parties held per person and the amount sold per party. Going forward, we are hopeful Germany's macro economic environment will continue to improve. The new Federal Chancellor Angela Merkel and Sarkozy are both, in France, are leading the two dominant markets in Europe. We believe are really going to help with job creation. There's a whole new attitude there as I am seeing.

While you have proven the economy there is going to help our business, it is going to take time. So, we have very modest goals ahead for these business units. But great management team who did a superjob. As I mentioned on our last call, Simon Hemus, the President and Chief Operating Officer of Tupperware Brands. He had assembled a team of some of our most experienced people and they're working with Mark [Necard] and the management team there. Our longer-term strategy to stimulate growth in Germany, frankly, we are using as template, Australia, the ongoing actions being taken are firstly, some short-term, continued promotions for recruiting, activity and trying to get more dynamic product selection in the right periods. More medium term, we are working to strengthen the sales force structure with the additional level of management. That's called team leader. It is now been a year since we have this in place and we are beginning to see traction, but I would call the traction modest. We have also added a new product program coming from things we designed and also from outsourcing. This is going to enable us to get to new consumers. Finally, we are increasing the focus on the ways for our sales to reach new hostesses. That will grow the number of consumers that certainly reach us.

By way, 85% of homes in Germany according to our latest research have Tupperware in them. The average number is 15. I have got to congratulations again Mark and the management team there. They have just initiated some very interesting trade in programs. As an example of our established market, again Australia, really would be the one to look at. Our upturn there began a number of years ago, and for 2007, we have strong double digit sales growth from a larger sales force. By the way, I need to include New Zealand there as well. We achieved even stronger operating profit there. We really have reinvigorated the product line with marketing. We have made Tupperware, the management team there, we made it a lifestyle choice. I'm so proud of their brochures, catalog and the image of the company. Also, they have done a great job implementing this team leader program. So, you really get smaller [spans] of control and it leads to more dynamic leadership.

Another one of your key strategies were not only top line but bottom line growth has been and will continue to be growing our emerging market. As a reminder for discussion purposes, we use the world bank measurement of GDP per capita to identify emerging markets. This, by the way, applies to not only our Tupperware businesses but our Beauty businesses as well. Our emerging markets were 44% of total sales in the fourth quarter and they grew 19% in local currency. China, the CIS which formerly the Soviet Union, South Africa, central and south America, and Mexico are the larger contributors in the category of emerging markets. By segment, the emerging markets in Europe delivered top line growth of about 22%. The largest of these was the former Soviet Union, the CIS, Turkey, where our business is just on fire. I was just there and going back again, next month. It has market of 75 million people, has great potential. Also, South Africa.

By the way, the CIS continues to do very well, with the 30% increase in the former Soviet Union and the total and average actual sales for, not only the quarter, but the year. In Asia Pacific, in that segment, that includes China, India, Indonesia, Korea, plus some other smaller markets, sales were up 30% in local currency during the quarter. As you know, we have a different kind of a hybrid selling situation in China, utilizing store fronts, but they also do parties. We finished the quarter with now 2,700 of these up from 2,400 at the end of 2006 and we continue to see improvement in outlet productivity and more new outlets coming on line with an objective also of reduction in the number of closures that we have. So, the management team there are doing a great job. We are pleased to see also a ramping up for the parties held in these store fronts.

Looking at sales in Mexico, for both Tupperware and Beauty, they had strong growth in the quarter. Again, this includes our largest business Fuller cosmeticos and [inaudible]. For the year, we made also progress across all of our emerging markets there which are comprised of 45% of total sales. They continue, by the way, to act as a growth engine with sales increasing high double digit and profit 32% over 2006.

Now, let me speak on the progress with our third platform. Again, second platform was emerging markets. Third is expanding beauty, by the way, these haven't changed in the last couple. I don't believe they will. For the year, Beauty grew double digit in sales and comprised 36% of the total. Over the next several years, we expect to see Beauty become even larger percentage of our business and frankly, before I am gone I believe it will be more than 50% of the business. Fuller cosmeticals delivered double digit sales increased there in Mexico in the fourth quarter and this was true for the full year as well. Now, we have a sales force of 480,000 in Mexico so it really continues to grow. Again, Arturo [Alexandrio] and a great management team have really established a wonderful business input that we are now using in south America in our other emerging Beauty businesses. That's namely Fuller Brazil where we are still on the investment mode and Argentina. By the way, in Argentina, we just moved in the former head of sales in our Mexican business to be the managing director in Argentina. We are expecting Rafael to replicate the great job he did in Mexico.

During 2007, we saw traction in Brazil and Argentina with the sales force and we are going to continue to focus on these markets in 2008. I am going to be spending a good deal of time because this as you all know, 55% of all cosmetic sales in Latin America is from direct selling. They like to sell this way and they like to buy this way. The average Latin American spends more per capita on beauty than does the average American.

By the way, our Nuvo cosmetics business in Uruguay, it is a small country, but I am so pleased to see, we have now got a 50% market share of the entire direct selling Beauty industry there. And, we have even had some competitors exit the market.

By the way, we saw good progress throughout the year in BeautiControl here in North America as well and in the U.S. and Canada. In the fourth quarter, it delivered double digit sales growth. It's the second quarter in a row. In BeautiControl in North America, we continue to focus on getting sales active early and to make them for productive, improve their retention and also try to get more people into leadership programs. This is where somebody really becomes full time in BeautiControl. To this end, we saw a solid increase in our leadership ranks as we close the year. We did take a hit on ROS which reflected some of the aggressive product offers and we had elevated distribution costs which began in 2002 as we moved in to our new facility there. But we have got a double digit sales force size advantage and improved leadership numbers as we move into this year. So, we are pretty well buffered from what happens in U.S. economy.

Given the high level of also promotional activity in the second half of 2007, it is our hope that we are going be able to convert this larger sales force into increased sales going forward. By the way, one of the most significant challenges we face after we did this Sara Lee acquisition and we share this with you was the Nutrimetics business, the largest one being in Australia, New Zealand which had deteriorated under Sara Lee's ownership and leadership. They paid almost a quarter of a billion for those businesses about seven years ago. We have focused on this businesses at leveraging our strengths and also what we have learned in other business units, specifically our business BeautiControl. What we have done in Australia now with Nutrimetics is we implemented many of the same kinds of programs. We have got a great management team in place there. They came out of BeautiControl right at the top, and we have made progress in re-establishing that Nutrimetics business from what really became almost a wholesale buyer base with more than 90% of sales coming from just wholesale [custo-user] to now back to a party plan direct selling company.

We had modestly lower sales and profit than last year. However, it is a different business than it was a year ago. It is early days in the turn around and we are going to, you know, we are stay steady and remain focus on these activities. We feel very good about the future of this business. I think the best news about the Nutrimetics business is the heavy lifting is behind us.

A final strategy for Tupperware brands has been contemporizing our image from the old Tupperware business to new global portpolio of fresh and contemporary companies. Here, we focused our PR efforts in helping people view our brand through different lens. For example, we put Tupperware in an unexpected places with unexpected people. By the way, I am at a Super Bowl party in New York City tonight, that is hosted by Icetea, as you know, he went on and on about his last Tupperware party. So, this gets people to think about Tupperware in a different way.

We also brought Brooke Shields aboard as your spokesperson for our chain of confidence initiative which really focuses on bringing Tupperware on positive influence on girls through, and women through enlightening, empowering and encouraging them. That's what Tupperware business does, two million strong all other the world. Good news shows our research indicated that the needle is moving. As a matter of fact, it moved up 25% more "hip and happening" business.

So, in summary, the global portfolio, we believe is a better investment than it was in 2007. We've had good cash flow allowing us to pay down our debt. I think Mike will report on that. I think we are down to 53% there, debt to total cap. We are also continue to support our dividend, our diversified products as well as diversified geography. They're really going to provide us a natural hedge to mitigate the negative impact either from currency or other actions in market. So having said that, I think you are go to see more consistency with this kind of a portfolio. Anyway, Mike, let me turn it over to you and then we will open it for any questions people have.

Okay. Thanks, Rick. As Rick noted, we were nicely above the lookout we gave in October for fourth quarter local currency sales growth and earnings per share. On sales, the [5 points upside] in local currency growth versus the previous guidance to up 11% year-over-year came most significantly in Germany, where we hadn't expected to be up for the quarter. Tupperware Australia, where we hadn't foreseen a strong double digit growth accelerating in the quarter and several of the units in the Beauty other segment where in particular our Venezuelan and Brazilian units continued with strong results. Diluted EPS at $0.93 after adjustments was $0.10 over the high end of our October guidance which came mainly from the sales upside in Germany and Tupperware Australia along with a lower tax rate largely reflecting an IRS decision in late November. This IRS decision was not made specifically related to our review of returns. It was something that applied to everyone.

We also got a little bit of incremental help from stronger foreign currencies as the actual benefit for the quarter was $0.10 versus the $0.06 to $0.08 that we had included in our guidance. Looking at the quarterly comparisons versus last year, it is highlighted in yesterday's release, we had a strong local currency sales increase within in all of our segments ranging from 6% in Europe to 18% of Beauty other. We also improved our segment profit return on sales by 1.5 percentage points to 16.7%, excluding purchase accounting amortization from both years with all segments except Beauty North America contributing. All of this led to an improvement in diluted earnings per share of $0.23 on a GAAP basis and $0.19 after adjustments, Setting aside the $0.10 upside from foreign exchange. This means our EPS after adjustments improved $0.09 in local currency, or 11% year-over-year.

On a full-year basis compared with last year, we were up 9% in local currency sales with all segments up. This resulted in local currency EPS excluding adjustment items of $2.25, up $0.46 versus 2006. Importantly, $0.40 of that increase came from operation. Positive FX of $0.19 and lower interest expense of $0.11 were mostly offset by a higher but still a very favorable tax rate that hit us for $0.19 and delusion cost by a higher number of shares of $0.05.

Turning now to our balance sheet and cash flow, we had favorable results versus our October outlook of last year. Our net short-term receivables stood at $161 million at the end of 2007, up about $8 million versus the end of 2006 in constant currency. This was a two-day improvement given our higher sales. Net inventory of $270 million was up $22 million versus 2006 in constant currency and this was a three-day improvement. Our October outlook for cash from operating activity, net of investing activity was for 2007 to come in at $100 to $110 million. Our actual was $152 million with the upside reflecting about $7 million from the sale of our former Tupperware Philippines manufacturing plant and insurance proceeds from the Hemingway fire along with the upside and it come from October guidance in higher than expected level of accruals.

We were pleased to once again be able to more than convert our net income to cash. This allowed us to reduce our debt by $88 million in 2007 and resulted in a debt to total capital ratio of 53% as Rick mentioned which was down from 63% at the end of 2006. Of course, this ratio is also impacted by our equity which rose in 2007 from earnings net of dividends and also from stock option exercises and a reduction in cumulative translation adjustment. There was a small or negative impact from our net equity hedges. Our ratio of debt to EBITDA defined in Credit agreement improved to 2.2 times in 2007 versus 3 times in 2006. As we have stated before, we target bringing our leverage down as such so we get into the 1.5 to 2 times range.

Looking at the cash flow for 2008, we expect to be in the $100 to $110 million range. Again, this looking at cash from operating activities, net of cash from investing activities. This is on a GAAP basis as is the $152 million we made in 2007. While we are expecting an increase in cash flow in 2008 versus 2007 related to higher net income, we have some large payments in the first quarter this year we didn't have last year which are from VAT and pay outs under our hedge positions where the strong euro that has helped us on sales and earnings is hitting us on the hedges. Our 2008 outlook for capital spending is to be in the $65 to $70 million range. In 2007, we spent $66 million including $16 million under a capital lease.

I would like to highlight that we don't have any amounts in our income statement related to the Hemingway fire. Based on our insurance coverage and the cost, we've incurred an anticipating [inaudible]. We don't expect to have any expense going forward.. We do have, in our December balance sheet, between $5 and $6 million that we expect to collect in the future from our insurance companies including $3.5 million expected in February. This is on top of $3 million that we've already received in December. Turning now to our outlook before we open the call to question, first we would like to explicitly say today that going forward, in between our regular quarterly releases, if we see that we are likely to significantly miss our guidance range on the down side, we will make an announcement on that at that time.

Turning now to full year 2008, we see sales increasing 5% to 7% in local currency which stays on a currently favorable exchange rate would translate to an increase of 8% to 10% on a reported basis. Our GAAP diluted earnings per share outlook range into $2.37 to $2.47 and excluding adjustment items is $2.50 to $2.60 versus 2007, $2.25. This 11% to 16% improvement includes a $0.10 to $0.12 or 4 to 5 percentage points bump from stronger foreign currency. Included are unallocated corporate cost in the $43 to $44 million range about in line with 2007 and net interest expense of $33 to $34 million versus $39 million in 2007. The effective tax rate excluding adjustment items is expected to rise from 2007 of 18.4% to about 23% in 2008. Our outlook for adjustment items is for about $10 million in pretax gains from land sales and insurance recoveries which is mainly for the sale of our former Belgian manufacturing facility expected in the first quarter and does not include any insurance recovery income from the Hemingway fire. $10 million of pretax for engineering cost are expected and $9.5 million of pretax purchasing accounting intangibles amortization. For the net of the adjustment items, it is $9.5 million of pretax expense.

On a segment basis, sales in the Tupperware Brands segments are expected to rise in the 4% to 6% range for the full year and in Beauty segments in the 7% to 9% range in local currency. The overall increase of 5% to 7% being below the 2007 actual local currency sales increase of 9% reflects a more moderate growth rate are expected in some of our established markets. Profits of the segments is expected to grow in line to slightly above the rate of sales except in Beauty other where we had a loss of $3 million in 2007 excluding purchase accounting amortization and expect a small profit in 2008.

The first quarter outlook is also for a 5% to 7% increase in local currency sale, with an 8 percentage point increase on a reported basis for 3% to 15% (Sic-see press release)increase including the benefit of stronger currencies. The diluted EPS outlook is for $0.50 to $0.55 on a GAAP basis and $0.44 to $0.49 excluding adjustment items. This compares with $0.36 from the first quarter of 2007 excluding items and reflects the benefit from stronger foreign currencies of $0.05 to $0.07. The increase in local currency primarily reflects higher profit in Europe with the other segments flat to up slightly, along with lower interest expense and a lower tax rate. And now, we would like turn the call over for questions.

THank you, sir. Today's question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) We will go first today to Doug Lane of Jefferies.

Good morning everybody.

Good morning, Doug.

A couple of questions on the Beauty other, Rick, can you give us just maybe step back and let's focus on that a little bit because it is, you know, losing a little bit of money. It is a big investment area for you these days. What are the main companies there and what is sort of the strategy going forward? At what point do you think we should see some margin being built in that segment?

Doug, the Nutrimetics is our biggest piece of that and the main piece of the Nutrimetics business is probably 80% of it is the Australia and New Zealand business. That's the one that Sara Lee came and paid about a quarter of a billion Aussie dollars for about seven years ago. But they had let it become almost a wholesale buying club. So, we put Rick Heath in there. Rick, by the way, was President of our BeautiControl business. So, Rick has been there two years and he has been converting - they basically had gotten to selling paper kits. Now, the kit price is well over a hundred dollars. It includes training. But that's a radical change for a business. That Nutrimetics also has branches or either separate operating units in Greece, France, the Netherlands, the UK and a smaller one in Thailand. So, that is Beauty other.

By the way, the other piece then, you really would get into are these Brazil business which is in the investment mode by the way, we are focused so much on Brazil because it is the third largest cosmetics market in the world. One of our competitors does a billion dollars a year there. So we have got a good management team in place. And where we're making our investment there, Doug, is in zone managers. And she's an employee, she then recruits, trains and motivates a sales force. We are also, this year, we are building our facilities there, our own cosmetics manufacturing facility, that will really supply the southern cone. We have, in the past had to use outsource or be shipping from the northern markets.

With our Argentina business, we just moved the managing director, head of sales from our Fuller cosmeticos down there and Rafael is focusing on going there. I truly believe, I will project ahead five years when we are talking about where the business is really generating dynamic growth, you will see Mexico, you will see this Central America, Venezuela, Brazil, Argentina and Uruguay will be the stories there. They're still growing, those markets by the way, consumer spending at more than 8% per year and we also intended to take share from other direct sellers. Mike did I miss anything on that?

I don't think so.

The Philippines.

When you look at the [KPI], Doug, we did start to see some sales force growth in Argentina and Brazil in the back half of the year which was good, and while we're still going to be in investment mode in Brazil, we did forecast going from the $3 million loss from the segment in '07 to being profitable in '08. We do think we will start to see better profitability going forward.

Yes. We are really look right now, Doug. The business continues to firm up, the overall portfolio, and that's where Mike and I were talking. We are not even getting the advantages of Beauty other yet. I mean back to the second part of your question is looking ahead, I think you are going to see our Argentina business profitable this year. We still have another year with Brazil of investment. That's probably going to be at a reduced level, but I expect sales in both of those markets to grow this year. And we are seeing steady improvement with our Philippine business, and we are approaching getting it back to the size it was at the time of the acquisition. That's the business that suffered most from being on the block for a year.

Okay. Brazil is a very large direct selling market but it is really dominated by two major players. Can you give us an idea of what the share is that those two major players in Brazil currently have and then give us an idea which brands you're taking into Brazil currently.

The two biggest players there, Avon is the biggest player at more than a billion and then, Natura is about $780 million there. Natura really competes at that high level of - it is usually $10 to $12 lipstick. Avon is more a $3 lipstick. We are bringing our Fuller cosmeticos brand, the same - actually, we are operating a template just like we have done in Mexico. So, as a matter of fact, I don't think a lot of the conversion will be to the - from the Natura. It will be more through the price value players there. Mexico.

Excuse me. And that's similar to Mexico, right? Where the Fuller business in Mexico is on par with Avon in that market?

Yes.

Okay. Thank you.

Avon is more color cosmetics. We have really been focused more - We have color cosmetics but that 60% gross margin stuff. We are really focusing more on fragrance which is 80% plus gross margin.

Okay. Thank you.

And we will take your next question from Mimi Noel of Sidoti and Company

A couple of quick questions, first from Mike. Even if I make the adjustments, I assume it all goes into cost of goods. It's looks like your gross margin might have eroded in the fourth quarter. First, is that accurate and secondly, if so what was driving that pressure?

Actually, no, the gross margin was flat for the quarter.

Okay.

Versus last year. And really, what you saw in terms of the improvement in ROS overall was better on the DS&A line. So, we were at 64.3 this year and 64.2 last year.

Okay. Also, wanted to ask, I am not sure if you commented on it but the Tupperware North American sales force total down 10%. Did you comment on that if not would you please?

Yeah. That was actually - the three markets in Tupperware North America, the U.S. and Canada business as well as Mexico. And U.S. has a larger sales force than last year. The decrease is coming from Mexico, recruiting a bit below where we want it and also at the same time a bit ramp up of the productivity of the sales force. But that's where the 10% down is coming from. It's not coming from the U.S.

At the same point, in Mexico, last year, we saw that they were really going with a lot less expensive kit and getting people in, weren't getting trained as well. So, management there focused more on upgrading the kit and upgrading the training. So, we had a sales increase with a smaller sales force. But that's the right way to do it.

Okay. So, you are upgrading in the quality and as a result, you have seen some migration away.

Yes.

Okay. Then the last question I had, Rick, if you wouldn't mind elaborating on the team leader program that you had, I think you do it in South Africa as well, you are doing it in Germany, what exactly is the structure and why does it work?

Well just imagine in a market - that you've got, you have got a distributor who has the geography. I will pick a place, Lancaster, Pennsylvania, and there's a - although, we don't use this structure in the U.S. but I am picking a geography. Somebody has that market and they have the right to recruit, train and motivate. The typical distributorship will have about 300 sales force. Up to now, you would have a level above that which would be a unit manager. And a unit manager makes 3% or 4% depending on markets of the world, okay. So, you generally would have a typical unit would be 10 to 15 people. So in a given distributorship you would have somewhere around 25 or 30 managers.

Okay.

What we basically put in with the team leader is a sub distributor, and that sub-distributor made an override, they would build not only their personal open of sales force members, but they would build unit managers as well. So, when it really gets down to is more full-time people in the business. So, what you really get there is higher levels, you can grow that sales force closer to 500 people then because the spans of control are smaller. We first did that business in Italy but where they have showed they could leverage it and get larger sales forces was in South Africa. It has been replicated in established markets now in a number of markets but Australia has shown it. The German culture, it is slow to convert people. So, I said we are making progress there, but it is still modest progress there.

Okay. That's very clear. Thank you very the help.

By the way, on that, the decision to do that in these markets where our traditional distributorship model still works well. It was a way for us to contemporize the structure without having to go to the extent we had in the U.S. which was very, very disruptive but we had to do it that way in the U.S.. I am convinced we have got the right model for the U.S.

Okay. Thanks again.

We will take our next question from Dara Mohsenian of J.P Morgan.

Hi guys. Through second quarter, you posted a pretty significant European margin expansion after years of decline. Can you take us through the key buckets of what drove that, margin expansion, what specifically changed in the second half of the year and then if those drivers remain in place as we move into 2008?

Sure, Dara, we've had some pressure during the year and last couple of years as we have invested in Germany to try to turn things around for the sales force. We saw things level out a bit there as we got into the second half. The other thing we have seen over the last couple of years is much better returns on sales in the emerging markets in places like Russia and South Africa. To some extent in Russia, that was getting to scale, South Africa, we've been there but the business has grown significantly. It is a rising ROS in those markets and also a greater share. So, those would be the bigger things.

What was our segment margin there?

Well, for the quarter, it was 22.7. We thought the items last year was 20.4. So, we went up a little over two points.

Okay. And I assume as you look forward, those drivers will generally remain in place. We should expect to see return on sales extended away in Europe.

What we said for the Tupperware segment was we would be up in the single digit in sales, 4% to 6% and we would be flat up a little bit more than that in sales - in profit, in line with the sales growth a little bit better.

Okay. All right. Have you seen any signs of weakening trends in any of your emerging market or slowing macros in some of those key emerging markets, it certainly didn't look like in the quarter but maybe sequentially within Q4 or so far in January?

No, as a matter of fact it has been a good January. By the way, it has been a good January and the best January we've had in quite a few years even in non-emerging but I was about to say in Germany as well. So, as we always say, we do a great percentage of our business for the first quarter for Europe in the January. I haven't seen in emerging markets, any big shifts. We have got some markets there that have been operating almost to white heat levels, the Australia which is not an emerging but South Africa, Turkey, the former Soviet Union and when we talk there about vigilance, sometimes we look at each other and say how can it keep continuing at that level. So, we don't want to be [euphoric] in our views going forward on that so we are being conservative on our expectations there going forward.

Okay. Fair enough. That's helpful. Thanks.

We will take your next question from Chad Bolin of Raymond James.

Good morning Rick. Good morning, Mike, Teresa. This is Chad filling in for Bud. A couple of questions for you. You have talked about -

Chad, what takes you to take for Bud to finally put a buy on us, I mean, when are we going to have to be 12.

Well, you certainly deserve congratulations.

Please, tell Bud I said that.

I will pass that along.

And everybody on the line.

A couple of questions for you. You have talked about over the long term targeting local currency sales growth of about 5% to 7%. Could you for us at all sort of what are the contributors to that in terms of maybe sales force growth, productivity, new products or pricing, could you give us a little flavor for what's built into that?

Basically, when we do our modeling here, there's a components, we want to get 25% of our sales as our target from new products. We define new products as products that were launched in the last several years, but the primary is one thing you look for, average order generally doesn't go up. Productivity is a hard number to change, the key leverage point, the size of the total and average active sales force. So in our modeling here, it is the number one thing.

Great. And with energy prices where they are, what are you seeing in terms of resin cost, delivery cost, what's backed into your '08 guidance on that front?

Mike.

I guess it is based on where we currently are, when you look at the resin components, we buy about $115 million a year versus resins and we were just slightly negative in '07 versus '06 in cost of sales from resin. And based on what we see right now, we think we will be negative in the $3 million change in 2008 versus 2007. So it is not a dramatic impact. In terms of delivery cost and other things, it is kind of in line with what you see in other companies, there's some pressure there but we look to work through it and yeah, we have built that into our guidance.

I would add too, Chad. One of the things we have been working for is to shift to more of a portfolio of business, just like all of you who would have portfolios, you've got some better home runs and some a bit strike outs on it. What we have tried to do, we used to be cost to good sold was 20%, just the core Tupperware business, the resin component, now it is only 12, and we buy all over the world. We are in very good shape on that and one of the other reason why, it is particularly good, our premium pricing on this. It is a small component when you are almost 70% gross margin. So I always use the example, platinum prices go up it doesn't impact Cartier watch prices that much because you are getting the advantage of the brand.

Sure. And kind of a follow up to an earlier question, and Beauty other, could you quantify for us at all what you think you can get to eventually from a return on sales standpoint.

15% is the target there. It is a blended range from established and emerging markets.

Okay. That's very helpful. Congratulations on a good quarter.

Thanks, Chad.

(OPERATOR INSTRUCTIONS) We'll go next to Greg Hillman with First Wilshire Securities.

Good morning, I had a question about products, just kind of about new product development, kind of what's in the pipeline, but more importantly, the new products that were introduced in the last several of years account for 25% sales currently and what new products were introduced of convention recently and how are they doing?

It varies by markets out there. So that would be a hard one to answer. I will just tell you that the, it is more in categories. We have really introduced a new generation of microwave products. That's doing very well in markets where there's microwave are used. We have introduced the silicon line that particularly has done well in our European business. This looks like rubber but it is a red silicon and in those markets like brands where there's a high baking rate that we done well there.

We have come out with a new category of storage products that are more specialized which is for example our cheese smart which basically uses a semipermeable membrane like a gortex. Particularly, they like that in Europe because it will not contaminate from odor or other things the ambient environment and yet it still allows the moisture to leak.

We just launched a bread and a toast smart as well. We did a great product too called happy chopper that is like a little appliance but great for a product if you are, the slice and dice kind of thing. So, you really start to see, it varies by markets. Off line I would be happy to have either myself or Teresa take you through more of those. We have got a lot in the works by the way that I can't talk about right now. We have noticed that, when we did flat out three years ago which was fortune called one of the 25 most important products of the year, that in spite of us going for patent protection, Rubbermaid came out with it in eight months. We basically decided don't spend the $5 million on lawsuit, let's just get to the next product because they can't explain it and they can't charge what we can.

By the way, what is flat outs?

What is flat out? It is a product that you know, you see it looks like a frisbee but you push on it and it expands like an accordion. It's interesting, somebody is telling me that every time they take their kids out on an airplane there's no breakfast on the airplane. She fills it up with Cheerios, one of the flat outs, ask them for milk, the kids eat the Cheerios and then she just collapse it and puts it in her purse. Great idea. Maybe we also see packaging in some that way and do a joint venture with them, Mike.

Thanks.

And gentlemen, we have no further questions at this time. Mr. Goings I will turn the call back over to you.

Again, I have repeated it before, we appreciate your support and we have not declared, I don't think you will ever hear us declare victory here. We believe that all these business models need constant refreshing out there but we really got the right kind of portfolio that organically I believe we can produce predictable results. Somebody asked me yesterday what are the big reasons to be in your stock right now. I gave them five reasons. I said number one the strength of the global direct sales management team. They're in the direct sell out there that has the kind of experience if I take Germany, France, Brazil, China, many of the other direct sales companies today are being brought by packaged goods marketers and the drivers of the packaged goods marketing are completely different than direct selling.

Second reason I think you are going to see a consistent level of growth. We are going to have put some calls out there, but I think we are going to, we have growing confidence here, you will see this 5% to 7% growth. Third, cash flow in the dividend, we are down to 53, debt to cap, we are, you know, targets in the mid-40s level. You know, we are going to use those. We don't have on the, as a target out there, any other acquisitions, never say never, but we don't see the need to do that. We have got enough out there. That basically says we are going to start thinking about what we do with that cash with regard to either increasing the dividend or share repurchase, but nice cash flow.

Four our PE, Sony and GE are, I think 13 or 12 and 13 as far as the most recognized and respected brand names in the U.S. We are in the top five of most recognized. I this think we are going to start getting a better multiple out there. The market will decide that but we want to see it clearfully the mid-20s. Then the fifth reason is one of the most importantly, particularly in these times where I just got back from Davos, the world economic forum and board talk about a period of instability in the world, I think we are going to be very stable investment for a number of reasons.

Firstly economic downturns we are not a business that's a come to business where you have to wait for people to come in to the show room for store. We are a go to business. We will recruit, train and motivate larger sales forces and we'll get out there and leverage that. Secondly, the mix is I think good for us right now, first of all the mix in geographies, where we do our businesses, we used to be so heavily dependent just in Europe. Now, we have growth engines happening elsewhere in the world.

Currency mix, it's not just a bet on Euro right now, as a matter of fact our largest market right now is in Mexico. If the dollar strengthens, great, we have two great businesses here in the U.S., we will leverage that. I said earlier raw material, too, it is not a bet on resin prices anymore. So, we are going to have to be constantly vigilant but we're going to stay on this constantly refreshing these businesses out there to deliver the kind of consistent results you guys expect from us. I think we are getting better at it. Thank you very much for your time and interest.

And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.