Tupperware Brands Corp (TUP) 2008 Q4 法說會逐字稿

Good day, everyone and welcome to the Tupperware Brands Corporation fourth-quarter 2008 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 go ahead, sir.

Thank you, everyone. You already have the results for the fourth quarter and the full year. Mike and I will do our best to amplify some comments in a moment, and at the same time, try to give you some guidance as best we can on the quarter and the year ahead.

However, let me say I just returned from a scheduled two-week trip to a number of our eastern European markets, and at the same time after that, I also participated in this world economic forum in Davos; it's the fifth time. My time in our markets, as always, it really did provide me with a terrific opportunity to take a look at how our management in the market is leading their units through these challenging economic times. I was in Russia, which is a big business for us, and Poland.

Additionally, the time in Davos, discussing this global economic situation with economists, other business leaders, and I had numerous meetings with some heads of states and businesses that are important to us, I think it gave me a little more insight on the global situation. More importantly, it was helpful with regard to the understanding of the road ahead.

Frankly, I must say I left Davos with a dim view of the actions that most governments are taking to reboot their economies. There's a lot of finger pointing back and forth saying, waiting for what this current administration does, waiting for what China does. I didn't hear a lot of proactives. So that just reinforces our position to dig in, look for the levers in our business to grow.

Yet on the other hand, where I was optimistic against this negative Davos backdrop was my time in our markets. It reinforced my confidence in not only our business model, but also the talent that we have on the ground and their ability to navigate through these rather challenging times, and at the same time, we still expect to grow. So let me explain why.

Firstly, it is clearly a benefit to Tupperware Brands that about half our business units are in emerging markets of the world, and there's a lot of momentum on our side in its early days, and in these markets there's limited earning opportunities for women and often a lack of a well developed retail infrastructure. And both of these together gives us a source of competitive advantage. It was surprising and shocking to me as many times as I've been to Moscow, and every one of you who have been there knows that Western goods are expensive there across the board with the top tier brands, Prada, Escada, Gucci, 75% off in Moscow, and so it left me with a warm feeling. I certainly am happy that we have an independent direct sales force with no fixed expense there, and we're competing with retailers, many who are scared.

Again, also in many of these markets, including Eastern Europe, South America, southeast Asia, for us in these emerging markets, it's early days in either Tupperware or our Beauty brands, we're well positioned to grow. And we shouldn't forget that these markets make up more than half the world's population, and many of the markets have the highest birth rates in the world.

So secondly, let me turn to that. First it's really emerging markets and momentum. Secondly, our direct selling model is in some ways, I've mentioned this before, it's counter cyclical, meaning higher unemployment rates, meaning larger recruiting pool, and while the accompanying compressed consumer spending clearly dampens the growth rate, larger sales force helps to mitigate the negative impact.

We've now got a sales force of over 2.2 million. That gives us the ability to have people on the ground who not only drive attendance at parties or distribute brochures -- I'm in Mexico next week and there we've got almost 600,000 people -- and they distribute brochures, but they also give us the opportunity to explain features and benefits of our products. And so in a very real sense, retailers are a come-to business where you have to spur them to come with incentives, we're a go-to business, so most retailers today without an entrepreneurial sales force must simply rely on dig deep discounts, rebates, to lure customers in. And remember, too, in looking at our numbers as we close this year out, we're beginning 2009 with a 7% larger sales force, and that means more doors.

The third point I would like to make, and again that was reinforced by my trip, the product categories that we are in, along with the strength of the brands in each of them, means we should be less affected by the overall decline in consumer spending. For example, we're already seeing consumer behavior in many markets shift to more meals at home, and additionally, more people bringing their lunch to work. You know, they believe it's up north of 30% in this country alone. And by the way, our products fill those needs.

Regarding our Beauty products, yes, it's a crowded space from a competitive standpoint, and yet consumer spending remains high in the CFT area. And it's interesting, who's having the problem are the upper end CFT brands at department stores today, and you've seen numbers there being taken down.

The strength of our brand also matters. The low quality and the generics only have price as leverage as a reason to buy. We focus on value for money. She may spend more on, particularly on a Tupperware product today, but she'll still have it in 20 years, and you rarely ever see a Tupperware product in a garbage dump.

And lastly, I would say it's our value chain. We've got a good value chain when business is good, but I think we've got a value chain that helps us do less poor than a lot of other businesses, bad English with good sense, when times are difficult.

The power of our brand supports strong gross margins. We're starting out with an average gross margin of north of 65%. So that gives us room to move. And by the way, it gives us room promotionally to do things like you would have seen with upper tier beauty brands. You rarely see Lauder on sale, but you see gift with purchase, purchase with purchase, and that's an opportunity to spur consumers to buy, but at the same time not hurt your brand and become known as a discounter.

Also, the growth of our sales force is a primary driver in our business, when business is good and when business is not good in the external environment and importantly, we have no fixed expense or incremental expense in growing our sales force. They're independent. At any rate, these and some other factors in our Company mean we throw off a significant amount of cash, we support a strong dividend, and we've been able to actually pay down our debt ahead of schedule.

Now, let me get to some more business specifics. But I take the time to go through those four things because we're beneficiaries of having a terrific business model to navigate through these times, and if you compared it, an analogy to a vehicle, it's almost this ability to lock into four-wheel drive when you get difficult times or to raise the frame when you're having to ford a river. This direct sales, if I was in a business school class, I would talk to the students in this way. These are the differentiating benefits of our business, and our management teams are on the ground and aware of it, and they're aware that it's their responsibility to adapt and adopt.

Now let me get into some more on the performance. In the fourth quarter, we achieved, as you read, local currency sales growth; albeit it was at a moderated level, 3%. Foreign exchange was the substantial head wind in the second half, it was like two different years last year, the first half and the second half of the year as it moved to -- even when we did our third-quarter release, it was $0.37 to $0.39 in our face, and it was over $0.60 at the end of the fourth quarter.

I don't know how long that's going to continue out there, but I will tell you, given some of the actions that we see around the world, I would expect at some point some of these currencies are going to start bouncing back again. Yet we don't know. We know that we've done a regression analysis over time, and foreign exchange has mostly been neutral.

So we're going to focus our course of action not on hedging. We have natural hedges in place, because we have businesses that we manage in local currency, we have factories all over the world and we source all over the world. We're simply going to keep our head down, remain focused on running our businesses in local currency, with local management teams, who are empowered with the levers to grow their business.

Let me speak to firstly, the emerging markets. I'll kind of bifurcate our portfolio by emerging markets and then established markets, because that's how we really look at it. In the fourth quarter, our emerging markets were up 11% in local currency. For the full year, they were up 17%.

By the way, this was at the high end of our 2008 full-year guidance we gave on emerging markets. By the way, under that, I must say, that our Fuller Mexico business which had a terrific first three quarters was the primary drag on emerging markets in the quarter, and it was down 4%. Much of this is really attributed to the loss in the sales force size advantage at Fuller, and most of it is that border area, the Maquiladoras area, bordering the US. By the way, had they been on their normal trends, our emerging markets would have been up 15% in the fourth quarter. So it was largely attributed to that very large business.

Regarding overall emerging markets, we expect double digit growth in a number of them, but blended we expect high single digit in 2009. Again like in the case of Fuller Mexico, it's a large and profitable business, we don't know what the impact of the US economy will continue to have on that important area.

By the way, when I was in Russia and Poland this past few weeks, I was not surprised to see that their local news, like ours, is dominated by gloom and doom with regard to the local economy. However, what I was thrilled to see, and I spent a lot of time with them, was that the business units continue to grow at the same impressive clip that they were in the past.

We're counting on the strong momentum of these businesses and the power of our earning opportunity to carry us through this rather challenging environment. Don't forget, eastern Europe is full of tough people, and I've used the example in the past, that woman, and I've talked to some of them, that woman in Siberia who's doing two parties a week, if spending goes down, she simply can hold three parties a week, and we've got a really intelligent and, I think, motivational management team on the ground in each of these eastern European markets.

In Asia Pacific, China, India, and Indonesia, by the way, these are 47% of the world's population, just those three countries, they continue to do very well. In Q4, Asia Pacific's emerging markets were up 30% in local currency, and worth noting is that in the quarter, Tupperware, our brand, was recognized in both China and in India as either a favorite brand, or in the super brand category. This was coming out in their major publications.

At the same time, in Indonesia in the fourth quarter, their Business Week Magazine named Tupperware Indonesia as the best brand in direct selling. Again, putting it all together, China, India and Indonesia are over, well, they are nearly 3 billion people. And Indonesia alone is the fifth largest population in the world.

By the way, I spent some time with senior officials of the Chinese government. We did a -- it's interesting, you do a Davos broadcast on CCTV to China and here you're happy to have a market where there's eight people watching, and I asked them how many people are watching this, and they said 210 million. So the brand we've got now, almost 3,000 outlets there, and an incredible entrepreneurial opportunity, which Chinese women are looking for.

I'm also pleased to report that we had double digit growth in the emerging markets of Central and South America and, again, we're using the leverage of the halo of the Tupperware brand to help grow our beauty businesses down there. So we're really in an attack mode there.

Also in sub-Sahara Africa, we had growth. We have three businesses down there, but growth was at a more moderated level.

Let me turn to the established markets. In the fourth quarter, these markets as a group were down 4% in local currency, and for the full year, flattish to down 1% for the year. Within this portfolio, a number of markets did do quite well, including, I've got to mention France. We've been in France more than 45 years, and last night in Madrid at a Managing Director's meeting, Glenn Drake, our group President there and Simon Hemus, awarded France our Country of the Year award. France was up double digit, and we've been there more than 40 years.

So it's a wonderful template to show our other established markets of the world, that through the right levers and sales and marketing, you can grow the business. And by the way, France, we're the biggest direct seller there, and it is a tough direct selling market. Greece also did well during the quarter. Tupperware US and Canada also recorded increases, although at a moderated level, to a couple of these European markets.

There are a lot of markets kind of in the middle, some of our smaller markets; however, there's significant drag on the established markets where it's really three, Germany in Tupperware, Japan for Tupperware, and our NaturCare business and our BeautiControl business. Let me comment. I said already that France, Greece, Netherlands, and others had double digit growth. That was good to see.

But Germany, we continue to struggle there. Local currency sales were down 10%, and they were down 3% for the year. I am pleased that the decline in Germany was much less than it was the previous year. We still have to be mindful that Germany has now, we're in our 18th year of reunification, and the costs of that reunification are north of $1 trillion, and what was called the Workshop Wonder for the first 40 years [after] the world, it's been really a challenging marketplace. That high unemployment rate that they had, we benefited from that the first couple of years in the mid-'90s, but it's made it difficult.

France on the other hand, which was up double digits for the quarter, I think they've been much more effective at contemporizing their business on both the sales end of the business, sales structure, marketing, and with the expansion of products, and the contemporization of the image of their brand. Just yesterday in Madrid, all of our European markets heard for half a day the story of how France has been doing it, and so you're going to count on us learning from our lessons there. And we'll be able to apply them.

So I expect progress in our German market. By the way, we've installed a new managing director, a Swiss German in our German business, and moved Martin, who was a terrific MD on to a portfolio of businesses, and this is really aimed at really succession planning in Europe. And [Jorges Jagui], the new MD of Germany, has been well received. By the way, he was a former MD of a French business and did a terrific job there.

In North America, we previously reported that we had some internal challenges at BeautiControl. It was down 15% for the quarter, 6% for the year, and I've got to tell you the bulk of this was self inflicted. As we've said, we've got to take care of some of the internal marketing issues and some of the leadership issues, and we've got to work through this.

I mean we're pleased that we've tripled the size of this Company since we did the acquisition, but quite frankly, we have stalled in that business over the last 18 months. We've just installed Albert Bosch, who ran our Mexican Tupperware business and did a terrific job. He's an American, and by the way, he's going to leverage that. He's already been well received there, and we saw some firming up on some trends during the month of January there.

So I'm cautiously optimistic about BeautiControl. It's a great business and you always feel bad, and I think most any of us who have been in business for a long time, you'll have those times where you do the right things, and you'll have those times where you stumble, and we clearly stumbled there.

I'm pleased to report, though, that our Tupperware US and Canadian business grew 5% in the quarter and 2% for the year. I don't know if that's going to continue. It's a difficult and growing more difficult environment in the US. But it does show, as we've said in the past, even a tough micro economic environment, you've got the right business model, the right products, and an earning opportunity, backed by a terrific management team that you can at least hold your own.

Turning to the established markets of Asia Pacific. Well, Asia Pacific is mostly a region of emerging markets and I already commented on those. The few established markets we have there didn't have a good quarter.

Both our businesses in Japan continue to struggle, although we've spent a lot of time, put a lot of work behind it, and I think we've got the right actions in place and the right people. And Australia and New Zealand, which has been a star performer for years, was up 8% overall for 2008, but they had challenges in the fourth quarter, and lost some of their sales force size advantage and had a sales decline.

Now, let me take a few minutes to discuss, before I turn it over to Mike, our strategic platform, just so you know where we're going forward. You know, for the last more than dozen years, we've been working on what we call phase one of our business strategy, and it was primarily to refresh and reconfigure the business -- product line, the party, the sales force structure. So refresh the core.

Secondly, to get into emerging markets, we've done, I think, a great job there. We're at 24 new markets there, and many of them are entering scale. And then thirdly, through acquisition, really become a significant force in Beauty direct selling, and we're on our way there, although it's going a little slower than we'd like to see.

We're now shifting to phase two. So we're largely finished with phase one, and phase two is all about focusing, growing, and fixing. And it's a continuation of some of the initiatives we've put together in phase one.

We continue to focus on growing our businesses in these emerging markets. We're also focused on about 10 core markets that will be most important to us. You're going to see a lot of continued emphasis on growing Central and South America, as we leverage the halo of Tupperware to really grow our Beauty businesses.

And by the way, it's working. In certain markets, even though Uruguay is a small market, we've got a 50% market share there already. So we're applying those lessons, just like in France, across the borders into Brazil, and into Argentina, and Venezuela. Anyway, it makes a lot of sense down there for the sales force to sell both product categories because Tupperware and direct selling, it's more a channel of distribution, because you don't really have much of a retail infrastructure outside the cities.

In phase two, we're also continuing to work on those elements that we believe will enhance our future performance. By the way, we don't think there's going to be any big, well, we're going to restructure and [a] charge. No, we've been doing this, chipping away at it along the way, moving to more outsourcing, but what we're really focused on is three things.

Number one, leadership development. This is a people business and I'm going to continue, I've done more than 50 of these leadership retreats. I just got back from doing those two in Europe. We're going to be doing them in Mexico next week. We're really spending a lot of time, and what that's given us is a very heightened level of skills and alignment out there.

Secondly, we know we need to continue to strengthen our sales and marketing talent, and we've put some people into a new business unit that they're really our SWAT team to help on that. Rarely do you see Tupperware ever use external consultants. Our consultants ought to be from inside our business.

And then thirdly, the element of enhance our future performance, has to do with value chain improvement. Across all markets, we have a target at the segment profit level of a minimum threshold of 15%. So you're really going to see us talk with some of our business units about focus, fix, or exit those kinds of businesses. Let me turn it over to Mike now, and he'll amplify on this.

Thanks, Rick. First, a few things to flush out our fourth-quarter actual result. In looking at our sales, our 3% increase in local currency included increases in four of our five segments, with the exception being Beauty North America, where we performed below our expectations from October, mainly at BeautiControl. Rick talked about the steps we've taken to improve results from that unit.

While our diluted earnings per share, excluding items at $0.90, was above our $0.79 to $0.84 October guidance range, our GAAP EPS of $1.06 was in line with our October guidance range of $1.04 to $1.09. This reflected our receiving $5 million less than foreseen in insurance recoveries from the US warehouse fire we had at the end of 2007, and also our not closing the sale of a building in Australia for about a $4 million pre-tax gain. In both cases, we expect these amounts to come in during 2009, and they are included in our outlook.

Looking at our local currency profit from the segment, excluding items, we were a bit above our October guidance. On the other hand, we had a $0.22 hit from foreign exchange on the fourth-quarter comparison with 2007, and this was $0.09 worse than the better end of the FX range we gave in October. This negative impact was more than offset by lower than expected unallocated corporate costs, mainly from lower than foreseen expense under an incentive plan where the cost was based on our stock price, and a lower than foreseen income tax rate.

In terms of our balance sheet and cash flow, we were pleased to reach, in the fourth quarter, our target range for leverage as we came in below two times debt to EBITDA, as measured under our credit agreement. This was down from 2.3 at the end of the third quarter. We decreased debt in the quarter by $125 million, and by $22 million for the full year. We did this by generating $92 million of cash from operating activities net of investing activities in the full year, and after paying $54 million of dividends. At $0.88 per share, our current yield is around 4%.

We didn't repurchase any shares during the quarter under our $150 million authorization, and I'll have more to say in a minute about our go-forward plans for share repurchases. The $92 million of cash flow was below the low end of the range we gave in October by $18 million. Of this amount, $10 million was from the timing associated with the insurance recovery and Australian property sale that I already mentioned.

The remainder relates largely to lower foreign exchange rates than used in our October guidance, that were applied as we reduced our net working capital in the fourth quarter. As many of you already realize, the fourth quarter is our largest profit quarter, and we generate an even higher proportion our cash in the fourth quarter.

Looking at our working capital, setting aside cash and debt, we were at $182 million at the end of 2008, which was up $32 million versus 2007, although on a comparable currency basis, it was up $48 million. Net net, the main drivers of this increase were higher inventory than last year, and the payout of $19 million of VAT in the first quarter of 2008, where we didn't have a similar obligation pending at the end of this year.

The higher inventory balance reflected in part restocking by the Tupperware US business following the December 2007 warehouse fire, along with building inventories and some fast growing business units to support that growth, and in some other cases inventory levels being higher than intended, due to less than expected sell-through to customers. In order to protect our cash flow objectives, we're working to decrease our working capital position.

Turning now to our outlook in the first quarter first. We foresee a local currency sales increase of 3% to 5%, which, along with a negative impact from currency fluctuations of 17%, brings the reported guidance range to a 12% to 14% decrease.

Our outlook for diluted earnings per share is to make $0.29 to $0.34 on a GAAP basis. This includes a negative $0.05 from items impacting comparability, such that our EPS range, excluding items, is $0.34 to $0.39. This is versus $0.51 earned in the first quarter of 2008 on a GAAP basis, and $0.56, excluding items, and the comparison reflects a negative $0.19 impact from foreign exchange.

We expect profit from our segments, excluding items, to fall in a range from up to [down] of $2 million versus last year in constant currency. Excluding items, we foresee a tax rate of 22% in the 2009 quarter, versus a tax rate of about 19% in the prior year. I do have to say here that there is a shift in some of our promotional [programs] to later in the quarter this year compared with last. This, together with the very difficult externals in many markets, is giving us less visibility than normal as we set our forecast. While we think the forecast we've given is the right place to be, there's a more than normal risk of actual results falling outside of our range.

Looking at the full year for sales, we're looking for a local currency sales increase of 3% to 5% as well. Based on current exchange rates, we would take a 14 percentage point hit on the year-over-year comparison from weaker foreign currencies, bringing the reported sales guidance range in dollars to a 9% to 11% decrease.

The local currency increase includes high single digit growth in our emerging market businesses and our established market businesses about even with 2008. On a segment-by-segment basis, we foresee low single digit local currency increases in Europe and Tupperware North America, high single or low double digit increases in Asia Pacific and Beauty Other, and Beauty North America at around the same level of sales as 2008.

Our diluted earnings per share guidance range is $1.90 to $2.00 per share, including a net of $0.08 of costs from unusual items. Excluding these items, our guidance range is $1.98 to $2.08 versus $2.69 in 2008. The comparison includes an increase in local currency of 1% to 6% and a negative impact from foreign exchange of $0.73 based on February 2 rates.

We expect profits from the segments overall to increase in local currency about in line with the sales increase. By segment, we see Europe and Asia Pacific profit rising about in line with sales, North America at or slightly below last year in profit, and a decrease of a couple of ROS points by Beauty North America, reflecting investment to increase our sales force and bring our sales back to growth, and improvement by Beauty Other to a low single digit return on sales.

As a reminder, based on the fact that the majority of our segment profit is generated internationally, our business is sensitive to foreign exchange. Based on our numbers, on a full year basis for every 1% the currencies would all move in the same direction against the US dollar, the impact on our earnings per share is almost $0.03.

We expect our unallocated corporate expense in 2009 to be about $45 million, versus $40 million in 2008, and interest expense to be about $34 million, versus $37 million in 2008. Putting this all together would indicate a pretax return on sales in 2009, excluding items, of 9% rounded at the high end of our guidance range.

In October we indicated that our intermediate term goal for this metric was 9.5% to 10%. The 2008 actual was at 9.6%. The lower forecast in 2009 reflects the impact of foreign exchange and that we're taking bigger hits on some of our higher return on sales businesses, as well as corporate expense and interest expense being incurred largely in dollars. We continue to expect over time to be able to operate our business in the 9.5% to 10.5% range.

Our GAAP tax rate was 20% in 2008, and our rate excluding items was about 18%. Our current expectation is for our 2009 rate to be about 22% on both bases. We've included in our outlook the same number of diluted shares as in 2008 actual, which is about 63 million.

On the topic of share repurchases in light of how our cash flow came together in the fourth quarter, and where we were sitting with our debt covenant, we didn't make any repurchases under $150 million authorization.

Looking at 2009, based on the current economic environment, trends in our business and foreign exchange rates, we now think it is unlikely that we'll make any repurchases this year either. Our full year outlook for cash from operating activities net of investing activities is to generate $105 million to $115 million, versus 2008's $92 million. This includes capital expenditures in the $50 million to $55 million range.

Given the external environment and how that is impacting and could impact our business, we've taken a number of steps to find cost savings and ways to otherwise maximize our cash flow. We've not fully taken these into our outlook, as we view them as actions that should help protect our projected earnings per share and cash flow performance. We'll keep you updated each quarter as to how our actions are paying off and showing through in our results.

One question that we've heard from a number of you is how much of our cost structure is variable. While the answer varies somewhat by business, about 50% of distribution, selling, and administrative expense is variable, and on the cost of goods sold line, about 75% is variable in the Tupperware businesses, and 80% in the Beauty businesses.

Another item that generates a lot of interest is the impact of changes in the price of oil and gas and our resin costs. About two thirds of the resins we buy for the Tupperware products we manufacture are the more commodity-like items, with the other one third more highly engineered. The more commodity like resins tend to move in price more closely with oil and gas.

In looking at the impact of price changes on these resins flowing through our cost of sales, we estimate the negative impact in 2008 was about $10 million versus 2007, and based on what we see for 2009, expect about a $20 million benefit in local currency this year versus 2008. At this year's FX rates though, we lose a lot of the benefit, and this is all reflected in the outlook we've given.

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

Thank you, Michael.

(Operator Instructions) We will take our first question from Doug Lane with Jefferies & Company. Please go ahead.

Hi, good morning, everybody.

Good morning, Doug.

Rick, can you talk in a little bit more depth about your Beauty businesses at Fuller Cosmeticos and BeautiControl, where both of those businesses had been such stars, for them to deteriorate so rapidly, particularly in this environment and in Mexico where we think the beauty business would hold up fairly well. And maybe a couple of specific steps that you're taking today, I mean I understand the change in the MD at BeautiControl, but a little bit more granularity on the specific steps you're taking today to get those businesses right sized?

Firstly, it wasn't an issue of right sizing there. Let me take them separately. The Fuller Cosmeticos business in Mexico, you know, it was up nicely this past year. What we started seeing, though, in late September, was a fall off in the recruiting levels and the size of the average active sales force. And by the way, you saw a big concentration of that in Maquiladoras area, which banded the US as I mentioned earlier. What we've done is we've made adjustments there with regard to recruiting incentives.

I think secondly, we've strengthened regional management in that area. We put our stronger regional managers in that area, and we put an added emphasis on expanding the sales force. It has nothing to do with our average order size. That's generally been looking good. The merchandising, the brochure has been looking good. This has been sales and sales management issue.

By the way, we moved in another person, one of our strongest people, in to become head of sales. So we made a big shift there. So there was about four or five elements that, with this weakening in the US economy, the pressure felt in Mexico, I just don't think we had the right sales management senior team in place there. So that's where we've made the changes. And that's led to about four or five actions that we've taken down there.

Let me turn to BeautiControl there. BeautiControl has not been a new problem, but we have been lackluster at BeautiControl for almost two years there. We experienced the first three years of that business, dramatic, north of 20% growth, and then it stalled out starting two years ago, and it's become clear to us that this was not just sales management issues, it was also marketing issues.

We were starting to go too much toward recruiting people to buy the kit and to buy products at cost, rather than getting your recruit to seriously build a business, and that's what that BeautiControl business has been all about. She had to come to a full day of training, et cetera. So it's getting it back on track again.

I think we also lacked charismatic leadership in that business, and us putting Albert Bosch in there, I've already heard reactions to Albert being there for a month, and I've gotten many e-mails. So we had to -- by the way, we've made the organization a bit flatter there. We think they had too much overhead.

So, it's a good business and I'm going to be really disappointed, Doug, if you don't see results on the BeautiControl business in the second half of the year because we -- by the way, Albert Bosch is Spanish by second generation, speaks Spanish fluently, and the fastest segments of growth we've had in our Tupperware business in the US has been the Hispanic market, and I expect that's going to be leveraged here in BeautiControl as well. Because it is - - by the way, from former life, the best, the largest spending with regard to cosmetics is on the Hispanic market. So we're going to leverage that by having Albert there.

I notice the margins had been down and they were down even more in the fourth quarter. I know there's a Peso issue there, but on the local currency level, how much investment do you think you're going to be putting into these markets to try to get them jump started this year? Should we take another 200, 300 basis points off margins as you try to get the growth restarted there?

Yeah, as we looked at the outlook we were just speaking to for beauty North America, we talked about the ROS being down a couple of points, and that is for investment to get back to growth with not only the size of the sales force, but also the activity drivers and so on that we need to get back to sales growth.

With BeautiControl.

What about Fuller?

No, I don't think -- we generally have a target at Fuller of 22% ROS. That isn't the issue down there at all. We're spending the money on, already the value chain with regard to the sales force. That doesn't require additional investment.

Okay. Lastly, can you give us an update on the Beauty business in Brazil?

Yeah, why don't you comment on that, Mike.

Yeah, Doug, during the quarter, we took the decision to begin selling Beauty instead through our Tupperware business and sales force, and so we're going to do that instead of selling through the Beauty business that we had previously. We think we get a lot of leverage. We see this throughout South America, where the Tupperware brand really adds a lot of panache and gets people in the door, and because we're more channel-focused in that type of market, similar to what we have also done in the Philippines, we think that's the right way to really leverage things. So that's the decision we took in the fourth quarter.

Yeah. And let me add to that that, you know, when we did this acquisition of Sara Lee's businesses, nobody has really ever done this kind of thing before and then merged different brands in, and from my former life, I knew that in Latin America, you're more a channel of distribution than you are specifically a Beauty company, and we could see from the Avon business we could sell lots of things, and we even call the strategy channel leverage.

Well, the more learning we got out of our Philippine business, the more we decided let's do the same thing, because the Philippines was, for 200 years, a Spanish colony; it largely acts as a Spanish market, we said, hey, let's do the same thing there. And I guess what helped make the move for us is we saw what was happening in the global environment and we said, do we want to continue for the next five years having to invest $5 million to $10 million, perhaps a year, to build a separate Beauty business in Brazil, or do we want to just go off the growth of the wonderful Tupperware business that we had there?

It was growing at dynamic double digit rates, and we wouldn't have to build so much the Beauty brand because you've got the halo of that it's brought to you in the Tupperware catalog. So it not only saved us money to do this from an investment standpoint, we think it makes a better earning opportunity for a person who joins our business there. So that's why we took the decision.

Okay. Thank you.

(Operator Instructions) And we will take our next question from Amy Greene with Avondale. Please go ahead.

Hi, guys.

Hi, Amy.

Just quickly, the cost savings that you mentioned kind of at the tail end of your comments, can you give us an idea of what you think the potential magnitude of those are, and really kind of in what areas you think you can take some costs out of the system?

Yeah. We look, Amy, at a variety of things that can help us. We certainly looked, not just at even taking costs out, but also how do we manage our margins in these times. So things like, how do we run purchase with purchase programs and otherwise work promotionally with pricing, while still not looking to discount our product, since we don't think that's consistent with our brand strategy. At the same time, we do and have over the years taken selected actions in our manufacturing and distribution operations that have helped us to become more efficient and take costs out that way. So we'll look to continue to do that and even ramp it up where we can.

So those are a couple of things, and then also promotionally while we spend a lot promotionally, probably 18% or so, 17% or 18% of our sales, we're looking at where can we get more leverage out of some of those actions and possibly be able to do more with less. So we're being careful about how we get there, in both the sense that we haven't built in things on top into our outlook, look at it as more of a protection of the outlook that we've given. And as we move through the year, we'll put these actions in place and see how they go in terms of how much we're able to make sure that they pay off, and then possibly drop them to the bottom line.

Amy, as you know, the direct selling business is a momentum business and driven a lot by the motivational levels of the sales force. We, through analysis, felt we didn't have to do any broad-sweeping cuts that you'd announce some big restructuring program. Our value chain is sound. We get good gross margins at this 65%, north of 65% level.

The real opportunity is with more the surgical kinds of things, and Mike is so correct when he says we spent 18% on promotions, as incentives to the sales force. And by the way, the old question they ask about promotions or ads, how effective is that and most people say, oh, about 50%. We just don't know which half is the effective. So we're really doing a lot more analysis there with our spending in that area.

But one thing, the only, I think, global kinds of things we've done is definitely haven't done a freeze on income, other than the officers here, out there, it's normal merit increases, but we have done a hiring freeze out there, that if there is a [opened door] right now, seal them where they are. If they're on CapEx, hey, if one of our factories needs at some point here a new roof, don't do the new roof this year, fix the one we've got. So very selective and surgical because, I mean, again, coming out of Davos, the worst thing I see with many of these markets of how governments are running them, is overcoming the fear factor with people, and then I go into our markets and our people are excited.

By the way, it's confirmed with, you know, you see this incredible high level of savings that's going on in a number of Western markets, that people are just afraid to spend. You don't want to do that on the driving side of a direct sales business. We want to keep our people in the ready position, gazelle-like, watch their expenses, but let them know they don't have to sit on their hands and wait until the world gets better.

There are things that they can do right now. If she's a salesperson, she can hold another party. If she's a manager in it and has a down line organization, she can build the size of her organization. So that's what we're giving them is formulas.

By the way, if there's compression on disposable income, for example, what you're seeing here and in western Europe, we're sitting there showing how to go to consumers and show them how to save money. We start to bring front and center products like our FridgeSmart, where we can show a woman how to save $600 a year on produce if she goes to that kind of a fruits and vegetables storage system, how she'll do batch cooking on a Sunday to make a big thing of lasagna, and then store it in Tupperware individual containers during the week. Saves her time, saves her money.

By the way, if you turn on any of these American Good Morning shows, those are the kind of hints that they're offering, and we're the beneficiaries of a lot of those. So we're trying to be very common sense. You don't want to set in motion in our business, uh-oh, something is wrong because it shuts down the sales organization. Forgive the long answer.

That's fine. Something that I wanted to ask about BeautiControl. I've noticed that you've gone away from the $99.00 kit and have gone back up to the $125.00. Have you seen any changes, and I think you've changed kind of what the overall package is. Have you all seen any changes in the recruiting patterns, coming out of the discounting and going back to the higher price? And should we expect, given the comments that you made about how people were recruiting to get the product and build businesses, should we expect to see any of those purchasers drop out of the active sales count as we move over the next quarter or two?

Well, I don't think they were -- there's part of the issue is, the issue becomes you've had too many of those in there where she really got a kit and she purchased a kit just to get the products. I mean and that isn't the way the program works. This is a selling business, and so you're going to see this focus back on -- by the way, I was having this conversation earlier this morning about one of our other businesses.

The problem when you go to the $99.00 kit is that you make your sales organization weak. I mean it's a kit that I think your mom is a consultant, I mean you find out the kit's got more than $400.00 worth of items in it, and so somebody would go to a BeautiControl party, and why would she buy our product if she can buy a kit for $99.00 and all of a sudden, get wholesale. Too many of our sales organizations were doing that out there.

Now, you have to gradually move to that. In my conversation this morning, we were talking about even somebody is a heroine addict, they've got to move them, they can't just stop them cold turkey, they put them on methadone, and then you move it slowly. That's what Albert is very sensitive to, the moves we have to make. We just can't draw a line in the sand and say, okay, by the way, that kit is going back up to $250.00. You'll shut down all of those other people.

But I must tell you at the same time, our BeautiControl business, I don't care about continuing to support people who are wholesale buyers. I'd rather flush them gradually out of the system. That's what we've had to do with our Nutrimetics business in Australia and New Zealand. It took two and a half years, but it was the right approach. And where I'm upset and take personal responsibility is, we let that happen at BeautiControl. We should have been closer to it, and that's where it's a stumble that we caused ourself.

Thanks, guys.

Okay. I'll take our next question from Mimi Noel with Sidoti. Please go ahead.

Good morning.

Good morning, Mimi.

Mike, I have a question for you. I think in the past you've provided a cash flow guidance after CapEx and before financing. Did I miss that? Did you provide that on this call?

Yeah. We said that for '09 we're looking at $105 million to $115 million, so that's up from $92 million in 2008.

Okay. And then related to that, switching over to Rick, I guess I'm getting somewhat of a mixed message, because I hear you talking about the fortitude of the business and certain pockets of strength, and on the other hand, listening to Mike saying you're not likely to buy shares back in 2009, even with the stock as depressed as it is. So how should I interpret the two facets?

Well, I would say a balanced management team.

Okay.

No, I mean it's interesting. We're very aggressive on the side of growing our business, the promotional side of our business, expanding the business, but at the same time very conservative on how we run from a fiscal standpoint, where our expenses are, what we like, debt level, and I think the one thing right now that so much we know, and when I'm talking to most everybody, we don't know what's ahead right now, and so we basically in discussing it after I made it back from Europe on this last trip, as we said, let's not get ahead of ourselves. Let's keep our powder dry. So I'm aligned with Mike.

Hey, I hope it's a lot better on that side and we're clearly, with our incentive targets out there, we'll have a good year if our people achieve their incentive targets at their target levels. As a matter of fact, I mean, some companies out there are establishing threshold targets that are below last year, and that just isn't part of this culture. So on that side of the business, that's the way we're driving it. On the other side of the business, we're saying get debt down, be mindful of covenants, support your dividend, and cash is king.

Okay.

So I really would say that just represents the balance we have in our business. Europe, I mean that's why I think we haven't missed a number in four years out there. And Mike and I, we go frick and frack a lot, back and forth and back and forth, because I'll come back from a trip where I really saw the whites of their eyes, and that gets moderated when we get back here because of the confidence that I have in him, which is why we don't miss.

Okay. So rather than deploying the cash flow differently this year perhaps, you might be in a position where you're just building up those coffers?

Well, building up or paying down debt. I mean clearly the one thing I'd take off the table, take off the table any acquisitions, and the reason for that is strategic. There isn't anybody out there we have any interest in. We have enough opportunity for a holistic growth, given the beach heads that we have. I am developing a new attitude, but I've always had this. Hey, you're talking to somebody, I don't believe in having a mortgage on your house, okay?

But you get down to the point, we've had 40% to 45% debt to total equity out there. You know, we may reassess that and decide we want it lower than that, and a lot of companies, they would say, hey, they'd become takeover candidates if they've got too much cash. You can't do a hostile on a direct sales company. So I would rather err on the side of having the right kind of debt to total cap, that regardless of what happens out there, we can pay exciting dividends and we can invest in our business. So it's more philosophical, if you will.

Okay. I think I have a clearer understanding. Thank you.

Okay. We'll take our next question from Leslie [Soldevia] with BeautiControl. Please go ahead.

Hi, Rick, I'm currently a consultant, and I intend to listen to all the calls, but during the third-quarter earnings call, you mentioned that you were test marketing Armand Dupree in California. I would like to know where does that stand, and what are the plans for this year when it comes to Armand Dupree?

What we're really doing is, we know that there are five areas of the US where you have a substantial Mexican population, from Chicago to -- well, you know where the areas are. What we made the decision to do is let's start to serve some of these Mexican Americans, and let's start in an area where that's concentrated. So we picked southern California.

Importantly, they had done a test some years ago where they picked some high cost areas. We said, hey, so we're basically there in that San Bernardino, Riverside area, test is going very well. Average order is much higher than we thought.

What we're going to do is at the end of the this year, assess where do we go with that, and then we'll start adding the same model we're using in Mexico, and you'll really start to strategically see it go down through New Mexico, Arizona, south Texas, and then Chicagoland area. So, Armand Dupree, the reason we used -- that is the most sophisticated brand name in our Fuller portfolio. As a matter of fact, we dominate the fragrance business in Mexico, and Armand Dupree is the brand we use.

By the way, let me differentiate from BeautiControl. BeautiControl lipsticks, as you know, would be $10.00 to, it's much more class or bridge pricing. Lipsticks in Armand Dupree or Fuller are $3.00. So where you'd really be dealing in BeautiControl with A, B's, and C's consumer segments, here you're dealing with C minus and D consumer segments with regard to their purchases. By the way, we think this is going to be a big business, too, because what we're really doing is attacking Avon's heartland.

And we will take a follow-up question from Doug Lane with Jefferies & Company. Please go ahead.

Yeah, hi. Just to be clear, on the uses of free cash flow $105 million to $115 million, you've got $55 million to cover the dividend and then where does the other $55 million to $60 million go?

It would go towards debt, Doug.

Debt paydown?

Right.

And if I understand, Rick, maybe even a little cash build?

Well, my bias would be more debt paydown.

Okay.

And by the way, Doug, that's the reason we decided in the fourth quarter when we made the announcement, okay, we don't need anymore cash to invest in the business. The business is fine there, if somebody asks you the question, well, if you have more cash, could you grow faster? No, we don't need any more cash. We're quite fine with this. But we had to put on the table, okay, should we raise the dividend?

I think we did the right thing because we said, you know, you raise the dividend, you lose flexibility there because you never want to, if things change out there, cut the dividend. So we said, heck, hey, let's just authorize more share repurchase, and if we feel better about the world ahead, then we'll use it for this level, and we could do it up to $40 million this year. Well, the world has gotten worse out there, so we said, hey, keep your powder dry, support this dividend, pay down debt. And I think what I feel good about, if I put these two things together, strategically, this is a business that wasn't going to be here 15 years ago, and we're as strong a direct selling Company, with eight different companies, multiple beach heads, high margins.

And I've got to say the best thing about this Company is the talent, the boots on the ground of this direct sales organization, the leadership teams out there, they are terrific. And, by the way, it's multi-local businesses, they know what to do out there. By the way, if you've ever seen the commercial, probably a bad example, but it stuck with me, where they're advertising the mattress and somebody shows the independent coils, and they put a glass of wine in the middle of a bed or a mattress, and they press down and the wine doesn't tip over.

The reason I use the example is, that's the way we have organized and managed our Company. So Elena Portellini, the Manager of the former Soviet Union CIS, she knows the five levers we're driving, the one thing that drives the business, and we are very closely connected so that she is like a repeater station out there who is empowered to do the right thing. And what that does is, when things happen in that market, she can do something about it. So I feel good about that side, and the other side is our value chain. We're going to have the resources that we need. We throw off a lot of cash, good margins, and on that side, I want to play it conservative.

Yeah. And it goes perhaps a little bit more to Mimi's question, but if you look at just the FX guidance that we gave in October, we said $0.37 to $0.39 for 2009, and February 2 it was $0.73, plus the fourth quarter was worse also and we're still at $0.73. If you add all of that together, it represents something like $35 million less in pretax earnings. And so that's sort of the math behind Rick saying the world has

Yeah, no, that's understandable. Okay, thank you.

By the way, of interest, during some of the time in Davos, where I had some private sessions with some heads of state that, even the President of Mexico, the interest level they had in our business being there to show women, because part of the big issue with regard to not so much their economy, but with regard to crime in Mexico, which is on the short list of their biggest issues, is unemployment down there, and they're asking us, hey, how can we work better together to mobilize Mexican women? So they really see us as an actor, a respected actor in this role of trying to get more people into the work force. When I had the Board down to South Africa to look at our businesses there, we spent a morning with Desmond Tutu, and you get the same kind of feeling, so I think we're fitting in very clearly with what the needs are out there, and that will be an additional support for our business model.

We will take our next question from Greg [Hillman] with First Willshire Securities Management. Please go ahead.

Yeah, good morning. Rick, could you talk about some of the new products? In the last conference call, Simon eluded to a couple of them. One was the tumblers in China, and the other was the Circus Carts, that line of toys in Mexico. Could you talk about those and any other new hot products that you've come out with recently?

Greg, first of all, it's really good morning on the West Coast there. But there are some real hot ones that I can't pre-empt launch to the sales force right now. I will tell you one of the things we're getting very, very serious about is some new and different approaches with regard to this whole subject of water, the bottled water here in the US. If you haven't read the book, read the book Bottle Mania that's out right now by a very seasoned reporter.

But you'll find that this crisis with 40 billion of these water bottles going every year in garbage dumps just here in the US, we have three different kinds of products that we're going to be launching in various markets of the world that really put together the premium of the brand name Tupperware and the efficacy of our brand, with regard to also this category, which we've dabbled in in the past, but never got aggressive about. You're going to see a lot of attention with regard to that.

By the way, I've got to say, also, we have started an initiative here on, it's gone past the environment on sustainability, with regard to our product line, and that's going to be very important to us in our European businesses. Beyond that, the products that are going to be launched in the next several months, I can't talk about right now, or this group in the room would have my head.

Anything further, Mr. Hillman? Mr. Hillman? I'm hearing no response.

Okay.

And, gentlemen, there are no further questions. Mr. Goings, I'm going to turn the conference back over to you for closing comments.

Thank you very much. You know, you all are probably tired of hearing that these are unusual times. My goodness there. I guess what the good news is that, back to the thing I think I mentioned my mother used to always say to me, you can't change the direction of the wind, but you can always change what you do with your sails. That's what I feel good about with our business model.

It's fortuitous that we've spent the last four years on intensive training out there, and all of these retreats we've done, 25 people at a time. I was gone 68% of the time this last year and it will probably be close to the same, and where Simon and I have really split up our responsibilities, he's driving the business today, this week, every Monday morning at 10:00, regardless of what holiday it may be in the US, we don't consider ourselves a US business. There is a standup meeting where we report what happened the previous week.

So there's a great sense of urgency. The focus becomes TNT. We talk about it today, not tomorrow, so that when we start to see when things aren't going the right way, what are the levers you can do to change it for this week? So that urgency of today, combined with what we've invested in on building talent, because when you have the right people out there, they figure out what to do in their markets, particularly if you've trained them on what the levers. I think those are the strengths that are going to carry us through this along with this very good value chain and business model. Anyway, we thank you for your time and your continued support and I hope we'll get to a time here where all of us have a little bit more visibility on what the world is going to look like in three months. Thank you.

Ladies and gentlemen, this will conclude today's Tupperware Brands Corporation fourth quarter 2008 earnings conference call. We do thank you for your participation and you may disconnect at this time.