Tupperware Brands Corp (TUP) 2009 Q1 法說會逐字稿

Good day, everyone and welcome to the Tupperware Brands Corporation first quarter 2009 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions I'd like to turn the call over to Mr. Rick Goings. Please go ahead, sir.

Thank you, Michelle, and thank you, everyone for being on this call and good morning to you. With me on the line are Mike Poteshman, our Chief Financial Officer, and Teresa Burchfield, our VP of Investor Relations. You know the drill on forward-looking statements so we will be discussing some forecasts here so I refer you to our Company's position on forward-looking statements in our filings in yesterday's release. I'm talking to you from, I'm in Hong Kong. It's a little after 9:00 at night here and so we have just a kind of [shell the beach] that if we have some kind of technical communication problem, Mike and I are aligned with what we were going to talk about today and he'll pick it up and I'll try to rejoin it.

I am interesting enough to have been here with all of our managing directors for our markets in Asia-Pacific, and one of the things we've been doing so much this last four years is staying very close to our markets and making sure our management teams not only had the training and the understanding of the levers of their disposal in the direct sales company but they also feel empowered and that's why I think we -- here in Asia-Pacific they were up 13% in the first quarter, so they're doing a great job. I also -- I'm going to be turning it over to Mike in a moment and then he'll make some amplifying comments on not only the first quarter but also he will speak to the second quarter and full year.

We were pleased that the quarter ended on a positive note with sales up 1%. Again I'm trying not to be redundant with what you already read. It was a bit lower than our 3% to 5% increase that we indicated in early February, but we did see improvements as we went through the quarter. There were really, and I've never seen this in business myself, that there were really two distinct parts to this quarter, January, where it seemed like, not only in our business, but in many businesses, that consumers just stood still and the world was frozen and a lot of that was driven by politics in the US as the world waited to see what was going to happen with the Obama Administration, with Wall Street, the banking industry, Yada, yada, yada and you know this as well as I do, AIG and what the government was going to do. We saw the same things happen in January in Russia, it started happening through our Western European markets. And, by the way, from talking to other CEOs, at the World Economic Forum in January in Davos, I heard the same kind of things. And then there was the rest of the quarter.

Thank goodness, my mother always used to say, you don't drown when you fall in the water, you drown if you stay there. But we saw momentum come back to our business then. We saw consumers start to spend some of the money they had been saving and while the sales comparison in February and March were better than January, and they were above in those two months last year, they weren't strong enough to really offset this tough January that we had. By the way, you're going to see that for the full year we've said guidance at the top end stays the same but for the bottom end we shaved off one point there because we quite frankly, we don't want to get overconfident, and don't know if we'll get all that back from what we lost in January.

Before I get into details of the quarter, though, and our forecast, let me comment on what I've been seeing as I've been traveling. Again, I'm out here in Asia-Pacific, I'll be in our market in India later in the week, but during the quarter I've been to Germany, France, Italy, Russia, Poland, Switzerland, Austria and two times to our big businesses that we have in Mexico. The reason I bring this up is I really have been seeing what our people are doing firsthand. And while year-over-year comps for the first quarter were very difficult, we do really start to see traction coming back into our business.

It is interesting, I was at Capital Research last week and one of the things we were talking about, very bright group of people out there, but we were really talking on the subject that with regard to this earnings release season, most don't expect many CEOs are going to be reporting out year-over-year increases. Those are going to be very rare. I was pleased that we were in that category that did, even though it was modest. But I believe that really you're going to see three things, three categories from CEOs in these industries out there. I would call one the kind of group of companies that are what I would call the black, that really there it's bleak and black, and I would put into that category at the very dark side of it companies like GM, where it is a question of when are they going to pull the plug and go through reorganization. Most are going to be in the gray category and have some visibility into their business. But are still uncertain to the outlook really due to the negative influence and momentum in business and markets.

And then there is this group, probably the most positive, of what I would still characterize as yellow to green, and those are the businesses that have a little bit more visibility, and while nobody is certain what's ahead, they still believe there is going to be some progress. These companies while not overly optimistic, that it will be a great year compared to the previous year, they do think they have got the right kind of business models that they'll navigate through it and have sales and earnings growth. I believe, very strongly, that we're in that third category, that yellow to green, and I'm seeing it as I'm out in the markets. The primary reason for that, is not only again, I said about our culture, we've got a group that are out there, they know what to do and they're empowered to do it. But also because of our business model, we have levers that are within our control which can help mitigate some of the negative external trends.

We all know that with unemployment at near record high levels, that has enabled us, in this counter-cyclical, way to recruit more people. I think what's also worth noting is, and we're beginning to see in many markets, is not only that we're recruiting more people, but better people. People are coming into the unemployment market that are better educated, have had success in their life, and people who normally would not have looked at direct sales and we know from past cycles of this, often we use this as a time to rebuild our ranks with people who never would have considered our industry or our Company, but once they get involved, they have success, they enjoy the nature of the business, they have a pleasing experience and pleasing results, they stay in the business. So, we're counting on that. We've also seen our sales force, we've kept our advantage of 7% versus last year, and we think we need a 7% advantage to get a 2% to 5% sales increase, and kind of the discount between those two is I think what we're expecting to be the negative impact of consumer compression of consumer spending. At any rate, we like what we're beginning to see there. However, bringing recruits in is only part of the solution.

The other things we're focusing on is really finding a way to get consumers to spend their money with us, and here's where I would say we have first mover advantage and we're not waiting for them to come into a store, we get to go out to see them and for most of our sales force, the people they serve are their friends, neighbors and relatives so there is a relationship there. So what we're working on there, as we get these additional recruits, is how do we convert them quicker with regard to from being an interested recruit to a trained individual to put them into a selling situation that is for them brings them a pleasing experience and pleasing results. In terms of our beauty business we're doing this with the spa party, they can come for an hour of relaxation and then we sell them skin care.

In our Tupperware business I'm very pleased to see a lot of our MDs are becoming very innovative. I was last month in Germany and they launched a party called [Rum fort]. Rum fort Basically that would be translated into (inaudible) food that is lying around, [fort] is like leftovers. What I saw them do is package this, and research shows that in Germany about 30% of the food that Germans buy, they throw away, because there is a little of this and little of that. Well, they've created this [Rum fort] party for women to take advantage of leftovers and there is a [Rum fort] menu for breakfast and different Omelets. I don't know about you all when getting an omelet, I usually see they have the trays open and I usually say well, put everything in it. It makes it interesting. But what they've learned how to do is make interesting breakfast dishes. Also they've come up with great evening casserole meals and what they use as the centerpiece of all this is a food processor that Tupperware makes and it is one of our hottest selling product which is called Quick Chef, and so she's able to make a nutritional meal, while saving money. As a matter of fact, how they're selling it there is that with the money you save in three months you pay for all of the Tupperware products that you bought. So, it's good to see our markets are turning this way. Seeing also a number of our markets are particularly in the US you're starting to see that people turn their lunch to work is up about 40%, so we're focusing more on those products where he or she prepares it at home, brings it to work.

Additionally, I would say, through marketing and promotional incentive we're really trying to help our sales force and consumers focus on products at lower price points, products that have features and benefits which are differentiated and demonstratable and that appeals to consumer buyer habits, buying habits in this kind of environment. So, I'm seeing very positive steps.

Another key to our business model right now is the earning opportunity that we provide, and one of the things we want to make sure we didn't do is to bolster our recruiting, start dropping a kit price that is let's say a $200 kit and really includes all of the things you would need to do parties, and to demonstrate product. You'll see a lot of direct sellers make a mistake of doing a discounted kit. Like tough times they'll do a $25 to $50 kit, which we generally call paper kits and you end up then only having customer sales representatives not real sellers out there. So you have a larger sales force, but productivity goes through the floor. With the kind of kits we're now moving and starting people with, the we back them up with the right kind of training, and what we're really starting to see is in the markets that are doing it best are really holding their party average. By the way, I was the Australian managing director late this afternoon and Rose has managed our market there for about eight years. In Europe, that average party size is about $400, the average Australian party is over $700 now, and it has to do with the training that people do.

Now, as I'm going through all of this, that is not to say that we're going to be or have been immune from the economic environment in 2009. But I think we have enough levers that we're going to navigate through it and while it might not be a great year, I'm counting on a lot of progress. One of the best signs is when the management team at headquarters and I'm seeing it in a number of markets, put the allocation aside for bonuses this year, our management team throughout most all of our markets are still planning on getting a bonus this year, so they're not sitting on their hands and giving up on the year.

Let me drill down a little bit more though, I'll put it in the category first established markets. Established markets primarily because of January, were hit a little bit harder in the quarter. They were down 7%. And I can isolate that to a number of markets, Germany was down about 12%, and there were high single-digit decreases, in our Tupperware US business and our BeautiControl business.

I'll talk a little bit more about it. Emerging markets, though, continue to play a key role during this quarter. By the way, in the first quarter, emerging markets were about half our sales and they grew still at 10%, so that was only 1% off what we saw in Q4.

Let me, though, again drill down a little more on the established markets. I mentioned they were down 7% but there was some good news within that. A -- There were a number of markets who really did well during the quarter with increases, Greece, Austria, Spain, Australia. Those markets saw year-over-year increases and they were driven by a larger sales force. While we continue to struggle in Germany, which was down 12%, I must say that we were up year-over-year in the month of March, and on a positive note, for the first time in almost a year, we've seen the size of the German sales force end at the end of the first quarter same as last year, and we've been operating with a deficit of up to nearly 10% in Germany, and we were down to actually at the end of 2008 4% still in Germany. So it shows me that our people are making the right kinds of changes. By the way, also in Germany, I was so pleased to see that they are proactively implementing many of the approaches that have worked so well in our French business.

We're the largest direct seller in France, and France was selected by our Simon Hemus, Mike and the senior management team as established market of the year for this last year with sales increases. And France is a business where direct selling is tough. We're the largest direct seller there, very profitable, and we've been there 45 years. So I say that don't cross off our established markets. We certainly haven't given up on them. In North America, both Tupperware and our beauty business were down, although single-digit. And for different reasons. Our Tupperware business, the sales force size is up high single-digit. They lost so much in January though that they were unable to plow back and get it all back in February and March, but we did see improving trends in that business. The challenges really came from low productivity and low activity levels.

BeautiControl is a different story. We've been filling you in on changes we've been making there. We installed a new president, one of our real hot shots, the beginning of the year, and the sales force was down 10% at the end of the quarter. But I was with them in February and I've seen recruiting pick up and, by the way, importantly back to the point I made earlier, they have not dropped the kit price to a cheap kit. And, by the way, if I was doing -- if this was a medical school and you're an intern and we were doing grand rounds, the thing I would comment on grand rounds on last year in BeautiControl, too many months they sold a $99 kit, which didn't get quality people in, and by quality, I mean people who were interested in building a career. Albert Bosch, our Managing Director, even though there's a need to close the size of the sales force gap, he stayed with a complete kit, and so recruiting is the focus and focus on ensuring that we get those people trained so that we don't have a wholesale buying club there.

And, by the way, that is one of the ways that we can show short-term results, but I'll tell you, within a year, we would be paying the price for it. That takes you three or four years to plow your way back to having real sellers. Let me turn to Asia-Pacific. In our established markets, we're back on track in Australia, New Zealand, we have a sales force size advantage, and we saw an increase in local currency. Both of our Japanese businesses, by the way, are in different places. One, our NaturCare business is struggling with the size of its sales force. However, and we haven't seen any progress there. The good news for us is that it is not that big a business. Tupperware, however, as we went through the quarter, we saw improvement in activity and productivity levels, and I have a lot of confidence in that Japanese business going forward.

Let me turn to our emerging markets before I get into turning it over to Mike. In Europe emerging markets wise, the segment was still up 18% local currency, and that's everything there. That includes Europe, Africa, Middle East, and we use the World Bank definition per capita, GDP to really decipher what's an emerging market. We were up in the fourth quarter 17%, so we actually had strengthening in this first quarter. Russia, strong double-digit sales, we're really getting a scaled business in Turkey and our businesses in sub-Sahara Africa, both Tupperware and the beauty businesses, very strong double-digit increases driven by the size of our sales force there. I do want to shell the beach on one thing, though, as we ended the quarter we saw some alarming signals in Russia with regard to consumer behavior. We do have a large and active sales force there, but I think we're being pragmatic that we've got great leadership there. If she's in Siberia holding two parties a week, we can motivate her to hold three parties a week. But we expect in Russia the going is going to get a little bit tougher there. And so, by the way, we've been spoiled by a bad month in Russia is a 30% sales increase, so I think we may have some sober times ahead. But I'm still expecting nice increases.

The emerging markets of Asia-Pacific, they're also performing well, by the way, emerging markets over here were up 31% in local currency, and, by the way, that is right in line with what we did in Q4 which was 32%. Indonesian business, amazing, largest Muslim population in the world. We have a woman who's President of this business. I went and did a retreat for them early this last year and it is amazing what's happening with this leadership team. We were up Q1 over 100% in Indonesia, and by the way, it is the fifth largest population in the world, so we're going to be concentrating efforts there in the fall and really doing a lot of getting, as Mike and I were just talking prior to the call, getting closer to the markets and I'm going to be probably doing four or five cities there where we take this through. Malaysia, Singapore, India, Korean markets, were also all up, and all of them up more than 30%. China was down partially, due to a timing of shipments around the Chinese New Year, but we're seeing some consumer confidence issues there. We've kind of done a hold on opening new outlets there for the time being. We are right around 2,700. The productivity of the outlets by the way, I'm pleased to report is in line with prior year and the number of home service calls, that is how we do direct sales there, because they really don't have apartments big enough to hold parties, that is working well. But, anyway, even with these challenges in China, we continue to see strong growth going forward. And I'll tell you, I've been in Hong Kong here two days, and you wouldn't know there's any economic crisis going on in the world, given what's happening here with tourism and stores.

Turning to North America segment, of our Mexico business, it's strong performance. It was up high single-digit. It is still an emerging market. We were able to drive sales by taking advantage of a larger sales force and driving activity. So, and we did a retreat in the first quarter in Guadalajara, and we got a terrific sales force down there. And I'm happy to see us mitigating some of the impact of the unemployment and some of the Narco wars in the Maquiladoras areas. In our beauty segments, Fuller Mexico which is our largest business. Sales were down in the quarter. We put some plans in place. Simon and I were there twice in the quarter. We've got a terrific management team down throughout all the levels there and we were pleased to see improvement in the size of the sales force in the quarter, which was down slightly at the end of 2008. I'm pleased also to report that at the end of the first quarter we crossed back over that 0.5 million sales force size mark, and we're 2% higher than we were last year at the end of March. Our challenge is really going to be getting them active, but we are starting to see some signs of life.

We have a category we call Beauty other, I don't know why we call it that. Mike will need to work on a new name, but we saw strong performance from quite a few of those units. Brazil, Venezuela, and our Fuller business in Argentina. And you will recall that we combined our Tupperware and beauty businesses in Brazil at the end of last year. By the way, we're starting to see some of the benefits of that. As I mentioned, the rationale behind that, it looked like we were going to need to invest another $10 million this year, and we basically looked at each other and said, what's the point? And in this kind of an environment the halo effect of having Tupperware as the core brand and doing it the same way we've been doing it with our Mexican business, and (inaudible). So, anyway, we're seeing benefits and that will save us $10 million.

Overall, in our emerging markets we're continuing to go see the strong momentum and it is really driven by the power of our earning opportunity, and I think together, if I put three things together, it would be it's early days in these markets, we have very, very strong momentum, and women particularly are looking for an earning opportunity out there. By the way, all this kind of ties together. When I was doing Investor Relations meeting last week, there were a number of points that I've been really saying and I think there are five things that really make us a particularly strong business model, and gives us confidence we'll reach this 2% to 5%. First, I would sit there and say it really has to do with the culture. We have a highly trained, dedicated group, of people out there who are empowered. We have spent a lot of time and resources. They have read the books, seen the movie, and been there as far as understanding the levers that drive their business and how to adapt it and adopt it. I might also say what we're really proud of is their dedication and commitment to this company. It is rare anybody leaves and joins someone else who's with us. Because I think we offer them not only a great career path, great compensation, but a great deal of empowerment out there, so they get to run their own deals.

Secondly, we're the beneficiaries of the category of products that we're selling. These are products that are particularly well suited for these kind of economic times. Clearly I think everybody understands why beauty is. But the Tupperware product we've steered it. No woman wakes up any morning and says in her first hour, "Geez, I've got to have some Tupperware." If she does, she needs some psychotherapy. But there are some who are fanatics like that, but, we know that because of our product category she can save money, it can save money not only with the [Rum fort] kind of idea, bringing lunch to work, but also batch cooking, and she knows she doesn't have to replace our products. One of the people on our board, Angel Martinez, that run Deckers, which includes that great brand, Uggs. We feel that people who are going to be much vulnerable are the ones who don't have quality brands that can't sell the features and benefits and we're finding that with consumers. If I'm going to invest hard-earned dollars now particularly when there's compression of consumer spending, I want it on a product that lasts. So I think secondly we're beneficiaries of that product category.

Third, we've got this adaptable business model that allows us to have firstly this first mover advantage to go to consumers, because she's not going out into the store, and that we can adapt it promotionally to what's happening in individual markets. The third thing I would say our value chain, and that is we throw off a lot of cash we have high margins. We still average about 65% gross margins, and by the way, we're in a very good place with regard to new product introductions and I say that with regard to the value chain. We don't talk about it a lot, but we're at about $1 billion in today's market value of fully amortized molds that because they're fully amortized they're not on the balance sheet, and we initiated a program a month and a half ago called Mining for Magic, where how many different shapes can you make? So to take this 50 years' worth of incredible molds that we have, and we make them ourselves in our facility in Australia and adapt and adopt those. That's going to save us a great deal with regard to CapEx and at the same time we're going to be able to utilize great newness out there. So the whole value chain is -- and the last I would say this whole portfolio we're pretty much everywhere you want to be. Half of our business is now in emerging markets.

Again, it is early days, but the other half are established markets, and by established, we don't use the term mature because that says, hey, the old saying when you're green you grow, when you're ripe, you rot. Hey, we're established markets, we're still supposed to grow in those markets and I will tell you markets like France, the reason they're growing is because we never really did penetrate the big urban markets of France, Nice, Paris, (inaudible), those. We normally did parties in the smaller villages of France. So now that we have a way for busy working women who mostly migrate to the urban areas, it is like opening up France all over again for us. Anyway, I think we're well positioned. What I'd like to do, it's difficult to forecast really what's ahead, lot of uncertainty. We do have confidence, though, in the flexibility of this model and the strength of these management teams and that we're still going to make progress.

Mike, let me turn it over to you, I've talked enough.

Thanks, Rick. You've had a change to go through our earnings release, so I'll first just highlight a couple of things in looking at first quarter results versus the outlook we gave in February. On the sales side, one 1% Local currency increase was two points lower than the bottom of our guidance range and primarily reflected lower than expected results in some of our established market businesses and mainly toward the beginning of the quarter as Rick talked about. In contrast on the earnings side we were able to come in $0.06 above the high end of EPS guidance, excluding items. This came $0.01 from a smaller than forecast FX hit. Operationally there was a benefit from higher than expected sales in Asia-Pacific and, most significantly in the beauty segments from an improved value chain in Venezuela, including pricing in line with the significant inflation there and also our decision not to convert at the parallel exchange rate the segment profit we generated. We're working in Venezuela on avenue to be able to access cash at the official exchange rate that may or may not work going forward.

Further, although our sales are not yet where we want them to be at BeautiControl, we did better than we had forecast, and are also realizing the benefit of some value chain improvements. Going the other way we had a hit versus our forecast of $0.02 each from lower sales in Europe, and higher than forecast on unallocated corporate expenses mainly related to incentive programs. In terms of our balance sheet and cash flow we had better results than the first quarter of last year with both receivables and inventory. Payables and accruals on the other hand were more of an outflow this year, largely reflecting a higher amount due at the beginning of 2009 than 2008. This included higher incentive payouts in this year's quarter.

Overall our cash flow from operating activities net of investing activities improved year-over-year by about $20 million. We think we're set up to have a good year for cash flow and are raising our outlook today from the $105 million to $115 million range we indicated in February to $120 million to $130 million. This comes from our rate of earnings guidance and a reduction in expected capital spending. Those of you who follow us know that we previously indicated that we target a leverage ratio in the range of 1.5 to 2 times debt to EBITDA. We closed the first quarter at just over two times. In light of the more difficult and expensive credit environment compared with when we set our 1.5 to 2 times range we have now decided to bring in the high end of the target to 1.75 times.

We currently think this more conservative posture makes sense and expect to be able to reach this goal in the fourth quarter of this year. We indicated in our 10-K that based on our outlook at the time of our filing toward the end of February, we foresaw under our fixed charge coverage ratio covenant $16 million and $13 million of EBITDA cushion in the third and fourth quarters of this year, Meaning, all else equal, our EBITDA could fall by those amounts versus our forecast before we have a covenant problem. We're pleased to be able to indicate that based on the high end of our current forecast, our EBITDA cushion for the third quarter is now up in the mid-$20 million range and for the fourth quarter of this year is now over $30 million. This reflects the better earnings per share outlook coming from improved local currency net income, along with better foreign exchange rates, the decision we made to scale back our current year capital spending by about $10 million versus our previous guidance of $50 million to $55 million, and to limit re-engineering expenses here to about $4 million pretax versus our previous guidance of $10 million. We've laid out our covenant calculation as of the end of the first quarter on our website and in our 10-K for full year 2008, if any of you are interested in seeing more details and how they work.

Hey, Mike, let me jump in on one thing there, just for what it's worth, because I've had this conversation with some of our shareholders and I just want to, I guess, signal to you that how committed we are to our dividend, but more importantly that Mike as early as six months ago before any of the market meltdown, I guess this was back in the summer, he has always worked on this, what I would call, the positive assumption of the negative results.

What are the worst case scenarios? What if all FX just went so sideways, what if this happened? What if that happened? He came up with a scenario then that if we had to go change what is our interest rate right now, it is 5% and change right now, that we could go, if we had to refinance today some of our debt, what it would cost and commemorate, and we saw that in the same period what, through 2011 it cost us what $50 million plus?

Yes, in that range, right.

Yes, $50 million and we said, hey, this is ridiculous, we're never going to have that happen and you're talking to somebody here who, I don't even believe in having a mortgage on your house. So, we took this very seriously, and what are the actions you've got to take to make sure we have a cushion so wide that you could drive a truck through it. And that's why we took those actions. You know, I think it's helpful, we look at our shareholders as our business partners, for you to understand fundamentally how we are about this, philosophically. Mike, I'll turn it back to you.

Okay, thanks, and turning now to our outlook and first for the current quarter we foresee a local currency sales increase of 2% to 4% which along with the negative impact from currency fluctuations of 16%, brings the reported guidance range to a 12% to 14% decrease. Our outlook for diluted earnings per share is to make $0.62 to $0.67 on a GAAP basis. This includes net positive $0.05 from items impacting comparability. Such that our EPS range excluding items is $0.57 to $0.62. This is versus $0.56 earned in the second quarter of 2008 on a GAAP basis and $0.75 excluding items. The comparison reflects a negative $0.22 impact on foreign exchange. In other words, we expect to grow our diluted EPS excluding items and in constant currency by $0.49. In line with this we expect profit margin segments excluding items and in local currency to increase by 3% to 10% with improvement by all our segments except Tupperware North America. We continue to foresee a tax rate excluding items of 22% of the 2009 quarter, versus a tax rate of 21% in the prior year.

Looking at the full year for sales we're looking for local currency growth of 2% to 5%, with the high end of the range there is no change versus our February guidance while the low end is down one percentage point, reflecting our first quarter results. Based on current exchange rates we would take a 13 percentage point hit on a year-over-year comparison from weaker currencies, bringing the reported sales guidance range in dollars to an 8% to 11% decrease. The local currency increase includes high single-digit growth in our emerging market businesses and our established market businesses at about even to slightly down compared to 2008.

On a segment by segment basis we foresee a low to mid-single-digit local currency increase in Europe. High single to low double digit increases in Asia-Pacific and Beauty Other, even to slightly higher sales in Tupperware North America and even to down mid-single digits in Beauty North America. Our diluted earnings per share guidance range is $2.16 to $2.26. There is no net impact of unusual items on a full-year forecast. Excluding items the comparison includes an increase in local currency net income of 3% to 8%. Which is up from 1% to 6% in the previous forecast, and a negative impact from foreign exchange of $0.59 based on the April 21 rates. We expect profit from the segments to increase a few percentage points more than the sales increase with returns on sales in Asia-Pacific and Beauty North America, about in line with 2008 and Europe and Tupperware North America segment down one or two percentage points and ROS by the Beauty Other segment in the 7% range versus less than 0.5% in 2008. The Beauty Other segment profit assumption includes the cost of converting some Venezuelan Bolivar at the parallel rate in the second half of the year. 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 base year basis, for every 1% that all currencies move in the same direction against the US dollar, the impact on earnings per share is almost $0.03. We expect our unallocated corporate expenses to be about $50 million in 2009 versus $43 million to $45 million in the previous guidance, and that interest expense is expected to be about $30 million versus $37 million in 2008. The higher unallocated expenses are most significantly from higher incentive costs and interest forecasts affects our borrowing level and what we had as expense in the first quarter. Putting this altogether would indicate a pretax return on sales excluding items in 2009 of 9% to a bit higher. This is versus 9.6% in 2008 as reported. However, the same local currency sales and earnings in 2008 would have produced a pretax ROS of 8.4% at this year's forecast exchange rate.

Our GAAP tax rate was 20% in 2008 and our rate excluding items was about 18%. Our current expectation is for 2009 rate to be about 22% on both bases. This is no change from our February guidance. We included in our full year outlook 63 million shares under the assumption that a rising share price would lead to more diluted shares than we had in the first quarter. As Rick mentioned, while we realize there could be heightened volatility in our businesses and therefore our numbers, given the challenging environment we think it is important to give the visibility that we can given our trends and future prospects, so we've continued to provide this guidance.

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

(Operator Instructions) We'll go first to Doug Lane with Jefferies & Company.

Yes, Hi. Good morning or good evening, Rick.

Hi, Doug.

Can you talk on two things, the biggest upside to profitability that versus what I was looking for is on gross margin, if you can drill down on that a little bit, and what the resin outlook is going into the second quarter and the balance of the year. And then a broader strategy question on Beauty Other, a big improvement in profitability, but what's the strategy on the top line and profitability for the remainder of the year?

Mike, would you be kind enough. I'll quarterback, would you answer part A and I'll answer the second on strategy and beauty. Let me comment while we have everybody on the line here, though, I do want to reiterate, if we have a quarter where we believe we're going to miss our numbers, we will prerelease. And I say that because in this very uncertain time, I think that's going to be helpful to a lot of people. Once we know what the trend or pattern is, we will let you guys know. That has nothing to do, Doug, with the question you asked but I just want to do reiterate that. Okay?

Okay.

Thanks.

On the gross margin question we were up, as you're noting, a little bit more than a point in the first quarter. And that really reflected some things on the procurement side including resin. It also reflected our reporting more line sales versus promotionally promoted products and that helped in the quarter. As we look at the full year, I think that will probably tone down to some extent. I think we'll continue to see this mid-60% to 65% or so margin that we are now. And in terms of the resin impact itself we talked about in the last call that we were seeing year-over-year about a $20 million benefit in local currency, although a good part of that was going away in US dollar terms. As things have continued to evolve in the oil and gas prices and the resin market, that number has gone up to a little bit over $30 million in local currency. We're still taking a big hit against that in US dollars. So that's all been included in the forecast that we're talking about.

Okay. Thanks. And then beauty, other, Rick?

Yes, The second piece of that, Doug is, our strategy really as we've said it in the past, we're really focused on that's Latin America mostly, and that is using our presence and the base and the brand Tupperware in those large markets. Brazil is fourth largest population in the world, to leverage that halo effect of the Tupperware brand, to really, go against (inaudible) and Avon in those markets. We had very, very strong double-digit growth there. It's the same strategy, by the way, I happen to believe that in the next five years the greatest market opportunity for us is to grow Beauty Other, in Latin America, and in the Nutrimetics business. The big Australia, New Zealand. Reason for that: starting off with Latin America, is, Latins continue to utilize direct sales as their preferred method of buying beauty products. Still over half of all beauty products are purchased that way. And she continues to look for an earning opportunity and so those are two currents that play in our favor. I would add to that the competitive landscape there, (inaudible) hasn't done an incredible job in Brazil, but they have stalled every time they have been trying 20 years to really get a decent-sized business going in Mexico, and so they've been unsuccessful exporting their business model outside, which leaves last man standing with Avon there, and Avon sales force has been so large there that it has gone so far in two directions, downscale, that they-- beauty products are generally sold, they're aspirational products. We think they're vulnerable. We think they're vulnerable, too, because what gets an average order strong is that they're selling, what we call, stuff, shoes, linens for the house, furniture, etc. And we think that puts us in a position that they can be vulnerable. So we are really going to be focusing on (technical difficulty).

Rick?

We'll take our next question from John Foster with J.P. Morgan.

Yeah, is Rick there, did we lose him?

Sounds like we might have lost him.

Okay. Well I'll just go ahead and ask my question, anyway.

Okay.

In terms of looking at the commentary sort of sequentially it sounds like things in some of the emerging markets, in the commentary guide it sounded like more cautious in terms of looking at China somewhat but also Russia specifically. Coke yesterday reported volumes down 18% in Russia. So I guess I'm wondering the local currency revenue guidance is for sequential acceleration, but the commentary didn't seem to indicate where that acceleration was going to come from. So can you provide us a little bit more comfort looking at the fact it was a little bit weaker than expected this quarter, what is going to be the big delta especially since some of the commentary seemed a little more negative. Thanks.

Sure, I think when you look at our split with half of our business in the emerging market economies and half in the established markets we were up 10% in local currency in the emerging markets in the first quarter, and our guidance last time, and still today, is to be up high single-digits for the year. And so, while Rick did mention that we were seeing some consumer spending head wind in Russia, in the fourth quarter as we entered the second quarter, we're thinking overall that for the year ew will still be in that high single-digit range. Some of that has to do with having the larger sales force now in the Fuller Mexico business which, of course, is now very important for us. The place where we were below our first quarter guidance was in the established markets where we were at a minus 7, whereas for the year we're calling to be even to down slightly. So that's really the area where we expect to see more improvement versus where we were in the first quarter. Obviously, and so we highlighted that the places where we had -- we had been down in our larger businesses were Germany and the two US business, BeautiControl and Tupperware US, and that is where we're looking to see things improve in particular as we go forward. In Germany, as well, we had a better sales force number going into the second quarter than we did going into the beginning of the year, coming from minus 4 to being even entering the second quarter. The US business certainly did better in February and March than it did in January, and then at BeautiControl we started to see some better movement in the KPI. So those are really the main things that we're looking at.

Okay. Thanks.

Mike, Mike, I'm back on, but there's bad signals here and I'm checking out and you know as well as I do how to answer these. So rather than disrupt the call, I'll turn it over to you, you guys there, okay?

Okay. Thanks.

And thank you, I'll talk to you tomorrow.

Okay. (OPERATOR INSTRUCTIONS) We'll take your next question from Greg Hillman with First Wilshire Securities Management.

Yeah, hi, Mike.

Hi, Greg.

At the end of Q3, there was a section in the press release on long-term guidance you increased it from 5% to 7% to 6% to 8%p in local currency. And I was wondering if you expect you expect a return, whether that is still in effect and whether you expect a return to that area, and then furthermore, Simon said he would be disappointed if he didn't do better than that, if you remember.

Right Yes, I think that expectation is still intact. It is built on a 12% to 14% increase in local currency in the emerging market businesses. 1% to 2% in the established market businesses, and we haven't given specific multi year guidance, so we haven't given 2010 guidance. But we do expect ultimately that our businesses in a more reasonable consumer spending environment should be operating in that kind of a range. Now, of course, over time as if we're operating under those kind of growth rates emerging markets will make more and more of the total, and be able to contribute if they are at that fast growth. So, yes, we would say that is still a longer-term expectation. We'll have to see as we get closer into 2010 whether what guidance we'll give for 2010 in particular.

Right. And then just the size of some of the emerging markets, in particularly India, Asia, China, are so big, and you're starting from such a small base. With mult-levels you tend to get some momentum, acceleration in those situations, so I was just wondering if you could do better than that in the emerging markets basically than what your guidance was at some point?

Well, obviously it is always our goal to do as well as we can and we've seen some very fast growth particularly in the Asian markets that you are referring to, being up 31% in local currency in the first quarter with another quarter of very good performance and Rick talked about some of the markets that were really leading that, Indonesia, Korea, Malaysia, Singapore India. So it's possible, but when we look at the balance, and when you say growing from the small base, half of our business is emerging market economies, so certainly some will-- we will look to continue more than that 12% to 14%, but some not. So Fuller Mexico is our largest business and probably won't return to that kind of growth rate, we'll go for it, but probably that won't happen.

Right. Okay. Okay. Thanks very much.

And we'll take a follow-up question from Doug Lane with Jefferies & Company.

Yeah, hi, Mike. I also wanted to ask about the North America beauty businesses, and try to get my arms around each of the concepts and the challenges with BeautiControl and the challenge with Fuller in Mexico. You know, just stepping back, I would have figured the beauty businesses would have been the better performing businesses in this kind of an economic downturn, and yet really your emerging markets durables business is really driving the show here. So it is a little counter-intuitive. So I think more color on the beauty businesses would be helpful.

Sure, looking at Fuller Mexico, we were a little bit short on the sales force comparison at the back of last year. And so really, as you know, in order for us to grow over time, when you have a larger sales force, we put a big emphasis on that. In the first quarter we invested some in terms of value chain, in order to get that done, and we were happy to be over the $500,000 mark again and 2% higher going into the second quarter. The other things that we're working on in that business are to get back to a better productivity out of that sales force, and that would come through in terms of a number of units per order in terms of what we're looking to drive. And so we're aiming our promotional efforts in trying to do that. One of the ways more intermediate term that we're looking to drive the size of the sales force and its productivity is by having a lower turnover among our field sales managers who are really the people who do the recruiting 3,000-plus people, and we have seen a high turnover rate there that has been true ever since actually we really acquired that business, and before, but we do think that with training in the way that we run our programs that are there are ways we can do better on that. So we're focusing on that, and that would be more of an intermediate term kind of a project.

Looking at the BeautiControl business, under the new leadership we have there, we've looked to reemphasize the party plan, not that we weren't on the party plan before, but to talk more to it. We're -- we've had the Spa Party in place. We've also started talking to more of a quick facial kind of a party and we think that can give our sales force members more and other things to talk about. And then we're looking as Rick was also saying to recruit more on towards the earning opportunity and not too much on the product and it's always a balance there but we think that we can make a bit more hay by migrating back a little bit more towards going for the earning opportunity and bringing sellers into the business. We've seen that actually turn up in some of our KPIs. We look at things like the percentage of new sales force members who are actually ordering with the kit of products, so beyond the kit. And we've seen that percentage grow dramatically as we've worked under this new kind of format. So that's one of the upsides in the KPIs that I was referring to before.

Why do you think BeautiControl, which had been growing so nicely for many years, suddenly stopped growing?

You know, we're always operating against the external environment we find, so this goes back even a couple of years when we saw the trend line flatten out there. And I think we took a lot of the right steps to get a larger group of sales force leaders, the directors, and that was through the Mustang program, and so on, that we started after we acquired that business in 2000. I think that paid off well for us over a number of years. The spa party went in. I think we need to stick with our fundamentals on the one hand, and work a little bit on to what's going to be the next task, and I think that's what Albert Foss and the team are really focused on now. And, again, I think we're starting to see some of the KPIs moving in the right direct and we will really have to watch that closely to see if it continues to come together in the right way.

Okay. And in Mexico, Avon has talked about increasing their media advertising there. Do you think that's impacting your business?

You know, there is no denying that Avon is -- has had better results the last couple of quarters but we're focused on is the kind of go-to that we have with the sales force. We do have a weekly spot on TV that is really aimed at the sales force, and that seems to have worked well for us over time and we'll continue to do that. We've emphasized our investment, call it more grass roots with the sales force and sales force leaders, and we think that will pay off for us, it has started to pay off with the higher sales force and we'll look also to drive the productivity going forward.

Good. Okay. That makes sense. And just lastly on Germany. You know, a lot of these direct sellers are struggling in Germany. Is there something structurally inherent in that market that's working against direct sellers? Other than just economic and consumer spending and all of that, is there something legally or structurally in Germany that is working against direct sellers, or is it just really consumer spending patterns?

We think that there continues to be great opportunity for our business in Germany. We have seen over time Rick's talked about the impact of the East and West Germany coming together, and what has put in but also taken out of the economy over time. That's probably in that backdrop. A few years ago they did change some of the social laws there about how some of the unemployment insurance works, and what you can and can't do. That's probably had some impact over time on the sales force. But I think, as we look at things today, we're very optimistic on what we can do to grow our leadership levels there, the managers, what we can do to help them make more money, and how that will flow through our whole system.

So, I think that there are -- if you look at Western Europe versus some of the emerging markets, more of those kinds of things in the backdrop. But we still see things, ways to do things very well. We use, a lot of times, Australia as our model where after a number of years of not doing so well in the '90s, that business has really been re-ignited by focusing on the earning opportunity, Having, as we call it, a career earning replacement opportunity for the managers and obviously the distributors in that market which has gone extremely well, and moving the conversation a bit more away from promotional product sales and things like that. And so that's really what we are looking to do.

And just to clarify, the -- you ended the quarter with a 2% sales force advantage in Fuller Mexico and about even in Germany?

That's right.

Okay. Thank you.

You're welcome.

And we'll take our next question from Mimi Noel with Sidoti & Company.

Hi, Mike.

Hi, Mimi.

MIke, I'm not sure you elaborated in the call so far in the comments made in the press release about savings from procurement as well as the back end of the business, if you don't mind, could you elaborate on those?

Sure, what we look at on the procurement side and it was one of the things driving the margin in the first quarter, is there are a lot of pressures out there on other companies that are suppliers and we really look to make sure that we're getting the best price. How do we do that? Over the last couple of years, we've done some reverse options that have paid off very well for us. On some of the things that go into gross margin and also on some things like shipping cost that would be in DS & A. So that has helped us. We look to really make sure we're refining our approach in the right way so that we're still driving the front end of the business but so that we're getting the right mix of sales and the right mix thing for our spending on our promotional program so that could come through in kind of the realized pricing and so on, and so that's also in there. When we look at the big improvements on a segment by segment basis and profit in the first quarter in local currency, a lot of it came in Beauty Other.

Rick talked about how we had combined the businesses in Brazil, and I think we did that very efficiently so that we're able to really work to capitalize on our Beauty brands through our "Tupperware" sales force, that is just starting. We're just starting to do that. But we also were able to kind of bring that together without keeping hardly any of the costs that we had incurred back in last year. We're also in that segment running our Venezuelan business, I would say even more completely in kind of local currency, so last year we were still buying some things outside of the country, or more things outside of the country than we are now and that was costing a lot because you had to pay with this very devalued Venezuelan currency.

Got you, Okay

So we are able to avoid some of that now. So that's really what we've been doing so far.

Okay, that's helpful. Thank you. That's all I have.

Thank you.

And we have no more questions in the queue, so I'd like to turn it back to our presenter for any additional or closing remarks.

Okay. Thank you, again, we certainly appreciate your time today. We're pleased that we were able to hold our own in a very difficult quarter with coming in with positive local currency sales growth. And also pleased with what we've been able to accomplish with our value chain and so we'll continue to work that, try to continue to show improvements versus last year in our cash flow and look forward to talking to you all going forward. Thank you.

This concludes today's conference. We thank you for your participation and have a great day.