Tupperware Brands Corp (TUP) 2009 Q2 法說會逐字稿

Good day, everyone. Welcome to the Tupperware Brands Corporation second quarter 2009 earnings conference call. Today's conference 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, Lisa. Good morning, everyone. I am here in New York City with Mike Poteshman, our CFO, Teresa Burchfield, our VP of Investor Relations, and our other team are joining us, but they are in our Orlando headquarters. As always, you know the drill on this.

There are going to be some comments regarding forward-looking statements, so I refer you to the Company's position on this, and our filings, and in yesterday's release. You have already seen the results for the second quarter. I am not going to read it over to you.

Mike and I will do our best to use this time wisely to amplify some comments. We will also speak to our raised full year guidance, and actually also too, we will try to dig into third quarter expectations.

The 4% local currency sales increase, which was at the high end of our range, and really shows nice improvement over the first quarter, and for those of you when we talked in the past the first quarter, we've said we really saw two patterns in the first quarter. We saw January, and then the rest of the first quarter. I am pleased to say we saw that same pattern continue into the second quarter, of what we saw in the latter part of the first quarter.

We ended the quarter nicely. This included a 10% increase in our emerging markets, so they have strengthened some, and just a modest 1% decrease in our established markets. Our emerging markets really do continue to perform well, and I have got to say we are pleased with our established markets as well. They were slightly below last year, but we really did see strengthening as we went through the quarter.

Importantly, given what we have seen in the second quarter, we are even more optimistic going forward, that we have got the business model, and the ability to navigate through these challenging times, and still grow the Company. So net/net 2009 won't be the barnburner we saw in 2008, but it is still going to be a good year for Tupperware Brands.

I continue to be confident, along with my management team, and our 3 to 5% local currency top line. And frankly, our expectation is also to return to the 6 to 8% top line growth, once some of these macroeconomic headwinds subside, or at least come down a bit.

What gives me confidence in this is our ability to continue to grow First is the dynamics of our business model. We have spent a lot of time over the last 20 years trying to strengthen this business model, and secondly, the strength of our global management team, and importantly, their expertise in direct selling.

I can tell you we have intensively this past five years done more than 50 leadership retreats. These are three day events all over the world, where we really have taken management, I have been at every single one of them, and lead them. We help management to better understand how to maximize the potential of their business and their markets, and also to discover what are the levers. And theyre not all the same levers in each of our markets. What are the levers they have at their disposal that will overcome potential challenges? So if they see a potential challenge in one of their key business metrics, our goal is they know what lever to pull to improve it.

For example, recruiting generally isn't a big problem when you have higher unemployment, you have got the counter-cyclical nature. But maybe just getting a strong gating or party line, as we call it, in light of consumer spending, maybe that is the issue. Well, we have visibility in many of our major markets on the line-up of parties booked and scheduled, as many as three weeks out.

And if those numbers in week 2 or 3 aren't what we need in order to hit the sales targets we are looking for, management in that country can react fairly quickly, and generally within a week put plans in place to increase the party bookings. This is usually a redirection of promotional actions that are already in their normal operating budget, but we simply redirect them where we think the issue is.

Now let me drill down in some of our markets. I am going to cluster them first, our established markets around the world, and as I commented earlier, our established markets in total were just slightly down from last year. We saw improvement in quite a number of these markets, compared to not only last year, but also their first quarter performance.

So I will begin with Europe, we saw high-single digit to low-double digit growth in a number of our established markets, including France -- where,, by the way we have been 45 years there -- Austria, Italy, and Spain. France I am happy to say was up 10% in the second quarter, with a double-digit increase in the total sales force as well.

Just interesting of note, and I've talked to some of you when I have been in New York earlier this week, and talked to some this afternoon when people ask me, 'How do you do it in France?' Well one thing we learned through regression analysis, and being in that market 45 years, is it was never in the high density metropolitan markets -- Paris, Lyon, Bordeaux, Marseilles, and Nice.

There you had a high density of working women. It wasn't the classic stay at home mom, and more single women. Well, as our team there became more effective at redirecting the product line to a working woman, so it wasn't so much baking. It was she generally just assembles food, and she entertains. And we shifted from a daytime or weekend party to a girls' night out, you start to get traction, and so it opens white space for us.

So it is really positive to see it. And then also, it has helped us to understand that we can create templates, and plug them in in one market, in an established market. And then we can adapt and adopt it to other markets.

Germany was down 12% in local currency in the first quarter. It was only 6% in the second quarter. Total sales force was lower at the end of the second quarter versus where we were in March as well. And let me explain, because we have got an aberration going on there.

In 2008 in April I did a 10-city, basically speaking tour over a five-day period, geared toward recruiting. In my junior days with Avon, I ran the German business over there, so I speak fairly decent German. But anyway, this was an extremely successful campaign and the good news is we recruited over 8,000 demonstrators in a matter of a week.

However, the not-so-good news is our infrastructure really wasn't prepared to effectively train and convert this incredible level of recruits into active sellers. So while the sales force size increased during the second quarter last year, many of the new recruits just weren't productive. And we learned from that, and so it is now in our playbook.

We are still driving recruiting in Germany, however, in a manner now that provides even better training and productivity.

By the way, looking to Germany in the future, I had dinner last night with the German Ambassador to the US at his residence. We are both a member of an educational fellowship, and Dr. Scharioth and I had some personal conversations, with regard to what we think is ahead for the macroeconomic environment in Germany. And I am pleased and have got even more confidence as a result of that conversation.

Consumer spending in Germany, and this is where it doesn't get reported here very much, is basically consumption is pretty flat year-to-date in Germany. And one of the reasons for that, and I know it has been reported here, that there is a big gap between Obama's plan and the Germans, but what you see is the Germans have already got in place a plan they call 'short work' and that is with this compression on disposable income, they don't want consumption to go down.

So what they have done is as they have had higher unemployment, they have gone to the market and companies that need to lay off people, rather than put them into the unemployment lines, the government is subsidizing a program called 'short work' which basically you can go to half time in the company you work for, and still be paid 75% of your total income. It costs them annually between 6 billion and 8 billion to do this, and it was launched about six months ago, but they have got 18 more months on this.

So what it does is when you've got an economic trough, it keeps consumers spending, so you really don't have a doom loop there. So I had increased confidence there that they are doing the right kinds of things.

At any rate, let me turn to the established markets of Asia Pacific. There, we achieved a mid-single digit growth in our Tupperware Japan business. By the way, that is the first time in a very long time. However it was offset by a mid-single digit increase in our still very strong Tupperware Australia business. That is a very profitable business for us there.

In the first quarter, Australia was up slightly, and the key fundamentals are very strong. And the shortfall in the second quarter came mainly from lower recruiting, so we are focused on incentives to drive that team. And they have got a terrific management team in place, so we have confidence we'll see improvement there.

In North America, our Tupperware US business was up mid-single digit. And the growth primarily came from an increased level of productivity, which is good, and it says that our programs in a very difficult consumer environment are strong. It also says that our sales force is earning more money, and that is what helps get momentum going for the future.

Our BeautiControl business, as you noticed, struggled in the quarter. Sales were down, and I have spoken to the changes we put in place in that market. We put in one of our best managing directors in that market at the beginning of the year, and we put in a very strong head of sales in the second quarter. And I am still confident that we are going to see improvement in this business the second half of the year versus the first half of the year, because they are doing all of the right kinds of things.

Let me say if I kind of do a regression analysis for BeautiControl, it is going to take a little bit of time to move this business away, from two years of an overemphasis on a discounted entry kit, not enough focus on training, and allowing the base of sellers to become more hobbyists, so we are working on the right kinds of things there. Now we look at our global emerging markets the same way we looked at our established.

I mentioned we were up 10% in the quarter in local currency. In Europe, the emerging markets were up 6%, which is a lower growth rate than we have seen in the past quarters, and I must tell you the biggest delta there was in Russia, which was up in the second quarter, but only low single-digit, compared with very strong double-digit growth over the last five or six years.

Now we mentioned during the earnings release call in April, that we were seeing some challenges in consumer spending, but recruiting and activity has remained strong. It was productivity that had just gone south for a short period of time, and it was really a reflection of the consumer spending environment.

The good news is as we saw the trends dramatically improve toward the end of the quarter, we had a barnburner June in Russia. As a matter of fact I will be meeting 150 Russians, who -- from an incentive trip, our distributor organization here in New York City tomorrow. So we expect our ability to hold our own in Russia, get back on the growth, albeit not at the same level we have seen in the past. We are adding distributors and sales force at a good clip.

So again until the headwinds subside, I still think we are right when we're talking about high-single digit to low double-digit growth in our emerging markets.

Our Tupperware South Africa business continues to perform exceptionally well. Matter of fact, again, we have been there 30 years. We had a record quarter, and it is a strong business, and a big business for us. We were up 40% in the second quarter, largely driven by strong sales force size advantage, also terrific product offerings and strong incentives.

In Asia Pacific, our emerging markets were up 32% in local currency in the second quarter, and there we saw strong double-digit increase in most of our markets, including Malaysia and Korea, where we were up over 30%. And I have got to say in Indonesia, now, where we have been 17 years, and are the dominant direct seller, so it isn't off of a small base, for the second quarter in a row, we were up over 100% in Indonesia. So obviously they haven't read that there is an economic crisis going on in the world.

China, however, was down. However, we saw a strengthening trend versus the first quarter. We think they have taken the right kind of actions. There the major issue was consumer confidence. The Ambassador and I were talking about it last night. It was interesting. In the US, and in France and Germany, the spending on to really the stimulus is in the 5 to 6% level. In China, the government is spending north of 8% on stimulus, so I would expect that we are going to see some improvement there.

Turning to Tupperware Mexico, our business was up double digit, despite all of the macro issues, the narco wars, and the danger of even going outside, the high unemployment in the Maquiladoras area, and even swine flu. We continue to leverage our larger sales force with our Tupperware Mexico business, and drive activity.

In our Beauty segment there, Fuller which is a big business for us, was down but it was down low-single digit in the second quarter. This was a marked improvement from the first quarter.

I have got to say, we closed the quarter there with a smaller sales force deficit, but I am pleased to also report, we are three weeks into this third quarter. And in that time, we have closed the gap, so now the sales force is flat to last year. So these early campaigns in Q3 have been good, and retention also is strengthening.

I want to mention here because this gets down to when I have individual meetings, some of you ask, okay, levers, what are the levers you guys have at your disposal? I just want to give you a kind of a business school case history.

What did our guys do in Mexico during the swine flu? Because wow, what a terrific job. When the government told our businesses there, they told basically consumers and the entire population, don't go to work, stay home, take care of your children, don't congregate.

Our local management found a way to continue to do business. Our sales force has to earn money. You can't just say 'stay home'.

So our sales force, or our management teams there acquired facial masks from China within seven days for the entire 550,000 sales force, and they produced, we produced it ourselves, a Purell-type sanitizing hand cleaner, and sent it to every member of this 550,000 sales force. And again, we are in the cosmetics business, we know how to do package and filling. And by the way, when we launched this product, if -- get it in full disclosure, we launched this product three years ago and could hardly give it away, but times have changed.

So we had the formulas. And because this kind of a product is mostly water and alcohol, it is high margins.

We also packaged enough, so that our sales force was able to begin using this product as a sales tool to their consumers, which carried the opportunity to meet one on one with consumers. So initially we were looking at we could have a double-digit decline as many companies have in Mexico. Because of the swine flu, they turned it into -- this is the classic, turn lemons into lemonade.

So it is working well, and I use the example in Germany our guys shifted to a leftovers parties, when there was compression on disposable income. So these levers, it is incumbent upon our management team, not to report the weather, but to do everything possible to change.

There are some rumors and there is some thought in knowledgeable circles, that we will see a resurgence of swine flu in the fall. But I am confident that our management teams around the world, because of the plans we have in place, that we will be able to mitigate most of the impact of this.

And finally, in Beauty Other, our emerging markets we saw a strong performance from quite a few of those units. Tupperware Brazil and Venezuela continue to grow in local currency over 30%. I will say that, in Venezuela, that was driven mostly by pricing. It really, this is the most of the Chavez policy and the other issue we had in Venezuela is getting our money out there, but we have a dynamic business. Most of the growth, though, in Brazil really came from operations.

Overall, enough about emerging markets, but let me do say, we have solid momentum, and it is early days for us in almost all of our emerging markets. And it is really driven in these emerging markets, our business model, by the power of the earning opportunity for women, and there is not a lot available to her, and secondly, generally you have a less well developed retail infrastructure so direct sales is really a favored channel of distribution.

So let me put her all together. If I was looking at the entire portfolio of established and emerging markets, some of our businesses were up, yes. Some of them were down. By the way it has been rare that you ever see them all up, but this is a company that we get rid of some of these headwinds, that we can grow 6 to 8%, and we don't have to hit on 12 cylinders. All we need is about eight on that, because you are always going to have puts and calls out there.

We manage this global portfolio this way, to cushion and to really offset the puts and calls, and to mitigate the negative impact that sometimes happen in individual markets. And what this really provides us is more consistent growth and more positive financial returns. It also means from a public company standpoint that we are in a better position to look forward, and to give you guys dependable guidance, and we are committed to guidance.

One thing before I turn it over to Mike. I would like to let you know that Teresa Burchfield, who has been our VP of Investor Relations, is being promoted to a senior global financial role, and I want to thank her for everything she has done. She will be moving into that position the beginning of January, and she is going to be succeeded by Nicki Decker, who has been with us for some time.

Nicki has been in our not only finance but also strategy and development department, and she has got a lot of experience with us. So anyway, Theresa will be your contact until the end of August, and after that time, it will be Nicki.

At any rate, Michael, let me turn it over to you, and after Mike's comments we will open it to any questions you all might have.

Thank you, Rick. First comparing our second quarter results with our forecast from April, on the sales side, we were at the high end of our range in local currency with a 4% increase, Based on the FX rates at the time of the April forecast, it would have been a negative 16% impact from rates on the comparison, while the actual came in at a negative 14% impact. So on a reported basis, sales were down 10% for the quarter.

Second, our earnings per share significantly exceeded our guidance excluding items coming in at $0.86. The $0.24 upside to the forecast of $0.62 was due primarily to better than expected sales in our Tupperware North America and Beauty Other segments, and better returns on sales in those segments, and also in Europe. $0.02 of the $0.24 upside came from better FX rates.

The return on sales improvements reflected a better sales mix toward regularly priced items, and more efficient promotional spending that still allowed us to motivate our sales organization and consumers.

Looking at the EPS comparison with last year, we were up 56% in local currency and excluding items. In addition to the contribution from our higher local currency sales, we had return on sales improvements across the board increasing at the segment level overall by about 400 basis points in constant currency to 16.6%.

This improvement reflected the same types of elements that allowed us to beat our forecast, although even more so with some of the better results were built into our outlook, along with selective price increases and the benefit of lower resin and other product costs. It is worthwhile to reemphasize that even with the $0.20 drag on the comparison with last year from worse foreign exchange rates, we still beat by 15% last year's $0.75 per share excluding items.

We also had a stellar quarter in terms of our balance sheet and cash flow. Looking at cash from operating activities net of investing activities, we generated $105 million in cash in the quarter, bringing the year-to-date total to $74 million. This compares to an outflow for the first six months of last year of $9 million.

The main contributors to the $80 million plus year-over-year improvement in the first half, came most significantly from inventory reductions, and fair value and net equity hedges. Both captions were significant outflows in the first half of 2008, but inflows in 2009.

As a result of our strong cash flow, we paid down $20 million of debt under our credit agreement in the first half, and still ended the quarter with $158 million of cash, or $33 million more than the end of 2008. Of the $158 million cash balance, we estimate that $50 million to $60 million was available to pay down debt. We expect to make significant debt payments in the second half, even beyond the $50 million to $60 million available at the end of the second quarter.

Our full year forecast in April for cash flow from operating activity net of investing activities was $120 million to $130 million. And in light of our improved earnings forecast and favorable balance sheet management, we are raising that outlook today by $35 million to $155 million to $165 million.

Included in this outlook is capital spending for 2009 of about $40 million, versus $40 million to $45 million in our April update.

Our cushion under our debt covenants at the end of the second quarter, and as we look forward, has also improved. We closed the quarter with over $65 million of EBITDA cushion under our fixed charge coverage ratio, and based on our new forecast, we foresee having cushion remain well over $50 million for the remainder of the year. Our forecast in April was that we would have more than $30 million of room as of December 2009. So it has been quite an improvement.

Our debt to EBITDA ratio improved from 2.03 at the end of the first quarter to 1.86, below our year-end 2008 position of 1.92. And again our current ratio does not reflect the paydown of debt that could have been done with the $50 million to $60 million of cash that was available at the end of June. $50 million of debt paydown would have reduced the ratio to 1.69 times.

As a reminder our Website includes details of our covenant calculations as of and for the four quarters ended June 2009.

Turning now to our outlook and firsts for the third quarter, we foresee a local currency sales increase of 4 to 6%, which along with the negative impact from currency fluctuations of 10%, brings the reported range to down 4 to 6%. Our outlook for diluted earnings per share is $0.29 to $0.34 on a GAAP basis. This includes $0.04 of expense from items impacting comparability, such that our EPS range excluding items is $0.33 to $0.38. This is versus $0.44 earned in the third quarter of 2008 on a GAAP basis, and $0.47 excluding items.

The comparison reflects a negative $0.13 impact from foreign exchange. So in other words, we expect our diluted EPS to be in a range from $0.04 higher to $0.01 lower than last year, excluding items and constant currency.

At the high end of this forecast, this assumes a profit from the segments will rise by a low teen percentage, while the tax rate is expected to be in the 22% range, compared with last year's 15.7%. The higher tax rate is a cost to us of about $0.03.

Looking at the full year for sales, we are looking for local currency growth of 3 to 5%, which is the same as our previous guidance on the high end, and 1 point better on the low end. Based on current exchange rates, there would be a 10% negative impact on the year-over-year comparison, bringing the reported guidance range in dollars to a 5 to 7% decrease, and improvement from the April full year guidance range of down 8 to 10%.

The local currency increase continues to include high-single digit to low double-digit growth in our emerging market businesses, versus the high-single digit guidance we gave in April. And our established market businesses is down slightly compared with 2008.

On a segment by segment basis we foresee low-single digit local currency increases in Europe, high-single to low-double digit increases in Asia Pacific and Beauty Other, a small increase in Tupperware North America, and a small decrease by Beauty North America. None of these outlooks are significantly different from where we stood in April. We expect profits from the segments to rise by a low-teen percentage, with small ROS improvements versus last year in the Tupperware segments and Beauty North America, and an ROS in the mid-single digits by Beauty Other, versus just 1% last year.

These ROS outlooks are better than we presented in April for all segments except Beauty Other, which is marginally lower. The forecast for Beauty Other includes an assumption that we will convert in the second half a significant amount of Venezuelan Boulevards at the parallel exchange rate available there, at a cost of $12 million.

This exchange rate is roughly two-thirds worse than the official exchange rate, at which the financial statements are translated under GAAP. Using this official exchange rate in the second quarter of 2009, versus the parallel rate, gave us a benefit of about $0.04.

We closed the second quarter with $25 million of cash in Venezuela at the official rate, and currently expect to be able to translate only a portion at that rate, for dividends and other amounts payable in other currencies. As a reminder, based on the fact 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% that all currencies move in the same direction against the US dollar, the impact on our earnings per share is about $0.035.

In line with our April outlook, we expect unallocated corporate expenses to be about $50 million in 2009, and net interest expense of close to $30 million. Putting this all together would indicate a 2009 pre-tax profit return on sales excluding items of just over 10%. This is up from 2008's 9.6%, but more significantly, we consider that the weaker foreign exchange rates are hurting our pre-tax return on sales by about 1 percentage point versus last year.

Our full year GAAP tax rate was 20% in 2008, and our rate excluding items was about 18%. Our expectation for 2009 is for our GAAP rate to be about 25%, and for our rate excluding items to be about 22%. There is no change versus our previous guidance on the rate excluding items. All in then, our full year outlook for EPS is to be in the range of $2.25 to $2.30 on a GAAP basis, and $2.59 to $2.64 excluding items. Versus our April full year guidance, this represents a $0.38 improvement on the high end of the range, and $0.43 on the low end, as we have gone with a $0.05 range, versus $0.10 previously.

The $0.38 improvement at the high end primarily reflects the $0.22 local currency upside versus the second quarter forecast flowing through to the full year, and $0.15 from better foreign exchange rates. It also reflects versus the April guidance the assumption of better second half profit from all of the segments, mostly offset by higher assumed costs to convert Venezuelan Boulevards.

In 2008 GAAP EPS was $2.55, and EPS excluding items was $2.68. Based on current exchange rates there would be a $0.44 negative impact on a year-over-year comparison, meaning excluding items and in constant currency, our full year outlook is for EPS growth of 16 to 18%, up from 3 to 8% in our April guidance.

A few words on a couple of our unusual items. On the positive side we recorded in the second quarter $10.1 million in pretax gains, mainly from insurance recoveries related to our 2007 Hemingway, South Carolina warehouse fire. We expect to collect an additional $10 million in recoveries by the end of the year, as we finalize the claim. And the $10 million has been added to our full year GAAP outlook.

In the second quarter, we recorded $28 million pre-tax and purchased accounting goodwill and intangible asset impairment charges. This relates primarily to the Nutrimetics businesses that we acquired from Sara Lee in 2005 and is, of course, non-cash. While these businesses as a group grew sales and profit in the second quarter of 2009 versus 2008, and we continue to believe our strategies are the right ones, the results we have achieved in our future outlook is for lower growth, than assumed in our 2008 valuation of the assets, and that is what has led to the charges.

We continue to believe the 2005 acquisition of the Sara Lee direct selling businesses was a good one for Tupperware brand, that it is paying off and that the results of the businesses acquired will improve as we move forward with the execution of our strategy.

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

Thank you, Michael. Lisa?

Thank you. (Operator Instructions). We will pause for a moment. Our first question comes from Doug Lane with Jefferies & Company. Please go ahead.

Yes, hi, good morning, everybody.

Good morning, Doug.

Mike, staying on the cash commentary, I know that you had indicated, Rick, that the policy these days is to horde cash given the credit crisis. But with the credit crisis apparently easing, and your cash situation improving so much, what do you foresee for 2010, as far as use of free cash flow?

Let me comment first on that, Doug. The world changed, I think, in the third quarter of this last year. I think we all know that. Question is how much a change in this is permanent.

I will tell you one thing that has changed with us is, we have always established here when we took the Company, spun it off, from [Premark], a target debt to total cap of 40 to 45%. We may rethink that. You will see that we are going to aggressively be paying down debt.

I have on a piece of paper in front of me, remember the old Ghostbusters thing with a slash through it? It says 'covenants' and it has a slash through it, because you lose flexibility in a business model out there, so we are going to be rethinking that.

Clearly, we want to return a lot of this cash to shareholders going forward and there you have the usual suspects which is continue, we have a strong committment to our dividend. Do we -- ? We will be rethinking raising that dividend.

And then you talk about share repurchase, our attitude more toward share repurchase is more to really to neutralize the impact of dilution. So I don't see that as a major strategy. It is really hard to see the cases out there, where share repurchase is a terrific strategy out there. And it flies in the face with many of our big holders of, that we are better at picking stocks than they are. So we are going to be thinking about that, and I have those kinds of discussions when I am out talking to our big holders.

The one thing I think that is unlikely, there are no major acquisition candidates that make sense for us, so I don't think that is going to be the use of it. So I am looking to keep compressing our need for cash. We are working hard to get our inventories where we want them to be, to move toward a Nike model with regard to our distribution facilities out there, and our manufacturing facilities so we don't have to spend as much money keeping these 17 factories up. So a lot of pressure there to get this cash flow to

Okay. Thank you, that is very helpful. Just one last question. Can you give us some more color on the DSA as a percent of sales, where it was up 130 basis points year-over-year in the first quarter, and it was down nearly 200 basis points in the second quarter. What are the big deltas going on within that line item?

Yes, Doug, I think or I know the things that did a lot to improve the DSA percentage in the second quarter were more efficient promotional spending. Rick talked about one of the things that we did in Europe last year, with the speaking tour and the great impact that had on recruiting, but we didn't run it the same way this year.

Another element that is coming through the numbers is we stopped running the Fuller Brazil business late last year. And so that was a relatively high cost business versus sales, and so that is coming through the numbers.

And let me comment on that one. That was an important -- we didn't launch that Brazil Beauty business. Sara Lee had launched that, and we didn't immediately just want to go in and close it. We said, let's give it a little time to look at it, but when you saw that we had this premier brand name in Tupperware, and wonderful momentum on our side -- and we didn't have that in the Fuller business, and yet we were going against - the gorilla story, [Theresa] -- two 800-pound gorillas in Avon and Natura. We said it doesn't make any sense.

Our wedge into that market into beauty was to use Tupperware. So it was a very strategic move to do it, and we liked the traction we are getting on it, and it saved us $10 million.

Exactly, and then we've also had some lower freight out kinds of costs in distribution, and when we looked at it going back to the promotions, we were able to get better local currency sales growth in the second quarter. So that provided some leverage on those promotional costs, and also told us in some cases again, that we didn't need to invest as much, but still be able to get good momentum with our sales forces and consumers.

Okay, thank you.

(Operator Instructions). Our next question comes from Gregg Hillman with First Wilshire Securities Management.

Yes, good morning. Just a couple of questions. First of all, could you talk about the currency hedging over the last 10 years, whether it has been cost-effective?

Sure, Gregg. Our strategy as it relates to currency hedging is to, one, to hedge the exposures that we have to our income statement, because we have non-local currency payables and receivables that would throw off exposures.

We have also done some net equity hedging, and that has really been to balance out the cash impact of the other hedges we have. So we try to stay fairly neutral there.

And then finally, if there are cases where we are going to buy something in another currency but it hasn't happened yet, so it is not a direct [panel] of focus, sometimes we hedge those cross-country purchases out a ways, so we really at this stage don't look to take a position on the hedging. We did have a big outflow in 2008, which reflected some larger net equity hedges in 2007.

Okay. And then also, Rick, could you talk about new products a little bit, in some of the various markets, what are some of the hot products? You mentioned water filters in the past, but could you just talk about some of the new products that are accounting for the large percentage of sales that you have alluded to in the past?

Yes. What I can't tell you is the products that are going to be launched. Our sales management and our various businesses would kill me if I did it, but I certainly like what I see.

First let me give you -- the attitude of the Company is, and this is where we go in when we are -- my earlier comment about our ability to forecast going forward, and what are the key levers, one of the things we know is we have got to continue to differentiate.

We have 2.3 million sellers out there, and so to go to products that they, we have got to be first out or fast followers if there is a new technology, because we can define the features and benefits out there. So how we -- to put a quantification to that is, in every market there must be 25% of sales in any given year, come from products introduced in the last two years.

And Simon, while he is COO, he is really also Chief Product guru of the Company, because that is really his background, marketing and merchandising. So what we have tried to do is find the white space, Gregg, in each of our markets out there, and then adapt and adopt programs to it.

For example, in Germany right now, what is really hot is this, the word for 'leftover', the cultural word is 'rumfort', they use a product called our Quick Chef, which is basically a manual food processor, really easy to use, easy to clean. And we can show her how to take the 25 to 30% of food she throws away, and utilize it, and therefore pay for the entire rumfort party. And how she will direct those kinds of things, show her how to make omelettes in the morning, or different kind of casseroles in the evening, but using that kind of a product. So it is very, very product-specific.

I will tell you, we have moved in Europe a very interesting new kind of a ricemaker, that we are using there. We are launching in France a cooking system that really is a steaming system in a microwave oven. All very, very different kinds of products, but -- so I would have to take you through the list of different markets of the world.

I will tell you this from an efficiency standpoint, 75% of the products around the world are the same. And what we do is we adapt and adopt. We are trying to get out at least 18 months with our product planning program, and of particular interest to us -- you might want to go online and check this out -- but the #1 European award for design is given in Essen, Germany, which is really, the center of the world would be Germany but it is called the Red Dot Award. And they always pick a company of the year, there is a huge banquet, blah blah blah.

We were picked this month as the Company of the Year for all of Europe in Design. Last year, I believe, I may get the years the different companies were, but the winners the last couple of years, have included LG, they have included Bose, and they have included BMW, so it is a huge deal.

And just one final side bar comment, because there is a friend of mine, Richard D'Aveni, who teaches Marketing at Tufts at Dartmouth, has a new book that hasn't even come out yet, but I have read the galleys of it. It is called 'The Commodity Trap.'

Important, most important in our product is, I say they always say about real estate, there are three things that matter -- location, location, location. And in our business, it is differentiate, differentiate, differentiate -- whether it is an ice cream scoop, or a steamer, kitchen tools and gadgets -- it is very important that we do that. And we will try to do a better job in the future of sharing with how we are doing that. But good question, Gregg.

Okay, and just to get an idea of just the products, just let's pick three big countries like Russia, Turkey, and Indonesia. What is the largest selling product in each of those countries?

I don't know in each one, but Teresa, please get that, but I would be happy to. You have to understand with more than 100 countries, that isn't what I want to focus on for each market, but the important thing is that we have somebody who does know.

Okay.

One more question, Gregg, and then we will turn it to the next.

Finally just in terms of acquisition, would you do -- at what point would you be ready to do another acquisition?

It is not a question of -- clearly there is this piece about debt to total cap, and the ability, there isn't much out there. We would not acquire a -- most of the direct selling industry has become really not direct selling, but multi-level marketing companies, these network marketing, be it Amway, NuSkin, Herbalife. That isn't our business model.

85% of the sales of these companies generally are wholesale purchases by distributors. They are very episodic. And we don't think they make a particularly good business model, with regard to a public company, because it is not a dependable forecast going forward. You can have a meltdown in a market, and it would go down 30% in a quarter.

That never happens to us. We may miss it by 3 to 5%, but never that. So it is the wrong structure for us. So once you peel away most of those multi-level marketing companies, there is not much out there.

Okay, thank you.

Thank you.

Our next question comes from Mimi Noel with Sidoti & Company. Please go ahead.

Good morning.

Good morning. Just I first wanted to congratulate Teresa on the promotion. And then I wanted to ask Mike about third quarter guidance first.

Is there something I am overlooking that creates a difficult year-over-year comparison for the September quarter, than there was in the June quarter?

There are a couple of things, Mimi. I mentioned the Venezuelan Boulevard conversion, and we didn't do that in the second quarter in that way, and I also mentioned the tax rate being from 16% or so to 22%. That is about $0.03.

So if you put those two together, it is quite a percentage impact, yes.

I understand, okay. And then if you could elaborate a little bit more on the favorable mix shift in the June quarter, you were selling more full priced products. That is somewhat counterintuitive given the macro environment that we are in.

Can you elaborate on that?

Yes, first, Mimi, we -- back on my comment about our products and differentiation, I think where brands like us make a mistake is when they get into the deep discounting business. And we know that the famous cosmetics direct seller, where I used to be, they have been trying to get away from something more than 80% of their products sold at specials, because then, it becomes what is new and what is discounted and that is not the way to do with features and benefits.

I never will forget, I walked into an Hermes store in Copenhagen. We were doing a retreat there, and there was a line going in the front door, and I walked in and said 'What is going on, is there a sale here?' And the manager said, very proudly, 'Sir, we would rather burn it than put it on sale.'

We generally shy away from discounting of our products. That is not to say promotionally from time to time it will happen, but it is not the first thing we do.

We would rather use a focus on a party, where you can show features and benefits, and use other promotional levers, like you would see if you went to an upscale beauty counter, where Lauder would give you a Purchase with Purchase, or a Gift with Purchase, and then you haven't deteriorated the brand there so --.

And this is one of the things that Simon and I have been working very much with the management team, and we sit there and look at, okay, what percentage of your business or products that you've discounted, and we look for what percentage of your business is actually a group selling situation, because we know that is important.

Okay. And the other thing I wanted to ask about, and perhaps I am getting ahead of myself a little bit. But as the economy improves, do you think it is unavoidable that you are going to see turnover accelerate, or do you find ways to motivate and retain those sellers that joined the organization when times are more challenging?

That is a very important question. Firstly, yes, there is a piece of our business, the question you didn't ask was, is it counter-cyclical with higher unemployment, and we recruit more people. And people would sometimes ask us, well, then do you like that kind of environment? No. We don't like that kind of environment. We do better when there is higher disposable income when there is lower unemployment.

Yes, we have to spend more on recruiting then. But the average party is stronger at that time, so I want to see it strengthen in markets out there.

I will tell you one of the reasons we're -- you don't do great during these kind of economic times, but I still believe we can do good to very good, is that we have those levers to mitigate some of the impact, but --. So we grow the sales force, let's say we grow it 6 to 8%. The negative is, you probably only get a 3 to 5% sales growth out of it, because of the pressure on disposable income. So I am hoping they strengthen.

I have got to tell you one collateral that is collateral damage, the collateral benefit of this negative economic times, we are recruiting in our businesses younger and better educated women, women who generally wouldn't look at this, but she is out now. And she said I have got to get some cash flow. She can start as a hobbyist, and then all of a sudden she finds out, wow, I have started to build a sales organization, and I mean that is why we talk around our BeautiControl business.

We can show her in two years how to become a director, and our directors, our top ones make $7,000 to $10,000 a month. So all of a sudden, this isn't pin money anymore, and then she gets more deeply involved.

So I want to make sure that we take advantage of it, and just not bring in numbers. There are some direct sellers out there right now, throwing the kitchen sink at external -- what we call outside in recruiting programs. 1-800 numbers, this and that. You talk about the cream of the crop, you get the cream of the crap from that. You all of a sudden downgrade your sales organization.

So we are looking for quantity, but I want to develop quality out of it. And so any time we are looking at our market and saying, hey, your recruiting is up, how did you get them? Was the kit the same? Did you train them the same? Because we don't want it to be a temporary spike in the business.

How long does it take usually for a new associate to get up and running, and start bringing in an extra couple hundred dollars a month?

Well, she can do that. I mean on our Quick Start programs out there, she can have the second week, she can have that happen to her. I will give you an idea.

It depends on the market. Our biggest party market of the world is, and we have been there almost 50 years, is Belgium. The average party in US dollars is $800. If she makes 30 to 35% off that party, it takes 90 minutes actually to be at a party, and she does two of those per week, you start to see wow, this is pretty serious money.

Australia, the average is 750, Mike, what is it probably 400 throughout most of Europe?

Yes.

US is somewhere around there too, so that is why we want to get them focused on, do the party, do -- we call it a group presentation selling, GPS. Make sure you do that.

And that is why counter to multi-level marketing companies, where people are just -- buy their product that they usually use, and they get their other friends to buy the products, the multiplier is such a small number out there that it is really hard to make serious money, which is why one of the biggest multi-level marketing companies in the UK, the government has been trying to shut them down, because they figure their average annual earnings of their participants was $15.

Okay. Thanks for all those questions, and especially on the extra clarification on the last one, Rick. Thank you.

Thank you, Mimi.

(Operator Instructions). There are no further questions. I would like to turn the conference back over to Mr. Goings for any additional or closing remarks.

Having only a few questions is either usually good or bad, it just is. Anyway, we appreciate the time you have taken. I think the time we have spent here, really putting this business model and working on it, I will not say that we are ever in a mode that, by George, I think we have got it, but I think we have largely finished with the heavy lifting on contemporizing our core.

Our second big piece of the business of emerging markets. We have got the beachheads there. Watch us attack in Latin America. We have got a meeting there in Latin America. I will be there in two weeks, and our goal in Latin America, I don't know whether we will reach it or not, but they want to double the business that we are doing in Latin America, because of the power of our brands down there. And we think competition down there is vulnerable, and now we have critical scale.

So emerging markets are very, very important to us, and we are doing that very well.

And do you know what? Even with the growth in our earnings here, we still haven't seen these Beauty Other businesses kick in, so we were talking the big step issue for us going forward there is, when you can see us get this BeautiControl business to start doing 15% ROS it ought to do, to get the Argentine business up to that kind of a level, to get a presence in Columbia and Chile, to get the Nutrimetics businesses, which this is for the first time since the acquisition, getting to that kind of an ROS, all those Nutrimetics business. And by the way we saw it for the first time, and we saw it in Australia and New Zealand, and we saw it in France in our Nutrimetics business, early days there.

And finally, our US Tupperware business, we got the top line moving, so if we can get that up to a 15% ROS, then I think you are going to see us be able to move this 9 or 10% operating margin pre-tax. I think you will see opportunity for us to move it into the low teens, so I like what I am seeing out there.

Anyway, thanks for your support, and we will do our best to give you the right kind of guidance going forward.

That concludes today's teleconference. Thank you for your participation.