Tupperware Brands Corp (TUP) 2009 Q3 法說會逐字稿

Good day and welcome to the Tupperware Brands Corporation third quarter 2009 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr Rick Goings.

Good morning, everyone. I'm here with Mike Poteshman, our CFO. Nick Poucher, our VP and Controller, and Nicole Decker, our VP of Investor Relations. You know the drill on forward-looking comments, so I refer you to the Company's position on forward-looking statements in our filings and also in yesterday's release. You've already I would hope have seen the results --

Please stand by. Ladies and gentlemen, please stand by. Our conference will resume in just a moment.

Hello, everybody. I have no idea what time or what point we were dropped from the conference on that end. I'm going to begin again. You already saw the results of the third quarter. Mike and I will amplify comments in a moment. We're not going to repeat what you've read. We will try to speak to our full year guidance that we raised and also the guidance we have for 2010. And also speak to the future uses of cash in line with the dividend increases and the accelerated share repurchase we outlined. The 9% local currency sales increase which was about three points north of the high end of our guidance really does reflect, as I mentioned, the visibility -- the viability of our business model. And I think importantly to strength of our management team not only here at headquarters but out in our markets. It also reflects a further strengthening in our business that we have seen over the past number of years and in this year.

This quarter we had top line local currency sales growth in all five segments and that was good to see and the emerging markets were up 15% and the established markets were up 2% in local currency. Overall, total sales force up 7% in the quarter. An average active 3%. We were pleased also to see a one-point growth in the total sales force. It's important for me to add to that there has been a very strong drive to yes recruit, but really recruit quality because many direct sellers during these kinds of economic times will get just quantity in and they will actually dumb down the sales force and you pay the price later. We were also happy to see really positive growth in the number of active sellers. Overall we seen qualitative improvement also in the people we recruit and we get active. I have shared with many of you who I have met personally, the size and activity of our sales force are a primary drivers to our business.

Let me comment now broadly on the overall portfolio beginning with the established markets. Our established markets grew in the third quarter. Our 2010 sales guidance calls for a 1% to 2% increase in our established markets. By the way, that's not because we don't think that's all we can do. We actually expect our established markets and in their profit plans to grow faster, but we are a global portfolio and there are always some laggers and always some local crisis you are dealing with. Importantly regarding established markets we have been using what we learned first in Australia where we have been 48 years over the past five years and implementing that elsewhere. By the way, Australia has been up very strong double digit over these compound, over these past five years. And has been our country of the year three of the past six. Also we have been using lessons that we have been learning in France which was up 19% in the third quarter. And we are working to apply the lessons learned there in other established markets. Every one of these established markets and as a matter of fact every one of our emerging markets you have the opportunity to have a learning laboratory and we try to learn from that.

This is where we have in France, incremental focus has been on women, our white space and urban areas. That's where most of the growth in the sales forces comes from. There they've created new theme kind of parties. And they have been very successful with having a girls night out. In France, we also importantly raised the standards for our sales force and for sales management. For example, instead of providing compensation to the sales force for merely bringing the recruit in, now compensation is earned based on the sales of that recruit. Also, additionally in France, our products and our merchandising have also been substantially contemporized, and as a matter of fact we launched in Paris a cooking school where we bring in members of the sales force and raise their understanding of the products and how to sell them. Importantly when we launch a product or a set of products or a theme in France, we also launch a cookbook to go along with that and not surprisingly we are the biggest sellers of cookbooks now in France. We are the biggest direct sales company there as well. And the most profitable. It was so nice to see after 49 years in that business that sales increase of almost 20% in the quarter. And it really speaks to the strength of one other thing and that is that [egrua] in the management team that is on the ground there.

Also important to highlight our large German business was even with last year in the quarter after being down the first two quarters. We came close to making up the sales force disadvantage. By the way, I was there with all German distributors just three weeks ago. We had a full day retreat and they are really doing the same kinds of things we are seeing in France and starting to pay dividends. Overall, we are very pleased with how these initiatives are working. And I feel good about Germany's future. I also mentioned at the last call I spent time with the German Ambassador to the US and I will tell you two things. First of all the strategy they've had in place with regard to keeping consumer spending high has been paying off. So it's flat year-over-year. And secondly the re-election of the Federal Chancellor, Angela Merkel, really speaks to positive expectations with regard to the economy in Germany. We feel good about that.

In North America, Tupperware US was up high single digit and continues to gain momentum. You will remember, we had to go through dramatic gut wrenching change in that business and our sales management structure and our in overall compensation structure that really drove that business to losses, but it's a move that we had to make -- well, as a result of that we have momentum in the business. A younger leadership team out there across the country and they can self-promote so the business model is really starting to show that it works. One way is that is shown is through increased productivity. There is huge potential in our US business. When I do regression analysis and look the at numbers, I turn back to 1983 when Tupperware made $120 million at its US business. It's still a small business for us here in the US, but we are in the top five most respected brand names. There is a lot of white space for us to grow here in this market.

Let me turn to BeautiControl. Now that business continues to struggle in the quarter. Sales were down in the teens for the quarter. We have a great team in place that we installed at the beginning of the year, and we have really turned that business back towards standards. As we have learned in some of our other business units it doesn't snap in a couple quarters. I hope that we will begin to see positive results beginning in 2010. And importantly, too, it is a profitable business but we have to get it back on the grow again. We have done a lot of good things in BeautiControl. We tripled the size of that Company since we did the acquisition. But we certainly have stumbled this past 18 months. But it's all internal.

Now let me return to the emerging markets where we continue to see strong momentum. The emerging markets again up 15%. And this quarter we saw these markets even reach 56% of sales. The growth is really driven by two things. The earning opportunity for women and also secondly, in most of these markets you get away from the major metropolitan area and you have a less developed retail infrastructure. And together this makes our model particularly attractive. Also, importantly, most direct sellers in emerging markets are beauty direct sellers. And we don't have competition in our particularly our core Tupperware categories there. It makes it particularly interesting for us. We are in the early innings in terms of penetration and productivity of our sales force and most of these markets. But the good news is also we've reached in many of them scale and are making good profits. We make about the same ROS. We make about the same gross profit margin as emerging markets as we do established markets.

Now, let me drill down more with the emerging markets beginning with Europe. We were pleased to see strong double digit increases in Tupperware South Africa and Russia and in Turkey. In Russia, we continue to see pressure on consumer spending environment which is really been leading to lower productivity. We had a couple of months in the second quarter which were really difficult for us, but we came back in July. Third quarter looked good for us but it's steady as she goes. Learning how to navigate through that very difficult economic environment. We have been able there, though, to increase our total in average active sales force by double digit percentages and that's helped us to continue to grow sales. What can I say about Tupperware South Africa? We continue to perform there very well, have for quite a few years, with strong double digit growth from the sales force, size advantage, and improved productivity.

In emerging markets of Asia Pacific, we also had strong double digit increases. In fact in all of our markets other than China. Let me speak to China for a moment. There the economic environment, yes, it is improving, but consumer confidence is weak. And while profitable, our business there is soft. So it has been difficult. We haven't been opening new outlets. We operate there with a hybrid direct sales market because typically the average Chinese family doesn't have a large enough apartment even to stage a party. But it's a difficult time there in China right now.

In Indonesia, this is by the way the fifth largest population in the world. Our business in the third quarter was up 70%. I put this together on the year. We are up 99% year to date -- we have been there, by the way, 19 years. So it's a dramatic business for us. And so often I'm asked at Investor Relations meetings how can people in markets like that afford your product? When you stop no think about, what I call Maslow's hierarchy of needs, food, clothing and shelter, a higher percentage of their income is spent in these categories. So anything she can do that frees her from daily food gathering enables her to more prepare food in larger quantities and to store it, really changes her lifestyle. It's an important product category and we are learning how to add flank or categories there to continue growing.

In our Latin America emerging markets. Let me turn to them for a moment. All I want to say there is our large, fuller Mexican business we were pleased to see a turn around there. A lot of noise in Mexico. A lot of volatility in the external marketplace with not only the economy with the Narco Wars with other issues there, but our management teams are doing a good job. We achieved a double digit sales growth after being down in the first two quarters. We also closed the quarter with a bit of a sales force size deficit, but we were able to increase our average order through some targeted promotional programs. Simon and I are going to go down there for a few days. We try to do it every single quarter to look at size of the business. Not only the marketing and merchandising side but the sales management side as well.

Finally, let me highlight that our Tupperware businesses and beauty others performed well in the quarter. As you know that segment includes Nutrimetics businesses. And let me say, our Nutrimetics businesses in Australia and New Zealand, particularly since the acquisition three and a half years ago, we've had a number of quarters of positive growth in that business for the first time since the acquisition. So I -- we are not declaring victory but, wow, terrific progress there. Additionally the Nutrimetics -- the next largest Nutrimetics business is in France and we've had wonderful momentum there this last number of quarters. So that's good, very good to see.

Nuvo Cosmetics is also included. Fuller Argentina and our Tupperware and beauty businesses in Philippines, Venezuela and Brazil. Those are included in beauty others. Venezuela it was good to see the sales increase of almost 50%. However, I must alert you, a large percentage of this was driven by pricing. We are expecting them to go hyper inflationary because I think they are up at 97% and the trigger point is 100%. Importantly in Brazil, too, which is the fourth largest population in the world, we were up 60% in the quarter and that's almost purely driven by volume.

Looking to fourth quarter, there is still a lot of economic turmoil in the marketplace and the wind is still in our face. At this point our best guidance is 6% to 8% top line local currency growth as our management teams really there we're focused on just a few things that are really what we believe keys to our growth. First is the expansion of the sales force. We have got to keep doing that job number one. Two. Insure continued dynamic pipeline of differentiated products. And thirdly continually to work to make our selling situation whether it's group presentations or what some of our business call parties or like our Fuller business brochure merchandising, we have to keep those exciting and compelling.

I also want to comment on our dividend increase that we just announced. As you know we paid $0.88 since we went public. We raised it to $1 on an annual basis and we have a lot of confidence in the future and our ability to continue to grow sales and generate cash. This also allows us going forward to more fully offset through share repurchase delusion from an equity incentive position while continuing to reduce our debt balance for the next couple of years. I have said to some of you at individual meetings I think September 29th last year the world kind of changes. It certainly did for me with regard to the attitude about leverage and debt and we are going to be working toward really reassessing where our debt-to-total capital level is. We think companies will be rewarded for having really the best balance sheets and lack of leverage in the marketplace. For us we know that gives us the great flexibility moving forward.

Things I also want to mention here you, will see a number of officers exercising some options and some selling stock. A number of those options have been out eight or nine years. I know a number of us on the senior management team had a 10 year options that are finished in the next month. Given the run up in the stock price I expect to see quite a few shares moved. Also full disclosure. As many of you know I've been involved as Chairman of the Boys and Girls Club and now Chairman Emeritus. I am going to be making some donations to charity and I'm going to move some stock because we aren't only doing clubs here but we have opened them personally in Mexico and in sub Sahara Africa. Anyway, I will say, though, you will see that the bulk of my net worth is still continuing to be held in Tupperware shares. Anyway, enough from me. Mike let me turn it over to you and then we will do Q&A and hopefully you will do a better job of sticking to the script than I did.

Okay. Thanks, Rick. First I would like to give you a bit more insight on the drivers to our third quarter performance versus the guidance we gave in July. On the sales side, key contributors to the overperformance were beginning with Europe, France with a high teen increase over last year. And strengthening trends in Germany where we were even with last year after being down 12% in the first quarter and 6% in the second. In Asia we had foreseen a more than 50% increase in Indonesia, but we were able to come in closer to 75% up. And we were also well ahead of our forecast in Korea which included more B to B sales. In both Tupperware US and Canada and Fuller Mexico, we were able to get more activity and productivity from our sales forces. And, finally, we continued to run very well in Brazil and ahead of our previous outlook. The only place where we performed meaningfully below where we had forecast was BeautiControl and we have spoken about what we are working to do there.

The contribution margin from the higher sales accounted for more than half of our profit upside from our segments. And there were several markets where we achieved a better sales mix and or better leverage from our promotional spending than we had seen in July. Beyond the higher profits from our segments, we also picked up $0.02 from better foreign exchange rates than we used in our forecast and $0.02 from lower than foreseen corporate expenses and interest. And, again fees upside a small offset of $0.01 from a higher tax rate, where we came in at 24% excluding items versus the 22% in our forecast. Versus last year's and in addition to our normal contribution margin from higher sales which runs in the 40% range, we were able to leverage some of the same things that led to the upside versus the forecast, mainly a better sales and merchandising mix. And, beyond this, we also benefited from lower resin cost versus 2008 and the absence of last year's loss at Fuller Brazil. As we pulled that business into Tupperware. Going the other way we continue to see a negative growth margin impact in the nonEuro markets in the Nordics and Eastern Europe, as most of these currencies were devalued significantly versus the Euro and most of product costs incurred in that currency. We also incurred higher costs in some of our beauty businesses as we invested to drive the activity and productivity in our sales forces. And, finally, we incurred in the third quarter $4.9 million in expense to convert Venezuelan cash into US dollars.

Couple of words on resin. As foreseen we had a $5 million benefit in the third quarter. Our outlook for the fourth quarter benefit is up about a $1.5 million versus our July outlook to $7 million, which would bring the full year to a positive $15 million. Based on what we currently see for 2010, we would have a hit from higher resin costs in the $4 million range versus 2009.

Looking at the balance sheet and cash flow we continue to be pleased with what we've been able to do this year. We paid off another $60 million of term loans in the quarter which together with what we did in the second quarter, brings year date reduction to $80 million. This brought our debt-to-total capital ratio at the end of third quarter to 45% versus 55% both at the end of 2008 and last September. Our debt-to-EBITDA ratio is defined under a credit agreement stood at 1.6 times for the four quarters under September, which was down from 1.9 times at the end of 2008. And, as a reminder, our calculation of EBITDA leverage is detailed on our website and the link is in yesterday's release.

Cash flow from operating activities net of investing activities in the third quarter was $35 million this year versus an out flow of $9 million last year, bringing year-to-date improvement to about $125 million. In addition to higher net income, this came from a success in keeping our inventory level close to that at the beginning of the year, even with a higher sales, versus a large increase last year along with an inflow of hedging activities this year versus a large flow last year. Given our progress in managing the balance sheet and our raised full year earnings guidance, we are increasing outlook for cash flow from operating activities not of cash flow from investing activities by $10 million from July to $165 million to $175 million. We continue to foresee full year capital spending of about $40 million. In line with our previous guidance.

Turning to our outlook you saw in our release, that we've guided to a 6% to 8% increase in sales in local currency, which along with an 11% benefit from exchange rates leads to 17% to 19% dollar increase in the fourth quarter. The local currency increases in line with the longer term sales guidance we've been getting for the last year and we're pleased to be back in that range. This guidance is not a lot different from what was included in our July guidance and together with our upside in the third quarter versus our July guidance, is what takes our full year sales range up from the 3% to 5% high in local currency that we said last 5% to 6% now. The foreign exchange impact on the year-over-year comparison is improved by two points in July and is now negative 8% bringing an outlook range in dollars to down to 2% to 3% for the full year of 2009. On diluted earnings per share on a cap basis we are looking for $1.06 to $1.11 in the fourth quarter, and $0.98 to $1.03 excluding items. This includes $0.16 benefit from stronger foreign currencies and increase of 6% to 10% in local currency profit from our segments after an eight-point negative impact or $0.09 from continuing to include in the forecasted $8 million in the fourth quarter to convert Venezuelan bolivars at the parallel exchange rate. This factor has a negative impact of more than one-point on our return on sales.

On a side note related to Venezuela currency conversion, we've assumed in our 2010 outlook that we won't incur cost to convert cash equal to Venezuelan net income to US dollars, which is somewhat similar to how we are doing things in 2009.

Finally we are also expecting to incur about $5 million more in unallocated corporate costs in the fourth quarter of 2009 and last year, which is largely related to compensation costs including the impact of an accrual reversal in 2008 associated with our long term plan that came from the decrease in our stock price last year. We are also taking a hit from a higher tax rate which assumed 24% in the fourth quarter excluding items which compares with 15.4% last year and this difference is costing us about $0.10. For full year 2009, we've raised our EPS range by $0.25. On a GAAP basis this takes us to $2.50 to $2.55 and excluding items $2.84 to $2.89. The $0.25 increase excluding items equals the $0.14 we exceeded our third quarter range of local currency plus the $0.10 that our foreign exchange impact improved to negative $0.34 from negative $0.44 as of July. Along with the small local currency improvement in the fourth quarter EPS forecast versus what was included in our previous full year guidance. Versus full year 2008 actual EPS excluding items our new range brings us to up 21% to 24% in local currency and up 6% to 8% in dollars. The change in the GAAP EPS range includes $0.03 from the sale of the excess facility in Australia where the transaction closed earlier this month, offset by $0.03 more in net reengineering and unusual items versus our July full year outlook.

Our full year outlook continues to include approximately $50 million of unallocated corporate expenses and our outlook for net interest expense is now about $29 million down $1 million from the July outlook. On a segment basis we now proceed full year local currency sales increases of 3% to 3.5% in Europe. About 14% in Asia Pacific. 6% to 6.5% in Tupperware North America. Down 3% to 4% in beauty North America. And up 11% to 12% in beauty other. We expect our segment profit return on sales excluding items in both years to be up versus last year by about two points in Europe to around 18%. Up around a half point in Asia Pacific to slightly over 20%. And 11% to 12% of Tupperware North America versus 9.1% in 2008. About even with last year in beauty North America at about 14% and close to 6% of beauty other versus a very small profit last year. Versus the July full year segment guidance there is improvements in the three Tupperware segments and the beauty segments are the same.

Turning now to our longer range outlook. We reconfirmed today the 6% to 8% annual local currency sales growth range that we set last October. Along with the 6% benefit from currency the springs our 2010 outlook range up 12% to 14% in dollars. The local currency increase is built on the expectation of annual currency growth from our emerging market businesses of 12% to 14% and from our established market businesses of 1% to 2%. Based on current our current 2009 guidance, our 2009 pre-tax profit return on sales would be 11% plus excluding items so we are ahead of the 9.5% to 10.5% longer term range we gave last October and ahead well ahead of 2008 actual, when we achieved 9.6%. Our 2010 GAAP EPS guidance is for $3.17 to $3.27 and excluding items $3.33 to $3.43. Versus the midpoint of our 2009 guidance, this assumes a 6% local currency increase at the low end in addition to a $0.27 benefit from better foreign exchange rate's. At the high end along with the FX benefit we forecast 8% increase in EPS from higher sales. Along with improvement and pre-tax return on sales on local currency of about half percentage point. The tax rate excluding items is forecasted to be 25% versus 23% in our outlook for 2009. And we've assumed 64.1 million diluted shares.

Going out beyond 2010 in addition to an EPS benefit in line with incremental sales we'll look to improve our pre-tax return on sales by half point per year with an objective of ultimately getting into the teens versus our 2009 guidance of 11% plus. We expect to be able to continue with the tax rate excluding items in the mid-20s range as we forecast for 2010. A couple other things on our profitability and profitability growth going forward. Year-to-date 2009, our overall segment profit is a percentage of sales excluding items is totaled 13.9 %. As we look at the profitability of our emerging established markets as a group, we see that our emerging markets have a segment profit return on sales a few points higher than our established markets. In terms of where do we go from here, when we work on our profitability on a unit by unit basis we set a threshold of 15% and a goal several points higher. Most of our large units are above the 15% threshold and many are above our goal but we think it's a good place to work toward for those below it.

Looking at our full year 2009 forecast, of all of those units below the 15% threshold that were able to get to that level, our overall segment profit return on sales would go up by two points which is worth over $40 million in pre-tax profit. Getting all of our units up to our goal will allow us to add several points although our half point per year guidance for improvement in pre-tax ROS does not say we will necessarily get there or get there quickly. Some of the improvement that we looked to make at the unit level comes from higher gross margin percentages but more of the improvement should come from the distribution selling and administrative expense caption. Just on a fixed cost leverage basis our average contribution margin on higher sales is in the 40% range but clearly we often need to invest some of this margin to drive our sales and to add infrastructure and we also need to pay incentive costs when we achieve above target performance. The net of what we see leads to the half point per year ROS improvement outlook.

In terms of use of cash is outlined in the release in addition to the higher dividend we plan to reaccelerate our share repurchases to include not only the use of proceeds from option exercises about also to offset more of the delusion resulting from shares going out on the incentive plans. And our goal for the fourth quarter of 2009 is to repurchase about $40 million worth of shares and addition to purchasing shares with proceeds from options exercises. As of the end of the third quarter of 2009, we repurchased, since may 2007, under a $150 million authorization, $91 million worth of shares with proceeds from option exercises. Considering our expected dividends and share repurchases based on our cash flow forecast, should still mean we have substantial cash -- cash flow to pay down debt and we foresee reducing our debt in the fourth quarter of 2009 and future years. So, with that we are going to turn the call over to questions.

(Operator Instructions) We will take our first question from Dara Mohsenian with Morgan Stanley.

Good morning, guys.

Dara, she pronounced your name the right way. That's a first.

Yes, that is a first. So in terms of the Q4 organic top line guidance, I was just curious as to why you would expect a deceleration in Q4 versus Q3 particularly given you have an much easier comp. Is that just Conservatism or is there some specific reason that we should expect a slowdown?

I will comment and then ask Mike to fill in the space of what I miss. We've only been through three weeks of the quarter and I wouldn't articulate the way we run our business as -- I think from a cash flow and a balance sheet standpoint, conservative, but we are very vigilant about it and there is a lot of working parts in a direct sales company and big months are ahead of November and December. We have good sales force size. Advantage. And as I said in my prepared remarks, particularly markets like Germany and Fuller, we like what we've seen. But I have got to say there are some things I don't like what I see. I don't like what I'm seeing in China right now. Yes, the economy is getting better. But we haven't been able to open any new units this year so that has really put the wind at our face, and you really had the Chinese consumer there are panicked at the first half of the year. I haven't gotten more comfortable with that.

North America, I expected more improvement with BeautiControl in the third quarter and didn't see it. And I know we have the right people on the ground and I want them to stay the course on their standards and not go back to cheap kits and no training. There is an expectation that probably not going to see that. And as I dig into markets like where we make a lot of money, like former Soviet Union, we will have one great week and then a bad week. When you put it all together in the third quarter it was a great third quarter, but boy, there was noise under there and I saw that, yes, they grew the sales force but they had to do too many promotional things. And one way we look at qualitatively in the quarter is can you make your numbers in a quarter and you don't do a lot of promotional things that the third month of the quarter retailers would call it fill in the pipeline. Things like that. Strategically we don't do that in our business.

I want people to end the third quarter with business as usual with the same kind of pressure. But there were some units within it that they had to do too many promotional things and those are the markets I outlined. I won't feel better about Fuller Mexico until they have a nice sales force size advantage. Yes, we had nice growth in the third quarter but we only got there because we had incredible merchandising during the third quarter. So from my standpoint it's more a qualitative stand view. Mike?

I agree. I think you said it in some ways, but the fact that we were ahead of our guidance in the third quarter in the sales side one of the things we noted was the better productivity of Fuller Mexico and in Tupperware US and Canada. We need to continue to work on that from the sales force side as you were talking about. I think that's right.

Thanks. And then, Mike, I was hoping to get more commentary on your long term return on sales. Goals of 50 basis points a year beyond 2010. It seems conservative particularly versus the recent incremental margins you've been posting. Are you assuming a large amount of reinvestment behind the business longer term and I know you gave us a bit of color but maybe you can give us some more detail on what's limiting even more margin expansion?

I think that if you look back, not just even this year, but going back a few years, we have gone from a 5% pre-tax return on sales to now 11% plus in our guidance for this year and that is starting in 2003, at the low end. And we've worked with a lot of the -- starting with a lot of the units we are doing the worst as you'd expect and that were the largest and targeted the 15% threshold in the starting point and look to go beyond that. We have gotten those things done. We are certainly not done. We've talked about the possibility of getting another couple points if we got all the ones below 15% and this year's guidance up to that. There is room to get there, but certainly there are times when we need to invest tactically and then also to grow, we need to invest more from an infrastructure point of view. We are always looking to try to make things come out ,but we think the right call again going out into 2010 and beyond at the moment, is go for that half point per year.

I would add to that. There is no magic to this number of the segment profit threshold the 15%. We generally try to manage it within a 15% as a threshold and don't let it get much above 22%. You have to dig under that into the markets. I will give you more just anecdotally, because we really didn't have any other cylinders to fire on in the mid-90s, you would see us get Germany -- got into the high 30% and what we learned from that is we are paying the price for some of that today that we didn't investment in that business. Didn't investment in turning over distributors. Didn't invest in upgrading public relations. Didn't invest in penetrating metropolitan markets. That's some of that that I do think we will are going to have to continue to do this because what we don't want to see -- we talked about this individually that we believe every business model works until it doesn't and job of management is sustainability and we want to be in a position where we don't have these turnarounds in markets and we do the investing so that you have better years than other years given the wins and given your promotions. But that it's much more predictable and steady state going forward. That is inherent in our investment strategy.

Okay, thanks. Last question have you seen any impact in the regions with winter weather in Q3 from the swine flu? Do you think it had a significant impact on your business and how much of a risk factor do you think that could be coming up here in Q4?

We have seen none and what we have done, though, is as you saw what we did in the second quarter we had, by the way, a very sophisticated pandemic global plan market by market so I think we are ready. We did it in Mexico and it had minimal impact there. So I'm fairly confident we will be able to deal with that.

Okay. Thanks a lot.

We will take our next question from Olivia Tong with Banc of America Merrill Lynch.

Good morning, guys. Just want to talk first about the emerging markets. Clearly, Europe is accelerating behind Russia, but it sounds like it's still a little bit shaky. Can you talk about some of the things you are doing to solidify the reexhilaration in Russia. I know part of it is macro, but what are you doing from your standpoint?

Most of it was macro. In Russia because what you really saw is not only in CIS but all of those nonEuro markets, there was a big consumer shakeout in the second quarter as their currencies devalued against the Euro and a real shift to trying to find -- stop purchasing things that were based on the Euro. So what our guys have done is we have some of the best management people there as anywhere. It was expansion in the size of the sales force, number one. Two, Olivia, it was shift in product line -- we have a buffet line of products to offer. Shift to those lower price points. And thirdly shift promotional dollars from what we're on, recruiting, to more incentives to get people to be active, incentives to get people to come to a party and incentives to get people to step up the size of their orders. So it's fairly traditional things. That's what we try to drum into our management team that if this happens, don't sit on your hands, do this. If this happens do this.

We do a lot of case study work on this so that when it happens we generally have about three weeks visibility out there in a given business units, in some five. By three weeks we know what's on the books as far as parties that are scheduled in any given European market. If you see that the ratings are soft in week number one there is nothing you can do about it. It's too late, but you can do something about it in week two or three. 50% of all recruits come from a party. All sales come from a party. And there is levers at your disposal. That's why it's incumbent upon us to teach our management teams what the levers are and to make sure they have that visibility.

Thanks for that. So for -- it's now six weeks or so into the quarter, six or seven weeks, and three weeks of visibility into the party line you are seeing the majority of this quarter play out already. Are the promo needs accelerating, are they decelerating, are they still kind of shaky?

I commented on the three markets where I still haven't got a lot of confidence. I'm unwilling to say that parties will hold there three more weeks out. We came up with the number of 6% to 8% because that is what we believe is the prudent number for the quarter and we make our numbers.

Got it. Thanks. And then maybe we could talk a little bit about margins by segment. Pretty big swing in a couple of areas. Mike, could you give more color particularly on Asia-Pac and maybe a little bit of Beauty North America. I assume North America was -- sounds like south came in a little bit light so maybe that impacted margins, but if you could give a little more color on that, that would be appreciated.

In the second quarter our Asia Pacific, we grew the segment profit return on profit by half a point over last year. In the third quarter we did a bit better than that, 1.8 points. That was mainly coming from the gross margin Asia Pacific, both from continuing to get some better volume leverage as we have really run sales there and then the rising cost benefits coming through in Asia and the other Tupperware segments as well. That's the move there.

In Beauty North America, it's there more promotionally driven where we had issues both as you can see in the numbers, both with BeautiControl and Fuller Mexico in terms of the sales force size. We were successful at Fuller Mexico of getting the productivity up, of some the promotional cost and BeautiControl, I think it had a positive impact as well. We didn't end up where we wanted to on the sales line, but that's where a lot of that is coming through in Beauty North America. We do think that included in the forecast that will continue to be and improve the ROS of BeautiControl where it has dropped fairly low and we had a lot of costs last year that we've been working on.

Thanks very much.

One other comment that leads to fourth quarter and the question of do we see this deceleration? It's no, but we didn't have a bad fourth quarter. We got some easier comps in certain areas. One of the things is we turned to this year and I forgot about fourth quarter last year and I was thinking, Mike, didn't we have a bad fourth quarter? And I was beating on our group President of Europe last year and he said, Rick, we were up fourth quarter last year and that's our biggest area of the world. He as challenging comps to go against there. Most of it, Mike, was North America, wasn't it, last year?

Yes. And Beauty North America.

And lastly about the debt pay down, you're now at debt to cap of 45%. You said 40% to 45% is your goal and then you want to go lower than that. What is -- have you decided what is a target ratio at this point or is it just keep on going and there is not necessarily a bogey at this point beyond the 40% to 45%.

Obviously we have had some conversations internally and with our board. As we've looked at it in the more difficult external environment, both in getting credit and how it works with the rating agencies, we have taken the view that it makes sense for us to get out of the high yield debt covenants that we have right now, which you've heard us talk about from time to time. We are operating very comfortably under them right at the moment, but there have been times where it's been tougher. We want to get back to a position where we can get out of those and then, also again like I said, because of the external environment we want to be a bit more conservatively leveraged. It doesn't -- we're not trying to say we were aiming to be at zero leverage but we'll continue to pay down, like we said, in the fourth quarter and certainly next year and moderate somewhat because the dividends are higher and we will be doing these stock repurchase. But we will have more to say about that as we move along.

Almost just think we want an attractive dividend. When we are confident that weak is -- dividend is not something you want to raise and then reduce, so when we are confident in our ability to pay a dividend going forward we will raise it. Want to guard against delusion. It isn't job one on -- with the (inaudible) of share repurchase just to reduce the number of shares in the markets. Our only real focus there is the delusion impact there. Then we will go forward and we will continue to look at it. But, we think less leverage is better in the future and it gives us greater flexibility for two things. Firstly if there is turmoil out there that we've got a war chest to invest. Secondly to guard against the needs -- the needs of certain markets to drive up their ROS to the point of long term hurting their business I don't want us to be in that position. Reducing our debt level gives us that.

Got it. Thanks very much.

We will take our next question from Doug Lane with Jefferies.

Good morning, Rick and Mike. Staying on the use of free cash flow, with significance you raise the dividend for the first time and the stock buy back is back on the front burner here. If we look out on a regular basis, should we expect an annual increase in the dividend and a steady regular pace of stock buy back on the order of maybe $30 million or $40 million a quarter?

I don't think the board has decided about when exactly there may or may not be future dividend increases. But, we did aim the dollar in addition to being a round number, is 35% of this year's outlook range without items, EPS without items.

So that's one metric. It's also how we came out of the free market spin-off in 1996. That's what the $0.88 was. But, I don't think the board has decided that. And on the share repurchases, along the lines what Rick was saying, we were offsetting some delusion by buying back with the proceeds and now what we are saying -- what we've said is it will offset more of the delusion and so that's what we are saying we expect to be doing.

It nearly really also driven, Doug, by what else are we going to do with our cash? There isn't any acquisition candidates out there that match what we are looking for. We have enough opportunities for our organic growth. And the usual suspects it's raised the dividend or share repurchase. We know that many of our share holders out there have commented to me that we would prefer you give us the cash and let us decide what stocks to buy with it. There can be an argument made for that. We will keep talking and our share holders out there and from this side here we want to throw off cash and have that flexibility of having the low debt level and that's a high class problem for us to have is what are we going to do with it?

I agree. And then switching gears operationally, back to Fuller Mexico, it's a pretty sharp reversal from the first half trends to the third quarter, could you give us more color on specifically what you did in that market to have such a reversal? Was the comparison unusually easy, or was something else going on that we're not getting?

The comparison wasn't easy. Last year part of the issue was we had promoted our head of sales and two years ago and moved him to Argentina and we put in a green head of sales and did fine. But really there were some issues within the sales management side, of the business, that Simon and I went down early to the first quarter of last year, we set was substandard. What we saw was two high level of local field sales manager turnover and we have almost 3,000 of those. And so we made a change and installed another director of sales and moved that person into another position. And we saw quite a remarkable change in that management turnover of these field sales managers. And there the individuals, Doug, who are responsible for all of the reciting.

I will tell you what we did. We instituted a really a three prong program. Number one we basically put in they called it -- in Spanish but in English it was called the godmother program so if you were a new field sales manager you are assigned another field sales manager who is kind of like your big brother, big sister in the organization who is incented for your success. You don't report to that person, but they are incented for your success particularly during the time critical period of the first nine selling periods, which is 18 weeks. Secondly, there is a cliffed incentive that if you make it as a field sales manager through that 18 weeks you are bumped up and there is a big incentive given you. Thirdly, a step by step better sales management training program.

What I feel good about there, Doug, is that this is what I worry about in a number of direct sales companies where the Band-Aids or the fixes are promotional. They are discounting. They are one time offers. They are gift with purchase. Those things have no permanence to them. If you put the proper permanence, on really real qualitative sales management, that pays off long-term. That's what I'm seeing happening there. Although, it's a very difficult marketplace.

We had this week one of our trucks hijacked. It's gone! It is gone! So it's a very, very difficult place to do business. But I will tell you, we have all this business model we have both for Tupperware and our Fuller business model, it really works there and works well. And I think we've learned how to put up with the instability there. Whether it's currency, crime, the Narco Wars, and the economy. We've learned how to navigate through that and provide incomes for people and make money ourselves.

Mexico is your biggest single country.

Yeah.

Lastly on a big picture scale, I remember when you bought the Sarah Lee businesses and the diversification into the beauty business was a buffer against the cyclicality and it looks like coming out of the global recession your durables business performed better than your beauty business. Any insight on how that worked out.

Yes. Firstly, I am so pleased we made the acquisition because we really didn't have the right kind of a product line for, I would say, for the next decade in Latin America where we could really get bigger and bigger and bigger because she simply doesn't spend enough on the Tupperware product category. What we are learning is, we've got in Brazil for example, we call it our Trojan horse strategy, that we now have the full beauty of the Tupperware brand catalog there, so that when she is selling Tupperware -- and down there more channel of a distribution than a brand. But our Brand is respected Tupperware, and that is helping us to sell the Fuller brand down there. I mean, you have seen strong double digit growth in Latin America and a more sustained level since I have been here and part of the reason is the Tupperware business, but also now we have the beauty businesses down there.

But another thing I would comment on is there has been a number of things in my career I have gotten wrong, but one thing I did get wrong clearly at the time of the acquisition is the underestimation of how powerful it is not to have any direct sales competitors in our Tupperware durables business. And so you see the fights going on and what's between Avon, Mary Kay or a flame in former Soviet Union, we've got nobody to fight against and nobody can compete with us. You sit there in your core Tupperware business and that's why we haven't seen us launch a beauty business there. We've taken core Tupperware product line and -- I have three things of telling our guys, three things we focus on that will insure sustainability in every single market going forward for 50 years. Number one had differentiated relevant products, number one. Number two, compelling fixed selling situations and that is in Latin America brochures and how we do sampling, et cetera. But in our Tupperware -- one thing we have been driving at this last 90 days is get focused on more and better parties. Start measuring where the percentage of your business done through group presentation selling. What we call GPS. Because our biggest markets of the world, not biggest by numbers of people, but biggest party, Belgium, $850. Imagine what she makes if she makes 30% and does three parties per week.

So really focus on compelling products. Compelling selling situations and the third is, attractive dynamic earning opportunities. When you put that all together in a Tupperware business that really cooks. I think we are going to have great offsetting businesses with our beauty businesses there. Nutrimetics in Australia and Avory Shlain sub Sahara Africa and I think you are going see growing us taking share from Avon and Natura in Latin America. That's certainly what we are aiming to do.

Okay. Thank You.

And we will go next to Mimi Noel with Sidoti and Company.

Hi, Rick. Hi Mike. Rick, this will be touching on what you were just talking about and also in your prepared remarks you talked about the emerging markets and how you feel as though you have little competition. Is that just in reference to the durable side of things or are you saying in certain markets you don't have the same competition in beauty as well?

Yes. It's more the latter. In some markets we don't have -- Avon withdrew from Indonesia. And I was the group Vice President of Asia Pacific for Avon when we opened Indonesia. That was in the 80s and they have abandoned it. There is only one other major direct sales company there. We are really getting a dominant position in India and -- I go to China. There we see a crowded space in other product categories. You don't go into those product categories.

The wonderful thing about, Mimi, us having the power of our brand name, this was important us getting in June being named the design company of the year, that gives us the opportunity to go into flanker categories that sometimes aren't even durable in these markets. We do wonderful spices and sauces in certain markets but it does have that relationship. That's our TupperChef series. We are learning new and different ways to do that.

Okay. And then somewhat related. I think this time last year, maybe it was last November, as you look toward 2009, I don't want to say you took a conservative approach to managing the Business that you were certainly managing the Business for what was going to be a very difficult economic time. As you stand here now and look at 2010, how do you regard next year?

A little bit more optimistically than what we felt about 2009. For two reasons. A number of the markets -- the case I used on Germany and Merkel and Sarkozy, we see because of how they are managing their markets, macro-economically. I see the same kind of things happening with Putin's influence still in former Soviet Union. That gives you a feeling of much more predictability.

The way the macro-economics are being managed in Brazil and even Argentina. As a matter of fact the only wild card in Latin America right now is this character in Venezuela who is running the country into the ground. And then I turn to Asia Pacific, the turn-over government there, very pragmatic, stable. And one country we haven't even mentioned here today, but it is very important. It's the largest direct sales market for competitors in the world, Japan. We've seen strengthening of both of our businesses there and you've seen macro-economically some good things.

I'm seeing the world view to me and I'm out there -- I have been out there 81% of the time this year. We just did the numbers. There is greater stability. People are -- as a matter of face, the most unstable I am right now on any market is this country here. And what are we going to do because we are just printing money. They love us out there. Love our attitude with regard to not interfering and the President going out there and apologizing to the world and then we come back and print more money. If I was a currency speculator right now, boy, would I short the dollar.

So given that outlook then, are you planning on managing the Business more aggressively than you did last year in terms of pursuit for growth and potentially in the form of reinvestment.

No, no. I will tell you one of the things I don't want to pull back on investment. We spend about 18% on promotional investments in markets. And all you do is when the case has been made -- we are counter cyclical. Yes, we are counter cyclical, but I will tell you that doesn't mean we do well during the bad economic times. We just do less poorly than others do. So that a year like this year we can still have a good year and a very critical macro-economic time. But given everything, I want to see us do well.

What we will end up doing is money we didn't have to spend on recruiting. Then you have got to start spending it more on recruiting because the available pool is smaller. We had a plan in place this year called the vigilance plan, that was our overplan to made sure we made our numbers, the freeing up of investment dollars, you had to reach certain hurdles and Mike's managing a vigilance plan. You got it next year, too. We don't think it's gotten much easier out there.

Thank you for the add color. That's everything I have.

And next to John Faucher with JPMorgan.

Good morning. Quick question, to follow up on some comments about the BeautiControl business, you talked about focusing on the ROI. It's one of the businesses one of the few businesses that isn't performing as well as you like and the question is can you get the top line in the ROI moving at the same time? Is that something where you can multi-task on this business? Or is it fixing the ROI first and then worrying more about the top line later?

No. Job one is fix the top line. Get the size of the sales force where it needs to be., not only quantitatively but qualitatively. That's what we screwed up inside. Our leadership team here that managed BeautiControl and the one that was on the ground at BeautiControl, quite simply, let the business become 70% wholesale buyers by shifting the business rather than a couple of promotional periods per year using a less expensive kits. They went to 10 months a year doing it and now you get the sales force that you grow and we ended up having a sales force that were more casual custo-rep types that weren't holding parties, or what we call beauty spas, that's where you make -- it's a $500 party and BeautiControl you can make 50%. It became a different person there.

Now the leadership out there as far as directors and senior level and all those, I mean, that's remained intact. What we lost was the feeder pool of new directors who were once great consultants who became managers and I think that's more an 18 month problem. We have to fix the top line. We don't lose money there but we are certainly -- that's not the button we are pushing right now. We are pushing right now get the top line moving right now. Not by buying sales. But by growing the sales force.

The ROI focus is going to your point you made. It's about getting the top line moving in the right way is what you are saying.

And that's what happens. That's what happened in Nutrimetics. That's what will happen Avory Shlain. You get the right numbers on the top line with regard to -- it starts off the pig going through the pipe is number one. You get the right kind of recruits in. The right standards on those recruits. She will have the right level of sales there. And then all of a sudden you start to make bigger sales increases and this is where -- what is it, 45%? Falls through in most of our businesses, Mike.

We talk about the average being around 40%. BeautiControl is a little lower because we sell to the consultant. I think, John, as we look at it, we are spending a lot this year to get there and where we would really see normally a fallen profitability when we are investing it is more of it didn't work. If it's working and we are getting sales the drop through will normally compensate for whatever it is we have to invest.

Okay. Great. Thank you.

And we will go next to Gregg Hillman with First Wilshire Security Management.

Good morning. Could you go over Indonesia in more detail for me, in particular the 18 year history there and then basically what products are driving sales there and how big can it get and what are the flankered products in Indonesia.

First, on the last part, Greg. I don't want to get into the products that are doing well because retailers would love to get the information of what they should be selling out there.

We went in to the country and we used a distributor model going into the country and it took us about five years to achieve profitability in Indonesia. We started off 60% of the population is on the island of Java. That's where the bulk is. And as you know Jakarta has about 60% of that population. It was a business that was clustered hub and spokes around Jakarta and the metropolitan cities that were within three hours of Java. Phase number two of that business was taking it across to the rest of Java. That happened in about year six, seven. And then we took it to the other islands and there are thousands of them but four major islands.

And then we made a decision, about four years ago we put in a dynamic woman who was head of marketing then, Nining Pernama, and we turned the country over to her, and you must remember, this might seem awkward because it's one of the largest -- well it is the largest Muslim population in the world. She has just done a wonderful job because there is a guy running the company before then and what it did is coming together with these new strategies -- with a strategy of here is the right products, get focused on party selling rather than brochure selling and here is the career opportunity it can be. It reached a critical mass then so you had these repeater stations all throughout the island of Java that it wasn't just Nining Pernama doing the pitch.

When we launched a program called chain of confidence, that's where we used here, Brooke Shields, but there -- and I did a big meeting with all their distributors that was a full day workshop with I don't speak Bahasa, so with simultaneous translation -- and we have been growing about 40% or so per year the last five years. It just exploded after that. So now you have these big distributors there who are making serious six figure incomes and they are not just in Jakarta but all over Java and the other islands and so now we are filling in the white space. I expect it to continue. There is such limited earning opportunities for women in Indonesia. The business model is just terrific for that market.

Sounds good. Do you sell water filters in Indonesia?

Yes. And one of our strategies going forward here, by the way, is we are working on it right now, is one off our key categories in the future is going to be water. We plan on owning it and how we need it by that? We've broken all world markets into green and red. Red are the markets where the water typically you can't even drink the water that's available to you locally. That's the Indias, Indonesia. You see it so much through southeast Asia and sub Sahara. All over Africa. Then there is the green market of the world, like the US and western Europe. The remarkable thing is more bottled water were sold in the green markets where you could go turn on a faucet -- and we know here 40 billion bottles are going into garbage dumps of these PET bottles.

Our strategy is what drives it in the US and Europe is convenience and I've already seen the designs. We're going to be coming out with really new and different designs so that in your house you aren't buying these 24 packs of bottles but conveniently you can have your bottles. Different colors, there's sets. There are sets for when you work out, et cetera. So that we know that studies indicate that there is only 3% of the market in the US where the water in your spigot isn't up to the standards of what it would be in bottled water out there. Look how Coke is dominating it with basically spigot water with their Dasani line.

In the green markets of the world we are doing filtration on those. So we are coming out with new techniques. This is going to be over the next three years but we have a team assigned to it and we think it's exciting because we are known for quality storage products. Why not be known for water. And we already sell those kinds of products in certain areas of these markets but we've never focused on it and now we are going to. Some of our distributors may have a big water business.

Sounds exciting.

Thanks Gregg, good talking to you.

And a follow up from Dara Mohsenian with Morgan Stanley.

You know it's been a long call so I will catch up with you off-line.

Good talking to you, too.

No further questions in the queue.

Guys, thank you. I think we kept you on the line. I'm sorry for the glitch in the beginning. I hope what you get to measure -- we aren't trying to be -- maybe our policy is conservative. We are trying to be pragmatic and prudent as we drive our business forward. I don't want to give you numbers that we don't have a high level of confidence that we have the levers that are disposable to change. I guess what you got from us on our fourth quarter is and for next year is as far as we are willing to go until we see more out there in the marketplace and that's probably going to be the way we are going to continue to manage -- we think giving you guidance matters and it becomes an outgrowth of us needing to give ourselves guidance on how we run or business or how can we run these businesses on the market. If we are unwilling to go any further it's because we don't have the comfort level in that. Again, thanks for the support and for great questions.

Again, that concludes today's presentation. We thank you for your participation.