Tupperware Brands Corp (TUP) 2010 Q1 法說會逐字稿

Good morning. My name is Louanne and I will be your conference operator today. At this time, I would like to welcome everyone to Tupperware Brands first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, April 21, 2010. I would now like to introduce Rick Goings, Chairman and CEO of Tupperware Brands Corporation. You may begin your conference.

Thank you very much, hi, and good morning to everyone there. I'm in Singapore with Mike Poteshman, our CFO. We're here for you a leadership conference with about 150 of our Asia Pacific management teams. Development of our management is a real top priority and we try to hold at least two of these conferences in every area of the world to really enhance not only the skills but also share the best practices.

Our gang back at headquarters, I believe, [Nicki], your there, Decker, is online, our VP of Investor Relations, and Tom Roehlk, our General Counsel. As always some of the discussions will involve some forward-looking statements, so I refer you to our position.

You've already seen the results of the first quarter. Mike and I will give you a little more detail in a moment. We'll speak to our raised guidance for the full year in light our record first year, first quarter results. Again, I've said this before, we'll do our best try to not be redundant with the information you already have.

Further to our focus on leadership development, I was at another conference this past week in the West of the US with 500 of our global leaders and I am pleased to say, I saw both not only managing directors, country presidents and sales leaders, a level of confidence and I would also add competence there like I've never seen in the Company before.

While our business model is certainly one of the key components that's driving our success, I really do think even more what's driving this growth is the dynamic global leadership team and the time and the energy we put in place over the years of developing them and getting their alignment. These leaders have recruited, trained and motivated some of the most dynamic people in direct selling that I've seen ever, and recorded, that's what's delivered the highest first quarter in sales and profits this Company ever had.

We, we achieved double-digit sales growth in four of our five segments, resulting in a 11% increase, but I'm being redundant here. Our emerging markets were up 22%, the established markets were even with last year, and there were a number of standouts in those established markets.

Overall, we're pleased to see that the sales force was up 7% as we ended the quarter and we'll look to add to that number during the year. By the way, the fact that the actual sales were 4% higher than the sales force, was up, speaks to the enhanced level of productivity we like to see it this way.

Let me comment broadly, though, on the overall portfolio beginning with the establish markets. I call your attention firstly to France, which was up again, 36% in the quarter. Had a quarter like that in the fourth quarter as well, and we very interestingly had the most first quarter parties there in France in over a decade, and it's interesting they were leveled by not, not only this, this month what we're seeing in ash from the volcano, but ice storms in January and even in spite of that record level.

Also ended March with a record number of sales force consultants. We have in France a strong local management team. They understand our business and the modern French woman and they continue to excel at integrating our unique products and marketing programs. We made a lot of progress there to, in contemporizing the sales force structure for established markets.

They've also done a great job at structuring their promotional programs to really activate the sales force and achieve a great return on those kinds of investments.

It's interesting, though, this is our 50th year in France, and the reason I spend so many words on France is, we're using it as, as a template for our other established markets to show that despite having a significant size, we're the largest direct seller in France, and number of years in business, that there's always a way to find the paths to grow, to find white space.

Also worth noting in established markets, Austria, we, we increased local currency sales there, 23%. Austria also set some records this quarter with the highest first quarter sales in the last seven years, and a new record party average. The management team there really understands, again, the same kind of things they do in France.

They developed a terrific approach to getting a new sales consultant started where she really enters and has her first 10 parties in a way that she really gets hostesses behind the business, it's really working well. Regarding our German business, sales were down there very slightly in the quarter. We ended March with a small sales force size advantage versus last year following several down quarters. We did, however, continue to see initiatives that we launched over the last 18 months start to get traction.

These included raising the standards of the sales force. Also modifying our reward program on recruiting, and really encouraging people to get into sales force leadership.

We're seeing now a strengthened breed of managers that's performing better than in the past, and we continue to believe that we'll see increasing number of managers, managers really are the engine room of our business, because managers are responsible for the lion's share of our recruiting. So I guess what I'm saying about Germany is we feel confident that we're headed in the right direction in Germany.

By the way I'm here in Singapore today, I'll be in Mumbai over the next two days but then I'm flying back via Germany so I'll spend a day there. We have a terrific management team there, and the best I've seen in the 18 years I've been with the Company.

In our Tupperware North American businesses local currency sales in the US and Canada were up 4% in the quarter. We were pleased to see that, in fact, a positive trend in this market.

And we'll continue to concentrate on the programs we initiated in the past that really strongly involve getting active more on a focus off weekly contact with the sales force, because weekly contact really drives then opportunities for not only training, recognition, but also the whole element of really spurring competition between people in the sales organization.

I was saying in an interview about an hour ago, though, I personally believe that the US consumer is, we're sluggish than we see in other parts of the world right now. It's interesting so much of the focus of this administration has been on healthcare when, if you look at the research, it says the typical consumer is more concerned about the economy, and so this disconnect, has led, I believe, into a sluggishness.

Anyway, we feel good about the direction of our US business in the future, and as the economy strengthens, I think you'll see that strengthen. The compensation plan that we launched in our BeautiControl business is still in its early days, but appears to have been well received.

The new plan focuses more on building a team of sellers instead of recruiting just massives of wholesale buyers. This will be a year of investment in BeautiControl, as we transition to this more strengthened sales force management. I am pleased to see, though, that I just got a report that talked about some of the things you don't see on the sales line in BeautiControl.

Our number of senior directors. We had 13 new senior directors in the first quarter of 2010, 13 in the first quarter and only 10 of all, in all in 2009. New directors in the first quarter of 2009, we had 38, and the first quarter of 2010, 71. And VIP managers in the pipeline, and these really are the people who are going to become directors, it was 88% above what it was in 2009, and overall, recruiting is up almost 90% there.

So we're not seeing that payoff on the top line right now, but I'll be sorely disappointed if we don't have a sales increase in the second half of the year in BeautiControl. In our Asia Pacific established markets, we struggled in Australia and Japan, those were the isolated two areas with double-digit currency sales declines.

Regarding Australia, there we have one of the strongest and most experienced management team of all Asia Pacific. As a matter of fact, Mike and I awarded them last night established market of the decade, because they've performed so well the bulk of this decade.

They've done a great job in making Tupperware Brands a true earning and career opportunity. We did see strengthening in this first quarter after a slow start in January.

And you've got to remember, not only their Aussies, and we kid them about that, but January is the dead of summer in Australia and our main challenge almost every year in Australia is getting that sales force activated in January, and sometimes we do better than other times. January wasn't one of those. I was pleased to see strengthening as we got through the first quarter there.

In our Tupperware Brands Japan business it's a different situation. The efforts there will not be a quick fix. I'm not certain what progress we'll have this year other than progress on implementation of the fixes.

We, we really need to get more focused on core Tupperware Brands products and less on third party big ticket products, and we've got to strengthen our sales force standards. This should allow us to more consistently leverage the very respected brand name and business model we have there. We're also working on our sales force compensation structure there, but again, I think Japan for Asia Pacific will be the laggard through this year.

Now let me turn to our fast growing emerging markets, where we continue to see the strongest sales growth quarter after quarter. Somebody was asking me, again, on an interview earlier, goodness, how come we're growing so much faster in some of these emerging markets than we are for example in the US? And I said the US is 5% of the world's population.

We're sitting here dealing with just three of our markets here, China, India, Indonesia, all dramatic growth. They're about half the world's population. In this first quarter, this emerging market portfolio comprised about 54% of our total sales and I want to reiterate that we feel our success in the emerging market is really driven by three things, the earning opportunity, and really women don't have a lot of earning opportunity and competitive earning opportunities in many of these markets.

Secondly, the less developed retail infrastructure and third the sheer size in population. Our guys do a wonderful job in running our emerging markets and they continue to operate actually with a higher ROS than we do in our established markets.

The other good news is that we're, we're very much in the early stages of geographic penetration in the bulk of these markets, and so that when we expand geographically to penetrate these markets and we build on productivity, then that means there's a lot of growth ahead for us. So we feel very good.

This is going to be the big story for the next five to seven years. In our emerging markets in Europe, Africa and the Middle East we saw another strong quarter of very strong double-digit increases, particularly South Africa and Turkey. I was in South Africa this last month. Dramatic what's happening there.

We also saw high-single-digit increases in our businesses in the former Soviet Union, the CIS, I was there last month as well. Our Tupperware Brands businesses in southern Africa grew in local currency by almost 60% as compared to last year, and the sales force continues to expand as does their productivity.

This market also broke records in the quarter with the highest level of first quarter sales, the largest sales force and the most sales force managers in the Company's history. And our management team there is just been so successful. Particularly expanding this from just a white South African business to include the black South African market as well, which, for 48 million people in South Africa, there are 42 million black South Africans.

We also grew in local currency dramatically in Turkey by about 40% in the quarter. Remember, that's a market of more than 70 million people. And another record setting market. Turkey had the most first quarter sales in its history, and also set a record for sales force size and manager count.

And, again, I mention manager count because managers do the lion's share of recruiting and that usually speaks as a precursor to what's going to happen the next quarter. In Asia Pacific, our emerging markets were up 45% in local currency, and we, we had, in all of these businesses we had a double-digit increase.

China, this was really good to see after difficulties early in 2009, we strengthened throughout the year, but local currency sales grew 63% over last year in the quarter through a 35% increase in our core business, and we also had a big business-to-business transaction. We also significantly increased our number of preferred customers in China.

And these are, by the way, people who, they become members, pretty similar to a Sam's Club in the US and they get to buy products, they come into our little centers, which are places where we do the parties, and, so they're growing.

As most of you know, in China, we don't operate under a direct selling model. Instead, our independent sales force operates these outlets, which they use to hold parties and the initial genesis of this was apartments weren't big enough to hold a party anyway, so every neighborhood, we targeted to have a place where you could hold parties. So we're going to continue, and our opportunity is to grow the number of outlets and the productivity of outlets in China.

Our strategy, by the way, I mentioned business-to-business, we really only do this in markets to increase brand awareness, and you've heard me say that, before, that we don't do much advertising, but instead work on brand building through these kind of public relations programs, celebrity chefs, joint ventures with other kinds of businesses and it really helps build our brand.

By the way, I would add to that in both, in India and in Indonesia where we virtually don't do any advertising, this past year we were named as Super Brands, and that just doesn't happen to companies that don't advertise, so it's a strategy we think that really works. In Indonesia, and I was in Indonesia in February, it was astounding what's happened there, we almost doubled the business last year, and even with those kinds of comps, we were up 55% in the quarter.

In India, we were up 56% in the quarter. Both of these markets broke through their previous records and achieved the highest local quarterly sales in the history of each of these businesses.

And I might add, looking at these developing markets, think of many us were raised with Maslow's hierarchy of needs, food, clothing and shelter, our product categories in the multiple kind of categories that relate to food, food storage, serving, preservation, it really can change and it's more important in these populations. And the population even in a low per capita GDP market, spends more of their income in this category of food, clothing and shelter, so it make our business categories particularly well suited.

Our management team in both of these markets have very successfully focused on our fundamentals. They've set clear expectations for managers and distributors and developed a career path that offers a very competitive earning opportunity.

By the way, I might mention too, in markets like Indonesia, we even have a Tupperware Brands university that somebody gets into management, they go through a 13-week training program complete with cap and gown, graduations and the quality of, therefore, of the managers that are coming and being grown in our Tupperware Brands Indonesia business is something that we haven't experienced there in the past.

Back to India, we just opened a new plant there that will allow us to better serve the needs of our increasing demand there, and also it helps our margins because of import duties. I would also like to highlight that growth we saw in Malaysia and Singapore was up 26% in the quarter, and our Korean business was up 19%.

And, again, they get kind of pushed off to the side when you think of the dynamic growth of China, India and Indonesia. Turning to the emerging market of Mexico, our Tupperware Brands business there grew an astounding 41%. We've been there more than 40 years.

About half of that sales was a, sales increase was a business-to-business sale. We do it with a big chain called [Soriano] where they offer a consumer bounce back recognition loyalty program, but what it sets up is a bounce back to come to a Tupperware party and it's an isolated product line that is not normally offered by Tupperware, so it really builds the Tupperware business.

But the, even if you split that out, we still had almost a 20% increase in our core Tupperware Brands business in Mexico. Importantly, we grew our sales force 13% during the quarter, and again what that speaks to is, wow, if you have almost 20% sales increase on core, with only a 13% advantage of the sales force, it speaks to the qualitative approach of the kind of people that we are recruiting.

We'd much rather have it that way, then the other way around, and it speak to the sales force standards program that they launched early last year. So very pleased with what's happening in Mexico.

At Fuller Mexico, we achieved a mid-single-digit increase, although we still have a bit of a sales force size deficit in the quarter. And this speaks a little bit to, it's a beauty business and beauty's a crowded space, whereas we dominate the space in Tupperware.

We're going to continue our focus in Fuller Mexico on field managers, and there we've had too high of turn over of field managers. And they're our primarily recruiter and we've got to find ways to really bring better and stronger levels of continuity to this field manager group. This is one of the investments that is built into our lower ROS outlook versus Beauty North America segment.

Finally, let me talk about Beauty other before I turn it over to Mike. And that's really code for Latin America for us. I was talking to Mike we have to change that name. It's really dominated, it's mostly Tupperware Latin America. There we had a good sales growth in the quarter, an increase 15% overall in local currency.

We had a very strong quarter in Brazil. We were up more than 50%, mainly due to higher volume. From great recruiting, higher number of active sellers and an increased party average. We've got a dynamic team in place there. Brazil, by the way, had its highest first quarter in the Company history.

I was in Argentina about six weeks ago, and I'm pleased to say, we've got good management team on the ground there, and we're going to make some of the changes that we've made in the Philippines and in Brazil in Argentina in the second half of the year. So I feel good about where we'll be headed in Argentina, but up until now it's really been a drag on profits.

Our Tupperware Venezuela business had local currency sales increase of 28%. Good increase, when we consider what's going on in that macroeconomic and political environment, but of that 28%, most of this really came through price increases.

Our Tupperware and Beauty business in the Philippines grew 10% in the quarter, and most of that was real growth. And we made a decision in 2008 to do in Philippines what we did in Brazil by combining the Tupperware brand with our Beauty businesses, where we really had the power and the differentiation.

We really call it, what we've done in Brazil, more of a Trojan horse approach where you go in, rather than fight the 800-pound gorillas of Avon and Natura there you go in with Tupperware and they can't compete with us, and you then start selling beauty products to not only sales force to customers. Again, that approach has worked well in Brazil, and now we'll extend it into Argentina, and we've already done it now in the Philippines.

Anyway, the results speak for themselves to the strength of our business model and the ability of our management team to run them well. As I said, we broke records in many of our units around the world, in both the emerging and established economies.

Our challenge in the future is to maintain this momentum, but I might add, just keep in mind for those who may be thinking, does it look like we will be slowing for the year. Put on a piece of paper, we had a tough first quarter last year, up about 1%, so easy comps. Strengthened a little in the second quarter.

Got better in the third quarter and double-digit in the fourth quarter. So if you really blended that out on the whole year, given the comps, we don't plan on business softening through the year but pretty much steady state. Anyway, enough from me, Mike, let me turn it over to you.

Okay. Thanks, Rick. First, looking at where we got the upside in the first quarter versus our February 1 guidance, our sales were up 11% in local currency or one point over the high end of 8% to 10% increased range. This came in the Tupperware Brands Europe and North America segments.

In Europe, the main upsides were in Tupperware Brands South Africa, France, in Austria, while in Tupperware Brands North America the upside was in Mexico for a much better than expected performance in the core business, along with more forecast B2B. On the topic to B2B, since these come through sporadically, it's worth noting that two points of our increase in the first quarter came from B2B action, of which a little less than half was an upside versus our February 1 outlook.

On profits, the high end of our diluted EPS range was $0.60 without items and we came in at $0.76. This reflected $0.15 in local currency upsides coming from all three of our Tupperware Brands segments, along with $0.01 more of a benefit from foreign exchange where our outlook included $0.07 versus 2009 and our actual was $0.08.

Our first quarter pre-tax return on sales excluding items was 11.8% versus [BRO], the high end of out February 1 range of 9.3%. Of the 250-basis-point upside versus our guidance, the contribution margin on the higher sales in the Tupperware segment accounted for about 80 basis points.

The remaining 170 basis points was mainly from better gross margin management on promoted items and better than foreseen leverage on promotional spending in the Tupperware segment and postponement until later in the year of some brand building investments.

To the question of whether we'll be able to continue through the year the higher than previously foreseen pre-tax return on sales performance, we do think we'll be able to bring a portion of this through as we've raised our pre-tax return on sales estimates for full year of 2010 by 80 basis points versus our February 1 outlook to 13.7% from 12.9%.

Again, it's a high end of the range. And this includes better pre-tax return on sales performance than our last forecast in the rest of the quarters for 2010, meaning we've done more than just assume a drop through to the full year of our first quarter upside and I'll have more on this when I talk about our outlook.

Versus last year, as outlined in our release, and by Rick, we had second quarter in a row with double-digit local currency sales growth which came from double-digit increases in four of our five segments with Beauty North America down marginally reflecting a double-digit decrease by BeautiControl.

Our $0.31 or 69% improvement in diluted earnings per share excluding items to $0.76 this year from $0.45 last year included the $0.08 benefit I just mentioned from better currency rates, along with the benefits of our 11% local currency sales increase and a 400-basis-point improvement on pre-tax sales without items to 11.8% this year from 7.8% last year.

About half of the ROS improvement came from more than a 300-basis-point improvement in the gross margin percentages of our Europe and Asia Pacific segments, largely from improved structuring of our promotional offers, from leverage on our manufacturing capacity, and a $6 million benefit from lower resin costs.

Beyond this there were contributions of about 50 basis points from more efficient promotional spending in the units in the Tupperware North America segment, 80 basis points from leverage on our unallocated corporate costs and net interest expense, and another 70 basis points from foreign exchange translation.

The foreign exchange translation item means that last year's pre-tax return on sales in the quarter would have been higher by 70 basis points if the FX rates had been this year's rather than the rates they actually were. Going the other way, we had a 3.4 higher, 3.4 points higher tax rate of 25.4% which was slightly more than our 25% expectation expectation including items. The higher tax rate versus last year cost us about $0.035.

Along with this, the higher number of diluted shares cost us $0.02 on the comparison with 2009 and that was in line with what we expected. Our balance sheet and cash flow management in the quarter was quite good as well. We improved to a small positive in cash flow from it operating activities net of investing activity this year, versus a $31 million outflow last year.

This reflected our bringing through to cash more than our $22 million year-over-year improvement in net income. As we announced with our fourth quarter 2009 earnings release in February, we initiated in the quarter our new approach to stock re-purchases where we're aiming at staying at having 63 million shares outstanding by offsetting all of the dilution from our equity incentive plans and made $15 million of open market purchases in the quarter.

We bought back 328,000 shares at an average cost of $45.79 and closed the quarter with 62.9 million shares outstanding. We also paid out in the quarter our first dividend of $0.25 per share rate that we announced last October which was a 14% increase from the $0.22 per share we had been paying each quarter.

We closed the quarter with the same 40% debt to total capital ratio that we closed 2009 with and continue to target to getting under 30% which we expect to reach at the end of 2010 or in 2011.

Turning now to our outlook, you saw in our release yesterday that for the second quarter we're calling for a local currency sales increase of 7% to 9%, in line at the high end with our 11% increase in the first quarter, after taking into account the first quarter two points B2B benefit where we don't foresee a significant comparison difference in the second quarter.

We're also facing a more difficult comparison, as Rick mentioned, as we were up 1% in local currency sales in first quarter of 2009 while we were up 4% in the second quarter. On profit, we think diluted EPS excluding items will be in the range of $0.95 to $1 versus you $0.86 last year. Included in this outlook is a $0.06 benefit versus last year from stronger foreign currencies.

At the high end, the outlook calls for a pre-tax return on sales of a bit over 14% or about 100 basis points better than in 2009. While we were 400 basis points better over last year in the first quarter we had $6 million resident benefit I mentioned where the second quarter outlook includes the negative comparison from resident end cost of sales of $5 million.

This swing accounts for a negative 170 basis points of pre-tax on return on sales in the second quarter versus the first quarter of 2010. In addition, the translation benefits from currency is 40 basis points lower in the second quarter outlook versus the first quarter benefit.

The tax rate excluding items in our second quarter outlook is 24%. For the full year, we continue to foresee a local currency sales increase in the 6% to 8% range which reflects the more difficult second half comparison when we were up 9% in local currency in the third quarter and 10% in the fourth.

On EPS, we've increased both the high and low ends of our range by $0.27 versus the guidance we gave at the beginning of February. Our $3.68 to $3.78 diluted EPS range including items reflects the $0.15 local currency upside we had versus our guidance in the first quarter, $0.07 better foreign exchange with a $0.12 benefit versus 2009 in our current guidance versus $0.05 in February.

While the euro is worth about 4% less in dollars than when we gave our February guidance our other largest profit currencies, the Mexican peso, Australian dollar and Indonesian rupiah, Russian ruble and South African rand all increased in value versus the dollar. Beyond these factors we foresee a net $0.05 benefit from an increase in our pre-tax return on sales assumption for the second to fourth quarters versus our previous guidance given our first quarter results.

Our return on sales assumption for the last two quarters is about 120 basis points above last year, including about 50 basis points from not having the $8.4 million of Venezuelan FX costs we had in the second half 2009 that will not recur. There's no change in the Venezuelan item in impact versus our previous guidance. Our full rate tax rate assumption remains at 25% excluding items.

On a segment basis, we're looking a for a 5% to 7% local currency sales increase in Europe for the full year versus 3% to 5% previously, a 10% to 12% increase in Asia Pacific, which is no change from the previous guidance, up 6% to 8% in Tupperware North America, up from 3% to 5% previously, about flat in Beauty North America versus the previous outlook of up 5% to 7%. And (inaudible) increase by Beauty Other versus up 10% to 12% previously.

There's improvements in Europe, Tupperware North American and Beauty Other. No change in Asia Pacific and a reduction for Beauty North America. In terms of segment profit return on sales, the outlooks are for improvements versus 2009 without items of one point in Europe, two points in Asia Pacific, and three points in Tupperware North America and Beauty Other.

We foresee a one point decrease versus last year by Beauty North America. All three Tupperware segments ROS outlooks have been raised. Beauty Other has not changed and Beauty North America is slightly worse on the better end of the range.

The outlook front, unallocated corporate cost is raised from $2 million to $52 million is reflecting the assumption of higher incentive costs and the outlook for net interest expense remains at about $27 million. Just a couple of other details, I said that our first quarter benefit of cost, in cost of sales from resin for products that we produce was estimated at $6 million.

There's a negative impact, as I mentioned, in the second quarter outlook of $5 million and now a negative $9 million for the full year. The negative outlook in February for resin was $7 million.

Given our good first quarter cash flow results and our improved full year earnings outlook we're raising our full year outlook for cash flow from operating activities, net of investing activities, by $15 million, to $215 million to $225 million.

This includes a capital spending assumption of $65 million for the year, which is $5 million higher than our previous guidance. So with that, we're going to turn the call over for questions.

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Andrew Sawyer with Goldman Sachs.

Thanks, guys. I'm just wondering on the topic of margins, you guys talk a lot about incremental margins being in the 30s. If I look at your full year guidance it seems by a full year operating margin in the mid to upper teens, can you just walk through how we should think about that? Is there a little bit more in investment spending coming through and maybe give a little more color on how we should think about it?

Yes, Andrew, good morning. There is some investment spending assumed in there. Actually, a bit less than what we were assuming in the first quarter when we gave the guidance during the first quarter.

If you look at the high end of our range in sales and take the 40% contribution margin we talk about, we would generate something in the $70 million range, and we're in the high 50s in terms of what is coming through. So that reflects $12 million, $14 million of investment both on offensive types of things, brand building, defensive things like BeautiControl as we transition into this new compensation plan.

A couple of the more oddball things net out like they did in the previous guidance where we don't have this Venezuela hit for $8.4 million. On the other hand, we have the $9 million drag from resin which wouldn't be reflected in the contribution margins all things equal. So that's really how we look at it and we expect to do that level of investment as we move through the year.

And just a quick one for Rick. I was wondering as the direct selling industry is starting to come back a bit globally are you starting to see a little more upward pressure on rep commission structure, and maybe if you can talk about how it's different for the Tupperware business versus the Beauty businesses?

Yes, Andrew. Firstly, I will tell you that in most markets of the world, we really have not aligned ourselves with other direct sellers, but run ourselves not compared to them, but our business opportunity.

And I know from research in multiple markets, rarely does one of our people look at us and say, well, could I earn more money selling for example, Mary Kay versus us? The source of the bulk of our recruits, it's somebody that comes to it from a party or what we call GPS, group presentation selling. And if you kind of draw a circle and you'll say that's a party, and there's a hostess to the party, who she invites to the party are her friends, neighbors and relatives.

Three things happen at a party. Number one, sell. You try to sell, you try to get get six to eight people, you try to sell them.

Two, you try to perpetuate the party. You try get two of those people to hold a party and to become a hostess. Who do they invite? Friends, neighbors and relatives. And the third thing try to do is, if you see somebody unique who looks like they really could be the right one, you would recruit.

So what that gets down to, Andrew, is almost six degrees of separation that you could look inside your own business, make sure we've got a good, compelling career opportunity and not feel the pressure from other direct sellers because as we've said, I've seen some of these multi-level marketing firms out there have these high levels of commissions.

But it basically, the Amway kind of businesses, the wholesale buying club, so the wholesale prices are really would be a tantamount to retail prices in another kind of business. So we really try to say how do we make this compelling of itself? Very rarely have we ever lost people that go somewhere else because their commission structure is different. Forget the long answer, Andrew, but it, we really haven't felt that.

That's really very helpful, Rick. Thanks for your time, guys.

Yes.

Thanks.

Your next question come from the line of Olivia Tong with Bank of America-Merrill Lynch.

Thanks. Good morning, guys. First question I just want to ask is about the sales executions because I realize that the second half comps get a little bit more difficult but you clearly upside into Q1. In Q2, the outlook looks good. And it sounds like with the exception of North American Beauty everything else looks like it's getting better. So what sort of change in terms of your thoughts on the second half?

Okay, Olivia. I don't think that it's basically a change. If you look at what we've said, we're implying about a 6% increase in local currency on the high end of the range in the second half. And if you look at where we've been over the last couple years taking into account the really higher quarters and the lower quarters to comps we're running in the 6% to 7% range when you take the two-year average. And that's really what the forecast continues to see.

Right. But if you're, I mean, you came in above your expectations in Q1, Q2 looks good, and you haven't, the full year outlook is the same on a low currency basis. So I'm trying to understand, are there any moving parts, what are the moving parts in the second half, realizing that North America Beauty is really the only sore spot in terms of under performance relative to probably what you're expectations were going into Q1?

Right. And, and one of the things in the first quarter, so we had said 8% to 10%, and we really hit the high end of our range and then we got close to a point from higher B2B than we expected, and those are a bit lumpy as we characterized it.

We did have some good B2B in Mexico, for instance, in the fourth quarter of last year that will last. And so all that's been factored in and it was in the previous guidance as well.

And I might add, too, is the, with regard to us doing B2B, we, we don't necessarily put a number cap on it. But we don't want too much of that going on that we have a relationship with not only, we've done it in, in China, and with [Soriano] in Mexico, but if it gets past a certain point, it undermines our business, and we're doing it for brand building, and the lumpy thing about it, as Mike said, is really with comps.

Because we don't sit there and when we're doing a profit plan for the year with a country, we don't sit there and say, okay, you're going to beat your last year B2B. We basically will say to countries almost in contrary, we'll say don't go above your last year's B2B contribution. That can distort comps at times.

Can we talk a little bit more about the B2B business because you've expanded that to China. Is this becoming a bigger focus year or how are you managing that and are you looking to maybe do something like that in other, in other markets as well?

No. We're not, no way are we looking to expand it. It's always been a part of it. We've always talked about it.

I mean, part of getting our, our Austrian business back, going again, is we use some B2B there to help build the brand name. And just from time to time, it's very, very opportunistic, [Soriano] for example in Mexico is a big chain and you can't go in and buy Tupperware products at a [Soriano].

But what you can do, in fact, the old S&H Green Stamp program in the US, you can get this unique group of Tupperware products, but it brings with it a bounce back provision that you go to a Tupperware party after it. So it's like, they used to do it when I was growing up where you collect glasses at gas stations. So it's very selective and it's not a primary strategy at all. But we also believe in transparency, anytime we get the benefit of B2B to help build the brand we want you to know where it came from.

That's why I would sit there and say, yes, up 41% in Mexico, 20% of it was from B2B, 20% of it was from our core business and we measure management on the core business.

Yes. And, Olivia, last year in the first quarter we had very little B2B, and this year, as I mentioned, it accounted for about 2% of our increase and so that was coming from not very much last year. So it's $10 million, $11 million out of the $557 million we did for the quarter, and when you look at it on an annual basis, we wouldn't expect it to be above that range normally.

Got it. Okay. Then just turning back to the more core part of the business, sort of following up on Andrew's question, as the macro environment improves there's opportunity to sort of accelerate the mix improvement, I'm wondering are you seeing a little bit more signs of potentially trading up, and, what, if anything, are you doing to sort of accelerate that a bit?

Yes. It depends on the markets out there. I've been out there. I was, I think 26 of 31 days this last month, and, I really see different things.

I was saying in an interview earlier, probably the most difficult area of the world that I'm seeing from a consumer confidence area is the US Not Canada. Canada, I might add, they didn't have a single bank failure.

They managed through this subprime issue. They didn't have it.

But it's, it's the US, and there's a huge gap there in confidence between, and, again, I'm more European, I'm not a Republican or Democrat, all we can see is from consumers that there's been a huge focus on the administration on healthcare reform, but with the consumer, the focus has been on my income and the economy and that gap plays out into lower consumer confidence and I think a more difficult headwind.

It's much better in Europe. They've been very decisive, even given what's going on in Greece, very decisive, the Sarkozy government and the Angela Merkel government in Germany, the two biggest economies.

And then playing out in Latin America it's been very important to see that in Mexico, you've seen the strengthening of the peso there in spite of all the, the other issues in Mexico, narco wars, et cetera, that currency. And you're seeing it down through Brazil and Argentina as well.

The question mark there is Venezuela. Then I turn here over to Asia Pacific, well, the only big issue in Asia Pacific right now is what's going on in Thailand right now. But the other, there's, if I turn to the first quarter last year, there was a general stall out, panic in the world.

This year much more confidence and firming up on what's going on. I can see the, the road ahead in most markets of the world with the exception of the US Forgive that long answer, Olivia. Yes.

No, understood. But I'm just kind of curious, what, as the environment does look like it's improving, are there things that you can sort of do to accelerate growth even further, not just through, not just through unit movement but also through mix improvement as well?

Well, I think what you start to see is you see productivity improve, sales force, that's why I was pleased to see off a 7% sales force size advantage us get 11% sales increase. That shows strengthening, that shows, case in point, Indonesia.

I was in, not only Jakarta, but Surabaya there, we've now got a sales force almost 100,000 in Indonesia, and we doubled our business last year, did not increase the number of distributors we had, but decreased it by 10%, but raised standards. Raised standards on what you needed to do to become a sales representative, standards to become a manager.

Used to be just became a unit manager when you recruited three to five people. Now you have to become a team captain first. So what I'm pleased to see is, these standards speak to, and the effectiveness of getting attraction with standards, speak to strengthening in the marketplace of consumers and I'm hoping to see that more.

Got it. And then just last question, you mentioned in your interview that looking to re-enter the UK and historically that's been a bit of an erratic market, so I was wondering if you can get a little bit of a sense what sort of was the driving decision makers behind that?

Yes, well, you've got a market there, I don't know what the total pop is there right now, but north of 50 million people. The brand, we just did research. We exited that market 10 years ago because quite frankly, and I'll put this at my door step.

My first 10 years with the Company our cumulative losses were $30 million, and I said, I was raised that you stop bleeders, and I gave it one more year and another year and another year and finally said, $30 million that's it.

And the gap there was, we, the, the product line had gotten better, the parties had gotten better, but our sales force in the US, we had a boots sales force, and a (inaudible) product line and party program, and we said the only way we can do this thing right is we've got to start over again with a different sales force. We basically had a sales force that was Cs and Ds and the product line that was As and Bs and a party that was for As and Bs. So we said, let's go sit on the sidelines and we'll re-enter.

So we did research this last year and we found out, this was shocking, Olivia, to us, positive, that in those under 40, the name recognition was north of 90% and it was positive. And they were looking for an earning opportunity. So we're going to come in with much more a Mayfair approach, rather than and an East End approach.

But again, I've got to put it in perspective. It's a small country. Again, I'm going to be in Mumbai tomorrow.

Mumbai, the city of Mumbai has 40 million people and the UK has 60 million people, which matters more? Just do the numbers. That's why, I'm constantly still amazed on how much focus our business has, investors with the US business, the US is 5% of the world's population. If we do the math, we're going to scramble to try to keep up with where the population is. One out of every five people in the world lives in China.

One out of every people in the world lives in India. Indonesia, it's the fifth largest population. Brazil is fourth largest population. So you really start to say, Mike and I kind of rolled this out. We look at expansion geographically in these markets.

Expansion of productivity in these markets, and just expansion with the growth of the population. So it's, often in our established markets we feel like we're doing nothing, but there isn't anybody that lives there compared to the rest of the world.

Understood. Thanks a bunch

Your next question comes from the line of Dara Mohsenian with Morgan Stanley.

Hey, guys.

Hi, Dara.

Rick, can you discuss BeautiControl results. It sounded like you're seeing some positive underlying signs in recruiting in Q1, but the Q1 results were weaker than what we expected on both the top line and margin side and you lowered the full year guidance for Beauty and [A], so what's your level of confidence that you'll experience improved trends in the balance of the year at BeautiControl, and if these changes don't pay off that you need additional investment back behind the business?

Yes. Thanks, Dara, and good morning. The problem with BeautiControl is a problem of our own making of letting that business about three years ago just, too much focus was on sales force size and not the qualitative aspect of, oh, and what were the sales force, were they sellers or buyers. They're, and management made the numbers, we made management changes there.

From the things that are precursors to top line sales growth in real direct sales company, not a multi-level marketing company or a network marketer are things like -- your great source of recruiting are your managers. And the pipeline starts with what we call VIP managers there, and the first thing I see is that 88% increase in Q1 increase in VIP managers.

People who qualified, says, wow. Because those are a source of recruiting. Next is, I see doubling the level of new directors, almost doubling, from 71 in last year 38. That also is a signal because these directors were the VIPs in the making in the past, and even down to the point of senior executives, the big, this is the big multi-thousand per month income people, all last year we only had 13, and we had almost that many in the first quarter.

So it shows that the qualitative things that Albert and his management teams have been working on are scoring big traction points, and quite frankly, Dara, if we don't have the sales increase in the second half of the year, I'll be greatly surprised. I mean, this is a profitable business.

Our whole focus here is profitable but it's got to be that our hurdle right at 15% segment profit. And we won't get there this year, but I think you'll start to see a sales increase in the third and fourth quarter. I think they're doing the right things.

Okay. That's helpful. And then in China, the huge growth in the quarter after the double-digit decline last quarter was a pretty big surprise, so can you give us specifically what's changed there and what the implications are for China in terms of the growth potential the balance of the year?

Yes, I think they did two things really right in China. One that we did, and the other that just happened externally. Consumer confidence was really low in the first quarter of this last year.

I think I mentioned anecdotally our group president was looking out across the harbor in the first quarter of 2009 and he believed he saw the whole Chinese fleet in port empty. Because and that was the result of the lack of orders in the US business. So you had a lot of consumers on the sidelines. That has gotten better and better and better throughout, so that's helped.

On our side, what I think our guys have done is adapted their product line more effectively. It was very heavily in the latter part of 2008 in selling high priced cookware items and that kind of stuffed the channel and they got better at focusing on new products that were more in the price points of our consumers. So that's kind of coming together.

And you know what, as we start to open more and more of these centers, then you'll start, we generally get a sales increase from two things. More sales per sales center. Again, the only reason we use sales centers is the typical apartment isn't big enough to hold a party, so we get more productivity from sales centers, and the second is, more sales centers. So they're going down the road.

I mean, again, we had a big awards ceremony with all these Asia Pacific people last night, and I just noticed last night, Mike and I were giving a lot of awards to the Chinese. Their momentum is very good. By the way, I might add, probably the average person in our Chinese business, and this is a real swag, is 32, 33 years old, college educated, just amazing.

And entrepreneurially minded. You would think like all the entrepreneurs used to come from Guangdon Providence in Hong Kong. Wow, has it spread.

Okay. And then, Mike, did you say specifically how much B2B contributed to China in the quarter?

It was around half of the increase.

I'm sorry?

One half.

One half.

Okay.

So they still had a 30% increase, again the only other notable was Mexico, and the core business was about 20%, and the B2B was about 20%.

Okay. That's helpful. Thank you, guys.

Good talking to you, Dara.

Your next question comes from the line of Per Ostlund with Jefferies & Company.

Thanks. Good morning, Rick and Mike, congratulations.

Thank you.

Question, following up to Dara's question on BeautiControl, is, with the compensation plan, it was a couple years in the works, is the transition, because you referred to transition in your comments, Rick, is the transition any tougher because of the sea change in comp and, I guess, the reason I pose the question is it sounds like you're confident that we're going to return to growth in the second half and it sounds like it's probably fed by what's looks like a nicely building pipeline of people in the system. Is that the right way to think about it? Is there anything that can kind of go off the rails here? Or is the transition mostly taking effect?

You know, I would change the word to, from confident in second half growth, to I will be greatly disappointed if we don't have it. I'm not yet confident because I have been disappointed in the past, and, boy, the longer I'm in business and the older I get, the more I figure I've learned that things sometimes take longer and cost more.

I am confident we're on the right path there and the changes we made were the right kinds of changes where we wanted to build very -- I've been doing this presentation within our Company on the fundamentals of the six key fundamentals of direct selling and my second point always is, to ensure that we keep selling in direct selling, because the direct selling industry, particularly in the US, has become a wholesale buying club industry, where it's just signing up people to buy kits to become users rather than sellers. That was a slippage at BeautiControl.

It's part of our businesses, we don't do that. And so I have confidences that we're going down the right approach. My timing may be off, but if I had to bet on it right now, I would say, we'll have a sales increase in the second half of the year.

Okay. Turning, I guess, to gross margin on the first quarter, I think that was the number that was the most eye popping from our standpoint, you've always been able to manage that line very well, I think, because of your channel, but this seemed even better than usual.

I think it was the best gross margin in several years. Was anything materially better than you expected heading into the quarter? I don't think resin was that much better, but maybe you can remind us what arrows you have in the quiver to manage that line because it obviously came in very strong?

I'm going to ask Mike to dig into that, but I will tell you firstly on this, we have put incredible pressure on our marketing and product people to have differentiated yet relevant products. And so if you would like like an airline looks at a hub and spokes of the different places that does business.

Food storage was our hub and then you start to work off that to food preparation, cutlery, kitchen tools and gadgets, all the various things to home organization, we, baking, blah, blah, blah, blah, blah. We had, as the brand name has been strengthened, we have had, therefore, the license to move in to other categories because the one thing I keep, and our Company keeps preaching with our organizations out there is, we don't sell commodities.

We don't, some of the direct sellers out there, one of the biggest, 85% of their sales are products sold at a discount. Don't discount. You can use promotional, buy one get one, purchase with purchase, gift with purchase.

Every once in a while, some special kind of a thing. Don't train your sales force and the consumers that that's the way you're going to do it. Because what will happen is, you'll end up killing gross margin in the future, so philosophically that's the premise. Mike, I'll ask you to continue on that.

Yes. Per, the forecast of what we got was a bit of a bump from the leverage on the volume, on the fixed costs that are within the gross margin category.

And then also a long with what Rick is saying, our people in the Tupperware segments were able to get better realized margins on the promoted items that we have. So a large proportion of what we sell is under sales specials (inaudible). The realized margins is we structured what we were going to do with gift with purchase, purchase with purchase, and any sort of a concession on price, was just better than what we expected.

Okay. That helps. And then just one really quick one, I feel like you've probably talked about B2B more than you might ordinarily like, but just curious, really quickly on the dynamics of how a relationship like the [Soriano] one comes to pass, who's coming to who on this? Is this Tupperware recognizing a strong potential partner and you're going to them and presenting an idea, or are they looking to do it and coming to you?

It's usually them coming to us. And I will tell you for the bulk of them, we will say, and well over 75%, we say no.

Okay.

On it because we believe it will hurt our brand. But for example, P&G, now it's a multi-billion dollar product, Swifter, they come to us, and they say, hey, the original negotiation years ago was, we'd like you, would you like to have Swifters that you can give away at parties and I'm forgetting the number was back then. It was a product that was going to sell for $15.

They come to our marketing people and said, we, this is a product that people don't know, and it needs to be demonstrated, would you guys do it and we'll give it to you free you can give it to everybody that comes it a party, and we say, with that, no. But if you give us $10 million, we'll do it.

So now, they give us the product but they pay us to do it, we'll look for those kind of deals opportunistically out there, and it's too good to pass up, so you have to figure out things that will not undermine your brand.

Sometimes if a consumer loyalty program, we've had them in the past, in Japan, somebody buys a certain, or in Korea, somebody buys a certain refrigerator that is meant for holding their food staple, kimchi, and we happen to make a great kimchi keeper and we'll, if you buy this, you can get a Tupperware kimchi keeper. So it's very opportunistic, but if you took the whole year, a typical year, Mike, what would you think this would represent in sales?

Last year it was around 1% of sales if you take all the B2Bs.

Yes, the only reason we mentioned it, it isn't the worth the time we're talking about it, but it's in the interest of full disclosure when you have one operating unit in order and it's only two operating units, and it may happen in, I don't know, six, seven, markets of the whole world all this year, it's not much, but opportunistically it can help build a brand in that market then we'll do it.

Sure. That makes sense. All right. Thanks for the time.

Uh-huh.

Your next question comes from the line of John Faucher with JPMorgan.

Yes, good morning. So I wanted to follow up on some comments you made about pricing, and can you just give us a little bit of a view in terms of the impact that pricing had on the numbers, as well as you know potentially mix benefit there in terms of whether that's factored in?

And then also how that changes over the course of the year, as you look at the tougher top line comps is there any sort of difference between how units will trend versus pricing versus mix? Thanks.

I'll turn it over to Mike. But, John, first, I saw your first reports came out and you really helped me prep my answers because asking on why is the BeautiControl turnaround taking so long? It encouraged me to get some more data on BeautiControl and the other is what drove Tupperware Mexico for us to amplify that it was part this, and part that. So I wanted to, before I turn it over to Mike, thank you for those.

No problem.

Right. John, really the one place where the pricing stands out in a major way is in Venezuela, as you'd expect, with the inflation in that market with tons of crazy things going on. Beyond that, we really just stuck to our approach of doing pricing in line with consumer inflation, which, as we all can appreciate, has continued to be fairly low, or very low in most places. So by and large we're getting into volume now.

When we do our brand building activities in our newer markets, in the emerging markets, and we continue to train our sales force on the futures and benefits, particularly at the top end, and they push that through to those consultants that allows us to get some of these productivity improvements because we're able to sell higher price points products.

So it gets into what you're saying, or what you're asking about with mix and we should see that come through the numbers. Rick mentioned that we were up 7% in total sales force and up 11% in sales, which is true. If you look at the active sales force, and this has got a variety of thing that impact it, but we were even with last year with this sales increase. So those are some of the factors and then we've gotten a lot more volume as well.

Okay. And I assume given the fact that you're saying sort of price and mix is relatively consistent, there shouldn't be any swings in price relative to mix versus your total type line comps over the balance of the year, is that a fair statement? Everything sort of accelerated together?

Yes, that's right.

Okay. Cool, thank you.

At this time, there are no further questions. I will now turn the call back over to Rick Goings for any concluding remarks.

Well, guys, thank you for your time, you're interest. It's 11, almost eleven-twenty here in Singapore. I don't know, boy, sometimes I do the wrong thing. I have signed up for a Fox interview at three-forty am. this morning, so I'm going to go get my three hours sleep before we start these meetings here with all of our people tomorrow. But a lot of good momentum.

I've got to say, the biggest thing I can say about it from the blend of our market is, if I turn to 1996, we were one a one-trick pony. This was a Germany story, and I feel good about what's going on in Germany, but there, but there's so many of our businesses out there that are contributing. We had a very good first quarter and as the Greeks always say, as the morning goes, so goes the year.

I think we set the tone on momentum for the year. But I might also add that we have 25% of our businesses that we would still say in the penalty box out there, that they're not up to the ROS or they're not making any money.

So we have a lot of opportunities to improve on it, and by the way by the time we figure out some of those, and I think we will this year, there will be some surprises and we'll deal with those. But I think the portfolio, just like so many of you managing portfolios, overall, really looks good going forward and there's a lot of momentum in it. So anyway, guys, thank you for your time and we appreciate it.

This conclude today's conference call. You may now disconnect.