Tupperware Brands Corp (TUP) 2010 Q3 法說會逐字稿

Good morning. My name is Dorothy and I will be your conference operator today. At this time, I would like to welcome everyone to Tupperware Brands' third 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 period. (Operator Instructions). As a reminder ladies and gentlemen, this conference is being recorded today, October 20, 2010.

I would now like to introduce Rick Goings, Chairman and CEO of Tupperware Brands Corporation. You may begin your conference.

Thank you, Dorothy. Everybody, sorry we're getting started a little late. We had a lot of people dialing in and we didn't want to cut some people off. I'm here with Mike and Nicki, and as always, our discussions involve forward-looking outlook of our business; so you know the drill on that.

Mike and I will give you a little more detail on Q3 results this morning; also on how these various business units performed; also we'll give you a little outlook on what we're seeing. We've already got a month under our belts almost in the third quarter.

I think it's important to note before we get into the narrative on this that how we run this Company. We're very close to our business units. Simon Hemus, as I -- as we do this call, Simon is in China. Over this last quarter, I was in Germany, the Nordics, France, Austria, Switzerland, Russia, Mexico, Australia, the Philippines, and Puerto Rico. And then we also spent time with about 4,000 of our BeautiControl people in Dallas as well.

Each of our areas of the world as a Group President and every country has a Managing Director, and we get those people together on a very regular basis. As a matter of fact, I'm convinced that there's no company in direct selling that spends more time or attention on developing its leadership people and developing new strategy.

Anyway, having said that, now let me get onto the quarter. We were up 3% in the quarter. And as I said the last time we had a conference call, we were up against very stiff comps in the back half of this year. If you'll remember, they were easy comps the first half of the year, single digit, but moved to a double digit in the second half of 2009.

And as we said in the past, one of the key strengths of our business is that we're a global portfolio. Not all of our businesses have to perform well every quarter in order for us to maintain a healthy level of growth and not only top-line, but profitability as well.

We really did have some challenges in a few of our large markets, but we were still able to come in over a 9% sales increase last year, still with a 3% sales increase. And what I was particularly happy about was we reached a record profit level for the 14 years we've been a public company, that is for the third quarter.

And the third quarter, by the way, particularly given Europe is a big piece of our business, Europe in July and August pretty much goes on vacation, so it's one of our smallest quarters. Our continued growth, by the way, is not -- it's not about luck. We have people who understand how to successfully execute our direct selling formula.

There are three main ingredients to it. And as I've said for many of you that we've met one-on-one, it's really the combination of developing innovative products; two, creation of selling situations that are entertaining but also allow us to differentiate and demonstrate our products; and third, the offering to our sales force of a real earning and leadership development opportunity, and our management teams around the world to learn how to adapt and adopt this formula to fit the local market and cultures.

As a matter of fact, in the third quarter, I was with about 120 of them in Montreux, Switzerland, where Glenn Drake, our Group President of Europe, Africa and Middle East, spent really four days down to the level of Regional Sales Vice Presidents, really looking at case studies of which markets are doing the best so we can learn how to adapt and adopt. But basically, it comes to these three elements that drive our business.

Our emerging markets in the quarter generated 59% of sales and continued to deliver strong growth with a 9% local currency increase. The established markets were down 5%. However, importantly, these declines were primarily isolated to just three markets -- Australia, Japan, and BeautiControl. Our other established markets were up 1%.

We were pleased to have continued growth of the sales force and to end the quarter up 8%. It's been some time since we've had that kind of advantage and we're looking to add more sellers going forward, because this is the main driver of growth.

Let me drill down a bit on our established markets of the world. Our European established markets were up 4% in local currency; Tupperware France, once again, they're now dodging burning cars, as I was watching it this morning, and [coverage] you've seen too, but it's interesting -- our trends for Q4, as far as the party line, still look good. France was a standout, up 26% in local currency.

By the way, a year ago, they were up 19% in the third quarter, so real difficult comps. Again, too, we've been in France for 50 years. We're the largest direct selling company there, and I really say the management team there has done a wonderful job at really adapting our formula. In France, we've clearly become a culinary company with a prestigious product line, high quality. The hottest selling product in France right now is just about $140. We're the biggest seller of cookbooks and very entertaining kind of a party situation there. Again, a girl's night out.

Additionally, we've incorporated a performance mindset through our sales force compensation plan and promotional program. This mindset incentivizes the sales force to recruit and work with new recruits to help them get off to a successful start. It's led us to a larger and more productive sales force in France. And clearly, our sales force are not the people marching in the street protesting moving the retirement age from 60 to 62.

Turning to Germany, we were about even in the quarter in local currency sales. I was there in August and saw all of the distributors. I was really pleased to see that we've ended September with 7% more sellers than the prior year. And this is the precursor to sales increase. So, as we've said, we're implementing many of the strategies that have been successful in France in other markets, and most notably, Germany.

As a matter of fact, [George Jaquix], who is our President of that business there, was a President of our French business. He is Swiss-Luxembourg and he understands how to do this. We see the positive outcomes and productivity of our sellers, and the promotion of a lot of our sales force and managers and team leaders in our business in Germany. So I'm confident that we've got the right strategy in place and the right people in place in Germany.

As a matter of fact, in the third quarter, I had our entire Board of Directors spend a couple of days there in Frankfort reviewing our business with us, and getting to see the leadership pipeline of dynamic young people coming along in France. So I'm expecting the same kind of progress that we've seen in France, in Germany.

I also want to highlight Tupperware Austria. They are more than 50 years also. We have increased our local currency sales in the quarter 20%. This is another market -- established markets where we've had a string of double-digit increases over the years, and I'm pleased to see how the management team there has executed to formula.

In fact, the only European established market with a noteworthy sales decrease was Tupperware Greece, and that was really the result of what's going on in that country. Greece is one of our mid-sized businesses in that region and we've got a terrific management team on the ground; so I feel we'll get that stabilized.

In Asia-Pacific, our established markets, we continue to struggle in two markets there, Australia and Japan. And it's really a different kettle of fish for each of these.

Talking about Australia, if we break down what's going on, we believe it's a combination of external and internal factors. Australia didn't really experience the same kind of global economic downturn the last part of 2008 and in 2009 as we saw in the rest of the world. However, now people are feeling the effects of interest rate hikes. There's been a compression in consumer spending early on in the year.

Our sales force also, as a result of its finding it more challenging to get a yes when trying to schedule a party or to recruit somebody into the business, the good news is that the consumer confidence level is currently on the rise for the latter part of this year in Australia, and economists are starting to revise upward their forecast for Australia's growth.

Internally, in Australia, too, I must say, we started to see this early on in the year, and our management team went to their playbook and used some new versions of some of the promotional drivers that we've used successfully in the past any time we've had these kinds of issues. And we were disappointed, and they are too, that it really didn't generate the kind of growth in sales force that we expected.

As well, we did change some major sales force events in an attempt to get this reversed, and we also didn't see results from that as well. So we're still working on exactly what is it going to take to get this trend line changed. However, we are enhancing our recruiting activities outside of the party.

We've also heightened our focus on expanding the ranks of key recruiters, which are managers in that business, by enhancing the incentives to their career track. Having said that about Australia, we've got a very strong management team.

It was actually -- Australia was named Country of the Decade for the first decade of the millennium, because for four of the years, it was Country of the Year. So we have people on the ground who know what they're doing. We've just got to figure out the formula for this particular environment and set of issues. I do hope we see sequential improvement in Q4 and back to growth again in 2011.

Let me turn to Japan, where it's very different in Japan. This is a situation that we said where we've got to have more dramatic changes. And we've been on that path. We're a year in to reconfiguring our business model towards focusing on more core Tupperware products and really establishing new standards in the sales force. But again, it's going to take time before we see a lot of progress.

Worth noting is that many of the changes we are making in Japan were the same kind that we first implemented in Korea, very similar kind of a market, several years ago. And that market is not only back on track, but cooking. By the way, our current Managing Director of Japan is the same one who turned around our Korean business; so he's got a very good playbook.

Expanding now on our North American business -- the sales in Tupperware US and Canada was down 2% in the quarter. We were up modestly in the first half of the year and I hope we see that in the second half of the year as well.

We intentionally shifted timing of some promotional programs in Tupperware US and Canada at the end of the quarter to two weeks later than we did last year, because we felt it made a lot of sense for the business. However, what it did was it really it kind of stole some sales from the third quarter with our comps, and so some of the sales from this promotional push will be shipped in October. It was better for the business; doesn't look good for comps, though.

The good news is that we should see the positive shift of this in the fourth quarter. In addition to the benefit, the shift in timing, we expect to see some top-line growth in our US/Canada business in the fourth quarter from the very nature of growth of the sales force and productivity.

Finally, regarding estimates in our BeautiControl business, we are not pleased with our performance. This is taking longer than we want. We did, though, see sequential improvement with an 11% decrease in the third quarter versus a mid-teen decrease in the first half of the year. Obviously, we want to see faster progress.

The good news is that recruiting is picking up and that's the precursor to sales progress. And we're making progress in reducing the sales force size deficit -- which, by the way, we have that deficit in the quarter. So that's a very positive bit of traction.

The standards for the new compensation plan provide direction and motivation for really building more leaders in the future rather than customers. We remain confident this business has significant growth potential. Remember, we've doubled the size of this BeautiControl business since we acquired it, but it's got a lot of room left for growth.

Now let me turn to our emerging markets of the world, where we continue to see strong sales growth quarter after quarter. Our emerging markets were up 9% in local currency, even with the dramatic decline in the CIS in the quarter, and I'll get into that in a second.

The emerging markets were 59% of sales in the quarter. Our continued success in the emerging market is really driven by two elements -- number one, the power of the earning opportunity we offer women; and secondly, the direct selling service to consumers who really don't have a well-developed retail infrastructure. Our emerging markets business model, they're -- simply stated -- effective and efficient, and they continue to operate as a group with a higher return on sales than our established markets.

We're in the early stages of geographic penetration. If this was a baseball game, I'd say we're something between the second and third inning; so we've got a lot of growth that we expect over the next five to seven years, and increasing geographic penetration and productivity in most of these units will be what brings that growth.

Digging down further in the emerging markets, let me turn to Europe, Africa and the Middle East. We saw another quarter of growth in our larger businesses of Tupperware South Africa and Turkey. The largest piece of that business there was still offset, though, by Russia and CIS, the Confederation of Independent States, where sales declined 36% in the quarter.

Of this, in Russia/CIS, 7% was from that overstatement we talked about last year in the quarter, and this was in part of the amount that we booked in the second quarter this year. On the profit side, the overstatement was $2.5 million, so it caused the overall year-over-year comps for Europe to move to negative, but it was really because of this restatement.

Let me comment on Russia. Again, I was with all the distributors there this last month. We're pleased to report that there have been no additional out-of-period amounts to record and we continue to believe this is behind us. I was there again this last month -- Tom Roehlk, our General Counsel, was there.

Mike is going to get into more details on this, but we've successfully completed the implementation of a upgraded accounting system; we've installed a new CFO; and we continue to strengthen our controls there. But, again, Mike will talk more about that. Mike, I probably said a lot of what you were going to say, but you can say it again.

Let me put it in perspective, though -- the Russia/CIS business in the third quarter. We have had 10 years of unprecedented, uninterrupted double-digit growth in Russia through 2009. But as I mentioned, first -- or it was actually second quarter last year, we began to see some signs of softening in the first quarter 2009, largely driven by devaluation and the resulting challenges in consumer spending.

Our Russian management team there did a fine job reacting last year with promotions, products, extra incentives, but also that extra push. And our sales force had to be driven hard to continue to achieve growth despite the headwinds. I've got to tell you, the price you pay for that is somewhat of a dissipated energy level with the sales force. However, the mood's good. We didn't plan on these fires also in Moscow and the widespread heat wave.

By the way, Moscow was basically shut down for six weeks of the third quarter and that's a large concentration of our sales. So, it really exacerbated a challenging situation.

I was in Russia, and when I met with the distributors, we really worked on how to get them back into the growth mode again. These are tough and these are resilient people. And we're beginning to see them focus back on that business again and renewed energy levels. And was pleased to see some better reported activity in September and in October. As a matter of fact, the last three weeks, some real positives. So I hope we can report some progress in the fourth quarter. Certainly, it will be much better than the third quarter.

Now let me turn to our other emerging markets in this segment, Tupperware South Africa -- solid, again; 19% increase. The level of growth speaks to the dynamic business we have there. And even they were effective mid-strikes in the country in August and September. The foundation of our business continues to be recruiting; 33% higher sales force this last quarter than last year and very successful in expanding our business to the black South African market. Of the 49 million people there, really 43 million are black South Africans, and this is a wonderful opportunity for us to continue to grow.

We also grew in Turkey, 58% in the quarter and that was on top of 20% the third quarter of this last year. And although it's still a smaller share of our business than many of our emerging markets, there's 70 million people there, and our formula really is working. We're excited about the future of that business.

Let me turn to Asia-Pacific emerging markets -- another good quarter, 22% up in local currency, and except for China, all had strong double-digit increases. In China, a clarification -- local business there, 3% up over last year, but this really was reflective of a 17% hit on comps from a lower business to business sales. The underlying business, very strong, in our core direct selling business.

We maintained a very strong outlet count, and at the end of the quarter, we're up to a record number of 3,000 direct sale outlets. Again, these are little kind of storefronts because most of the apartments there aren't large enough to hold a party, so that's where it's -- think of it as a local neighborhood sorority house. So, we also have a record number of preferred customers and these are people who come to those parties.

Our business in Indonesia -- wow, our largest direct selling company in Indonesia doubled our business last year there. We've been there 19 years. And we were also up in the quarter 29%. Ditto with regard to the growth in our India business -- local currency increase of 56% and very strong double-digit comps for this last year. So -- because you've got to remember, China, India, Indonesia, these three markets are 47% of the world's population and we are really a force there.

I've been pleased also that we have been named in India and in China a Super Brand, which is remarkable when we don't even advertise. So the effectiveness of our business model and direct selling.

The growth in these markets, by the way, is a result of the management team really focusing on these three things again -- unique products, dynamic selling situation, and opportunity for women. Also I want to highlight -- we're talking about Asia-Pacific -- mid-teen growth that we saw in Malaysia and Singapore and Korea, also up 19%. So I hope some of this is contagious from Korea to Japan because it's -- we're basically utilizing the same strategies. All of these business units ended the quarter with sales [for size] advantages, which sets them up for a nice Q4.

Now let me turn to two other large businesses in emerging markets. In Mexico, our Tupperware business was down slightly in the quarter. As mentioned in July, the second quarter benefited from shifting promotional program -- this sometimes happens in our business. And we do it for the right reasons to really drive overall annual sales. Although it may not fit with quarterly comps, as we'd liked it, it isn't as neat as it may look, but it's the right thing for business.

We struggled early in our Tupperware Mexico business in the quarter with recruiting and activity, but we seem to have turned the corner as we move through August and September. We ended the quarter for Tupperware Mexico with 7% sales for a [size] advantage and the largest sales [force] in our history.

And by the way, last week, I was at 1,400 of our Tupperware Mexico managers and I can tell you the mood is positive. And they are, as a group, younger and more dynamic than I've ever seen in that business unit and it speaks well to the future.

Also, Fuller Mexico, our largest business unit, we were about even with last year in terms of sales, but we've started to see importantly recruiting numbers go in the right direction. We closed the quarter with 5% more sellers than last year. And there in Fuller, we continue with our focus on a lower turnover of field managers and we're starting to see progress there. And these are the people responsible for recruiting sellers through enhanced training and through sharing better practices.

And so it's been a learning for us there but we're starting to get traction. There we also -- we employ a strategy merchandising-wise. It's called trendsetter. Every two weeks, there's a new brochure. But with trendsetters, we test our merchandising and programs of future campaign cycles by rolling them out a month earlier to 5% of the sales force. And this gives us time to make any adjustments we need to make with regard to offers that may not be getting the results we want; also to make changes with regard to the supply chains when there's massive oversales.

The insight we have from our current trendsetter campaigns here, sitting the end of October, gives us visibility even a month further into the fourth quarter. So we pretty much have a good look at two months of the three months of the fourth quarter for that kind of business, and we like what we're seeing.

We are headed into the fourth quarter with the momentum of a 7% sales force size advantage growth in the month of September and a 5% sales force advantage for Fuller Mexico as we head into the fourth quarter. And by the way, while in Mexico this last week, Simon and I both reviewed Fuller's strategy and progress, and both left us with heightened confidence. So again, we've got 7% size advantage in our Tupperware and a 5% in our Fuller business there. So that speaks well for the fourth quarter progress.

Finally, let me talk to Beauty Other segment -- and Mike, we're going to change how we depict this in the future, because it's confusing to me, and I live with it every other day.

Our Beauty Other segment had a good overall quarter with an increase of 16% local currency. We had another strong quarter in our large and profitable resilient business where we were up 33%, mainly due to higher volumes. We're seeing the benefit there of our Tupperware University program that trains managers, and recruiting and promoting. And we've had, in Brazil, a higher number of active and more productive sellers in the quarter.

And by the way, this 33% up is very important because very strong double-digit comps this previous year. I'm leaving tomorrow to spend a couple of days in Brazil with about 1,000 of our top managers, so I'll know more the next time we talk.

In the Philippines, our combined Tupperware and beauty businesses grew 10% in the quarter. We were pleased to see that we really are starting to get some traction in this country. Tupperware of Venezuela also, in spite of what's going on in the macroeconomic and political environment, 50% increase in the quarter. But again, you've got to distill that down to price increases in light of high inflation. But it still is progress and we had a nice increase in active sellers.

Our businesses also in Argentina and Uruguay had very nice double-digit increases. Regarding our Nutrimetics business, we were down 5% for the group as a whole in the quarter. And while we're making progress at Nutrimetics, this former Sara Lee business performance has been disappointing and lumpy performance. But we continue to make progress. But again, like BeautiControl, too slow for the way we really run our businesses.

We are, before I turn it over to Mike, again, let me say we're a global portfolio. We have many business units out there. And just like any of you who are managing portfolios of equities, there's always some outliers and there's always some problems. The good news is that our problem markets are very isolated.

With that, Mike, why don't you take over?

Okay. Thanks, Rick. Rick has highlighted our main pluses and minuses versus last year. Looking how we came out with our actual third quarter results versus our July guidance, you've seen that our 3% local currency sales increase over 2009 was below our plus 4% to 6% range from July.

As Rick highlighted, our increase over 2009 was versus a fairly difficult comparison in that we grew our local currency sales by 9% in the third quarter last year. Still, we didn't do as well as we thought we would, and Rick has detailed a couple of the main places that led to that result being CIS and Tupperware Australia and New Zealand. The other unit that didn't give us as much as we thought it would was Fuller Mexico, which, as Rick mentioned, was even with 2009 in sales in the quarter.

We ended the third quarter with a 1% sales force size advantage, and we're seeing a build in July and expected to get more out of this larger sales force than we ultimately did. The good news is that we were up 7% in sales in September and closed the quarter with 5% more sellers in this unit than last year. Going the other way, we did have some units with notable upside versus our July expectation. These included Tupperware France, Turkey, and India.

On the profit side for the quarter, our diluted earnings per share excluding items [at] $0.64, was above the high end of our $0.54 to $0.59 range, notwithstanding our lower-than-expected sales. Our EPS included the combined $0.07 benefit versus our July forecast from stronger foreign currency exchange rates for about $0.02 and from a lower-than-foreseen tax rate for about $0.05.

On the tax piece, the US legislation passed in August was about in line with what we had foreseen when we gave the guidance, with the exception of it becoming effective as of the beginning of 2011 rather than in 2010. This benefit is offset in our new fourth quarter guidance, such that our full year rate expectation is the same 25%, which with we first gave full year guidance and which is also equal to our full year rate guidance from July.

Beyond the FX and income tax rate items, we capitalized on return of sales upsides versus our guidance in both of the beauty segments.

I'd like to now give you an update on the accounting and control issues in CIS that we talked about with our second quarter release. As Rick mentioned, since our call in July, we've added both a highly qualified CFO and Controller to our finance team in CIS. We've also implemented in Russia the integrated general ledger system that we spoke about before, such that our US GAAP financial statements are now being generated by the same system into which we put our transactions to generate our statutory financial information.

The professional fees and other costs recorded in the third quarter associated with our issues in CIS were about in line with what we included in our July guidance. In addition to the steps that we've taken in CIS, in light of the issues noted there, we engaged PWC to do internal control reviews in our larger emerging markets where they don't already do controlled work as part of the audit of the Company on a consolidated basis.

These units were South Africa, Malaysia, Singapore, Brazil and Indonesia. Fortunately, there were no control issues of the significance we saw in CIS and no income statement amounts recorded coming out of these reviews.

Turning now to the balance sheet and cash flow, we generated $80 million year-to-date in cash from operating activities net of investing activities. This was $29 million less than the 2009 year-to-date period, primarily coming from the inventory line. We entered 2010 with a much better inventory position that we entered 2009, and this is coming through our numbers. That said, our inventory is of a higher level than we'd like and this is an area of focus for us. We had 161 days of net inventory at the end of the third quarter this year versus 147 days last year.

We've continued to do well in managing our trade receivables and payables, and have not seen significant changes in the number of days there. In terms of our outlook, we continue to forecast full-year cash flow from operating activities net of investing activities of $205 million to $215 million, which is where we were in July. This includes capital spending of $65 million, also in line with our July guidance.

We closed the quarter with $123 million in cash, of which we estimate, based on our current facts, we need about $90 million in our system. The rest in theory could have been used to reduce our debt, but we've elected not to do that in order to preserve our liquidity. Many of you know that while we swapped the majority of our term loans into fixed rates for 2012, the floating rate that we currently actually pay on these borrowings is less than 1%.

I'll also mention here that while our target debt to total capital ratio of 25% has not changed, our Board does continue to look at how we should use our strong cash flow, and this includes looking at our dividend payout. Our debt to total capital ratio was 37% at the end of September, an improvement from 38% at the end of June 2010 and from 45% as of September 2009. Our September debt to EBITDA ratio as noted under our credit agreement was 1.11 times. The calculation of this ratio is laid out on our website.

Further, we last changed our dividend with the payout that was made in January 2010 when we moved from a $0.22 to $0.25 payout per quarter. We expect that our Board will next consider the dividend level at its November meeting. This is when it normally declares a dividend to be paid right after the end of our fiscal year.

We didn't need to buy back a lot of shares in the quarter in order to keep in line with our objective of having about 63 million shares actually outstanding. In the quarter, we repurchased 100,000 shares at an average per share cost of $40.39; so, roughly $4 million in total.

Turning now to our outlook, we saw in yesterday's release that we're expecting a local currency sales increase in the fourth quarter in the 4% to 6% range; versus our 3% increase in the third quarter, obviously, we're looking for more. This is not withstanding that our comparison is more difficult first in light of the third quarter of 2009 being up 9% in local currency sales over 2008, with the fourth quarter up 10%.

That said, you may recall that with the economic crisis that began in the fourth quarter of 2008, we went to a 3% sales increase after being up 9% in local currency for the first three quarters of 2008. So the two-year comparison actually gets easier.

A negative on the fourth quarter comparison will be B2B. We said in April that we benefited on our first quarter 2010 year-over-year sales comparison by about 2 points from [other] B2B sales, and we said that for all of 2010 versus 2009, there wouldn't be a big difference in sales from B2B. That offset of the first quarter comparison benefit comes mainly in the fourth quarter, and we've built into our guidance about a 1.5 point negative impact on the comparison.

So where does our better sequential sales comparison in the fourth quarter versus third quarter come from? It's coming from both of our North American segments. In the Tupperware North America segment, the US and Canada business will have the benefit we've mentioned of having carried over into October from September more orders than in 2009. Further, we had a much better comparison over 2009 with Tupperware Mexico later in the third quarter, and we expected good growth in the quarter to continue in the fourth quarter. That said, Tupperware Mexico is one of the units where we [don't] have a big negative from B2B on the fourth quarter comparison.

In the Beauty North America segment, we also had much better results in the Fuller Mexico business late in the third quarter, and this too is expected to continue as we leverage the 5% sales force size advantage with which we entered the quarter in this business.

As for BeautiControl, while we had a sequential improvement in the sales comparison in the third quarter and we're looking for further improvement in the fourth quarter, this is not a big contributor to our overall forecast.

Our longer range local currency sales growth outlook is for 6% to 8% annual growth coming from 12% to 14% increases by the emerging market economy units, and 1% to 2% by the established market accounting businesses. The main units that caused us to be below this range in the third quarter were Tupperware CIS, Japan, Australia and New Zealand BeautiControl, and this is also why the high end of our fourth quarter range is below our longer-term outlook.

In terms of earnings per share, our fourth quarter range without items is $1.26 to $1.31. This compares with $1.22 in the fourth quarter of 2009 and the comparison includes a negative $0.01 impact from foreign exchange rates. It's the high end of our sales and profit range, as this indicates a contribution margin from higher sales of 30%, an improvement in our pretax return on sales to 17.4% this year from 16.6% last year. Included in these numbers is a $3.5 million comparison benefit from not having the 2009 hit from Venezuela when we switched to using the parallel exchange rate as of the end of 2009, although it does also include a drag of about $2.5 million from higher resin costs.

Our full-year income tax rate outlook remains at the same 25%, excluding items which we have been forecasting all year, and this gives us about a 27% rate in the fourth quarter versus about a 25% last year. For the full-year then, our outlook range for sales has narrowed versus the previous guidance range to [of] 6% to 7% in local currency and our earnings per share range, excluding items, has raised $0.04 on the high end and $0.09 on the low end to $3.60 to $3.65; versus our previous guidance of $3.51 to $3.61, what we've included on the high end is an $0.11 benefit from stronger currency rates where we now have a full year benefit of $0.10 versus 2009 as opposed to a negative $0.01 impact in our July guidance. We also expect an improved return on sales in our beauty segments.

There is a partial offset of $0.02 from our third quarter actual earnings per share excluding items in our range but below the high end other than from foreign exchange and taxes. There's also a $0.05 offset from decreased fourth quarter earnings per share due to lower sales assumptions for CIS and Tupperware Australia, given our trends, and about $1 million of unallocated corporate costs. The high end of our guidance range would give us a 16% to 18% increase in diluted earnings per share excluding items, so 13% to 15% in local currency.

Our pretax [ROS] for the full year at the high end of our range is 13.5%, up 140 basis points versus 2009 and 10 basis points versus our July guidance.

Looking again at the other forecast elements that we speak to, we now foresee unallocated corporate expenses of about $58 million, which is up $2 million from our previous guidance from FX expense that we incurred in the third quarter and increase in our expected costs for incentives. [ROE] for net interest expense is about $27 million and has not changed.

On resin, we foresee $130 million to $135 million running through our full-year 2010 cost of goods sold that we produced and that there will be a negative year-over-year comparison of $9 million, of which about $2.5 million will come through in the fourth quarter. For the full year, this is $1 million better than our July guidance.

Looking at our full-year guidance by segment as outlined in our release, we foresee our local currency sales increase in Europe coming in at 5% versus our previous plus 5% to 7% range, and Asia-Pacific being up 7% to 8% for the full year versus up 9% to 11% previously, and being up about 7% in Tupperware North America versus our July range of up 5% to 7%.

For Beauty North America, we foresee sales about even with 2009, which is no change from July. From Beauty Other, we expect to be up 16% to 17% for the year, which is in line with our mid-teen increase guidance from July.

In terms of return on sales, we foresee a slight decrease in Europe for the full year of close to 2 point improvement in Asia-Pacific; an increase of about 2.5 percentage points by Tupperware North America; a small increase by Beauty North America; and a 10% to 11% return on sales for Beauty Other versus a 7% [ROS] last year. Versus our previous guidance, there were modest return on sales improvements in both the Beauty segments, obviously lower guidance for Europe and Tupperware North America, and no change for Asia-Pacific.

And now, Dorothy, we'll turn it over to questions.

Dorothy?

(Operator Instructions). Mimi Noel, Sidoti and Company.

Mike, forgive me for being somewhat redundant, but in broader strokes, can you tell me exactly why it is you anticipate a pickup in local currency sales growth in the fourth quarter versus a more difficult comparison than you've had in this [last] quarter?

Sure, Mimi.

Thank you.

We were down a couple percent in local currency in both the Tupperware North America and Beauty North America segments in the third quarter. And given what we've seen with the sales force size and the better trends at the end of the quarter in both Tupperware Mexico and Fuller Mexico, and then this -- the carryover of sales into the fourth quarter at Tupperware US and Canada, and the better underlying trend thereto, that's what's really giving us higher expectations for the fourth quarter from those segments. And that takes us mainly from the 3% to the 4% to 6% range. (multiple speakers)

And I would add to that, Mimi, that if you took out the isolated issues that we had in CIS and in the Australia situation, we'd have been close to 6% increase in the third quarter. But the reality is, we had those but we don't expect those to be at the same level. That also adds a benefit.

Okay. Alright, that's very helpful and that's all I had for now. Thank you.

Andrew Sawyer, Goldman Sachs.

Yes, sure, thanks, guys. I was hoping, Rick, you could flush out a little more these issues in Australia that you're alluding to -- I mean, beyond the economic piece but the Company-specific things. What exactly was it with the promotions and rep recruitment efforts that didn't work out? I guess it sounded like you were working some prior playbooks and it didn't work as well that time. Is that a fair read on what happened?

Andrew, that's a fair read. As a matter of fact, again, they're Southern Hemisphere and usually what you have, just like you had the doldrums of Europe during June and July and August, that's the same. When you turn to them, this is a period that when you go December, January, February, that's summer in Australia, and we usually have challenges there, but we usually, by February, have traction again and have closed the gaps in the sales force size.

We started feeling slippage there in December like we do at the beginning of the summer every year there. And then they instituted new and different kinds of recruiting programs -- same playbook, new and different kinds of recruiting programs, and they just got no traction from them.

What they did was, Andrew, they recruited a lot of people but they weren't able to get those people active again, which then leads to fewer parties. And when you have -- a smaller sales force, fewer parties, parties are the source of 50% to 70% of our recruits, and you get into this doom loop of, oh, therefore, it's fewer opportunities to recruit new people.

So it can be a year problem of getting yourself through it. They usually have been so resilient -- you know, there's only five basic big cities in Australia. They've been our best market in the world with regard to coming back in a quarter when they were down. It's just simply we're not getting it this year. And we think it's been exacerbated by the external situation.

I mean, when I was there talking to them -- I mean, if you go to -- we have big businesses in Western Australia and up in the Gold Coast region, in Western Australia, somebody could be a truck driver for mining products there and make $150,000 a year. Those jobs have been drying up out there. So, they're feeling a little laggard effect of this economic crisis. But [busy where] we better work on the dials down there to get a -- it's still a hugely profitable business for us, north of 20% ROS.

Thanks for that, Rick, that was good color. On the Moscow side, is there any -- can you just give us quickly some metrics around, like, party cancellations? Or is there anything you can show us that shows, like, how the buyers and the heat wave impacted the business?

Yes, the Moscow business is about 25% of our Russian business. And so for about six weeks there, it wasn't a question -- you know, there, our business is more one-on-one sales than even parties because of small apartments, but we basically were shut down there for six weeks. And that's where our headquarters is, too.

The level of toxicity -- am I saying that right? -- toxicity was five times the safe level in Moscow, if you watched any of that. And it just exacerbated the situation that we started to see in the end of the first quarter 2009, where the devaluation there and then the Baltics all of a sudden -- all our products in Russia are imported and our 10% to 20% more expensive than in Germany, for example.

Then you have a devaluation on top of that. So we came in, modified the product line, but then all of this is has just exacerbated it.

But you know I think we're going to have a good quarter. In the fourth quarter, we've seen three weeks in the fourth quarter and it's a different trend line -- difficult comps, but a different trend line than we had in the third quarter.

Yes, and Andrew, just to keep in mind the players in Moscow but also the heat wave extended to the whole western part of the country; also Ukraine where we operate, so it was a wider impact than just Moscow.

Alright. Thank you for that, Mike. And then just the last on shifting gears, can you frame up for us how the Board will be evaluating the dividend at the November meeting? Is it incumbent on you guys to make a presentation on a recommendation? Or how should we be thinking about that heading into next month?

Yes, Andrew, I mean, we definitely give input on, of course, what we think -- how we think the business is going to do, and where we stand talking to banks and so on about where we stand. We were -- when we went to this dividend that we're at now, we're paying out about 30% of our trailing EPS. We've said in the past that we have a bias towards raising our dividend, so we'll see how we decide to do it.

And I might add too, Andrew, we've got a very savvy and sophisticated Board of Directors with regard to capital structure here. And at the same time, management will go in there with a point of view. I've already been very strong in my point of view on debt. I think companies are going to be rewarded who have lower debt going forward and less leverage going forward, so there's a natural bias there.

Secondly, we don't think there are any acquisition candidates out there that look attractive to us now or for the foreseeable future, and so there it gets you down to the usual two suspects. And when you're paying on your debt right now less than 1%, it causes us to -- hmm, let's take that into account as well.

I like the flexibility; I like having the low debt level because it gives us flexibility, but at the same time, a mixture of higher dividend and share repurchase also gives us a lot of flexibility going forward. That's the great thing about our business model -- it throws off a lot of cash.

Alright, well, thank you so much for the time, guys.

Bret Jordan, Avondale Partners.

Just a quick question on the Asia-Pacific (inaudible) -- [can] you [give us] more color on the (inaudible) term strategy to modify the business model in Japan, just maybe a little bit more color on what's going on there?

Yes, I'll -- what we needed to do in Japan, what we had found our business had become in Japan was too many third party source products, very big ticket items. And we found that the sales force had become more custo-representatives than really sellers. And when we made offers on these products, and we came in four to six times a year with these peaks, they would come in and buy the products.

And it's not leveraging really what direct sales should be doing, so what we're doing is moving the business much more to Tupperware products and related products to our categories, putting much more focus on real sellers, training of these sellers, and standards in our business there. Those are the same things we did in our Korean business.

And if I've been critical, management in Asia-Pacific didn't keep their eye on the ball four to five years ago on staying true to our business model and we're paying the price now. As we've said, take a couple of years to solve this. We've seen progress this year. There's been wins in Japan this year and it's wins with a different business model.

Okay. So to think about that product mix being where you want it, it is sort of another 12 or 18-month process?

That's probably the right timeframe.

Okay. Thank you.

Olivia Tong, Bank of America.

I was wondering if you could talk a little bit more on Russia. Just maybe have you done a study as far as, if you normalize -- and I know this is kind of difficult -- but if you could normalize some of the impacts from the fires, what would have the CIS region declined at for the 36% that was reported?

Yes, Olivia, it's Mike. I think it's a little bit difficult to come up with anything precise on that. It clearly, as Rick was saying, had a significant impact with the Moscow area and even beyond that, so -- and then probably impacted about half of the quarter.

So we weren't seeing great momentum out of that business coming out of the second quarter, so that, I mean, is another element. So I wouldn't know how to assign that 36% between the pieces. We know 7 points was because of the amount that we ended up recording in the second -- not until the second quarter of 2010, which should have been recorded -- or lower sales last year. But beyond that, it's some combination between the momentum in the business already and those drags from the players and the heat.

Probably if I had to do a swag on it, Olivia, I would probably agree with Mike on that. You take the 7 points off and I'd probably half the other thing that's -- you still would have had a 15%, 16% decrease. I mean, may be wrong, 5% on that one way or the other but it's somewhere around there.

Okay. And sort of just longer term, how long do you think this is going to take to fix? You mentioned that you were there several weeks ago; any takeaway from that visit as far as what you think -- how long you think it will take for that business to sort of turn itself around?

Well, that's why -- I kind of want to keep my powder dry on that and get through the rest of this quarter. We've seen three weeks, three very important weeks coming out of the gate in October. They're called big weeks. Were they? -- big weeks are recordbreaker there.

A recordbreaker.

Yes. And they were very good. And were very different momentum than we saw the first part of the -- because most of the problem in Russia was really July/August issues. And you saw improvement going into that.

So, I mean, Olivia, this is different than we were talking about Japan. I'm going to be disappointed if you don't see us back on the grow again next year in Russia because of the nature of our business there. We've only been there 13 years. We have a lot of room for geographic penetration in Russia and in the neighboring CIS.

A lot of sharp young distributors there. The average age in our headquarters is 27 years old, so it's a dynamic group of people and they are really looking for an earning opportunity. So I think we've got a short-term issue there. And with this resilience to the sales force, I'm going to be surprised if we don't have a good year this next year there.

Yes, Olivia, in terms of the comps, of course, the fourth quarter comps are difficult there. And then in the first quarter, again, when we talked about the Russia economy issues last quarter, $2.3 million of the sales are not related to the first quarter of 2010. The sales were too high then in the offsets in the second quarter of 2010. So we're going to see difficult comparisons just from the rolling situation in the fourth quarter and in the first quarter.

Understood. Are you seeing party bookings sort of pick up again in Russia post- all the issues that you had this summer?

Well, seeing -- because there, we're a business that's probably less than 20% parties because of the nature of the size of apartments there and more one-on-one selling. So we don't get as granular as we do in Germany, for example. We have a five-week look into party datings that are up because of the structure and the culture there.

So the thing we'll look for in Russia is -- number one, sales force size versus last year; number two, retail sales. Retail sales will be a precursor -- because they report that, will be a precursor to Company sales there. Because that's what we've seen thus far in October that are positive about. The retail sales numbers were good and the sales force numbers are good. Now let's see what translates into Company sales.

Got it. And then you mentioned in passing about Nutrimetics and how it sounds like you're a little bit disappointed with that business. Can you talk about the Beauty portfolio?

Fuller seems to be sort of flattish now. The US business is taking a little bit -- BeautiControl is taking longer than you anticipated to turn around. So just overall thoughts on the Beauty portfolio and perhaps what you're thinking longer-term about specific brands, specific countries; at what point do you think maybe perhaps it's time to sort of prune the portfolio a bit or rethink strategy again?

Well, we're always looking at what we have in our portfolio. And the old GE approach of whether you said you can't be a dominant force in the market, while if you was to do one or two -- I wouldn't go to that, because for example, in Brazil, there are two 800-pound gorillas, Avon and Natura. However, we're the 800-pound gorilla with our brand name there and are viewed as much higher quality.

So we're using a Trojan horse approach there and growing like a weed. And then we think we're encroaching on their space. But general, the overall business is the progress has been good. We doubled at our BeautiControl business. We've stumbled the last few years there but I think we've got that headed in the right direction, as I reported. Avroy Shlain headed clearly in the right direction. And that's the number two beauty company in South Africa, I like what I'm seeing there. Nutrimetics, we really have to look at it under the light of Nutrimetics in the whole package.

The French business, up very nicely. Making progress in some of our other European Nutrimetics, but they're very little businesses over there and they wouldn't have been a natural thing for us, but we have them. And particularly when they're profitable like that business is.

The Nutrimetics, the big Nutrimetics business was the Australia/New Zealand business. And that's the company that Sara Lee paid AUD0.25 billion for that business, I don't know, it's been 12, 13 years ago. And they really didn't do the right things with it then and so we're fixing it. And I must say, it's a profitable business and a very well-known brand. But we're a company whose culture is pretty impatient and we know the beauty business. So I'm just -- I guess what I'm doing is voicing some of our frustration on, okay, let's get on with it.

I was with 2,000 of the Nutrimetics sales managers on the Gold Coast of Australia in July. And I'll tell you, what we are growing is the core Nutrimetics business of sellers, who sell our skincare and fragrance products. The issue with that Nutrimetics business is the wholesale buyers that Sara Lee had turned the Company pretty much into. And it's hard to sell high-quality skincare to a wholesale buyer.

So, we basically said to them, guys, you've got to shift this whole Company. So it was more like a Japan fix than it was a -- you know, a short-term issues like we've had in Russia.

So, now beauty, let me get to the rest of -- Latin America, the reason we're excited to have -- I feel good about Fuller. Since we acquired Fuller, that business has done very well. Most of the years, Fuller Mexico has been double-digit growth. So that's been important. And again, remember, Latins only spend about $1 billion in the Tupperware category and $23 billion on beauty.

We're doing very well and reported double-digit gains in our business in Argentina and in Uruguay. And by the way, Sara Lee wasn't making any growth in that Argentine business. And I really like what I'm seeing there. And in Uruguay, we've got a more than 50% marketshare of direct sales beauty in Nuvo.

Finally, I was in Philippines during the quarter and I like what I'm seeing with our beauty business there. So it's an important space for us. But also, beauty is more crowded than in our Tupperware business, so it's not an either/or; it truly is an and.

Thanks for the color. Just a few additional questions. First, on corporate expense. You raised that slightly again. It sounds like you say that Russia fixes were pretty much in line with expectations. I also thought that with FX getting better that that would help the corporate expense line to some extent. So is there something else that I'm not thinking about?

Yes, I mean, like we said, the increase there was a combination of some higher incentive costs and then FX, it was transaction FX based on what our positions were with some of our contracts versus the exposures.

Got it. And then just lastly, I'm thinking -- I know it's about a quarter too early for this, but thinking about next year, just the top-line long-term you say plus 6% to 8%. Clearly, the comps are quite a bit tougher in the first half than they are in the second half. Is it right to assume that next year 6% to 8% on the top-line is still the right number, just like it would be for a longer-term -- from a longer-term perspective?

Well, we reiterated that our longer-term guidance is the 6% to 8% range. We entered the fourth quarter with an 8% sales force size advantage, which kind of goes along with that.

We thought about whether we should give guidance or not now for 2011, and as you can tell, we elected not to do that. Coming off of the 3% quarter in the third quarter but seeing, we think, better trends are expecting better numbers in the fourth quarter, the 4% to 6%, we're going to have a look at where our sales force is and how we deliver on that 4% to 6%, and then we'll give a more specific guidance for next year. But we're certainly not coming off the 6% to 8% over time.

You know, I would add to that, too, it's interesting -- we all saw, in this country, particularly the equity markets in the first quarter, right at the heels coming off the heels of the Greek crisis in the first quarter, you saw an absolute meltdown. I met with many of you individually at that time and a lot of people were saying, oh, my goodness, is Europe going to collapse?

And I would call your attention, if you haven't read it, a Fortune article on September 27 by Michael Elliot, it's his opinion, but he said, the much anticipated economic demise of Europe hasn't happened. And I want to comment on that because I've talked to a numbers of ambassadors; I've been over there a lot, and I'm over there a lot.

I was four days in this -- our headquarters during the month of September. Actually what's going on in Europe is a very positive signal right now. You maybe see cars burning in France right now, but this change to 62 is going to happen, and it will probably happen this week, they ought to vote on it.

The Greeks have quit protesting and the changes have been made. And if you look at the famous what we call PIIGS in Europe -- Portugal, Ireland, Italy, Greece, and Spain, they can only satisfy the bond market if they make drastic cuts. And even in the UK, the new coalition government has really set out some radical proposals for tax increases and expenditure cuts. And what's interesting on it, in that, David Cameron, the new Prime Minister, he remains popular.

So, Europe is headed in the right direction with regard -- I mean, we're headed in the opposite direction in this country right now. So, as to coming off your question, Olivia, I'm feeling -- we only had one difficult market in Europe, in Western Europe, and that was really Greece in the quarter. It's our biggest piece; I'm expecting that to -- it looks very good for us.

Like what I see in Latin America happening. I'm turning to Asia-Pacific -- real stability in what's going on in the economy in China. Indonesia is looking good. India, very strong stability there; looks good through the Malaysia/Singapore. Up in the air, my question marks are in Australia/New Zealand and there's a stable environment in the CIS. It's just a question of us getting through kind of this PIIG working its way through the python.

The big question for me is what's going to happen in the US market here? I think our businesses will improve.

Thank you very much.

Doug Lane, Jefferies & Company.

Just a couple of -- you've been over a lot, so just a couple of things to [try out]. On the overstatement in Russia in the first quarter, you mentioned was 2.3 million. Is it something similar to that in the fourth quarter, Mike?

No, actually, the fourth quarter was very minor, so it was $4 million in total that we recorded in the second quarter that should have been lower sales than previous quarters. We mentioned the $1.5 million in the third quarter of '09 and the $2.3 million in the first quarter of '10. So really there's not -- there's very little else.

Okay, I've got it. So, really with the CIS coming back and you're qualitatively indicating good trends in October, and if I remember right, October is pretty heavily weighted in the fourth quarter. Why wouldn't we see a return to outright positive growth in CIS this quarter?

Well, I mean, obviously, that's the objective. It's good to have these few weeks where we're seeing better comparisons and that's really a continuation of starting to see much better comparisons in September than we did in certainly in July and August, so we'll see. But we haven't included in our forecasts that we're going to be up certainly in CIS in the fourth quarter.

Yes. And part of this is where it's all kind of connected and you get kind of a daisychain affect here. Whether it's party or one-on-one sales, if you have a sales force level that has declined because of what's happening in the external environment, you have fewer sellers and fewer parties, which leads to a lower number of sales force as you go forward and the lower opportunity to recruit more people.

So it, generally, for a business like this, you don't come out of it in a month or two. And here we're already in October. We're pleased to see that, but you've got to catch back up to where you were. And it's really a six-month issue in direct selling, not a quarter issue. So I mean, I'm going to be pleased if we can give you a better number than what the third quarter is, even something like a flat to 10% down, is called progress.

Okay, that makes sense. Secondly, you mentioned the added PWC expenses for the review. Does that go into unallocated or does that go into the regional segment profits?

Some of the costs we're dealing with Russian remediation situation, there's some in unallocated and some in the Europe segment.

But to the previous question, most of the unallocated moves sequentially -- whatever, $3 million, is this translation affects and that the full year raise was really because the third quarter came in a little bit more than you thought?

Well, yes, the Russian-related costs were already in the outlook. So when we had to increase it by $2 million, that's having to do with incentive amounts that weren't in there yet, and percent [actually in] FX.

Okay. And thirdly, you never talked about gross margins. They were down a little bit in the quarter. Is that going to be the same in the fourth quarter and mostly due to resin costs? Or just -- what's going on there?

Right. So the resin outlook was $7 million and that's what actually happened in terms of getting cost of sales. So that's about 130 basis points. And I think we were down 0.3 or something. So there was an offset that came mainly from the Beauty Other segment, where we got some better realized margins in places like Brazil and the Philippines.

So the resin hit that we talked about for the third quarter you see in the $2.5 million range; so much less than the third quarter. So that's what's falling through our numbers.

Okay. So that would be -- that would imply modestly lower gross margins again in the fourth quarter?

Well, I mean, we didn't give guidance by (multiple speakers) like that, but we are talking about a profit increase ahead of sales in the fourth quarter as our guidance.

Okay. Okay, fair enough. And then lastly on Japan and Australia, down 20%. They were down, looks like something similar in the second quarter. So is this really -- should be expectations for the fourth quarter and first quarter until you anniversary the easy comparison? Or do you expect some sort of change between now and the end of the first quarter?

Well, the units that are keeping us at the moment off of our high-end, longer-term 8% guidance are the four -- so it's Japan, Australia, the CIS and BeautiControl. Our outlook does include improvement, sequential improvement but not increases in those units in the fourth quarter. Since we haven't given guidance for next year, we don't have something to compare with there.

Yes. No, you're exactly right, Mike. And you talked about CIS and you went through that in good detail. It looks like nice sequential improvement and optimism of a return to a positive number in short order.

And BeautiControl also demonstrates sequential improvement, which means they expect to continue. My question, I guess, is -- I mean, I guess your answer is yes, you should expect sequential improvement in Japan and Australia, but it just seems less visible from the outside here, having two pretty weak quarters right here in a row, why would it necessarily pick up? The other ones I understand.

Well, right. And it's, I guess, probably a matter of degree as well. So we haven't baked in huge improvements, but sequential improvements nonetheless.

Okay. That's fair. Thanks.

Linda Bolton-Weiser, Caris & Company.

I was wondering, I don't know if you guys usually give some commentary about your, like, investment spending each quarter? Is there any way to give some example or idea of whether that increased year-over-year or something like that in the quarter?

Yes, I mean, we had a good contribution margin on our sales. I think we were in the 30% range after taking out things like this Venezuela $4.9 million benefit. I think the math would say we have a 78% contribution margin, which is way higher than we would normally have. So more normalized, it's around 30%.

So we did continue to invest in some things like brand building and then some of the recruiting actions in Beauty North America that we've talked about in the past, in compensation. So I guess the way that I would look at it is we've had, in most if not in all quarters over the last few years, we've been able to improve our ROS pretty well. So we kind of continue to do both at the same time. We definitely are investing some of our contribution margins, but not all of it.

Okay. And then maybe you can just explain a little more about China. Maybe I'm just not understanding the history of what's going on, but even with the adjustment for the B2B sales, it's still like the growth slowed a lot to 20% or I think it was something like 40% to 50% in the first half. Again, is that comparisons? Or can you just give a little more color on China?

Yes, I think we're pretty pleased with the 20% growth that that implies. So we're up about 100 in terms of the number of outlets versus the prior year at the same time. We were also at a record number of members, which is an important indicator for us there, an important thing that we're looking for. That's how we drive foot traffic through our stores. So we think 20% is pretty good.

We did talk about some larger numbers earlier in the year, that probably had some B2B in it in the comparison.

Yes, we had a 40% in Q2. (multiple speakers)

Yes, I think we were up to (multiple speakers) --

That's not what -- that's not the rate we've been growing in China. It's more in the mid-20s on good years.

Yes. So we had a couple million of B2B comparisons benefit in the sales number in the first quarter. We also didn't do very well at the beginning or in 2009 overall, but certainly at the beginning of the year in China. And so that helped the comparison. I think the 20% is a more normal place for us to be at the moment.

Okay. I understand. Thanks a lot.

Jason Gere, RBC Capital Markets.

Hey, guys, I guess I just want to just go back to the 4% to 6% organic sales in the quarter. And I know there's the timing of promotions is certainly going to help on the North American side. Just going back to the recruiting, I was just wondering if you could parcel out between some of these internal programs in place to advanced recruiting, as opposed to just some of the -- your macro outlook in some of these markets. I was just wondering if you could kind of give an overview on that.

Yes, Jason, I mean, the way I would characterize it is we think we have levers and our local management team has used the levers, such that we can recruit well in any reasonable kind of environment. So yes, if unemployment is higher, we can be speaking to [the hiring] in a certain way. If it's lower, there's going to be some other levers that we hit.

So we really measure ourselves kind of, are we growing the total sales force and getting them active? And being up 8% at the end of the third quarter for us is pretty good. We prefer to be even better, of course, but that was a one point improvement from year-over-year where we were at the end of the second quarter. So in most places, recruiting has been going well.

Okay. And then just -- I know you gave some initial commentary on October. Is it fair to assume that you're somewhere within that 4% to 6%, just in the trends you've seen so far, from an organic feel standpoint?

Well, I mean, yes, we're giving the guidance as of yesterday and, certainly, we think we're in the 4% to 6% range.

Okay, great. Just two other quick questions. First (multiple speakers) --

Let me add that we generally, when we give guidance, we want at this end about an 80% certainty that we're going to come in at that. So that's -- we don't want to have to ever change it. That's why it's been a long time since we've missed a financial number with regard to our earnings. So we're very, very, I think, pragmatic in our approach.

No, completely understood. Another question just on the [year-to-date] leverage, obviously that's a big driver of that 50 basis points of operating margin. Just thinking ahead, like, have you ever been able to quantify what magnitude of volume growth you need to drive to get that leverage on a quarterly basis, and how we should be thinking about that maybe into next year?

Yes, well, the 50 basis points arguably, is low. We talk about having a 40% contribution margin overall on average, and we do. And the difference when we don't have that all dropped through is from investment or there can, of course, be situations where we run a promotion or whatever it is, and it doesn't hit like we like and we don't get the sales, and therefore it's comes through on the P&L.

So, the math behind that will depend on how much of a sales increase you assume or -- and how much we get in terms of what that drop-through actually comes out to in terms of the basis points. But we think on balance that the 50 basis points going forward, we've made a lot more progress on that over the last six, seven years starting from 5% pretax ROS in 2003. The high end of our guidance we said today was 13.5%.

So we've made a lot more progress, but that was from a different starting point. We think, given what we should [deal] with investment at the 50 basis points is the right way to call it. But that does include a lot of investment.

Okay. And then Rick, here's the last question, a little bit off in left field. So there's been some chatter out there about the M&A environment about direct sellers potentially being acquired. Can you just -- what are your thoughts just on maybe beauty care companies looking to buy direct sellers? What do you -- any thoughts there, any color, in terms of whether you think that makes sense or not?

I was at Avon when Avon got into retail beauty, bought at that time, Parfums Stern, Giorgio Beverly Hills. And within three years -- I was running the direct sales side of it then -- but in three years, it became clear Avon didn't know retail cosmetics.

At the same time, retail cosmetic companies don't have any organic understanding of how to run direct sales companies. And if some of the -- you would had heard out there if somebody like a L'Oreal buys a direct selling company, the levers that drive a direct selling business are very, very different. So, I don't view it as it makes much sense.

Okay. No, I appreciate the perspective. Thank you.

Somebody could say, well, they'd get a whole new product line from that, but the issues at some of the direct selling beauty companies are not their product line; it's direct selling fundamentals.

There are three pieces to direct selling companies that really are doing it well. Number one, having a unique and differentiated product line that consumers want to buy and sellers want to sell; two, really the ability to have a selling situation that is effective -- either a brochure selling situation, where you've really got to be great merchandisers, or a group selling, a GPS -- Group Presentation Selling, second.

And then thirdly, you got to know how to attract, develop, retain, and motivate a sales force who basically you're not paying anything. They're just earning a commission. And that is a -- that's a -- so the only thing that really would make sense is one of the pieces, the product piece.

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

Mike, can you give us some color on the potential (multiple speakers) tax increase?

Your name was butchered. (laughter) (multiple speakers)

On the Brazilian beauty side, Mike, can you give us some color on the potential tax increase there, in terms of the likelihood of it occurring, as well as how you'd expect to respond from a pricing standpoint if it does?

Yes. Our beauty piece in the Brazil business is now very small. So we, as you know, stopped operating the separate business a couple years ago and the share is small. So it hasn't been on our radar screen.

Okay. And in terms of the dividend payout range you might be comfortable with in your business, I'm just trying to get a sense of a few years back, it was about 50%. Has something kind of changed since then? Or do you think it's reasonable to think about a dividend payout range in that type of area? If you could just give us more color on your comfort in terms of the range.

Yes, well, I mean, the $0.88 per share that we paid from '96 through 2009 was really set based on 35% of trailing earnings when we were spun off of [pre-mark]. And although our earnings, unfortunately, they declined in that intervening period and now we're back over that, we were -- because of the strong cash flow in the business, we were able to continue to support the dividend. So that net-net I think is why it stayed where it was.

The Board took the action and we talked about it last fall and we increased 14%. So our earnings this year, our guidance is to be up in the mid-teens in terms of profit. And so these are the discussions that we'll talk to the Board about next month.

Okay. That's helpful. Thank you.

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

I think we've been fairly complete with the questions and tried to be with the answers, and thank everybody for your interest.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.