Tupperware Brands Corp (TUP) 2011 Q1 法說會逐字稿

Good morning. My name is Crystal and I will be your conference Operator today. At this time, I would like to welcome everyone to the Tupperware Brands first quarter 2011 earnings conference call. All lines are placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, April 27, 2011.

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

Thank you very much, and good morning, everyone. I'm here with Mike and Nikki. And, as always, some of our discussions will include future outlooks of the business so you know the drill there.

We had a strong first quarter. We exceeded high end of our sales and profit guidance with a 10% local currency sales increase and an adjusted EPS of $0.90. I will try not to be redundant here with what we've sent you but drill down more. Importantly, these results really came from increases in all of our segments, and excellent performance by many of our markets all over the world.

When we gave you our first quarter guidance, we pointed out at that time a few things that would be impacting the comparisons, and as always we want to be really transparent with that. The quarter did have the benefit of an extra week and it's really hard to get your finger on exactly what it is. It's due to the way our physical calendar works. But we estimate 6% to 7% somewhere in there, came from the extra week. Also, going the other way we expected there was at least two points negative impact from a B2B that we had the previous year that we didn't have this year. And it's really, it's difficult to really plan these B2Bs and we really try to manage the amount of those. Also the Russia out-of-period that caused the first quarter 2010 to be overstated.

Anyway, putting it all back together, it was a good quarter. Even excluding the extra week, the impact of the less B2B and the out-of-periods, we believe it trended at a healthy 5% to 6% local currency sales increase. And this was even against difficult double digit comparisons from the previous year.

One other thing I want to point out before I drill down to the country performance, you will notice that we've adjusted our reporting segments to be along geographic lines. We have been working to try to get there since the acquisition of the Sara Lee businesses and we finally got there. We've moved the units in the former Beauty/Other, whatever that was, that weren't located in South America to the appropriate geographic segments. And this includes our European and Asia-Pacific Nutrimetics businesses and our Philippines business. As a result, we now have a South America segment instead of Beauty/Other. And we have adjusted the prior year data accordingly. So it really is apples to apples. And I think it will be easier for us to talk about and for you to understand.

Turning to our sales performance, let me start with our emerging markets which grew 16% and were 57% of our portfolio in the quarter. You can see the emerging markets are in the low 50%s to high 50% contribution level to overall sales. And expect that to be growing because we have been doing this work at World Economic Forum. There's 6.3 billion people in the world. In the next 30 years there will be 9.3 billion people in the world. And they are not coming from established markets. So we are going where the business is.

Our European emerging markets of Turkey and South Africa had nice double digit increases. However, these were offset by a decline in Russia resulting in a 4% decrease for the group. This drag from the decrease in Russia was 13 percentage points. Our business, Tupperware business and Beauty business in South Africa, together they grew 15%. By the way, this was in spite of government actions with regard to teacher compensations. And we recruit a lot of our sales manager and our sales force from teachers because they are highly educated and they're looking for extra income. But it appears this has mitigated toward the end of the quarter.

Our growing business in Turkey had another impressive quarter, as well, with 32% increase. There we are teaching more of our people to sell at group selling situations, or where it's Tupperware it's parties, which is a key growth strategy for us. Actually, she can make more money having six to eight people there rather than selling one-on-one. Turkey, by the way, has a population of almost 80 million people. We have a terrific opportunity for future penetration in that market, but nice growth now.

In Russia, our sales were down 34%. Adjusting for the out-of-period amount, the decrease was really in the high 20%s which was about in line with recent trends and our expectations. I was just there this past month. We did a complete review along with Glenn Drake, our group President Europe, Africa, Middle East and we are expecting to see improvement in the trends in the quarters ahead. Conversely, the comparisons really start to get easier this next quarter, and then even more so in the back end of the year. And we are seeing also some real signs of improvement in the business.

We met, Glenn and I, with every one of the regional sales directors and we really dissected by quartile all of the distributor activities and progress. So I think we're going to see progress there. But I am expecting this improvement will first come from growth of the sales force. Importantly, remember it's a difficult economic environment in Russia. There is a head wind.

Turning to our emerging markets in Asia-Pacific. There we also had another good quarter with a sales increase of 30% as a group. Every market was up. And there was some standouts I really want to highlight. Tupperware India grew a phenomenal 80%, and that's on top of over 50% increase the same period last year. We have a dynamic leadership team in place there and they remain focused on building the sales force and focusing on the opportunity for women.

Our business in Indonesia also had an incredible quarter. It's 40% up in sales, lapping the 55% increase we had this last year. Remember, Indonesia is our largest market in Asia-Pacific. Got a population of a quarter of a billion people and it is the fourth largest population country in the world. We have a first-rate management team there and high standards in direct selling. So expecting a lot there as we go forward.

A number of other Asia-Pacific emerging markets also had strong sales in the quarter with increases of 20% or more. And this includes Malaysia, Singapore, the Philippines, Korea. Our business in China also grew 9%. But this included a 27% increase in the core business which was offset by less B2B sales this year. So we continue also to grow the number of outlets in China and we ended the quarter up with more than I think 3,200 outlets there.

By the way, on a personal note there, I just came back from Beijing. I was with 6,000 of our people from Asia-Pacific, representing 12 different countries there. And the momentum level is high and it was really a heartening to see our people from Japan and they really navigated through a very difficult time this quarter. And our people from Australia, New Zealand, who have dealt with floods and earthquakes. Seeing those Japanese walking around with stuffed koala bears and a great support our people show one another. So I'm counting on -- they are going to make this thing move forward. Our emerging markets in Asia-Pacific also had a very good quarter. Sales increased 30% as a group. So it's just amazing to see what's gone on.

Turning to our business in Mexico, our Tupperware business grew 2% overall but the comparison was impacted by a large B2B with Seriano first quarter of 2010. Other than that, we were up 18% in our core business. This includes the timing benefit of one extra promotional closing in that extra week. We grew our sales force versus last year and we continue to focus on building our sales force leaders who are really engines of our growth. Our very large and profitable Fuller Mexico business also grew mid single digits, 6% in the quarter. And ended the quarter by getting to the same sales force size as we had last year. There, we are focusing on our efforts to grow the size of our sales force, and importantly to grow the productivity of our field sales managers who are primary recruits out there.

Let me turn to South America. There we grew 60% in the quarter. And this is phenomenal. Up in Brazil 93%. We achieved these impressive results, in part, through a massive focus on contact with the sales force. We ask every distributor to hold special sales meetings to bring in a majority of their sales force so that they could get them active. The end result was we had a sales force contact of over 70% and it really lifted our average sellers. We also ended the quarter with 30% more sellers than last year. We are very excited about the potential in Brazil.

Remember, Brazil is the fifth largest population in the world. And of interest for those following other companies in Brazil, the key growth in Brazil is in the middle class, so brands matter. If a company is positioned with a premium brand, a brand that has features and benefits, or a brand that can tell her friends I'm not poor any more, they tend to be operating. If somebody is a discounter in Brazil, you are dead in the water.

Our other markets in the region, including Venezuela, Argentina, Uruguay, all had strong double digit increases, as well. Important to point out that with high levels of inflation in the these markets, we still estimate that two-thirds of our sales increase was from higher volume, and only about one-third was from higher prices.

Let me turn to established markets where overall we grew 4% in the quarter. Let me start with Europe, Africa, Middle East. France, again a standout performer. Again, we have been there 50 years this year. We were up 17% in sales. And this market, we also ended the quarter with 19% more sellers. Germany, too, grew in the quarter modestly, 2%, and closed the quarter, though, with a 4% sales force size advantage. I was there about three weeks ago and we did a complete review of the German business, the sales management structure, the distributor structure, and in fact their promotional plans. And I think they've got some great strategies in place and a great team in place. I think you will continue to see improvement in several of our other front end performance indicators as well.

We also, in other markets of Europe, Africa, Middle East, had meaningful sales increases in these mid-sized markets of Belgium. And, finally, we are starting to see even more growth in Italy. Italy has been a sleeper for Tupperware since the founding of the Company. Actually, when we think about Italy, we want to see Italy become the next France because it's a great direct sales market and we've never gotten our fair share of it there. Got a terrific new management team in place there that are just lighting these distributors on an emotional high.

There was a partial offset in these markets in Europe by sales in Greece. And everybody knows what's going on in Greece. But it's not a large market. We have a good business there and a good management team.

Let me go to Asia-Pacific established markets. That basically is Japan and Australia/New Zealand. We were down together 4%. In Japan our sales were down 3% versus last year in the Tupperware business and up 6% in the NaturCare business, which is amazing in light of what's gone on in Japan. To help put these in perspective, these two businesses, they're not big, they're only 3% of our total sales for Tupperware in 2010 and in the first quarter of 2011. There is still going to be an impact on the sales force and the business as a result of the earthquake, the issues with regard to the nuclear reactors. We really didn't see that great impact on our first quarters.

We have take a number of steps, though, to support our sales force and staff along with the country's relief efforts. We are very fortunate and grateful to report that none of our Tupperware people or NaturCare people have lost their lives. We do know that there have been significant physical and personal losses from our people who had their distributorships up in that area. But our employees, boy, they have pulled together. Our guys have donated millions, not only in dollars but in in-kind and relief products to support the people in Japan. And, again, I was heartened to find that there wasn't enough iodine in that country really to counter the impact of the radiation. Our people in Mexico found massive quantities and have shipped it to Japan. Japan started off a little bit slower in the second quarter and we will know more as we get through the year.

Our business in Tupperware Australia/New Zealand, experienced a decline of 14% in the quarter. We are clearly not happy that we haven't been able to change that trend line. The management team is strong and they have been focused on growing the sales force because we still have a double digit deficit there compared to last year. By the time they started to get some momentum going, they've had to deal with some major distractions in Australia and New Zealand including the floods and earthquakes, and that hasn't helped. And they have never seen all of this come together at one time. I was with hundreds of them in Beijing and their mood and their confidence level is high. By the way, an early sign of progress is that our March recruiting numbers for Australia/New Zealand were sequentially stronger. So we hope -- this is usually the lead indicator with regard to KPIs. Maybe this will help us see some improvement before the end of the year.

Let me go now to the US and Canada for the quarter. A terrific 17% increase. And this is really counter to trends and what's going on in the consumer environment in the US. Our team has just done a terrific job to focus on recruiting and developing people who want to get into the leadership levels. We've also benefited from some promotional timing shift which gave us an additional promotional period during the quarter. But if you distill this all out, there is still a double digit run rate here and it's good to see that happening. The sales force growth programs were successful and resulted in an increase in the number of managers and directors compared to last year. And by the way, these are our key recruiters and our key leverage point for growth in the future.

BeautiControl. The decline was 8%. That's better than we seen in a long time. And while not still satisfied with that performance, we are pleased with the sequential improvement. BeautiControl is working on closing its sales force size deficit gap. And, by the way, they brought that down by 12 points to minus only 7% this quarter through an aggressive investment in sales force recruiting and activation strategies. We really have -- Daisy Chin-Lor is running that business now. She is a world beater. Did a great job working the past for me in Asia-Pacific. And really getting our Korean business to new high levels. And she has been on the ground there about two months. Daisy has the right kind of understanding of direct sales, the beauty product line and the party experience. So I think we will see progress in BeautiControl as we get on throughout the year.

We are, I will remind you, a global portfolio. 100 countries plus. Healthy mix of emerging and established market economies. There is always going to be -- not a Harvard business school term -- but stuff going on out there. But we do feel our management teams have the skills and the empowerment in place to navigate through such obstacles. And I'm pleased with our results for the quarter.

One achievement that we almost never talk about, and I don't know why, is the success we've had on the sourcing operations. Our manufacturing, distribution and our sourcing side. Our goal a decade ago -- and I shared this with some of you -- this is back when we made the bulk of our products ourselves -- was to learn from other companies. Companies like Nike, we went to, utilize outsourcing also as a way of supporting growth, supporting our capital needs. How do we get this business so it's less capital intensive. It's not very capital intensive as it is, but how do we make it less so? And importantly, how do we use new sourcing techniques so that we can increase new product development flexibility. You will remember we try to get 25% of our sales from new products every single year. To do all of this while we maintain an atmosphere of high quality standards.

I'm pleased to report lots of progress over this decade. In 2010, 40% of our products were procured throughout outsourcing. And that means less investment in plant and equipment for us. Our strategy is working and we have done it without the need for a single major reorganization or significant write-off. I would call your attention to-- our attitude toward this is you don't do these massive write-offs where the shareholders really lose and you are paying out for social costs. What we tend to do is, when we're going to ship manufacturing from one facility to another, is you let it normally happen through retirement programs and then shifting machines to different places. We have been able to keep that number, that write-off number, very, very low and manageable.

We have also achieved significant productivity improvements for the items we do manufacture, allowing us to keep our conversion costs relatively stable. In addition, we were able to run our mold in multiple plants. We use a mold shuttling process here which really increases our flexibility to manufacture. Additionally, with our molds, we are using more and more high number of cavity molds and larger machines, so this really helps us with regard to meeting needs out there and keeping costs down.

All of this said, we are well positioned in the future to really have a competitive approach also to our supply chain in the future. So overall, our continued growth is not due to luck this quarter. It's not due to externals. It's we have a terrific group of people in our functional areas across the world that understand our business, how to develop innovative products, create entertaining selling situations and to also offer our sales force compelling earning and leadership development opportunities. Paramount to this is a strong focus on building dynamic direct sales fundamentals and empowered management teams.

At any rate, let me turn it over to Mike and then we will open it to Q&A.

Thanks, Rick. As Rick outlined, our 10% local currency sales increase of 3 points above the high end of our guidance range for the quarter. This came from better than expected growth in Brazil, the United States and Canada, India and Indonesia, as well as a bigger than foreseen impact from the 14th week we had in the quarter this year under our fiscal calendar. Our estimate is that this extra week had a 6% to 7% positive impact on our sales comparison. And we consider the other 3% to o4% to be fairly good performance in light of our being up against 11% growth in the first quarter of 2010.

As we highlighted in our last call, and as mentioned by Rick, included in the 3% to 4% increase without the extra week is a drag from lower B2B sales this year and impact of the Russian out-of-period amount we booked in the second quarter of 2010. These impacts came to about a 2 percentage points meaning that without them we were up 5% to 6% without the extra week, giving us a two-year average run rate of about 7% growth. As you've seen with diluted earnings per share, excluding items of $0.90, we also exceeded by $0.04 the high end of our guidance range. Foreign exchange rates gave us a $0.04 benefit versus last year, while our guidance only included a $0.02 benefit based on the rates at the time we gave the guidance. Our results yielded versus last year a 20 basis point improvement in pre-tax ROS, excluding items. This improvement reflects that we were able to invest in our businesses where needed, including specifically in Tupperware US and BeautiControl to grow and develop the sales force, that in Russia we had some challenges with our value chain, and that we incurred $3 million more in resin costs than last year.

Turning to our balance sheet and cash flow, things were in line with our expectations. Day sales and accounts receivable at 28 were better than last March at 31 days. Inventory days were lower than last March by eight days. Notwithstanding our good comparisons on receivables and inventory, our cash flow was lower than last year coming from payables and accruals. Here we were in line with what we expected, but we did start 2011 with much more in payables than we began 2010. And the pay down of this higher balance in the first quarter of 2011, along with payments associated with our first quarter ending this year after the end of March, had a $26 million negative impact on our cash flow comparison.

Given the timing of our year end in 2011 we do expect some of this to carry through to the full year, and this has been included in arriving at our cash flow guidance. We are raising that guidance by $10 million today in light of our higher forecast earnings. And are now looking for full year 2011 cash flow from operating activity, net of investing activity, of $225 million to $235 million. Within this guidance, our expectation for about $75 million in capital expenditures is the same as our previous guidance. In the quarter, we repurchased about 917,000 shares for a little under $55 each and $50.4 million in total. This included using $10.4 million of cash received as options, were exercised, along with the $40 million per quarter that we said we would use out of our year end 2010 cash balance.

Turning now to our sales and profit guidance, as outlined in our release, we forecast the second quarter in local currency sales increase in the 5% to 7% range, and for full year in the 6% to 8% range, which is no change from what we said on February 1. Sales guidance versus last year reflects some shifting around within quarters due to the 14th week interacting with our monthly calendar closes and promotional program timing in some businesses. And for the full year, the extra week looks like it will have about a 1 point positive year-over-year impact on our comparison. Similar to what we saw in the first quarter, though, since the extra week carried fixed costs, we don't expect it to have a meaningful impact on our earnings comparison.

For sales for the full year by segment, you see a close to 30% increase by South America, a low double digit increase by Asia-Pacific, a mid-single digit by Tupperware North America, a small increase by Europe, and about even performance by Beauty North America. While there is a minor impact from our previous guidance, given how we reorganize reporting segments, the takeaway is that we've improved our guidance for South America and Asia-Pacific and our guidance for Beauty North America is marginally lower.

In terms of earnings, our guidance range for the second quarter is for diluted earning per share excluding items of $1.13 to $1.18. This compared with $0.93 in the second quarter of last year. At the high end, this would mean a pre-tax return on sales of 15.5%, up 190 basis points from last year. Our EPS at the high end would exceed last year by 27%, an including $0.11 benefit versus last year from stronger foreign currency rates and a 13% increase in local currency. The main factors impacting our comparison, other than sales and FX are not having last year's $0.14 negative impact from Russia out-of-period items and a $0.05 negative impact from a tax rate of 26%-and-change this year compared with 22% last year.

Within the segments we are expecting to invest operating margin, particularly in our North American businesses to motivate sales force recruiting activity. We also have included in our outlook a negative impact from higher resin prices of $4 million. Our full year forecast for the negative impact from higher resin for products we produce has risen to $15 million from $5 million when we last gave guidance. The first quarter included the negative $3 million impact I mentioned earlier. As many of you have heard us say before, over time we have been successful at managing our gross margin percentage, even when resin costs have risen. We do this due to our good starting points, meaning the flexibility we have from being a 65% plus gross margin business due to the mix of products that we offer and promote in our markets by increasing our prices in line with consumer inflation, and by sourcing our resin globally to ensure we get the best possible prices.

For the full year we are raising our diluted EPS guidance range without items by $0.22 to $4.45 to $4.55, which includes the $0.02 by which we beat the high end of our first quarter guidance other than for FX. Along with a $0.22 benefit from stronger rates that are value chain performance in the second to fourth quarters. Going the other way, we are taking a hit of about $0.05 from a higher number of diluted shares in light of a higher share price, and the impact of the higher resin costs. Along with the $0.11 full year FX benefit in our previous guidance, this rate, as they currently stand, would give us a $0.33 full year benefit compared to 2010. With this guidance, at the high end our outlook is for pre-tax return on sales including items of 14.7%, up from 14.4% in our last guidance by 100 basis points from 2010 13.7% actual.

We continue to foresee a full year tax rate excluding items of 26% which is where we were on February 1. We now foresee our diluted share count being about 1.5% lower than last year versus the 2% to 2.5% lower that we guided to in February. And, again, this reflects a higher than previously assumed share price. At the high end of our range, our diluted EPS will be up 22% over last year's $3.72 of earnings per share without items, with the 13% local currency increase and 9 points from better FX rates.

On a segment basis, we foresee our full year profitability as a percentage of sales rising slightly in Europe and by over 1 point in Asia-Pacific. We foresee the return on sales by Tupperware North America being about even with 2010 and about a 0.5 point decrease by Beauty North America. We expect an increase by about 2.5 points in South America. I will note that this reflects Venezuelan exchange rates staying where it currently is.

So to wrap things up, we're pleased with our first quarter results that came in, and to be able to confirm our full year of local currency sales guidance and at the same time to raise our EPS guidance by $0.22.

And with that, we're going to open the call to questions.

(Operator Instructions) Olivia Tong, Banc of America-Merrill Lynch.

I just want to first touch on Russia. Is it right to assume that perhaps you can grow in Q2 off of a low comp and then return to declines but less declines than in Q1? And then also perhaps can you talk a little bit about possibility expectations in Russia, not necessarily giving a number but just trend-wise what you are thinking as we get past Q2 and then go into the second half. Thank you.

Olivia, I will handle part of that and Mike if you want to handle the other part. Again, I was just there. And we had all of the regional sales directors in. We used a model of looking at a number of other markets of the world to look at the relationship between a number of distributors that we had in Russia and the sales management structure under the distributors. One of the takeaways is we've had massive expansion to almost 200 distributors in Russia, but then when the economy and the devaluation occurred two years ago, we saw that the increase in number of sales management didn't keep pace with that. A lot of that had to do with regard to the consumer pressures there, and so that people weren't being promoted out as managers because it became more difficult to recruit. So what we have put in place is actions there to shore up those distributors so they get the right level. We have them working on the right kinds of things in the market there. I feel good about it.

One of the things we first had to do, Olivia, was, we did this quartile of distributors who were unprofitable, and we said we have to go in there. We have a division called Distributor Account Services, or distributor support, where we go in and help these distributors get their value chain, their expense line working so we get them back to profitability again. This stuff has been going on for the last two quarters. I think, doing these internal stuff, while at the same time then you start to get recruit bigger numbers, then distributors start to make more money again, then they get more motivated. And opposite of the doom loop you really do get momentum on your side. So I'm expecting improvement there. We saw nothing there from a standpoint of structure that I feel is a long term fix. But more a couple of quarters fix. Mike, you might want to talk about trends.

Olivia, looking at the facts and figures a little bit, in the second quarter last year without the out-of-period stuff, we were down about 5% in sales in local currency. And as you know, since then we have been down more significantly, when you just take in how the business has been running. And that's why we say while the comparisons start to get easier in the second quarter, it's more so in the second half. That is what we are really looking at. As far as the question on profitability potential for the market it's still a large sales size market for us. And when we look at the model, we are confident that it can be a good profit business for us, initially likely not what it was a couple of years ago. But from an ROS point of view, certainly the model should work.

Got it. Thanks. And then just on BeautiControl, quarter after quarter you say that you are increasing your confidence around its ability to turn around. But now this is the ninth quarter that we have seen declines. How far along do you think you are in terms of improving that? It seems that if -- and I know there was an extra week, perhaps it may or may not have hit the Beauty business, but how much of that is benefit in Beauty and what is the trend going forward, in your eyes? And do you get to an up quarter this year by the end of this year? Thanks

Olivia, and this is based on me knowing, I know the management team there more than 20 years. The woman who is in charge there, just installed, Daisy, March 1 there. The last management team, they did a good job putting all the fixes in. That was the heavy lifting that we needed to do with regard to that business. I will tell you, back to your question there, is that I'm going to be really disappointed if we don't have up quarter, either the third or fourth quarter of this year. I don't think it will the second quarter. But the precursors to an up quarter is closing the gap on the size of the sales force and beginning to have a sales force size advantage. And in a normal economy, it's almost one for one. If I can get a 5% increase in the size of the sales force, should be able to get a 4% or 5% increase in sales. Well, it's not a normal economy now. I kind of believe that you're going to have to get a 5% to 7% sales force size increase to get a low single digit increase. But I think we are at the end of it with BeautiControl. The end of the double digit declines, I meant by that.

Got it. Could you see any benefit from an extra week in the Beauty business?

Yes, Libby, I think overall the 6% to 7% was not the same way in every single business but it was pretty much across the board.

Dara Mohsenian from Morgan Stanley.

Mike, the SG&A leverage in the quarter was lower than I expected, just like the top line upside. Can you give us a more detail there on why you didn't see better leverage?

Yes, when you look at the 10% local currency sales increase, and we talk about a 40%, 45% contribution margin, that's assuming that the fixed costs have been taken care of. And with this extra week, while the fixed cost in inventory and cost of sales will go with that inventory, they continue to come through on the DS&A line. And so that would be a drag versus the normal position than we were able to generate incremental sales within our normal calendar. So that was certainly a factor. The thing that helped us improve like we did was we were able to get better leverage in some of our markets on promotional spending, so that's what came through in that 70 basis point improvement that we saw.

That's helpful. Can you also discuss your approach to managing pricing in the balance of the year in light of the inflation we are seeing on the resin side, and commodities in general? And what your expectations are in terms of pricing in your business going forward.

First, let me comment on that, Dara. Overall, the corporate philosophy is to stay in line with inflation. One of the reasons for that is if you don't stay in line with inflation, then you are diluting your sales force opportunity. Their income to be adjusted every year based on what's happening with pricing. But we have a lot of elasticity here. Mike talked about our overall approach with regard to resin and purchasing of resin. I will tell you what we try to do, and this isn't just in regard to what's happening with resin and oil prices. Overall, strategically, how we try to manage the Company is this way. Try to mitigate the things that we would call the undesirables out there. If it's foreign exchange, for example, and you are running Venezuela, you better come up with a modal that you aren't paying for things in dollars. So you better start to reflect a different kind of a product line in that market so there is almost a wall around that country there. While at the same time we come up with a strategy of how do we get cash out of Venezuela.

The same goes with regard to your question on resins. Here is our basic attitude. Firstly, we can't do anything about oil prices, but there is a couple of things that are very important. And I think, Linda, you mentioned it in one of your write-ups on it. Here is the sweet spot of having a business model like Tupperware. Number one, we own the channel. We're not sitting here with one of the large big box discounters out there where they say we can't handle a price increase. Number one we own the channel. So that gives us rights.

Number two, and this must work in concert, we don't sell commodity items. Could we sell commodity items? Absolutely we could. But we don't have, then, the elasticity for pricing. So when we talk about our product, there is a very rigorous filter factor it's got to go through so that it enables us to get these high 60% and even into the 80% sometimes range of gross margins. There has got to be the features and benefits for that. And then, thirdly, on that, we try to get 25% of our sales every year from new products out there. So when you put those three things together, that enables us to mitigate the negative impact of oil prices. And then there is an outlier thing, too, as we have done our acquisitions, have gotten into the beauty business, we are less dependent on resin-based products. And, as we have gone into new flanker categories in Tupperware -- cutlery, kitchen tools and gadgets, cook ware -- which are not resin-based products, that has also helped mitigate it. So you can't take it out totally. The old kind of thing, Dara, you can't change the wind but you can change the set of your sails. That's how we try to manage the Company with all of these undesirables.

Thanks, that's helpful. Mike, can you just give us a bit more detail on Japan beyond your prepared comments? It didn't look like the issue had a big impact on you in Q1. And it sounds like it's been more of a modest impact so far in Q2. Which is a bit surprising. Can you just give us more clarity on what you are expecting in the balance of the year from Japan and if trends could worsen from what you have seen already here?

Sure, Dara. The great thing about the direct selling business and the Tupperware Brands is the emotion on the front end is the way we are able to rally our troops not even just within the market but across markets to lend a hand when people need it. We certainly saw it with the tsunami in Indonesia a few years ago, that we were able to get those contributors back on their feet quickly and get sales force back engaged. So there is that dynamic going on, for one thing. I think the other thing that we see is that we have done a lot of work over the last couple of years in Tupperware Japan to really change how that model is going to work and get back to some of our fundamentals and more of a selling culture. And we have been starting to see a lot of those KPIs start to kick in right around this period when we have these natural disasters. So I think that will also help us, that we've got a model that's running there now that has been good for us. And that should help us there, as well.

Then on the back end, in this sense we're fortunate that the supply chain for us ends in Japan. It's not like we are doing anything to export products out of Japan or that kind of thing. We don't have that kind of issue to share with some other companies. That's how we're looking at things. Rick did mention that we started a little bit slower in April but we built into our outlook where we think we will be. And since it's around 3% of our business with the Tupperware and NaturCare businesses together, it's coming out like that. We are still talking about a double digit increase in sales in Asia/Pacific.

Doug Lane with Jefferies.

Good morning, everybody. Following up on the previous question, I think that we are seeing commodities continue to inflate and maybe even accelerate. And then we read a lot of consumer inflation in the emerging markets. So is there any way you could give us some further granularity on the organic growth to break out volumes versus pricing so the 10% organic growth in the first quarter, how much was volumes, how much was pricing. And then the 6% to 8% organic growth for the full year, how much do you expect to be volumes and how much do you expect to be pricing?

Yes, my comment, the bulk is going to be volume related. What we are really trying to do there, with regard to it, you've got these big outliers like Venezuela, obviously. But we have been moving toward -- even if I took a market like a France, 12 years ago, about the price ceiling of a product we could sell in France was equivalent US dollars around $15. Now we're selling a product in France, the hottest selling product is $140. So we are moving much more even in France. But even in countries like China, value added products -- I think the number one selling new hot product that we have was the herb chopper, around the world, that's more than $50. That really takes a lot of that out of it, Doug. You might get more granular on that, Mike. Correct me.

What you said is right. When we look at it, of course, we're introducing these new products and we talk about 25% that we've introduced within the last two years is our normal posture. And that tends to be the case, also, in the Beauty businesses. So it becomes difficult to describe how much of the new prices are price increases built into them. So we do call out where we have something particularly meaningful, like we did in this quarter in South America where we said about one-third was from pricing, and that included the stronger exchange rate in Venezuela. That is about 1 point on the whole Company, that's about $6 million. We were up $22 million in local currency in South America this quarter. When we look across the other markets, in line with what Rick is saying, we tend to price in line with consumer inflation. But we're also introducing new products so it's probably in the 1% to 2% range most of the time in most places.

And you don't see that, from where we sit today you don't see that accelerating as the year progresses? And, also, can you talk a little bit how you manage the pricing process? Is there one time during the year where prices go up across the board, or just on a market by market basis when you reprint catalogs? How is the pricing dynamic managed there?

It's definitely managed on a market by market basis. And, in line with what you are saying, the opportunity to change prices come along with our line catalogs which, depending on the market, could be a little different, but usually it's maybe three a year. And then we have promotional campaigns that can run anywhere from three to six weeks, depending, again, on the market. And there we're promoting particular products, sometimes introducing new products. And there we have the opportunity to put in a price point so there's a printing schedule behind all that in terms of how often you can do it. But those are really our opportunities. In terms of what do we see going through the year, certainly in markets where there is more consumer inflation, then we would likely see a little bit more. In other places where there is not, it's less. But that's when we have the opportunity.

I would add, Doug, there is an attitude and a rigor here with regard to gross margin. My number two, Simon Hemus, during my Avon time, he was head of marketing and he was the premier of gross margin. So great attention to detail. And so what happens is that Mike and Simon, when they begin the profit planning process, which will start in August of this year, and it's not finished until about December, when those plans -- this is market by market-- are put into the can, it has gross margin targets for each one. And when they do monthly progress reviews, every single month, it takes three days, they review month by month what's happening with regard to gross margin. And if a company operates outside that, one way or the other, we take note. There better be a reason for it. Although, we understand, they have to be flexible for their local business. But they ought to know what that is at the beginning of the years.

That's very helpful. Just one last question. Rick, in Brazil with the strong growth there, is that more durable driven or more Beauty driven, or both?

It's both. But the Beauty business is the single digit piece of that business because the other one is growing so fast. You have, as you know, Natura, the 800-pound gorilla there, who we really, our product line is more like theirs. Because if you go to one of the other beauty companies there and become known as a discounter, you are really not going to be growing with the middle class in Brazil. So what we found is let that beauty high ground be Natura's, and we will take all the Tupperware categories, and we will have that ours, because we have no competition there.

Michael Schwartz with Suntrust.

Good morning, everyone. My first question, I just wanted to touch on your pre-tax margin guidance for the year. You increased it by 30 basis points to 100 basis points for the full year. I was wondering if you could perhaps parse out the drivers for us in the buckets, maybe pricing mix commodities. And then any operating leverage outlook.

Yes, Michael, I probably don't have a lot of granularity on that. So we are looking at that on a market by market basis and seeing how we're going to be able to do with our forecasting system with our product mix. And therefore what we're going to be able to do with the gross margin. That includes reactions to the fact that the resin prices are higher, so that influences what we do, to some extent, in terms of which products we're going to promote in these period flyers I was just talking about on the last question. In terms of DS&A, one of the things that helps us, and we are still in the 6% to 8% range for the full year overall in local currency sales growth, because we were better in the first quarter than we thought, and we pulled that through to the full year, that helped us out. It's still within that range, if you do the math on how much that would really mean. But we would love to get some more leverage off of being as little firmer within our range on the fixed costs and DS&A, which are a fairly high percentage.

Great, thank you for the color. My second question is, can we get an update on the Australia and New Zealand business? The business was down about 14% in the quarter. Is there a way you can break out how much is the floods, natural calamities versus more structural issues?

It started out by, firstly, the sales force is down I think 17%, 18%. That's been the issue there. The affected areas with regards to Australia is about a fourth of the country was up there during the - is really the Gold Coast area. And then, as you know, it was the south island, Christchurch, where the earthquake was. So that has caused some issue. It is really interesting on this, Michael, too, that if I go now to the west of Australia, Perth, where that really has been the mineral business resources of Australia, there I've mentioned on previous calls, two years ago you could get a job as a truck driver making 150,000 Aussie dollars per year. And as the Aussie dollar is close to parity with the us, that was big money. All that has dried up. So it's not just a one thing in Australia.

I think our issues in Australia started off, first circle our problems. We didn't revitalize some of our sales programs, our distributorships, our managers, the way we should have there. So I was taken off the ball. And, by the way, we have a great management team there. They won Country of the Year four out of six years. But I think it got a little stale there. And we have an attitude here, every business model works until it doesn't, and that should never happen. We should have caught that.

But then the other half of this circle is then these things that are happening on the outside, from not only the natural disasters but the economic things. Australia was about two years behind, lagged the rest of the world, in this economic meltdown that we saw in 2008. So that's coming together, caused our problems. I think our guys are on the case. I think for two quarters there they have been focusing on the right kinds of things. And I am going to be -- this is like BeautiControl -- I'm going to be sorely disappointed if we don't see some progress in the second half of the year. Michael, I have a picture in my office that will give you my patience level. There is a picture in my office of two vultures on a telephone wire out in the middle of the desert just looking out there, waiting for something to die. And the cartoon character, one says to the others -- Patience, my ass, I'm going to go kill something. We're not a real patient organization because we understand we have the levers in our control in a market, if you are a managing director, to fix it.

So what we want you to do is anticipate before an issue hits. And we pretty much brought it down to a formula that there are -- I think, Nikki, we've got five things we've noticed, that these are five tell-tale signs. If you see this in a market, there's going to be some difficult things happening in the market. These are internal things. We can't judge tsunamis and earthquakes. But what I'm getting confidence in, is we spend more time training, training, training. Analyzing. We are getting better at having fewer of these, or catching them sooner in our markets. Forgive the long answer but it's just not a one size fits all.

Jason Gere with RBC Capital Markets.

Good morning, guys. I want to go back to the organic sales. Obviously, I know the 6% to 8% is the long-term outlook and there's some conservatism built in there. But the first quarter, even if it's 3% to 4%, excluding the extra week, if you look at the two year stack, you're in that low teens range. Comps do get a little easier. We've been hearing a lot of good things coming out of your mouths in terms of some of the under-performing businesses hopefully getting better as the year goes on. So just trying to think about what are some of the pushbacks. Is it the B2B? Are there areas where you get tougher comps coming through? I was just wondering, you've had some really strong growth coming through, and obviously we all believe that that is going to continue. But I was just wondering where you might see some deceleration from trends that have been strong over the last couple of years?

Jason, I hope I understand your question. So we were up on a two year run rate on an average in the first quarter somewhere around 7%. And our guidance for the second quarter, as you just heard, is 5% to 7%, for the year it's 6% to 8%. I think we are running fairly in line with that longer range guidance, and that's why we have given it for the full year. If we talk about where are the opportunities underneath that, certainly to the extent we are able to reinvigorate our business in Russia, that will help on the comparisons that we have been seeing a lot in Europe. Beauty North America has been a slower grower for us. So we were flattish in the Fuller business without the extra week, and that's our largest business for the whole Company. And then we've talked quite a bit on the call about BeautiControl. So that is another area of opportunity. When you look at the South American business, of course, we have been getting very big growth there, even without the pricing and so on. And we said that that would be a close to 30% increase for the full year, so that's looking good. As is Asia/Pacific.

When you look at, say, Europe and another year looking for a small increase there, and maybe part of it is the reclassifying. I think in the past it was low single digits. You have to factor in Russia there, too. I was just wondering about some of the other regions, Germany, just the expectations in some of the more established markets there. Just put a little color behind that.

First think, Jason, I would say on that, even in markets -- I will use, as an example, France -- where we have been for 50 years, and if I can use the example that white space equals opportunity for us, the reason we have been growing double digit for five years in France after 50 years is we found that there is a lot of white space. We didn't find it, we knew we were under-penetrated. Think of two Frances and think of the -- we were mostly a business for rural France, so our product line was mostly baking and it was stay-at-home moms. Not working women. But what that meant was you avoided penetration in Paris, Bordeaux, Lyon, Marseilles, Nice. So what we've done is we opened up the second France.

Germany and most all the markets of Europe and the US and Japan have significant white space within those markets because our guys have worked on, here is the strategy for approaching those white spaces. And it's almost like the US military has learned, had to learn, the bitter lesson of a Somalia. We had a military and the world had militaries that used to operate by rules. Here, these are your guys, here's my guys, we're out in an open land together. All of a sudden urban warfare. How do you do that? We have learned how to do that with our Tupperware business in France. You've got to do products for working women, for single women. You have to do parties which are really chicks night out. It's got to be fun. You've got to do a whole different kind of approach.

As I'm getting at that, in each of these markets of the world we are trying to help train our managing directors what do you got here in a market. What are your levers at your disposal. Now, there are two basic things we look at, Jason, on this. We say things we can't change and they are out of our control. Foreign exchange, devaluations, we can't control. However, that doesn't mean we don't pay attention to, how do we run our businesses so we are not caught really off balance on that. How do we deal with political instability for whether it is -- we were shut down for about ten days in Egypt, but the 7,000 sales force was back out there after that period of time. How do you do business in Venezuela under Chavez? Separate set of things. So, our guys, we work on that.

Then we look at the things in this big realm of what should we control. We can control the size of our sales force and we can control their productivity. We have those levers. We can control our new product flow. What categories we sell. How we promote those products. And we can control overall productivity. So you got those different things that are on your panel. And if you are a managing director of one of our markets, you are in charge of all of that. And we spend a lot of time talking about, Jason, what are you going to do about this, what are you going to do about that? And we look at your plans.

(Operator Instructions) John Faucher with JPMorgan.

Thanks, good morning, everyone. Just two quick questions here. The first is, you talked a little bit about the benefit from the promo shift in the US and Canada this quarter. And was that just a US and Canada phenomenon? And how should that play out in the second quarter? Then the second question really revolves around China. I think if I'm correct, you have one more tough comp there and then the comps get easier as we head into the back half of the year. So can you talk how we should view the Chinese trend sequentially? Thanks.

Sure, John. On China, you are right. We did have B2B in the second quarter last year, not quite as much as in the first quarter. So as we get through that, it should start to be a better comparison. We did highlight that we were up well in the core. I think 18%.

Yes, double digits.

Yes, double digits, for sure, in China without the B2B. When we look at the promotional timing in the US, our assessment of the picture, with the extra as well, is that the run rate is in the low double digit increase range for the first quarter. We are pleased with how we've been able to move some of those KPIs. We invested some to do that. We will see some impact of the timing as you move through the year, and we'll see how it all comes together.

Okay. So it's not something where we just have to subtract it out of the second quarter then? It might bleed through over the course of the year?

We are going to see a nice piece of it in the second quarter probably.

John, a sidebar thing, I just want to mention on China. It was impressive in Beijing. We had, again, 6,000 from 12 different Asia/Pacific markets there. But I spent a good deal of the time, just become friends over the years, the Chinese ambassador of the World Trade Organization. What's so interesting is they are so thrilled that we are teaching Chinese women how to become entrepreneurs over there. And the contrast that I would say to you guys, because you guys aren't out there as much as I am, between a Russia, a CIS, and how they have gone from a centrally planned economy to whatever it is now. And how they are doing it in China really give China a lot more credit on how they are really letting out more opportunity, the desire to have more women become entrepreneurs. And supporting it on ever-increasing basis year over year over year. And it's getting easier to do business in China. Basically you had to convert in Russia from a centrally planned economy to a market economy in a year. But basically you had the insiders took over industries. So it is a very difficult environment. So discount Russia in your portfolios and add points for China.

Linda Bolton-Weiser with Caris.

Maybe I missed this in the beginning because I got on late. But did you actually quantify -- I think you had said before that you were going to spend $130 million on resin this year. Did you actually update that specifically in terms of giving a number on that?

We didn't say that but it should be in the $145 million range based on what we are seeing.

I know there were a lot of questions about pricing but can you get more specific about how much of that is going to be offset with pricing? Or can you not be that specific?

I don't think I can be real specific, but as we rolled up our forecast and thought about where we were, we did raise our pre-tax ROS guidance at the high end to be up 100 basis points from the first of last year. So within the value chain we are working to make it all come together.

We will absorb $10 million or so of that. We're not going to pass all this on. But you aptly analyzed it, Linda, that we own the channel, we don't sell commodity products, high margin products, and we have a lot of new products coming through. So we're still going to be able to holding to nice increases -- even, you see oil go to $150 a barrel, we can navigate through it.

Right. And then can I also just ask a longer term question? In Europe, it's interesting to hear you talk about Italy having potential and Russia being not as structural long term problem. If you look at your margins historically in that segment, that used to be in the mid to upper 20% margins. And now it's 19%, 20% in Europe. Is there any reason why you can't get back to the mid-20%s type op margin in Europe?

Let me comment first part of that. Firstly, I would do it again, but in the mid-'90s we got up into the high 30%s in markets like Germany. And we utilized that money at that time. We were pretty much of a one-trick pony, if people go back and do a regression analysis. That was the war chest we used to open China, India, Indonesia, Russia, yada, yada, the list goes on. And look at those markets now. We are having to now reinvest back into markets like Germany. And we are not getting some of the margins out of some of the other European markets. So we are doing there.

But now the good news is, we don't have to make these investments in Asia/Pacific so we can keep them in Europe right now. But we're making those investments in Europe. So do I think we can get higher than that? Yes, but I don't know if we're going to want to go higher than 20% just with regard to unit movement to consumers on that. But we will know as we move through it.

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

Guys, I think I've said enough. Mike has, as well. And I hope we can meet here again in three more months and give you some more positive results. We've got 20-some days of April under our belt, and this would be a time to tell you, going into the second quarter, does it feel like a continuance of the same kind of momentum. And my simple word would be yes. Anyway, thank you all.

This concludes today's conference call, you may now disconnect.