Tupperware Brands Corp (TUP) 2011 Q3 法說會逐字稿

Good morning and welcome to Tupperware Corporation's third quarter 2011 earnings conference call. I would now like to turn the call over to Rick Goings, Chairman and CEO of Tupperware Brands. Mr. Goings, please go ahead.

Thank you, Dorita. Good morning everyone. I am here with Mike Poteshman and Nikki Decker. As always, you know the drill on forward-looking statements, so I'd refer you to our Company's position in our filings. The third quarter was another good quarter for us. Sales were up in all of our segments, and a 10% overall increase in local currency. Our emerging markets grew 19% and continue to play an important role in our portfolio. And in this quarter, not surprisingly, we're about 63% of sales in the quarter. I think we all have to remember many Western Europeans tend to go on vacation during this time. We see it each and every year, so we typically see the contribution from emerging markets go up a little higher this quarter. Our established markets as a whole, were down slightly, but I'll get a little bit more granule on that in just a moment.

Being a global portfolio that derives almost 90% of our sales and even more of our profit outside the US, that means that changes in foreign exchange have a meaningful impact on us. I will also remind you that when we did a regression analysis for the decade of the 90s, '90 through the year 2000, it was basically neutral. And when we did it for the first decade of this new millennium, it was $0.05 negative. So it does -- we have enough of a natural market basket. For the third quarter, we included an $0.08 benefit, versus last year at our July outlook. For all of our key profit currencies really weakened against the dollar in the last months of the quarter, and this meant that we lost $0.04 of this benefit. I am particularly proud of how our management teams around the world were able to adjust, and we were able to come in with an adjusted earnings per share of $0.83, even with this negative, which was just $0.01 below the high end of our range and an impressive 30% higher than last year. Also, as you saw in our release, we did an incremental $100 million more in share repurchase in the quarter than we had planned. We actually did this. We took the opportunistic action, in light of the drop in the stock price, our confidence in our ability to grow the company and our low-leverage profile, versus the target we've set of 1.5 times debt EBITDA. All in all we spent $196 million on share repurchase in the quarter, and we bought in 3.2 million shares. Also worth noting, our Board made a decision today to double our share repurchase authorization to $1.2 billion, and that will give us the opportunity in support of buyback program for quite some time.

Now turning to local currency sales performances, let me start with our European segment. Our European emerging markets in Europe grew 2% in the quarter with mid- teen growth in our South African beauty businesses and good growth in a number of our smaller units. This was partially offset by an 8% decrease in Russia, which, by the way, was a significant improvement in trends. As a matter of fact, we are starting to see progress and we are also starting to lapse in easier comparisons. I'm talking about Russia -- now we saw improvement there in our recruiting and productivity KPI's during the quarter. And, going forward, we expect this trend line to continue to improve as we work on further strengthening our distributors and closing the gap in our sales force size, which stood at about 22% down at the end of September. Our European established markets grew 4% in the quarter, and I am pleased to report a 9% increase in Germany, and I believe it has been almost a decade since we saw that. It is our largest Tupperware market worldwide and a particularly reinforcing thing to us about this movement is this performance highlights, the big steps and the effectiveness of the established market strategies. It has taken longer to implement them in Germany, but they are really getting traction. It is a very important market for us, and it is great to see it yielding these results.

Heading south to our business in Italy -- that is a market where we never really brought it up to its full potential for as large a market as it is and as healthy as the direct selling environment is. We have invested heavily in that business this year, and it is good to see sales up over 30% in the quarter. We have never seen that in Italy. We moved a new managing director, Michael Challis, into that market, who has had great successes in other markets. And he is really bringing new energy to the business. Anyway, that said, we will be moderating our level of investment in Italy, going forward. Turning to France, there we were down in the quarter, but most of this was due to promotional timing. Our sales force advantage has slipped a bit, but the underlying business there is very solid, and we expect to return to nice growth in the fourth quarter. I want to turn to Asia-Pacific briefly. There we had another good quarter, and our emerging markets in the Pacific rim, which accounted for 70% of the sales in the segment were up almost 30%. Indonesia, which is our largest market in Asia-Pacific, and, by the way, the fourth largest population in the world -- it grew 47% and ended the quarter with 20% more sellers than last year. So you can see we're not only growing there in sales force size, or number of doors, but in really their productivity, as well, and that is also a very positive precursor for the future.

I was just in India, and it is great to see our business there. We now have 130,000 in our sales force and an incredible 68% growth in the quarter. Sales force is up 50% versus last year. Both of these markets, India and Indonesia, have just done a great job of embracing and executing our core fundamental and mission. And really their focus is changing women's lives through the opportunities we offer. As a matter of fact, Newsweek magazine is calling it the Tupperware effect, and it basically means our business model micro-finances a woman, provides her free training, a coach at no cost to her. And, through this help in earning money, she tastes success, and that success leads to confidence, and it increases the impact she has and influence on, not only her family, but the community. So it is really starting to work there. A number of other markets that are emerging markets in Asia also had strong double-digit sales growths in the quarter, and the list goes on. Malaysia, Singapore -- up 20% -- China -- up 22% and Korea up 12%. Our Asia-Pacific established markets -- really mostly only Japan and Australia -- they were down 10% in the quarter. Sales in Tupperware Japan were down 5% in the quarter, and we've been telling you about the changes we are making to our business model there including the focus on building more sellers who are selling Tupperware products and raising the standards. And we are making very good progress there.

We've gotten that business back to breakeven again, the first time in a couple of years, and we are establishing the standards really to take the more casual hobbyist out of the business, which were hurting productivity. Our Tupperware Australia business had another difficult quarter, but it is firming up some. There was real pressure throughout Australia and New Zealand on consumer spending. We worked to not only close the gap in the sales force size but modify the compensation structure to make our business, in these kinds of times, even more attractive and to grow more managers and fuel sales leaders. By the way, Australia celebrates its 50th anniversary -- its Tupperware business there and I think they are focused on the right kinds of things to guide us back on the path to growth. It is a very profitable business for us. Our total sales force count for Asia-Pacific established markets -- it showed a 31% decline in the quarter, and I want to dig down on that. That really is just a planned adjustment that we made. I was just talking about it in our Japanese business, to reflect the increased standards. In other words, we purged the ranks of the Japanese sales force list of the individuals who actually were not active sellers, and it is the right thing to do.

Turning to our Tupperware North American segment -- this includes our businesses in the US, Canada, and Mexico. We grew sales mid-single-digit and had a nice improvement in our return and sales. Our Tupperware Mexico business -- and I'm headed there tomorrow morning -- there we grew 12% in the quarter, and we are very pleased with our progress. We had double-digit advantages in both the total sales force size at the end of the quarter and the number of active sellers. It sets up nicely for what is going to happen in the quarters to come.

Our Tupperware US and Canada business was down slightly for the quarter, although we had 6% more active sellers and closed with an 11% total sales force size advantage. We did see difficulty in the consumer spending environment particularly, with some of our Hispanic sales force. And we're working in the fourth quarter to overcome these tough externals through a combination of promotional plans and product mix. But this quarter we weren't as successful as we would have liked, and we are looking forward to making an improvement on that in the fourth quarter.

Moving to Beauty North America and our Fuller businesses -- they grew 6% in sales after being down last quarter in direct selling. As you all know, the size of the sales force is the leading indicator of sales growth. And, in order to tackle that short-term issue we were facing, particularly with our Fuller business, we made an investment to close the gap in the sales force size and a lot of recruiting in the quarter. And it was effective. As a result, we ended September with a sales force size advantage of 19%. And many of these, almost like a pig going through a python, happened in the last month of the third quarter. Given the timing of recruiting, our large active total sellers was not as high at the end of the quarter. It wouldn't have been. It came in at 7%. It was just above our sales increase.

The key question to us -- every time we take incremental action, is can our field sales management team absorb these new recruits and ensure they are productive? Here we believe, and it's part of the reason I am going there, that it's unlikely we're going to be able to convert all of them to being sellers, and its meaning, we don't expect because we have a 19% sales force size advantage, that we are going to carry that into a 19% sales increase for Fuller in the fourth quarter. We knew it at the time we made this investment. We knew it was going to be expensive but if you do a regression analysis of our Company since we went public, always the first job one to us is having sales force size advantage. I'm going down there and one of the reasons is I want to reevaluate what we did with that recruiting program and find out how we could have been just as effective for less money. And, by the way, in the fourth quarter, we won't be investing at these same levels.

BeautiControl was down mid-teen in the quarter, and I was out there a few weeks ago. The team there is focused on 3 things. It is a very simple story, and I believe is an effective story. Expand the sales force, increase contact with the sales force, which leads to, thirdly, raise activity levels. They've started this focus also on areas across the country where we have strength.

We call it strength on strength because, since the US is so large, it makes sense to leverage focus on areas where we have a strong presence and to look to build off that. What is ahead for BeautiControl? I hope we have a year of progress this next year. Daisy Chandler, our managing director there, is seasoned in the beauty business and is a managing director. Morale is very good. Product lineup looks solid. Now we've got to close the gap in our sales force disadvantage which now is less than double digits. I think we are at 9%. While BeautiControl has had its problems the last couple of years, it still is twice the size business it was when we made that acquisition.

Finally, let me turn to South America. There we grew 50% in the quarter. We feel it is important to point out that, including -- that there's a high level of inflation in these markets so we always want to break the impact of growth from volume and the impact from pricing. And here I'm pleased to say 70% of our increase came from higher volume, and only 30% was from higher pricing. The overall growth was led by strong performance in Brazil. There we were up an incredible 74%, and this came from good growth in the sales force KPI's. You know there is a battle going on in Brazil with the 2 big beauties companies there. And we are pleased to say we own our space in the Tupperware category. There we ended the quarter with 34% advantage in the sales force size and had 50% more active sellers in the quarter.

The combined price increases and productivity improvements led to this 74% increase. The sales team there and the whole leadership team is as good as it gets. And one of the most interesting things about the future of Brazil, just like for the story of Indonesia, China and India, -- it is a story of a rising and growing middle class. And, as a matter of fact Brazil, which is the fifth-largest population in the world, is expected to add 35 million more people to its middle class in the next 7 years. This is going to be a big driver for growth, and they want brands like ours.

Our other markets in the region -- Venezuela, Argentina, Uruguay, all also had double-digit increases in the quarter. Overall, I am pleased with the results in the third quarter. We posted double-digit sales growth, came in at the high end of our earnings guidance even with the worsening effects. Now we are always going to have challenges in the form of problems. We have -- we call them problem children -- 5 markets. And we spend a lot of time working on getting those markets changed, and we know that when we start to get improvement of those, there'll be some other issues that pop up elsewhere. It's the nature of a portfolio.

I know from traveling around the world, I get a lot of questions about what I see in the global environment and how it is feeling. I feel like things are getting tougher out there. My short answer would be, in a way, yes. But it's more than -- it's not getting more difficult, it is changing in certain markets of the world. Who would have predicted the changes we have seen since this era of Spring started.

To give you just a more anecdotal impact on that, we've got a business -- a small business -- in Egypt, but we have been there for years. We operate under a slightly modified model to the rest of our European businesses. Yet, their sales force at the end of September was up 11% from last year in sales. And sales year-to-date in Egypt were up 29% in local currency. It is an extreme example, but I just want to give you the feeling of it is the strength of the business model.

We had our top managers from Venezuela here 2 weeks ago, and it is the same story. It is a strong business model. There's going to be a lot of turmoil in the world, we believe, in the years ahead, but the companies that have the right business model can grow even during that, and they can grow double digits. Sometimes, anecdotally, I like to think of it like a Range Rover from my years of living and working in New York City and living in Connecticut. I would see Range Rovers had 2 jobs. Mostly, you'd see them in shopping malls in Greenwich, Connecticut or delivering kids at Greenwich Country Day but always there was the ability to switch that thing into another gear, and it could ford a river or climb a mountain.

Our businesses work kind of that way and we spend a lot of time teaching our managing directors that, when conditions in your market change, react to those changes and know how to grow. Looking ahead, we believe, even in spite of what is going on in the world, we're staying with our guidance of 6% to 8% top line. This next year, Mike and I were just talking about it, we will take a 1-point hit for not having 53 weeks, but we think we've got these control panels at our disposal that management is skilled enough to adapt to whatever is going on.

Before I turn it over to Mike, let me mention, at the end of the last several years, we get together with our management teams a lot. I am out there twice a year with every managing director, Simon is on the phone with them every month for monthly performance reviews. And then we try to bring them in the last quarter of the year to do kind of a know-how to grow session where we bring them in for 3 days, share best practices, lessons learned. They are the ones who are generally the featured speakers and get ourselves ready for how are we going to attack this next year.

At any rate, prior to this year's meeting, which is going to be in Miami, we decided that on November 10 to have an analyst day in Miami where we would invite those of you who have an interest to hear not only from us but some of our top managing directors and hear about the strategies they are implementing in their markets. We believe that the real strength of our company -- certainly it is in our brand -- but, more importantly, it is in the leadership teams that we are developing all over the world. Anyway, if you'd like to attend, please contact Nikki, and, even if you can't make it in Miami, will be web casting that meeting.

Also, going forward, I think we have already let most of you know this, we have decided to have Nikki who has also been running our strategy department, really devote her full time to that as we don't use outside strategy consultants. You bring in a 30-something-year-old who doesn't know your business. They do a cram course over 3 months, mark it up and give it back to you. We recruit those same kinds of people, and they work in our strategy department, and then, as they learn our business, we send them off to work in our different business units. So, Nikki is going to be heading up that department. So we have called Teresa Burchfield back from her duty as CFO of our European operations, and she'll be taking over investor relations that she led in the past. Anyway, enough from me, Mike let's turn it over to you.

Thanks, Rick. Looking first at our third quarter results versus our sales guidance. The main upside is reflected in our 10% increase that exceeded our plus 7% to 9% range. Or in Brazil, where we had foreseen very healthy growth, but did even better than we thought we would with the 74% increase that Rick outlined. And at Fuller Mexico, given the down sales we had at Fuller in the second quarter, it turned out we were conservative in our assumptions of what we would be able to do in the third quarter, and the plus 6% in sales we achieved was ahead of what we had assumed. WIth our sales force size advantage, we expect this good trend to continue.

On diluted earnings per share without items versus the $0.84 high end of our July guidance, we had more profit than we had forecast in our Asia-Pacific, Tupperware North America and South America segment but less than we had thought in Europe and Beauty North America. In South America we benefited from the higher than expected sales in Brazil and in Asia and Tupperware North America we had better than expected leverage from our value chains including some benefit from the non-income taxes caption. Our lower-than-expected profit in the Beauty North America and Europe segments reflected the heavy promotional investment to build our sales forces and sales in Italy and particularly at Fuller Mexico. As already highlighted by Rick, we expect to moderate our spending as we move forward.

Rick talked about the $0.04 hit from effects in the third quarter versus July guidance. Also in our numbers was a $0.02 benefit from the $100 million of opportunistic share re-purchases we added in the quarter beyond what we had included in our outlook. And we benefited by close to $0.03 from a lower than foreseen income tax rate. Versus our model 40% contribution margin from higher sales volume, we were about $14 million short on profit in the third quarter. Close to $5 million of this was attributable to higher resin costs. Other meaningful components were the elevated promotional spending we've highlighted, brand building cost and higher cost in Venezuela versus effects-related benefits there last year. As well as some of our sales increase was from higher sales prices, and we would not expect a 40% contribution margin on this element.

A few words now on the $36 million of non-cash charges we took on our purchase accounting intangibles. This related to our NutraMedix businesses and reflected that, while we made some progress with the strategy we put in place, we have not gotten the sales and profit growth as quickly as we would have liked or as we had previously forecasted. In particular, we saw deviation in the third quarter, at least some of which we think is related to the market externals. The charges and the factors around them and do not have any significant impact on our fourth quarter 2011 guidance. As well, our longer-range local currency annual sales growth outlook expectation remains in the 6% to 8% per year that we have been talking about. And our return on sales outlook excluding items remain for the 50 basis points per year of improvement up to the mid- to high-teens.

Turning now to the balance sheet and cash flow -- our results in the third quarter were pretty good, but with cash flow we're still behind 2010 on a year-to-date basis. This year, for the first 9 months, we generated $47 million of cash flow from operating activities in investment activities which was $31 million below last year. We were $40 million behind 2010 in the first half of the year, so we closed part of the gap in the third quarter. Our short fall, versus 2010 notwithstanding, our $23 million increase in GAAP net income excluding the non-cash impairment charges continue to reflect the timing of distributions far our payables and accruals including income taxes. As we said before, this has to do with our year over year starting point for payables and accruals and our fiscal calendar in light of the extra week this year that pushed our third-quarter closing 2011 after the end of calendar September.

Other more significant factors included higher receivables in light of our higher sales and higher capital spending than last year in line with this year's full-year expectation of $75 million. Also, in last year's third quarter we had about $5 million in proceeds from the sale of an excess facility in Australia. Finally, beginning in June, we've had about $5 million of payments related to the swaps that were impaired when we did our debt deal in June. We have another $14 million in payments for these swaps to go over the next 12 months. Also, so you know, in connection with an upcoming exchange offer to make the notes we sold in June public, we will be revising our latest 10K and 10-Q to add information on subsidiary that guarantees the notes. So don't be surprised when you see this. We aren't changing any information already in the documents, just adding this new information.

Looking at share repurchase as is Rick outline we repurchased, 3.2 million shares in the third quarter for a total of $196 million, or $61.98 per share. This included $96 million that we spent evenly over the quarter as planned and $100 million of opportunistic re-purchases in the first half of August that were beyond what was included in our July guidance. We plan to re-purchase $90 million worth of shares in the fourth quarter which is what was already included when we gave our guidance in July. Rick also highlighted our Board's move today to double our share re-purchase authorization to $1.2 billion. We have re-purchased, through the end of our third quarter, $538 million under this authorizations so the increase should support our ongoing program for the next few years.

Looking at our sales and profit outlooks for the fourth quarter, we foresee a local currency sales increase in the 7% to 9% range. Given current exchange rates, we would take a hit from currency of 2 points on our comparison, which brings our dollar range up to 5% to 7% of sales. Obviously, exchange rates continue to be volatile and the rates we've used in our outlook were as of Monday. In terms of diluted earnings per share without items in the fourth quarter we foresee coming in a range of $1.49 to $1.54. This would be up 11% to 15% in local currency, 7% to 11% in dollars including a negative impact on year over year comparisons from rates of $0.05.

At the high-end of our range this would give us a pretax return on sales of 17.5% which compares with 18.1% in last year's fourth quarter. 30 basis points of the decrease reflects the impact of' exchange rates on the comparison with the remainder coming from Europe, Beauty North America, unallocated corporate costs and interest. The earnings per share numbers included a $0.13 benefit from lower diluted share in last year. For the full year, we're raising and narrowing our local currency sales increase range from up 7% to 9% when we gave guidance in July to up 9% to 10% now. The full-year impact of currency rates on the comparison is now a positive 3% so our increase range in dollars as of 12% to 13%.

In local currency, this includes a low- to mid-single-digit increase in Europe, a mid-teen increase in Asia, a mid-single-digit increase at Tupperware North America, a slight decrease in North America and a mid-40% increase in South America. The outlooks for Asia, Beauty North America and South America have improved versus July, while the outlooks for Europe and Tupperware North America are marginally worse. Our full year segment profit return on sales expectations are for about 0.5 decrease in Europe versus 18.6% last year. A 1% plus improvement in Asia Pacific from 19.4%, a slight improvement at Tupperware North America from 15.9% last year, down about 3.5% from last year's 14.9% at Beauty North America and an improvement of about 4 points from 13.4% in 2010 in South America. This is an improvement versus where we were in July at Tupperware North America. No change in Asia and South America and worse in Europe and Beauty North America. As with our July guidance, I'll note here that our outlook assumes the exchange rate in Venezuela will remain at 5.3 bolivars/dollar we have been using since June 2010. If, for example, at the beginning of October, that rate had gone back to the worst level we saw last year, we estimate the hit to our fourth-quarter forecast would be $7 million in pretax profit.

In terms of other elements of our outlook, we continue to foresee $27 million to $28 million in net interest expense for the full year. We now foresee our full-year tax rate excluding items at 24.7%, versus 25.1% in our July guidance. And we have a forecast for our unallocated corporate expenses of about $60 million versus $58 million in July. On resin costs, our outlook in July was that we have about $170 million go through cost of sales this year and then we have been taking a hit of approximately $17 million from higher resin costs. This outlook has improved $1 million since July, to now with $16 million full-your negative impact on around $160 million of resin costs going through cost of sales. This includes a negative $4 million impact on the fourth quarter comparison with 2010. If current resin prices were to stay the same through 2012, we estimate we would have a positive impact $11 million in cost of sales in 2012 versus 2011.

Putting this all together then we foresee a 14.1% pretax profit return on sales at the high end of our full-year outlook range which compares with 13.7% last year and 14.4% when we did guidance in July. The worst foreign exchange rates versus July account for the 30 basis point decrease. This gives us the diluted earnings per share range without items of $4.45 to $4.50. The high end of our range is $0.10 below where we were in July, and the low-end $0.05 below. The $0.10 decrease at the high-end includes a $0.17 hit from worse foreign exchange-rate it is based on current rates.

We have a full-year benefit versus 2010 of $0.15 compared with a $0.32 benefit included in July guidance. This is partially offset by $0.08 more of a benefit from lower shares in connection with our opportunistic re-purchase in August. It wasn't in the July guidance. And there is a $0.01 upside coming from the third quarter when we be beat the high end of our guidance for factors other than foreign exchange and shares.

The full-year guidance now assumes it will have 61.3 million diluted shares or 4.2% less than 2010 whereas the July guidance assumed we'd have 62.4 million shares or 2.2% less. On full year 2011 cash flow, our estimate is now to have cash flow from operating activities net of investing activities of $200 million to $210 million. This is down $15 million from our July guidance reflecting the impact of the worst exchange-rate.

I'd also like to point out that if exchange rates were to stay the same as now all the way through 2012, they would have a negative 3% to negative 4% impact on our sales comparison and a negative $0.26 year over year on our EPS comparison. Looking at the currencies in which we generate much of our profit, the EURO, Mexican peso, Brazilian real, Indonesian rupiah, Malaysian ringgit and South African rand and comparing rates now versus actual rates in 2011 to date, there are devaluations ranging from 2% to 16% with a simple average of about 7.5%. Going the other way, the effects hit based on the number of diluted shares we expected to have at the end of 2011. We estimate this would give us a 25% year over year benefit in 2012 versus 2011 if we were to make same amount of net income next year and before considering the benefits of 2012 repurchases. With that, we're going to open the call to questions.

(Operator Instructions) Dara Mohsenian, Morgan Stanley.

Mike, you commented on this, somewhat, but I was hoping to get more granularity on the margin weakness in Beauty NA. It looked like you really had to invest a lot turn around the organic sales growth. Is that investment more of a permanent step up, given the competitive dynamics, or is that incremental spending, specifically, more related to Q3 to turn around the sales force trends? And now that, that has occurred and paid off, we should see less year-over-year margin compression going forward?

We saw probably $7 million or $8 million of investment -- incremental investment in the third quarter in the Beauty North American segment, and, certainly, for the reasons Rick talked about, we think that was the right move, although, perhaps overdone in some ways. Certainly, we expect, given the situation, to invest some in the fourth quarter, and probably going forward, but not nearly at the same level. When we did our guidance for the fourth quarter we did not assume a great RLS in Beauty North America in the fourth quarter but not the same kind year-over-year hit that we saw the third quarter.

Going forward, Dara, particularly I would pull out our Fuller Mexico business, where most of that activity occurred. I personally believe this was not discounting. What they did was to get the sales force up, they lowered the barriers of what you had to come in to be considered a new sales force member. They made them half of the level they should have, which meant there was just a gush of new recruits.

I don't believe we can convert all of them to productive Fullerettes, as we call them, down there. We could have spent at half that level, and done a more effective job bringing them aboard. And, that is why it going there tomorrow, to look at what Q4 plan. And the plan for the fourth quarter is to get back down to traditional levels, but that we close the gap.

As you look at the next year, understanding a bit more additional investment in Q4, do you think you are leaving the year at the right profit level on an annual basis, or do you think there is more investment next year in Mexico?

At this point, I don't think more investment is going to be required.

We talked about the sales force productivity in Mexico and in Beauty NA, but you did see a big pick up in active sales force trends in other regions? Can you just discuss the quality of recruits you're bringing in and your expectations for sales force productivity going forward? It looks like in terms of your Q4 guidance you are not assuming much productivity on top of a few points of pricing and the active sales force advantage you had coming out of Q3?

The biggest outlier, and you kind of said it, is still Beauty North America, so with that 19% advantage at Fuller Mexico, we were up at the end of the quarter, 15% overall -- much less an active sales force and we will see how we can do with recruiting or converting all those people or what percentage we can.

I mentioned in the script -- the prepared remarks -- that we were assuming the same kind of trends, the sales comparison in the fourth quarter as what we were seeing in the third quarter at Fuller. So that is one element. If you are asking about the trend in the active sales force comparison, where we were down in the second quarter, another big element, again, or a big element of it was that we were down in Fuller Mexico, whereas, we were up in the third quarter. So, that provided a lot of help.

Outside of Mexico and outside of NA Beauty, are you comfortable you are still seeing the same level of sales force productivity with the recruits you bring in?

Yes, I think we are. In many places we continue to improve. We were up 15% on local currency sales in our Asia segment, and 9% in actives. And that had to do -- the biggest pops there were productivity in Indonesia, from higher standards, from training, from brand building, and also better productivity in the outlets in China.

Overall, I think the productivity is pretty good. We did talk about less productivity in Tupperware US and Canada that we saw in the third quarter, in light of the consumer spending environments, so we'll have to see how that goes.

Dara, you are hitting on an important area, with regard to brand building out there, around the world. We stayed very close through our group presidents and then managing directors and markets, on the quality of the sales force that they bring in. What we don't want is any big aberrations where, all of a sudden, flood gates come in and low-quality recruits come into the business because it pollutes the KPI's and the standards within the sales organization.

It is actually counterproductive going forward, particularly in these markets where you have a growing middle class. People tend to sell to their same level, socioeconomic level, and lower and if you drop -- this is a problem with some beauty companies in Brazil -- if you drop the level of the sales force down, from a C or D, below that level and the middle class is becoming C's and B's, you have no sales force to sell to where the money is going to be.

And that's why, as I have been reviewing and the visits to those markets, I am very impressed in India with the level of training that's going on, so that not only she comes in to the business; she gets a real kit; she gets real training, and she gets a manager who stays in contact with her.

So, this thing just does not happen. We just have to stay on it. I've noticed Mike -- we're now over 2.7 million in size of the sales force, and there's been no shift in the quality there. As a matter fact, the only outlier there was they lowered the gates too much in Mexico this last time, and that won't happen again.

Rick, you gave a soft confirmation that work sales next year would be in line with your long-term trend if you stripped out the 53rd week. I want to get some more explicit commentary on that. Are you still comfortable that you can do next year your underlying sales growth trend versus the long-term guidance, even with the weaker macro situation? Is that correct?

Yes, I think, what we're going to have to do there, is in some of the markets there -- this is where I choose that Range Rover analogy. We are going to have to shift the lever in some of our markets where we have now got a nice sales force size advantage, 2.7 million. We're going to throw some of the money we have to spend on recruiting there, to activity building in some of these markets.

Top line, yes, I have a confidence in it. If you were to have asked me at the beginning of this year, I would have talked more, yes, 6% to 8%, moving more towards 8%. Now, I sit there and say somewhere in the middle of that because there is a lot of disruption going on.

But we are building all of our plans and our plants with regard to our operations side of the business, to still operating in that range this next year. As you know, it trickles down and influences our cash flow, and influences what we are going to do with regard to dividend and share repurchase. It all falls out of that first thing, which is size of the sales force.

Per Ostlund, Jefferies & Co.

Coming back to the promotional spend, you talked a bit in the prepared comments about Fuller. Then you alluded to Europe, as well. I'm wondering if we can get a little bit of detail on, maybe what markets might have been driving that and how incremental that spend might have been in the quarter?

The biggest element there, Per, was in Italy, and it was more in the couple million dollar range there.

Sounds like that would be, stepping down pretty much right here in the fourth quarter as well?

We should be much more in line there, as well. Rick mentioned that we were up over 30% of sales, so it certainly worked, but we want to have the right balance there as well.

If we come back to Fuller, when you guys talked in the second-quarter call, the sales force trends had decelerated throughout the quarter. I think you caught that really quickly and reacted very, very quickly. Is there any precedent there, for that kind of heavy promotional spend to recalibrate a market quickly, like you did there? I can appreciate the implication of having a sales force size advantage that may not translate into true active sellers. I was just wondering if this is a situation you have been through, maybe not in a market as impactful as Fuller Mexico, but anywhere else that you might have some history to draw from there?

It is the competitive dynamics, 2 things are coming into play in Mexico. Not only the competitive dynamics of a very strong presence of a beauty direct-sales company who has really put a lot of focus on that market. They are also in Brazil. But there is an 800-pound gorilla, called Mathora in Brazil and they have a very hard time competing against them.

I don't know what is going on internally there, but it appears to me that they have made a decision to really throw a lot of resources and talent at the Mexico business. We felt that they paid a lot of attention, they have improved their trends there. One of the dynamics that you find happening in many Latin American markets is the more casual sellers, be it a Tupperware or our competitive sellers, often, as you get away from the high density metropolitan markets, she will carry more than 1 direct seller's books.

If you ask her about a Tupperware product, she carries Tupperware. You can ask her about a competitive product and she may have that. Turn the clock back 120 years ago, the old wagon jobber in the US. This is driven by a rather primitive retail infrastructure when you get away from it. So, there are competitive dynamics going.

What we saw in the second quarter, they get very effective with regard to their recruiting and activity. I don't know what their offers were, the competition there, but what we felt was our sales force size advantage slipped. And, job number 1 for us, there, is, get it back again quickly.

You can't close the sales gap by going out there in a low per capita GDP market and, all of a sudden, getting a higher guest spend and average order. You have got to do it by getting more doors, over there, so that is what we did. Externally, I will tell you what is going on in Mexico.

We are up to 42,000 is the number of people that have been killed in the Narco War since the Calderon government has taken on that battle. And how that has changed the dynamics of how people act, is that six o'clock is bewitching hour in Mexico and in most places they're off the street. So, you're finding the way of how and when we are selling is changing too.

The 2 things that really help our business down there, there are limited earning opportunities for women; and not much of a retail infrastructure. We continue to feel very good about Mexico in the future, and it appears they are starting to get a handle on some of the violence.

Question on repurchase. I don't necessarily expect you to telegraph the 2012 pacing, but at the current $90 million a quarter run rate and the stock being where it is at does it stand to reason that would be a pace that you might be able to continue next year? At least have the appetite to continue next year?

That would probably be heavy. For one thing, you might recall we ended of the year with $160 million of available cash. That was started to buy at a rate of $40 million per quarter. Then we bumped that up, starting in the second quarter, to $90 million. Now, we are using our cash as we generate it. We are borrowing incrementally, so we wouldn't have that $160 million, for one thing.

The uses of cash, what most people will do out there, most companies will do, they either do acquisitions. We really don't have any out there of interest and we have enough beachheads that we can grow organically. And by the way, you will notice we took the impairment charge of that Nutrimedix business, which is a good business down there, and it has gotten better the years we have owned it. But we got that, kind of, as a gift with purchase.

Our focus, was to get this Fuller business in Mexico, and we did that acquisition for the right price. So we picked up some other businesses in the process. We have jettisoned some smaller elements of that and have been cleaning up the others. Use of cash with regard to acquisitions, pretty much take that off the table.

The other 2 are share repurchase, and raise the dividend. You have seen, year before last, we increased it 17%. Mike, was it around 20% last year? We made the decision, from a timing standpoint that the board would look at it in January of each year, and we would decide uses of cash, what we are going to do with regard to dividend and then we would rethink what we would do with regard to share repurchase. I think we are in a better position to look forward, when we talk in a couple of months.

Linda Bolton-Weiser, Caris & Company

Mike, you speak so fast, sometimes, I don't catch everything you say, but you had said something about the share count in 2012 being now lower because you are increasing share repurchase. Can you say it again? How much of that increase in share repurchase and reduction in share count, offsets the $0.26 FX impact in 2012?

Linda, before he answers, I want to say, I have never said to him that he speaks so fast. What I have said to him, over the years, is you go so deep that my eyes gloss over. So, It is nice to hear. Fast and deep, Mike, go for it.

What we're saying is based on the shares we bought back in 2011 so far, and what we have included in our outlook for the rest of the year, that would give us a $0.25 benefit next year. Because we bought them during the year, we would have a whole year benefit. It is not layering on, right now an estimate of how much, incrementally, we would buy next year, but just with what we are buying this year, that would already give us a $0.25 benefit next year at the same level of income.

You mentioned tons of things affecting cash flow this year, and I didn't quite catch the bottom line of that. Are you projecting, currently, that the 2011 operating cash flow will be down or up year-over-year versus 2010?

The $200 million to $210 million range that we gave was lower. Last year, we did $254 million, I believe. That has the higher capital in it. It's got this timing element on the payables and accruals. I mentioned the sale of the Australian facility, around $5 million, that we don't have this year; those elements.

When you mentioned that there are some timing issues on the payables and whatnot, that would, seemingly, reverse next year resulting in a favorable comparison next year. Is that a right way to think about that?

Well, we will have to see. What it is really saying is the starting point in 2010, was relatively high payable balance, and we have paid those out and we are comparing that with 2009 and what we paid out in 2010 for 2009. And the other element that we mentioned, is because of the 53rd week. For instance, in the third quarter, our quarter ended on October 1. That impacts the timing, or the payments are happening when they happen. But that movement -- so we probably would see some benefit in 2012 in light of all of that, but probably not the whole amount.

You used to give real specific numbers for a lot of markets and maybe you said it and I missed it, but Rick always names some of the growth rates. Could you give Indonesia, India and Germany in the quarter?

Indonesia was up 47%, India was up 68% and Germany was up 9%. In local currency.

And then, the decline in France, which is very uncharacteristic, because that has been growing pretty well. Can you give color on why you are so confident that it will be up the fourth quarter?

We have a sales force size advantage. It is not as large as it was, but what we did see in the third quarter, both on the front-end of the quarter and the back end of the quarter, with a timing of the promotional pushes in particular weeks, that had a negative impact on the third quarter.

And that third quarter, Linda, is not a particular -- remember, France goes on holiday in the summer, so it is not a particularly big quarter for us.

I know I could probably figure this out, but could you just say the lower tax rate in both the third quarter and the fourth quarter. How did that affect the annual guidance of 2011, because of the lower tax rate versus before on an EPS basis?

$0.$0.02.

$0.$0.02?

Yes.

Jason Gere, RBC Capital Markets.

A question on the DS&A leverage that we are always accustomed to seeing with strong comps. I was wondering if you could break out between the investments that you stepped up in some of those key markets versus overhead reduction or leverage that we get with the comps, especially, that was 10% this quarter.

Our DS&A as a percentage of sales, was about the same; it was up 0.1 points year-over-year. We talked about $7 million or $8 million of incremental sales in Fuller and a couple of million in Italy. That would be on about $600 million in sales, 150 basis points. The other elements that were helping us were volume leverage that we see on the 10% higher sales; so that would have been a big element there.

We also saw a bit of a mix shift away from our US-based businesses where we sell directly to the sales force as opposed to distributors. And we've got some commission costs in those businesses that go through the promotional line. And when they are less of a share, that helps that ratio.

When we think about the fourth quarter, I am just trying to break down the $149 million to the $154 million. Should we see a little bit more of that leverage coming back? It sounds like you got the leverage you wanted, but you just had some of the incremental expenses.

Some of those expenses are going to decelerate in the fourth quarter, and trying to think about how that plays out fourth quarter. Are thinking about it heading into next year as well? Especially if you are still endorsing 5% to 7% organic sales number, which should provide you with that leverage.

For the fourth quarter we were saying that we are seeing a fairly normal contribution margin in some of the segments. In Asia, in South America. Where we said that -- where I was saying that we would still see somewhat of an impact on RLS was in Europe and Beauty North America. Just not as much as we saw in the third quarter, and then also, based on our outlook, we included a little bit more in unallocated expense and interest. When you look at pre-tax, overall, that is why we are showing a lower percentage in our guidance.

Turning to 2012, I know you have given a lot of pieces, but at the end of the day, and even the commentary that was in the press release, about the growth ahead. When you think about the 5% to 7%-- the developed markets have gone from last quarter, it was low single-digit positive this quarter low single-digit negative.

How are you thinking about 2012, that we are going to see continued strength in emerging markets and then should we see flattish in the developing markets? And expectations out there calling for 10% to 15% earnings growth. I know currency is going to work against you but do you have comfort with those expectations that are out there?

With regard to emerging markets, I have every reason to believe that this will continue, at least at the double-digit level in our emerging markets. Some will be high-double-digit in there. But the blended rate is low-double-digit, at least. I believe you're going to see our established markets, because of what is happening with sales force size, be up modestly -- 1%, 2%, 3%.

Where we will start to get positive, there is when we fix some of these problem children on it. Because the drags have been Japan, Australia, New Zealand, BeautiControl, and Nutrimedix Australia. We start to get those -- positive trends on those and then you can start to see, mid-single digit growth from those.

A very important point, Jason. I was trying to explain this to our managing directors in Europe a couple of weeks back. Bifurcate the world into emerging markets, established markets, pluses and minuses on each. The established markets of the world, the big pluses; high per-capita income. Luxembourg leads the pack, $40,000 a year, but most Western Europe is up near those kinds of levels. Positives for us, we are very low penetration in high density, big cities-- Paris, Bordeaux, Lyon, Marseilles, Nice. That is where we are getting the growth. Those are much more educated women and working women and she is selling our higher-priced product there.

So, a big plus for us. We have lots of room to grow there. That is why we are attacking Italy. The drag in those markets are we have high penetration in a lot of rural areas. That is where we have been for 50 years.

Now, I shifted to the emerging markets of the world. The big plus, number 1, population. Number 2, incredible growing middle class. It is interesting. The middle class of India, right now, is estimated to be 350 million. So it would make it's middle class, the fifth largest population in the world. And it is projected to be 550 million by 2025. So, lots of people. The bad news, there, is most are poor, but there is this growing middle class.

So, when somebody looks at our portfolio, often people say, they are an emerging markets story. No, no, no. We are an and not an or, because we make a lot of money and our established markets have a lot of opportunity to grow. Will the deltas be as great? No.

Margins are great and they can afford these higher priced products, so we are going to be a business that operates with our model, albeit different, in each of these kinds of markets. Sorry for the long explanations but it is a bold story.

The sales next year, will probably be, again, net of FX, low single-digit. Should we anticipate another year -- You have done a terrific job, excluding that 50 basis points of pretax margin per year. But it sounds like gross margins will turn more positive, especially with resin costs, I think of $11 million positive contribution and mix.

And, the DS&A sounds like you'll continue to get some leverage there. Should we think of next year as good organic sales but even another strong operating performance and under-performing businesses start to get more profitable?

With regard to foreign exchange, foreign exchange patterns have been absolutely volatile and they can change over 6 weeks. We are planning, right now, in this range, 6% to 8% top line I don't know what is going to happen with foreign exchange. Things can change very quickly.

When we take this decade from 2000 to 2010, it was $0.$0.05 negative. We had this market basket with all of these different currencies out there and I have seen a shift in Mexico, between 11 to the US dollar and 15 in (indiscernible) years. So, it is just a bouncing ball there.

Our guys have gotten very good at managing within that foreign exchange so the only thing at the end of the day we to deal with is exchange rates. Because we will learn -- our factory wage rates in Mexico are paid in pesos. We try to, then, source as much as we can, in local currency so that can mitigate the negative impact of that. Our global portfolio really gives us a natural hedge.

I am not coming down on our estimates of this next year given what I have seen. The first thing to look at, what is the size of our sales force? Are we growing that?

Sofya Tsinis, JP Morgan.

You levered up this quarter to buy back stock, and previously you have given a new target of 1.5 times. Do you view that as a ceiling, or do you think the potential taking leverage higher over time?

That is certainly what we are continuing to operate under. We were at 1.4 times for the 4 quarters ended the third quarter. Could go higher with our credit rating and so on? We could, but that is not what we are saying we are going to do so I don't think people should expect that.

Concerning the market that will require additional investment in this next year, can you walk us through those? Is there a better model for the DS&A line?

You said that would need additional investment?

Yes.

I think that tends to be fairly situational. We saw the situation in Fuller Mexico where we had a gap in recruiting in the second quarter and we reacted to even close that by the end of the second quarter and built on that in the third quarter.

Yes, we feel like we could have done it more efficiently, and we will look to do it in other places that way in the future. I don't know if we would predict, per se, needing to do that. If you look at our quote, problem children, unquote, markets, we make some investments there much more modest, and where we are not doing well, that is when we look at it. I don't think we would predict anything like that, per se.

When we think about the 50-basis-point per year target that we talk about, that contemplates we start with a very good return business overall. We talk about the 40% contribution margin before investments and we do make a lot of investments. Many of those are more offensive in the sense that we're doing the brand building and so on, that is meant to make good businesses even better.

In other cases, we have these kinds of issues where we have to invest. So for this year, the high end of our guidance is the 14.1% pre-tax RLS. Last year we were 13.7% so we're only getting 40 basis points, but we are close to our longer-range target.

Mike Schwartz, of Suntrust.

I just wanted to touch on something that I thought was pretty interesting. Your commentary regarding the softness you are seeing in the Hispanic market. I believe you were referring to the Tupperware US business in particular. Can you give us more color on that? Is that an area you are looking to invest more in 2012?

In the US Hispanic, we have -- the area we are strongest there is actually the Midwest, the Chicagoland area and in the Southwest, including California. The issue there is we think some of our offers were off. The Hispanics tend to, in our business in the US, purchase at lower price points, and be much more incentive-driven. In doing a reflection of the third-quarter performance, they felt the offers --management felt the offers were off for them and they are adjusting for the fourth quarter, so that tends to be situational and temporary.

But it is a very vibrant piece of our business there. It is interesting; the 2 strongest components of North American business are the Hispanics in the US and the French-Canadians in France. There are pockets there, they have just operated on different double-digit growth trends. And we are used to seeing that.

They are still growing, but we did not get that kind of growth in the third quarter from them, so we are spotlighting them. You cannot go for them, just like with our beauty businesses, they are not interested in the same kinds of products. So we have to be more important for us to have segmented marketing and segmenting sales approaches and sometimes we're better than others.

Moving on to the European emerging markets business. You pointed out Russia improving sequentially and South Africa as well. It looks like, overall, the sales growth has decelerated. Can you point at the negatives that you saw this quarter?

Mike, first take them through. I was just in South Africa and can comment on some of the issues there

The beauty business in South Africa had a very good quarter. We were flatter in the Tupperware South Africa business. We mentioned in the second quarter we had shifted a couple of million dollars of sales ahead of a potential strike that actually did happen and has since been resolved, so that hurt the comparison a bit We had a couple of good months in Turkey, but in the middle of the quarter we were softer and that impacted of the comparison in this particular quarter. Those are some of the bigger emerging markets in Europe.

John San Marco, Janney Capital Markets.

What, specifically, did you spend the incremental $8 million and $2 million on in Fuller in Italy that you intend to moderate? When you say promotions, does that mean paying distributors more on a percentage basis or lowering product prices or how did that shake out?

The biggest element in the Fuller business was the price that we are offering the initial order at in order to attract somebody, and then the prize that you get for recruiting somebody. And the level that we set of the sale that you need to get that prize. What we look at when we are making that decision is what is going on externally.

With others, what we have done in the past and what we think is going to drive the action of the recruiting. The biggest element was the prize, the cost of the prize that we were offering and the level of sales that we asked form that. And we have other programs in both of those markets, Italy and Fuller Mexico, having to do with activation and so on.

Do you expect those expenses to step-function downward of the fourth quarter? Does moderate mean that they decline slowly over a couple of years or how should I think about that?

What we meant by moderation is what we built into the fourth quarter outlook was not a huge contribution margin in either Europe or Beauty North America. We are getting more normal contribution margins from the other 3 segments so that reflected

I guess longer term, because the tone I picked up on the call, was that, 2 years from now there may actually be some unwinding of those investments and negative investments. If I interpreted that right, why is the approach to try to figure out ways to shrink that investment level instead of redirecting towards investments that are successfully drawing higher-quality recruits.

I think, in essence, it is that. We're always looking at how we are designing promotional pushes in our longer-term programs in order to be as effective as possible on our spending and we will continue to do that. We have made a lot of progress in a lot of places, and that is an element that has taken a pretext of 5% or so in 2003 to 14% at the high end now.

There are other elements of gross margin, as well. But, you are right, we want to leverage our promotional spending and, at times, that means we are spending too much, we need to spend less and other times it means we need to spend better.

Can you explain why purging the ranks in Japan, and I think you mentioned it specifically, with regard to the Japanese market, why that is the right thing to do there? And where you are in that process? And then, lastly, whether that is a process you can emulate in your other problem-child markets?

What that is reflecting is our decision process around how long someone stays on the list when they haven't ordered. And in many cases, that is run by our independent distributors making that decision and in other cases it is more formulaic.

In the case of Tupperware Japan, in the bigger changes we made in the model there to go back more towards aiming at selling group of people as opposed to the more passive group that would also be ordering a lot for their own use. We raised the standards of what you needed to do to be in the sales force, and get different levels and awards and so on. That meant there was a disconnect with the people that were on -- many of the people who were on the list of sellers just weren't active anymore so we took them off the list.

In that sense, it sometimes can be more helpful -- we think they are both important, but it can sometimes be more helpful to look at the active seller comparison because that is the measure of how many people are turning in an order each ordering cycle during the quarter. Will there be other places where distributors will hold onto sellers for a long period time and you can start to see different relationships? Yes, it can happen and that is an element that we manage.

Olivia Tong, Bank of America, Merrill Lynch.

Talk about the impact of FX had on margins this quarter, and what you are thinking about in Q4, based on where rates stand today?

The way we tend to see that come through is some of our costs are dollars. A lot of corporate costs, obviously, are interest costs. When we get FX impacting the sales line but not impacting the cost, that can, obviously, would come through the percentage. In the third quarter we had last year, we had an actual pre-tax RLS of 10.4% but it would have been different if the rates that were in effect at the time. That came through probably 20 basis points or 30 basis points of an impact versus what it would have been the rates have stayed the same.

It's that kind of dynamic, and a lot of times, we see movement in that range. I think I also mentioned that is what caused our 14.4% high-end pretax RLS guidance in July turning net-net into 14.1%, now. It was that large movement in FX that caused that to be math outcome.

One more question on Mexico. You mentioned, given the sales force move, you may have lowered the gate a little bit. Should we expect a greater fall-off in sales force and potentially a decline in the next few quarters because of the number of people that came in when you lowered at the gate? There is a quality issue there?

No. I think what to expect is sales increases more in line with what you saw the third quarter. Even though we had a 19% sales force size advantage, we are already a month in to this next quarter. Don't expect 19%; expect something more in the same range that you saw in the third quarter. And what we do is we would purge that extra incremental group that weren't as high a quality and return back to the normal 5% to 7% increases that you have been seeing in that Fuller business going forward.

Thank you. There are no further questions at this time I would like to turn the call back to Mr. Rick Goings for any closing remarks.

Thank you very much and thank you for your interest and I would really encourage those of you who can to come to Miami because you will see this incredible group of management that we are bringing along the business and also to show you some of the shifts in product. There has been -- I was talking several months ago with some of our managing directors about this.

If you would have looked back 20 years ago at Tupperware, we basically are still trying to pull away from being commoditized in this market to products that were being sold at Wal-Mart and getting into new and different categories. So we threw a lot of our time and investment research dollars into differentiating our products, and, as they would say in the military, getting elevation on that where you basically have advantage

There have been some dramatic shifts in what Tupperware sells today, and we will show you that. We have used the -- Apple example, far before the recent, Steve's passing. Our product line today, they started basically with a computer, and you think, here, a Tupperware burping bowl. And they moved away and moved into consumer products.

That is what has happened here. If you start to look at our product line as a hub and spokes, we started moving from commoditized plastic food storage into kitchen tools and gadgets. We started going into food preparation items and we're -- Give you an idea of what has happened there, because we have taken the hottest selling products around the world this last year was an herb chopper, $60. And we are talking about it was a hot seller in not only higher per capita GDP markets but Europe as well.

Over the last several years, this Quick Chef, which is a food processor. We weren't even in these kinds of products in the past, but they have changed women's lifestyles.

For example. She uses it if is a busy working woman in Germany, but she also uses it is India because 50% of homes there don't have electricity. It has been adapted. In France, 20 years ago, it was a $10 Tupperware product was our hottest selling; today, it is a 100-year-old micro steamer for a woman who works, is in her 30's and lives in Paris. Product line has changed and that has, therefore, change the way that we sell.

A party today is much more of a girls night out, so higher-tech, life-changing product with a different kind of selling situation. We're going to take some time in Miami and show you how that works, and it should give you a feeling. Because what that has enabled us to do, is get a higher-quality recruit who comes in, not to make pin money, but to make serious income.

As I just saw in India, we have 6 women in our India and organization who make over $0.5 million a year. It is a very serious opportunity. Anyway, thank you, we will talk to those of you who are going to be with us in Miami.

[Operator instructions].