Tupperware Brands Corporation
Q4 2021 Earnings Call Transcript

Published: 23 Feb 2022

[Alexis Callahan:]

Thank you, Operator. Good morning, and welcome to Tupperware Brands Fourth Quarter and Full Year 2021 Earnings Conference Call. Joining me today are Miguel Fernandez, President and CEO; and Sandra Harris, CFO and COO. We will all be available for Q&A following our prepared remarks. Earlier this morning, we issued a press release announcing our financial results for the fourth quarter of 2021, which is available on our Investor Relations website. In addition to today's press release, we have also published supplemental materials to accompany our prepared remarks, and both items can be found on our Investor Relations website. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, February 23, 2022, and may include forward-looking statements. Actual results may differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-Q for the third quarter of 2021, subsequent filings with the SEC and in our press release filed this morning. Please review the forward-looking statements disclosure on Page 4 of today's press release. Please note that all references today are being made on a constant currency basis, which reflects the application of the current period foreign exchange rate to any prior period results enabling comparisons, excluding the impact of foreign exchange rate fluctuations. Please also note that all references, unless otherwise noted, are being made on a continuing operations basis. During this call, we will discuss certain non-GAAP measures, including those we refer to as normalized measures. Additional disclosures regarding these non-GAAP measures, including explanations and reconciliations of these measures to the most comparable GAAP measures, can be found in today's press release, which has been posted to our Investor Relations website. A replay of this call will be available on our Investor Relations website later today. And with that, let me turn the call over to you, Miguel.

[Miguel Fernandez:]

Thank you, Alexis, and good morning, everyone. It is great to be here with you today to share our fourth quarter and full year 2021 results. As we ended 2021, we passed the midway point of our 3-year turnaround plan. In 2020, our priority was to stabilize the company. In 2021, our priority was to build a foundation for omnichannel growth. And in 2022, we will expand our efforts and increase our investments to make our products available to consumers wherever they choose to shop. And while we focus on building a strong foundation in 2021, we reported both top and bottom line growth in 2020 and in 2021. Most important to me and to our Board at this point are accomplishments, what we've learned and what we see ahead of us in the second half of our turnaround plan. First, what has been accomplished. We had to rightsize our cost structure to survive in 2020, carry that fiscal rigor into 2021 and successfully stabilize the company. We reorganized and upgraded talent to help us fix and stabilize our direct selling business. We have brought into the company new talent with retail and CPG experience to help us build an omnichannel business. We restructured our debt twice, first, to provide a bridge loan in late 2020, and again in late 2021, to provide critical funding for growth, increasing our financial flexibility and reduce our cost of capital. We divested non-core assets and reclassified the company's beauty business as discontinued operations in our financials as we work to complete remaining sales transactions in 2022. We implemented proven methods of operations, utilizing data and techniques to revamp our core direct selling business. We started building new capabilities to open up our iconic brand to new channels of distribution, with the goal of dramatically increased consumer access to our products. And we have been working with retailers around the world to take limited amount of products into new channels, and we closed the year ahead of our objective of $50 million in B2B revenue, which is product sales sold through retails in their loyalty programs. We accomplished top and bottom line growth in 2021, while continuing to execute on our turnaround plan. Additionally, we made important changes and investments while navigating unprecedented operating conditions, such as COVID lockdowns throughout the world. And our gross profit was dramatically impacted both by higher resin prices and logistic costs. Yet despite these outside distractions, we delivered growth in 3 of our 4 regions, with APAC being the outlier, as it was the hardest hit by the most recent COVID variant. 2021 performance was a tale of 2 halves. Through the first half of 2021, we were ahead of our internal expectations and really seeing the initial benefits of using direct selling methods that we know are successful. During the second half of the year, we were negatively impacted by disruptions driven by COVID lockdowns, particularly in our developing markets, which we know there's a lower digital adoption, a system issue rolling out a new sales force technology platform in the U.S. and Canada, and high resin and transportation cost as well as other inflationary pressures. That said, we managed controllable expenses as we are exercising more discipline in our spending. While we acknowledge cost pressures, we feel that our local manufacturing model has proven to be an advantage in the current supply chain climate. We ended the year up 1% of revenue and more than 50% on adjusted income. Given the unknowns of COVID and all that we have accomplished to develop a stronger and scalable foundation, we are pleased with the progress our teams are making to prepare for an omnichannel future. Additionally, as you know, we're up against very difficult comps in the second half of the year. I'd also like to mention a few noteworthy recent achievements. We continue to focus on introducing new more sustainable materials to our product lines, new products design to solve consumer needs identified by data and insights, and refined product strategy tied to our renewed purpose to help consumers reduce food waste and eliminate the use of single plastic products and packaging. In 2021, the ECO+ Coffee To-Go Cup received the Fast Company's 2021 Innovation by Design Award and the Green Good Design Award. The Handy Spiral also received high honors by the 2022 German Designer Award. We introduced a freezable reusable bottle that, when frozen, offers up to 8 hours of fresh, cool water for consumers on the go. We also launched our Universal Cookware set, a product line developed for small kitchens and spaces. In 2022, we will expand the glass bakeware and storage category given the current needs of today's consumers. With our purpose to nurture a better future, in 2021, we brought to life a collaboration with TerraCycle circular reuse platform called Loop, producing a one-of-a-kind reusable packaging container option for Tim Hortons and Burger King. Lastly, we continue to make progress in our ESG efforts. We published our 10th annual sustainability report in the fourth quarter, which highlights the degree to which sustainability is moving into our cultural nevus. For the first time ever, we conducted a materiality assessment intended to guide our efforts towards the ESG targets, the most important to many of our stakeholders. The new report includes first-time social and governance goals, a new established 2025 and 2030 environmental target, including 90% absolute reduction of greenhouse gas emissions by 2030. As a testament to our sustainability reports, we're recently recognized by Newsweek as one of America's most responsible companies in 2021 for our commitment to our people, planet and environmentally responsible products. And last month, we renewed our partnership with the National Park Foundation, providing $2 million multi-use donation to create meaningful impact across the National Park system. As we head into 2022, and the second half of our turnaround plan, we believe our strategy is the right one

[Cassandra Harris:]

Thanks, Miguel. We've made meaningful progress in 2021, despite some challenging headwinds in the second half of the year, while continuing to execute on our turnaround plan and lay the groundwork for future expansion and sustainable growth. In 2021, we invested in the business to fix the core and set the foundation for expanding into more channels. We refinanced the debt for more flexibility with more favorable terms, continued our efforts to divest of non-core assets, significantly improved our tax rate and remediated the material weakness within our Mexico operations. Now to our financial results. As a reminder, we made an accounting change last quarter to classify our sold and held-for-sale beauty and personal care businesses as discontinued operations, which is consistent with our strategy to focus on the performance of our core business and expansion efforts. Therefore, during this call and on a go-forward basis, our comments will reflect results from continuing operations only. For the full year 2021, we posted revenue of $1.6 billion, which represents an increase of 1% compared to 2020. As Miguel mentioned, we were outpacing our plan during the first half of the year. Then in the second half, we had to manage through the impact of restricted COVID lockdowns, especially in Asia and Europe. We also were challenged in the second half in the U.S. and Canada business with the implementation of a new sales force tool, but still managed to achieve an all-time high for revenue in this market in 2021. We also grew in 3 of our 4 regions for the full year, with Europe up 2%; North America, up 6%; South America, up 20%; and APAC was down 11%, mainly due to China. Business expansion, which includes B2B loyalty programs, importers, studios and retail, is now approximately 20% of our revenue. We're pleased to report that the B2B loyalty revenue was $56 million for the year, exceeding our stated goal of $50 million for 2021 and $37 million in 2020. Miguel also mentioned the significant progress we've made in importers and studios outside of China. For the year, 3 of our big 4 markets posted growth with the U.S. and Canada up 2%; Brazil up 9%; and Mexico higher than last year by 13%. China was the only big 4 market that did not grow and was down by 21%, heavily impacted by fewer studio openings, impacts of lockdowns due to COVID and leadership changes throughout the year. For the year, gross profit was $1.1 billion, flat compared with last year. However, gross margin was 66.7% as compared to 67.5% last year. The decrease of 80 basis points was driven primarily by higher resin cost of 200 basis points, partially offset by manufacturing efficiencies in the first half of the year. Adjusted EBITDA was $290 million or 18.1% of sales, relatively flat on a reported basis. Excluding the foreign exchange impact, EBITDA would have been lower due to the gross profit impacts I just spoke about. We continue to improve SG&A, despite higher distribution and freight and incremental investments. Adjusted earnings per share was $3.25 as compared to $2.15 last year as reported. In 2021, we had 2 favorable one-time items for the year

[Operator:]

. Your first question comes from Anthony Lebiedzinski from Sidoti.

[Anthony Lebiedzinski:]

So first, just looking at the fourth quarter, there was a rather wide divergence when I look at the sales force numbers between the Americas and Europe and Asia Pacific. Is this only due to COVID? Or is there anything else going on?

[Miguel Fernandez:]

Anthony, this is Miguel. So the main reason is COVID. Definitely, we got a big headwind in Asia and EMEA, but also you see the difference, let's say, with Mexico because we're going to call Mexico the leader market in direct selling. So a lot of the good methods and practices that we know that work have been implemented in Mexico, and that's why you see so much positive in Mexico and a different story in EMEA and APAC.

[Anthony Lebiedzinski:]

Got you. Okay. And then in terms of the strategy to stabilize China, I know, Sandra, you mentioned that there's a change in leadership. Is there anything else you can share with us as to what you're looking to do to stabilize China?

[Miguel Fernandez:]

Yes, absolutely. So obviously, we have the new leader there. But before, when we were opening new stores or outlets around China, it was more of an entrepreneurial type of letting the entrepreneur do it by themselves. Now we're providing a very professional guidance around the look and feel of the store, the location of the store. We obviously hired the best in the world in retail to help us develop those, I guess, guidelines to have for the entrepreneur to follow. So that is going to maximize or at least elevate our chances of success of each of the outlook -- of the outlets that we have in China. Also we're -- as Sandra mentioned in her speech, we're doubling down in innovation, new products and -- mostly in the small kitchen appliances that we know have a lot of traction in China. And finally, the biggest one is e-commerce, right? And we're enabling all the stores and everyone there to start operating also through an e-commerce that we know that is -- it's a big part in China, more so under these conditions around COVID.

[Anthony Lebiedzinski:]

Got you, and then I guess, last question for me. As far as the timing of the new products and new sales channels, is that going to be mostly back half driven of this year? Or can you give us a little bit more color about your strategy with that as far as also product pricing and just timing? That would be very helpful.

[Miguel Fernandez:]

Yes. The timing, just in one word, is in the second half of the year. We're setting the foundation to get ready and make sure that we're ready for these other channels. And we're -- in essence, we're building a company, a new company that serves these other channels.

[Cassandra Harris:]

And Anthony, I think you asked about pricing, too. So pricing actions are going to happen in the first half, but the timing of the new channels and products is as Miguel stated.

[Operator:]

Your next question comes from Doug Lane from Lane Research.

[Douglas Lane:]

Can you talk a little bit about where we are with in-person meetings? Are you able to hold in-person meetings yet anywhere? Or are you still pretty much locked down on that front? And towards that end, how does that look for 2022 in resuming live meetings, assuming that you have it yet?

[Miguel Fernandez:]

So Doug, this is Miguel. We're going to start full swing in Q1. We're starting already. Mexico already started in Q4, and we attribute some of our success in Mexico, the fact that we're having people together. But basically, we're going to start in Q1 and so on. It depends on the country, but that's our intention.

[Douglas Lane:]

Okay. Good. Also in Mexico, I noticed that you have an agreement to sell Fuller there. Has any terms been disclosed? And I assume that's going to be a cash deal.

[Cassandra Harris:]

Yes, Doug. So we are under an agreement to sell Fuller, and we expect that, that will finalize in the first part of March. We've received the clearances that we need from the competitive commissions, and it's moving forward. And yes, it will be a cash deal.

[Douglas Lane:]

Okay. That's helpful. And then can you give us any early learnings from the venture with Tim Hortons in Canada? So what's the -- just what's the receptivity of consumers to putting a deposit down on a food container?

[Miguel Fernandez:]

Yes. We're still in a pilot phase. The feedback that we've received so far is positive, but we're still in limited amount of stores. But so far so good.

[Douglas Lane:]

Okay. And then I'm obviously interested in the multichannel strategy, and so you mentioned retail in markets like the U.S. Can you just give us a little bit more color on how you're going -- you're looking to approach retail, keeping in mind the potential channel conflict with your direct selling sales force?

[Miguel Fernandez:]

Yes, absolutely. So the first step is, obviously, we -- as you know, we're going to launch products with a different sub-brands, so it's going to be Tupperware Essentials. Then another one is that we're going to be doing products that could be part of a collection. So you're going to find 1 or 2 products in the retailer. And the rest of the collections, you're going to find it in the direct selling. So that's how we're going to make both channels to be synergistic. Also obviously, we're sharing and developing all this plan in conjunction with the sales force and with the leaders in the sales force, so they know what's coming and how we're trying to approach it. What we found in some other countries is that the Tupperware brand becomes on top of mind. So customers that used to purchase from one of our direct sellers in the market, they go to the retail, they see the product, they see one SKU and then they call their old friend to buy other products because, obviously, in the retailers, we're going to be able to sell 10 to 12 SKUs, whereas we carrying a catalog of over 180 SKUs. So it's a combination of those sales force, the ones that we believe are going to minimize the conflict. And we're very happy because in 3 countries, in Mexico, in -- some in Europe and some in APAC, we already did it and it's working really well. In some cases, even last year, around 40% of the profits came from these other channels with no direct impact into our direct selling channel. So we're very excited about that.

[Douglas Lane:]

Okay. And just one last thing. You mentioned the B2B was $56 million in 2021. And historically, that's been a bit of a lumpy figure. So from where you sit today, do you expect 2022 to be at or above that level of $56 million?

[Miguel Fernandez:]

Yes, absolutely. We see it at least 30%, 40% above that number.

[Operator:]

. Your next question comes from Linda Bolton-Weiser from D.A. Davidson.

[Linda Bolton-Weiser:]

Just a couple of housekeeping things. But what's the tax rate that you're assuming in your EPS guidance for 2022? And can you give us an estimate of interest expense?

[Cassandra Harris:]

Yes, Linda. So we're assuming a mid- to high tax rate. Previously, we had quoted 28%, but we're ranging at mid- to high 20s at this point. And then in regard to the second question on interest, based upon our new, it's actually in the presentation we posted to the website. You can see the difference in interest rates. It's about half of where our interest expense has been trailing, with our new debt agreements that we just entered into. It's around $15-plus million a year, I think.

[Linda Bolton-Weiser:]

Okay. And then -- so maybe I missed it, but have you given a constant currency sales growth estimate for the year? And I mean, by my projections, I'm still assuming kind of down double digit in the first half and maybe some growth in second half. But for the full year, do you think the constant currency revenue can grow or not?

[Cassandra Harris:]

Yes. We -- that's the one thing we chose not to guide on, Linda, just because of all of the uncertainty that still exists with the pricing changes, how much of it will impact volume. We do -- reminding everybody, we're 80-plus percent international for Tupperware. And even though things in the U.S. are getting better with the pandemic, we talked about the Q4 impacts that we had, and some of that's continued into Q1. So a lot of those uncertainties is making us more cautious around providing a sales number, but we did feel that we could control profitability and expenses more, depending upon where their sales are. And so we do feel confident in the EPS guidance and cash flow guidance we provided.

[Linda Bolton-Weiser:]

Okay. And just in terms of the pricing, I mean, are you -- can you give us a little more color? Like, is it across the board? Is it a certain percentage of SKUs? How long will it take to flow through the system? Is it certain geographies? Can you give us like a little more color on the pricing actions?

[Miguel Fernandez:]

Yes. Linda, this is Miguel. So pretty much, it's across the board. And obviously, we're going to take advantage of new products to make sure that we price accordingly. We literally started pricing in -- towards the end of Q4. But absolutely, every single market is increasing prices effectively in Q1. And there's a few of them, very little portion of them in Q2, but in all of them, we're going at least with the rate of inflation. And again, we're going to be opportunistic, and we find a way to -- through new products to price and obviously grow our gross margins. We'll take a bunch of that. But you have to remember that we're pricing against to market, so we don't want to price ourselves out of the -- of our competitive scenario. We know that we are a premium brand. We always want to be around 15% to 20% above competition because of our quality of our products. But again, it's a balance, right?

[Cassandra Harris:]

Yes. And Linda, I want to route back on that last question quickly and just clarify one thing. I think you actually said it yourself. But we do want to emphasize that due to the tougher comps in the first half, we do expect the sales to be more back-end loaded. So I did want to make sure that I emphasized.

[Linda Bolton-Weiser:]

Okay. And then I believe you had launched in the U.K. already, if I'm not mistaken, in the fourth quarter. Can you just give us an update on how that initiative in the U.K. is going?

[Miguel Fernandez:]

So it's going great. We started, as you said, in Q4. Now we are expanding. We -- if everything goes as planned, and everything is going as planned, we're going to be in the major retailers in the U.K. probably in a quarter or 2 from now. But not only the retailers, we're also in DTR and other channels. Our brand is showing that it's very strong, and it has a lot of acceptance with the consumer. So everything is looking just as good as we thought about.

[Linda Bolton-Weiser:]

So just to be clear, you are in some retailer in the U.K. in the fourth quarter.

[Miguel Fernandez:]

No. Well, yes, but with very limited amount of products. You're going to see a meaningful and material sales probably towards Q2 and Q3 of this year.

[Linda Bolton-Weiser:]

Can you say which retailer in the U.K. you're in?

[Miguel Fernandez:]

I don't think we can just yet. But as soon as we sign the last letter, let's just put it away, we'll announce it. And you'll know pretty fast. But...

[Linda Bolton-Weiser:]

But I thought you just said that the product is in the store in the fourth quarter. You said the product was in the store in the fourth quarter.

[Miguel Fernandez:]

So -- well, no. The DTR is the one that is in the U.K. market. The retail, the physical store is going to be in the next few weeks. So just think about the major retailers in the U.K., and that's where we're going to be.

[Linda Bolton-Weiser:]

Okay. And then I guess -- also I guess, I was curious about just on the resin cost. Are resin cost for you, like, still going up year-over-year? Or are they stabilized?

[Cassandra Harris:]

Yes. So it's a 2-part answer, Linda. So the resin cost is tied predominantly to the indices, which have been going down. But then on top of the index factor, there's also the factors of logistics and freight and the adders to get the resin to the market. So what we saw in 2021 was clearly the impact of what was happening in the indices. In 2022, we do expect a 5% increase in resin, but it's predominantly tied to the pressures that are happening related to the logistics and adders that go on top of the indices as it comes into the business. So a 5% increase on resin cost equates to about 1.5% of an increase in cost of goods sold. And then our total cost of goods sold, we're estimating, in line with many others that you probably heard, is around 8% to 10% with other inflationary factors that are happening throughout supply chain, including increases in our source product, which is more than 40% of what we buy. Those are going up in line with what others are seeing, around that 8% to 10%. And then we also are expecting more pressures on logistics and freight and other inflationary factors like wages and factories and things of that nature. So roughly 8% to 10% as we look towards 2022.

[Linda Bolton-Weiser:]

Okay. And just one more question on the U.S. retail launch. I think you said in the second half. Did you say just a couple of items? So are you talking about just like a very few number of SKUs? Are you talking about a whole range of items at retail?

[Miguel Fernandez:]

We're talking about -- specific to -- with one of the major retailers in the U.S., 16 SKUs, pretty much in the categories that you know that we're very strong at. And that -- the way we see it, this is the first step of many. We're going to expand our presence in that category and then into different categories.

[Operator:]

There is no further questions at this time. I would now like to turn the call over to Miguel Fernandez.

[Miguel Fernandez:]

Thank you. In closing, 2021 was a year of challenges, but we continue to execute against our turnaround plan, making fundamental changes and investments necessary for our unprecedented transformation. We're proud of our progress and enter the second half of our year in the turnaround on a strong foundation that will enable us to enter into new channels and product categories and increase consumer access to our iconic products. Our goal is to make this business as big as our brand, and I have confidence in our ability to achieve that. Thank you for your time today, and I look forward to speaking to you pretty soon. Thank you.

[Operator:]

This concludes today's conference call. Thank you all for joining. You may now disconnect.