Tupperware Brands Corporation
Q2 2017 Earnings Call Transcript

Published: 26 Jul 2017

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Tupperware Brands Corporation Second Quarter 2017 Earnings Call. I'll now turn the conference over to Chairman and CEO, Rick Goings. Please go ahead.

[E. V. (Rick) Goings:]

Thank you very much, and good morning, everyone. I'm in Orlando today with Mike Poteshman, our CFO; and James Hunt, our Head of Investor Relations. I would first ask you to, for more clarity, to follow the slides that go along with our prepared remarks. Beginning with slide two, which is our standard message on forward-looking statements. So, let me get into it. Slide number 3. Here is firstly my top line view. In Brazil and China, we continued to demonstrate the power of our business model. However, this was partially offset by some disappointing results, particularly in Indonesia. Certainly, there were other puts and calls and I'll get into some of those as we go through into this call and the Q&A. However, overall for us, there were really no surprises other than the magnitude of the decrease in Indonesia, which really hurt the quarter's results, which came in with 2% sales growth in local currency. In the quarter, if I bifurcate it to emerging markets first and then established, emerging markets grew 6% in local currency and accounted for about 69% of sales. That's been about the same contribution for a number of years. However, on our established markets, some markets lost recruiting momentum and activity levels following the Easter holidays. There also was lower activity levels in a number of those markets. This resulted them coming in at 6% down versus last year. Now, our total sales force was about 3.2 million at the end of June and that's a 3% advantage over prior year with active sellers down 7%. Adjusted EPS came in at $1.21 and that's at the high-end of our range after adjusting for $0.01 worse foreign exchange than our guidance. We were pleased, however, with the profitability in the quarter. The additional topics we're going to really deal with this quarter are really strategic actions that we've initiated as you've seen in our release and our 8-K filing this last week, and these are really in support of our business transformation initiatives. In April, on the call, we communicated an ongoing strategic review regarding BeautiControl. And as reported last week, despite our efforts, we could not find a buyer for this business. And given the difficulty with the competitive beauty environment in the U.S., our belief is we're much better off focusing our resources on other parts of the portfolio. That's why we've decided to wind down that business in the next 60 days. This was a very difficult decision. As for 10 years, since the acquisition in 2000, we had remarkable results with regard to sales and profit growth. But in the last seven years, we've been unable to regain that momentum. Another action we've initiated is to fold the NaturCare business in Japan into our Tupperware Brands. Actually they had two headquarters, and we want to make it more efficient. Some will recall we did the same thing a number of years ago in the Philippines and in Argentina and actually in Brazil, and we did it with much success. To be clear, we have no plans to wind down our other standalone beauty businesses, nor are they being actively marketed. Fuller Mexico, Avroy Shlain, Nutrimetics, each have strong brand presence in their respective markets, and they provide scale to support the infrastructure. Fuller and Avroy Shlain particularly are nicely profitable while Nutrimetics in Australia runs around breakeven. You've also seen from our release that we announced the restructuring program, under which we expect to incur $100 million to $110 million over the next two years to three years, which includes the wind down of BeautiControl. In recent earning calls, we have discussed our efforts to more fully leverage our brand and our strong business potential and transform our business models, and also at the same time to improve our cost structure and our supply chain. Our primary plans in this area include taking out costs, including headcounts of certain businesses to run more efficiently and more profitably as well as making the supply chain in our IT infrastructure better match the transformation models. This includes reorganizing some of our smaller European markets to be more synergistic and actually cost effective. The restructuring program, however, will cover more than just Europe, but that's the predominance of what we've given you thus far. That said, I do want to reiterate our two-pronged strategy. First, to enhance our traditional relationship selling approach by expansion of the sales force and their size and productivity by strengthening the power of product demonstration and by improving the activity levels of our sales force. And second prong is really to expand our reach to both sales force and therefore to consumers and our effectiveness, which this is really going to include more urban and sub-urban contact points, a more efficient supply chain and importantly mining the relationship equity that we have with former sales force members who might have left the active selling of Tupperware, but still want a relationship with us. Supporting both of these two strategies, we're really leveraging more fully digital tools and technology to bring these elements together. Worth noting, regarding the use of technology is that increasingly more of our markets are connecting with their sales force through what they call TupperTV. Matter of fact in Mexico last month, I was impressed to see that literally tens of thousands of our sales force tune in every other week for TupperTV and increasingly they're millennials. The average age of our sales force there is now in its 30s. The restructuring actions that we've announced today in part are aimed at getting us further down the road to implementing more of such initiatives to transform our business. There are also initiatives here which are not in the restructuring charges, but I think they're going to evolve more organically. And we're used to doing that in the normal course of business. Let me move to slide number 4, staying with Europe. As mentioned, established markets in Europe struggled with recruiting and activity following the Easter holiday and lost forward momentum. Germany was down 4%. That's about in line with the sales force size disadvantage, closing net gap is really what they're focused on right now and I was just with them week before last. Our German management team is one of our best and we expect improvement over time. In the quarter, also, France performance was a big disappointment. After nearly a decade of solid top and bottom-line growth, France has literally stalled out the last two years. The previous dynamic growth there was a result of really a strong focus on high-priced innovative products whose features and benefits were really revealed in the demonstration. However, the sales force size and demonstration capabilities have really slipped, and we began to rely a little bit too much on promotions, and this has impacted both sales and margins. In the last few months, we've made some important management changes in France. However, it's likely to be a challenging second half of the year as well. I might add regarding France, while it's difficult to measure the impact of externals, politics or terrorism that they really had on our business slippage, it really became more dramatic the slippage following the Charlie Hebdo attacks in January of 2015. And, frankly, Mike and I were talking about this morning, there's been enough time since then that we should have figured out how to counter this. But we're on the case. Partially offsetting Europe, Africa and the Middle East performance of established markets was the outstanding results in Tupperware South Africa, up 41%. And while they've got a bit of a benefit from supply chain improvements and fulfillings of back orders, really it's been their recruiting, on-boarding and promote-out process that are so strong and humming, they've enabled the sales force to build momentum. And now we've got a 39% year-over-year sales force advantage. Let me turn to Asia Pacific. Indonesia's decline was disappointing. While we acknowledged in our April call that Ramadan would have an impact on this, the world's largest Muslim population, we also had tougher year-over-year comparisons in Q2 versus the first quarter. However, the underlying recruiting and leadership development trends during the quarter were soft. First, our programs to drive activity and retention, and we did launch incremental programs. Frankly, they just weren't successful in engaging the sales force. They didn't get enough of them to the sales meetings weekly and there were soft contact with less sellers, less engagement. Our product promotions had little chance to really gain traction and resonate. So as we lose sales force, it becomes more difficult for managers, who are really the engine of our business to remain qualified as managers, so you begin to lose managers as well. Getting Indonesia back on track, we're really focused on adding fresh, new young team leaders, which are a level of management there, a career level. Our expansion strategy there focuses on establishing these team leaders with their own business locations which give them more autonomy in growing their business. This will also expand the leadership pool, coupled with a more streamlined manager override program that, simply stated, it makes the line of sight of a career opportunity right in front of them and clear. We're also working to enhance our short-term merchandising and marketing efforts to rebuild activity and productivity. And must point out, in this kind of a market, we need to keep differentiating our product line and keep working better at demonstration selling. Now we don't expect this business to fully recover in 2017, but we do expect to moderate the downside beginning in this quarter, and positioning it for a strong rebound in 2018. Let me turn to India, where we were down 21%. The work there to rebuild that business after multiple external challenges, it's really begun, and I think they're well on their way, and have responded rightly. We recently launched numerous enhancements to our business there, and we're pleased that our distributors have been open and supportive about the changes, which includes really strengthening the manager compensation programs, new leadership elevation levels, digital commerce tools. Anyway, the list goes on, to really help our business go and grow there. We're also working to improve the supply chain transformation necessary to service the growing network of dealers in this non-stocking model. I believe it's going to take the rest of the year to get everything in place. And I've got a comment there too, on externals. Wonderfully about our business, and we're usually a business that can really adapt and adopt to anything that happens in the external marketplace. However, the government there in India has a narrative of being pro-business, and yet they continue to create multiple barriers, from demonetization to registration requirements of the sales force under direct selling regulations and now, this quarter, a new goods and services taxation system. Now like their demonetization, we expect this distraction will work itself out in a relatively short period of time. Personally it's worth commenting on that, when I look back to when I lived in Asia Pacific, in Hong Kong almost 30 years ago and first opened businesses in China, who would have expected that China would become an easier business friendly environment than India, but it certainly is. And that is a case in point is, look at the performance of our China business, up 43% in the second quarter. They've now got about 5,800 Tupperware studios at the end of the quarter. That's up 5% and a couple of points better than in March. We're also really gaining by leveraging a stronger member base that really supports these studios. And that's up 61% over last year. The strategy too on line with regard to this phenomenal "WeChat" program, it really drives purchases and consumer traffic into the studio for cooking classes, new product launches. And it really helps keep our business growing. I might also say that what we are learning and experiencing from our studio success in China is contributing to our thinking and actions with regard to a more contemporized distribution model elsewhere in the world. Moving to South America, our business in Brazil continues to really lead the way. They were up 23% in the second quarter, despite challenging macros. The political environment, as you've reading, has created quite a bit of uncertainty for consumers, as well as for the commercial investment market as well. We did see this impact in the sales force consumer behaviors late in Q2. That said though, the Brazilian management team has been adept at adjusting our business quickly. They've shifted the product line to more lower price points, focus more on activity programs and the earning opportunity. And really, they are doing such an effective job with regard to enhancing technology and the communications platforms, to get their messages out there quickly and broadly. Our Brazilian team is running the business as if there is a new challenge around every single corner, which has actually been the case in Brazil, and they keep looking for, what are the next levers for growth. We've got a 20% sales force size advantage there, and plenty of opportunity to expand our coverage across Brazil. It is the fifth largest population in the world. So we expect to see continued growth. Going to move north now to Mexico and our Fuller business, at the end of the quarter, Q1, we inserted a new management team there, a management team that previously was head of marketing in the Fuller business during our halcyon years. Unfortunately, many of the April and May plans were already locked in place and continue to impact the rhythm of the business, which hurt sales force engagement activity and productivity. But the good news is, we've seen some positive signs at the end of the quarter that the management team is now exerting its influence over not only the marketing plans, but the sales plans as well. Lastly, let me comment on Tupperware in North America, where each of our businesses had positive results. Mexico grew 7%, incredible contemporization of our traditional relationship selling model. They have in place all the elements that we've been working on, on on-boarding, activation, and really keeping people engaged in the business. And while the macros in Mexico aren't great, the business has really performed in spite of it. U.S. and Canada was also up in the quarter 5%. And looking forward, they continue to focus on leadership development, growing the sales force, and innovating with the use of digital tools and these communication technology levers that I mentioned earlier. At any rate, recruiting was solid and the team has now got a 7% sales force size advantage and that speaks to a good setup for Q3. With that, Mike, I'm going to turn it over to you, and then we will open it up for Q&A.

[Michael S. Poteshman:]

Thanks, Rick. On the second quarter sales comparison Rick has highlighted those units that moved most significantly versus last year versus the 4% high end of our external range, we did meaningfully better in Brazil and China where we had foreseen very good growth, but not the up 23% and up 43% that they brought in. Going the other way, we had included a double-digit decrease in Indonesia, but not nearly the decline we actually saw. Rick has pointed out the decline in part reflected a shift to the third quarter due to the end of Ramadan falling in the second quarter this year versus the third last year. We estimate the timing impact from this factor to have been a mid single-digit percentage. We also highlighted in our April call that we had a more difficult comparison in the second versus first quarter. In Indonesia, we were up 4% in sales in the second quarter last year and down 8% in the first. Looking forward, Indonesia was down 14% and 17% in the third and fourth quarters last year, and we've taken into account these easier comparisons in setting our outlook. Finally, on the overall company sequential comparison versus the first quarter, we pointed out in April that we assess that it was a net one point benefit versus 2016 from the shift in our calendar given the 53rd week last year and from a couple of drags related to the timing of Easter. On volume versus price impacts on the sales comparison in the second quarter, we benefited by three points from higher prices with volume and mix being down 1% versus last year. The sales force size was a plus 3% at the end of June, which was down two points from the end of March. The disadvantage in Indonesia grew to 20% from minus 2% at the end of March, reflecting both high removals and lower addition. On the removal side, we did a good job activating people in the first quarter that had joined us in the fourth, but didn't do as well in the second quarter with this group leading to their exit. We also had strong activation of sellers in June 2016. It helped us keep down removals last year in the quarter. On the addition side, we continue to work on building the numbers and skills of the sales force leaders who bring in the new people, but didn't do well in the second quarter. There was also some impact from the Ramadan timing. On average active sellers, at minus 7% for the whole company, we were quite a bit worse than the minus 1% we turned in for the first quarter. We highlighted in the April call that we had a six-point benefit from the calendar since 2016 included the week between Christmas and New Year whereas 2017 did not due to that week being in our fourth quarter 2016 calendar. Instead, the first quarter of 2017 included the last calendar week of March. Sales at plus 2% versus average active sellers at minus 7% in the second quarter, reflected growth and a mix shift towards China that operates through studios rather than with active sellers, as well a different aggregation pattern of orders in India in light of a change to how these sales force manager override works there that went in during the second quarter of 2016, so has now been lapped and there was a three-point benefit from higher prices. On slide 6, diluted earnings per share without items at $1.21, was $0.01 below the high-end of the range despite sales coming in at the low end and a $0.01 drag from weaker exchange rates versus when the guidance was provided in April. The improved profitability mostly related to Brazil and China where sales were above expectation. These units also have good value chains to begin with and were able to come in with higher than expected contribution margins on their sales growth over 2016. Putting this all together then on slide 7, this meant our pre-tax return on sales without items improved over 2016 by 70 basis points in local currency and 90 basis points in dollars. This reflected the good performance in Asia from the good base profitability, sales growth and contribution margin in China and was despite lapping unusually low promotional spending last year in India. It also reflected good performance in South America, primarily from Brazil as with China from good base profitability sales growth and contribution margin. The gross margin percentage in the second quarter at 68.1% was 70 basis points better than in 2016. 20 basis points of this was from less of the hit from items in our GAAP numbers primarily from currency devaluation in Venezuela. There were also mix benefits both in terms of products sold and from units whose share of the business grew and fell. We were also able to reduce our cost of product. All of these upsides were partially offset by about 0.5 point hit from higher resin costs. The picture on our DS&A percentage was also favorable as we came in 0.5 point lower than in 2016 at 52.3%. There was a close to a 0.5 point benefit from translation FX, meaning currency fluctuations and from an operational point of view, we were able to better leverage our overall promotional spending, which was largely balanced by a bad debt expense and some non-reengineering severance where people were changed out in the organization. On slide 8, cash flow from operating activities net of investing activities came in at $21 million in the quarter, $4 million below last year. Our full-year capital spending expectation remained at the same $70 million, excluding land CapEx we indicated in January and April, which is $8 million above last year and we're also spending the capital a bit earlier in the year in 2017. Our full-year cash flow guidance range has been reduced by $25 million for reengineering items not included in the April guidance. This puts us at $165 million to $175 million, which, as a reminder, is after CapEx and before dividend. On a full-year basis, the cash needed to fund the current dividend is about $140 million, so even with our reengineering program at the high-end of our cash flow range will generate about $35 million beyond the dividend. I'd like to comment on how we see our reengineering program fitting in with our overall capital allocation approach. As I've just stepped through, we certainly expect to continue to pay our dividend. We continue to target a payout through the dividend of 50% of trailing earnings per share without items. Due to the translation FX hits we took in 2014 through 2016, we're currently above the 50% payout target as we need $5.44 of EPS to be at that ratio. We've said that reengineering cost, including BeautiControl will be in the $100 million to $110 million range over the two- to three-year term of the program, which will predominantly be cash costs, including the $25 million we spent this year. Also on go-forward profitability, we expect about $35 million in annualized benefits when our actions are fully implemented and about two-thirds of this should come through starting in 2018. Given our outlook, even with the reengineering cost we'll pay this year, we expect to be under our 1.75 times debt to EBITDA target leverage ratio at the end of the year. So, we still expect to have share repurchases in 2018. The other thing worth mentioning is that we don't include in our outlook cash flows associated with Orlando land development adjacent to our campus. Cash flows related to this are expected to be about matched in 2017 with capital spending related to land development, and in the next several years, we foresee net proceeds from land development of up to $100 million. Turning to slide 9 on our outlook for sales and profit, in the third quarter the 3% local currency sales growth at the high-end of our range would be one point better than how we did in the second quarter and put us at plus 5% on a two-year stack basis, the same as in the second quarter. The sequential improvement from the second quarter comps net-net primarily from a better comparison in Indonesia. While we still expect to be meaningfully down there as we work to have our tactical and strategic initiatives payoff, we fully expect to do much better than in the second quarter, which doesn't probably (27

[Operator:]

Your first question comes from Frank Camma from Sidoti.

[Michael S. Poteshman:]

Hi, Frank.

[Frank Camma:]

Hi, Mike. Can you hear me?

[Michael S. Poteshman:]

Hello.

[Frank Camma:]

Hey, Mike, in the press release – sorry, if I missed this but you mentioned a write-down for Fuller, I believe. What was that related to given the profitability there?

[Michael S. Poteshman:]

So that was related to the goodwill we recorded when we bought that business in 2005, when we were doing quite a bit better in terms of the sales and profit. And so, as you do, you evaluate that goodwill over time and as the business is quite a bit smaller than it was and with the decreases we saw in April and May, we reevaluated the value in the second quarter. So it reflects the near-term situation, but also what's happened overtime since 2005?

[Frank Camma:]

Okay. so will they...

[E. V. (Rick) Goings:]

Frank, I might add to this. When we bought the business the peso was at MXN10 to the dollar. The peso was half, what it was.

[Frank Camma:]

Okay. Will that lower the amortization from that business then going forward, I assume or is that not related because it just (32

[Michael S. Poteshman:]

That's right. The goodwill was not getting amortized. The trade name is being amortized over 10 years, it started in 2013. So that will continue and that's in the $7 million range or so and that is an item anyway but that will continue.

[Frank Camma:]

Okay. Hey, Rick, I've got my opinions on this but I'm just curious because I followed the company for a long time. I thought one of the benefits has always been your diversification. But as far as consumers, they seem to react differently in different markets and one of the things that's kind of striking is you mentioned, for example, in Brazil you lowered prices and that obviously helped volume. But like in other markets that's not necessarily the case, right in France. Why is that? Is that more of emerging market versus developed market thing or is it – do sales forces respond differently? Can you give a little color on that?

[E. V. (Rick) Goings:]

Yeah. And I think you're hitting it when you're saying an emerging market thing, that's the differential there. Firstly, there is big social welfare nets in Europe, and many of our sales force are not driven as much by the opportunity as they are in markets like Brazil, where you have much lower working women trends. So we need to keep her engaged in making money there, and so she's a lot more open to selling those kinds of products there. And I must say, too, that we do a lot of – some of our biggest distributorships in Brazil are in the North, and they're not in Rio and San Paulo. And so, lower price point products there also work very, very well. So it has to do then with, not only opportunity, but also the consumers that are different in these kinds of markets. So we have to keep adjusting that in different markets. It's interesting, in Indonesia, when you're selling in Jakarta, Jakarta is a very sophisticated market, but you get up to Kalimantan, which is – we were raised calling it Borneo – very primitive, and the product line is much different there. Michael?

[Michael S. Poteshman:]

Yeah, and Frank, to clarify, this is to add (34

[Frank Camma:]

Right, right. Product mix, now I understand, not lowering the prices, right. But you had a positive reaction to lower price positive – products, I guess, is the better way to say that, right?

[Michael S. Poteshman:]

Yeah. We had good volume growth in Brazil, with some overall price increase included as well.

[E. V. (Rick) Goings:]

You know what you tend to do there, Frank, is move kind of – I won't say retreat, but you'll focus more on storage and serving kind of products, which are fundamental to her. You get up to Manaus toward the Amazon, there are great products for her and she doesn't have – we don't have a lot of competition up there, because there isn't much retail infrastructure up there. So you tend to ship – I wish more of our market leaders were more receptive to conditions of markets within markets, because that's what they've shown a great capability in Brazil.

[Frank Camma:]

Right, which is the strength of the direct sales model, right, to be able to respond to that?

[E. V. (Rick) Goings:]

It sure is. Yeah.

[Frank Camma:]

And my last question is just on Venezuela. I mean, you talked about this in the past, that you're not likely to – I might be phrasing this wrong, but abandon that market due to your sales force there. But is that something like – I mean the trends are going to persist probably for some time, right. Can you add a little color on that then, I guess?

[E. V. (Rick) Goings:]

I'm going to add part A of it with regard to our commitment, and I'm going to ask Michael if he would deal with what the financial implications are. We made a decision about four years ago that we were not going to abandon that market. We had more than 30,000 women that, there may be chaos in the market, but it's how she is feeding – you've read some of the horror stories going on there (36

[Michael S. Poteshman:]

Yeah. The key there is the point Rick made, that we haven't been putting in new dollars, probably for four years now. So we operate in bolívars, and if we have to buy something from outside the country, we do it in bolívars as well. The other thing that you're probably aware of that, right towards the end of May, there was a significant devaluation of the currency in the 65% or 70% range. So the already fairly small numbers will be much smaller going forward.

[Frank Camma:]

Smaller, right.

[Michael S. Poteshman:]

To give that context, I mean, we're still overall having a translation benefit in revenue in the third quarter, even with that hit in Venezuela included within those numbers.

[Frank Camma:]

Okay. Thanks, guys.

[Michael S. Poteshman:]

Thank you, Frank.

[Operator:]

Your next question comes from the line of Jason Gere with KeyBanc Capital Markets.

[Jason M. Gere:]

Good morning, guys. I guess, a couple of questions. The first bigger one just on the restructuring. I guess, the timing of it now versus, when you think about a lot of CPG companies, five years ago is when companies started to look at more asset efficiency. So, I know it's something that you and I have talked about in the past, but just the timing of it now, I guess, the question is, how much of the cost savings, once it starts to come through, is going to get reinvested back into the business? Is part of this because the long-term algorithm, as you think about the mid-single digit organic sales growth might be hard to come by, and just the need to kind of reinvest more into your reps or the R&D capabilities in just an ever-changing world. Just wondering if you could provide a little bit more context to some of these questions?

[E. V. (Rick) Goings:]

I'm going to answer, Jason, first part of that. Firstly, there are a couple levers on side that are driving me to put more emphasis on this right now. One has to do with succession, as you see that last fall, we named Patricia Stitzel the President and COO, and it gets me ever more in tune to – I want to see this business cleaned up, more efficient. And the second piece of it is, we've made so much progress on the transformation, the from-to to this new business model that we basically say, let's get on with this stuff and clean this thing up on areas so that we can in fact put more emphasis on the markets that have more potential. Let me comment one final thing on that too, Jason. During the 1990s, after we spun the company off, the thing when people used to ask me what keeps you up at night? I had one word, Germany. We were one-legged stool back then. We've now been successful, and now I add to that, we have seven legs on that stool. I mean, we have a challenging quarter like this quarter but it's really is China 1.3 billion people; Brazil, fifth-largest population; Indonesia, fourth-largest population; Mexico, two big businesses there; South Africa, we're kicking butt with both businesses there; Malaysia, Singapore really profitable; and the United States, I think we finally figured out this model in the United States. So now is the time that we'll sit there and say, okay, this transformation to a model that not only

[Jason M. Gere:]

Okay. I appreciate the color on that. And then, I guess, the second question is just maybe if we could talk about price versus volume. Obviously, a little bit because of Indonesia saw a little bit of decel from the first quarter, but when you think about pricing elasticity in a lot of markets, currency is now kind of turning favorably for you guys thankfully after couple of years of just really being kind of an albatross. So, we've heard other consumer products companies. I mean, they sell to different channels. But we're hearing about markets such as Russia and Brazil where currency is now favorable, but now you might see some of this pricing that they've taken over the years to roll back. I know you don't price for currency, you price for inflation. But considering the premium prices that you're selling your product and the competition is starting to turn the other direction, local competitors, et cetera, can you just talk maybe a little bit about mix versus price? How we should think about this going forward. Just in terms of making sure that you have high quality products that they stay relevant, but as long as they are not over-indexed in terms of price versus other brands out there? Thank you.

[Michael S. Poteshman:]

Yeah, Jason, I mean, you saw that we had 3% from price this quarter. It was 2% last quarter, 3% for last year. As you say, we price in line with consumer inflation normally. So I expect that we're going to continue to see some price increase. You're right that in some places consumer spending is more constrained and part of how we address that and it does come through the price side of what we talk about is our promotional pricing purchase-with-purchase, how we structure those things, which products we use; are we selling higher price point versus lower price point products going back to the conversation about Brazil, and those kind of things. So, yeah, it might not be 3%, it might be 2% again that kind of thing. But yeah, we are very aware and we're making not only the pricing decisions but which SKUs are we emphasizing with our programs and is it more on the storage message, which is a less differentiated category for us versus food prep and particular points in time. So all of that does come into play and we're looking at that market-by-market through our MDs and marketing teams.

[Jason M. Gere:]

Do you, I mean, I know that in the second half of the year there are some easier comparisons. But do you think that volumes can at least be flattish for the back half of the year. I know the guidance, the high end of the range came down a little bit and prices kind of remained there. But I'm just kind of curious about the dynamic. Because as you know, and you've been seeing other companies as well. Volumes are just harder to come by, just in general. But at the same point too, at least in my opinion, pricing is just a hard thing to keep kicking (45

[Michael S. Poteshman:]

Well, I mean, certainly built into our expectations is that we'll be able to grow volume. One thing to remember about looking at our guidance for the second half is we do have the one last week in the fourth quarter, which as we've talked about it will be even a bigger impact on the negative side than it was on the positive in the fourth quarter last year. And that came through when we talked about the benefit in the first quarter of the calendar shift as well. So that's going to be volume because we have the less time. But as a general statement, yeah, certainly our businesses, we expect our sales to be growing volume across the board. We don't want to be operating in the 2% to 3% local currency increase that we have for the full-year guidance. That guidance does have the 1 point drag overall from the one last week. And now it also reflects not having BeautiControl in at the same pace as it was before. So those things are both hurting the optics on our guidance for this year. So we expect to grow volume going forward.

[Jason M. Gere:]

Okay. Great, I'm sorry Rick...

[E. V. (Rick) Goings:]

I want to add color strategically to that as well. Our huge focus with regard to our markets and our sales force is to move away from products that are more commoditized kind of products. And then you get into the category of food storage and the next level is serving, those tend to be products that are

[Michael S. Poteshman:]

Kathy, is there another question?

[Operator:]

Yes sir. Your next question comes from the line of Beth Kite with Citi.

[Beth N. Kite:]

Terrific. Good morning, Rick and Mike. If I could just quickly go back to Jason's, the initial part of his first question, regarding the $35 million of savings that come from the restructuring program. One, sort of understanding the mix of that that will be reinvested or flow through to the bottom line? And then also, do you have sort of projections that those changes will impact the top line and kind of what would be the magnitude around that?

[Michael S. Poteshman:]

Sure Beth. On the savings, look the $35 million annualized over the program, we said that about two-thirds of that would come through starting next year when you look at the full-year number. And we'll have specific guidance when we give guidance for next year in terms of exactly how much that comes through. But we do expect to see a benefit from that. A significant share is coming through to the bottom line. When we talked about what we're doing in Europe and also Jason's comment on the timing, we've lost a lot of volume in Europe over time over the last five-year period as he mentioned. And also the transformation initiatives we're working on certainly come into play with a lot of the European units. So that's why a good share of this restructuring activity is related to Europe. When you look at our profitability by segment last year, we were at 24% in Asia, 24% in South America, 20% in Tupperware North America. Obviously, we struggled in Beauty North America, including BeautiControl in there. But we were at 12% in Europe. So we can do better. And in order to enable us to do better, we need to take some of these restructuring actions. But the intent is to be more profitable in Europe and to take ourselves to the new places that we're going.

[Beth N. Kite:]

Great. When you spoke about profitability, it reminded me of something I wanted to speak to which was, I think, Rick, when you alluded to China, you said that you might be taking some of their business strategy to potentially other markets. And it sounded like you might have met more than just the digital initiatives that you referred to in the past. So could you expand on that, was my interpretation there correct, just because China is such a great example of both good sales growth, such good profit, and I know it's such a unique market, but what of that might you be able to transition or evolve in other markets in a bigger way than you have so far?

[E. V. (Rick) Goings:]

Sure Beth. A couple of points there that kind of related to some of the things I said earlier. What we have learned is a number of things that. First, with regard to product, that you can sell high price differentiated products if you can demonstrate it to consumers. And there, I said, the number one selling product is the $1,000 water filtration system. Okay. So big learning and our other managing directors are taking note and we're sharing that with that. So it has to do with product. Next, it has to do with the recruiting of sales force. Each one of these 5,800 studios that we have there, these are actually places that you go, and I mean it says Tupperware outside. The Millennials who have those, they've skin in the game, they pay the rent, they are the ones that are doing it. So we're learning that we can have a strategy that actually makes a better opportunity for her to do this model. The next piece of this is we're hitting urban areas, whereas right now our model for the past has been, I mean, almost think Midwest America, there'd be a Tupperware distributorship, Tricia often calls it affectionately the warehouse in the woods. What we need to do though is get closer to the sales force, where they live, and closer to the consumer, so that you, let's say, have a town of 1 million people, rather than having one on one corner, section of town, you'd have a number of them. There may be four or five of those, but they'd be smaller units there, (53

[Beth N. Kite:]

Perfect. I really appreciate the context on that, and also on the earlier one. Thank you.

[Operator:]

Your next question comes from the line of Olivia Tong with Bank of America.

[Olivia Tong:]

Good morning. Thanks. First, I just want to talk a little bit about the BeautiControl exit, Mike. What was sort of the last straw, what do you think you'll be able to do better now that some of the resources are freed up away from that business? And then, how much of that $90 million to $100 million cash cost is related to BeautiControl?

[E. V. (Rick) Goings:]

Well, firstly, Olivia, hi.

[Olivia Tong:]

Hi.

[E. V. (Rick) Goings:]

By the way, but I got to say, there wasn't a last straw there. It's when we went through the process that I've talked about earlier that, how do we reconfigure our business, where do we really want to put our focus, where were our greatest opportunities for growth, and we basically, and I have used the example in the past, I used to talk about Michaelangelo and how he carved the statute of David, and he said, well, I saw it in there, but what I had to first do is chip away everything that wasn't David. And we started looking at those business units that we felt were consuming resources, time, energy, and cash. And we started to say, hey, and so we just reached early on. And thus we said, we have spent enough time, we put some of our best people on this, and it simply is a bridge too far. And so we decided, hey, let's see if we can sell it and somebody else can do a better job than us, because we have other businesses which are much more differentiated. And that we could throw the resources into that, and it will offer greater payback to the company and our shareholders. So, that was it. There wasn't a last straw really. It was when we went through the whole evaluation process. Michael?

[Michael S. Poteshman:]

Olivia, your question on the cost around the BeautiControl piece of the restructuring. It's about $20 million in cost, and about half of that is cash.

[Olivia Tong:]

Great, thank you. And then, in terms of the flip side of the restructuring, the opportunity in Europe, what do you think is the margin opportunity in Europe as you go through the restructuring?

[E. V. (Rick) Goings:]

Well, I will say firstly, when Mike commented about what our other areas were of the world, and now it's 12% in Europe. For my first 10 years here, it was always the – the bogey was 20% in Europe. Mike, you might comment where you think we can get back there?

[Michael S. Poteshman:]

Yeah. Clearly, those other segments have done a great job over the last several years of leveraging things as we've gotten the volume growth. So we've been able to capture a lot of profitability, the appropriate amount of profitability, as we've grown sales. We'll benefit from having a tighter structure in Europe, given the restructuring actions. And we'll also benefit from having higher sales going forward. So there's nothing different about Europe from the other segments in a major way, from a model point of view. It wouldn't enable it to be just as profitable like it has been in the past. A lot of things to do to make that happen.

[E. V. (Rick) Goings:]

And Olivia, I would add to that, we have been way too slow in – it's almost been letting this creep down to this 12% by too much memory of, during the halcyon years of Europe and the installed base we had there with regard to support and our headquarters there in Switzerland, A. B), how we even configured markets. We'd have a collection of markets that would be 5 million, 6 million people in the market, and the belief that we had to replicate the same kind of a structure in there with regard to sales, marketing, installed base, that you had for a big market. And now you're going to see us move, as we have elsewhere, to more of a pickup strategy with regard to product, marketing, and those kinds of things. I mean, every market in Europe used to do their own brochures, their own photography. We've moved away from that, but we've got more work to do there. So I think there's a big opportunity there to move that 12% up, even without much of a sales increase.

[Olivia Tong:]

Got it. Thanks. And then just lastly on the U.S. or Tupperware North America, still growing obviously, but why did the growth rate slow down so dramatically despite the easier comp, you had that nice sort of low-teens double-digit growth in Q1? And it's come down by more than half on a much easier comp, so a little confused by that? Thanks.

[Michael S. Poteshman:]

Yeah, when you look, Olivia, where our sales force has been, we ended the second quarter in U.S. Tupperware – U.S. and Canada, plus 7%. We might have been at plus 8% at the end of the first quarter. So, with the plus 5%, yeah, we'd like to get a little bit more leverage out of that going forward and continue to grow the sales force comparison as well the benefit. We've been emphasizing activity and some expense to productivity near in (1

[E. V. (Rick) Goings:]

And if I could add, Olivia, too that I just had a group of almost 20 of our top, I would say, new leaders in our U.S. business for almost a week long seminar this last week. The average growth of that group is 47% top-line and yet we've been at the end of a transition period where we kind of bridged some of those who are on a former compensation program. It really didn't compensate so much for breaking out new leadership people, and that's really the fuel to recruiting in our business. And we basically purged some of those over this period of time, but the new ones coming along I'm expecting a much higher rate of growth in the U.S. once they get bigger.

[Operator:]

I will now turn the call back over to Rick Goings for closing remarks.

[E. V. (Rick) Goings:]

Well, I think I've said what I needed to say. I tell you what, the biggest thing, while there's always puts and calls and things I'm disappointed with, job one for us is we got to get focused on getting a floor under our Indonesian business right now. Two years ago it was our largest business out there. And I've got to say we've moved too slow on actions there because two years ago we figured out here are the couple of things that were wrong there. We've got to become more effective at early diagnostics and implementation. With regard to the growth going forward, feel good about these seven markets that are not only they are doing well, but they're big and it's where most of the world's population is. So when I add to that the shifts that we're making with regard to our product-line, to more differentiated products, to now a urban and suburban market that we're really starting to see that work and to a better earning opportunity for Millennials. We're going to be making progress moving forward. Thank you very much, everybody, for your time.

[Operator:]

Thank you. This concludes today's Tupperware Brands Corporation second earnings conference call. You may now disconnect.