Tupperware Brands Corporation
Q1 2016 Earnings Call Transcript

Published: 20 Apr 2016

[Operator:]

Good morning. My name is Nann and I will be your conference operator today. At this time, I would like to welcome everyone to the Tupperware Brands Corporation's first quarter 2016 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Mike Poteshman, CFO. Please go ahead.

[Mike Poteshman:]

Thank you, Nann. Rick is in Indonesia with our sales force and has been having a hard time getting a connection. So hopefully he will be able to join us in progress. In the meantime, we wanted to get started. So I am here in Orlando with James Hunt, who is our new Head of IR and we will go from there. James is our Assistant Controller responsible for SEC filings. He has recently taken on this role and Lien Nguyen, who many of you know has now rotated to our corporate financial reporting role. She continues with her development with the company. As a reminder, we will reference slides that will follow along with the call today. It could be found on our website or our Investor Relations app after the call. Turning to slide two. We have the usual information about forward-looking statements and how to interact with our SEC filings in this morning's release. Turning to slide three. As expected, we had to push through many challenges in the first quarter with local currency sales up just 1%. We still maintain a nice sales force size advantage now at 4%. Overall, our emerging markets were up 3%, representing 64% of total sales and our established markets were down 2%. Coming out of the very tough fourth quarter we said in January that we would need to and, in fact, we have continued to manage through volatile externals and to implement the changes that we have needed to, though it did not always go quite as well as we had hoped. Despite these challenges and the externals, I am pleased to say we had stronger-than-expected local currency performances in Brazil and Tupperware Mexico with additional strong performances by Argentina, China, Germany, Tupperware U.S. and Canada and our two businesses in South Africa. In spite of these good performers, there were some drags most significantly in Egypt and the Philippines and I will build on this more in a minute. Our EPS without items in Q1 was $0.91, $0.05 above our range, including $0.04 of foreign exchange benefit against guidance as well as our initiatives to control costs, manage gross margin and leverage promotional spending. I will give a little bit more color on this later in the call, but it's nice to see currency to start to move in our favor on top of our defensive efforts to manage and leverage expenses as efficiently as possible, given the challenging external environment and how that's impacting sales. This clearly helped us come in above the high-end of our range, even with sales at the low end. While this quarter demonstrated resiliency and flexibility of our business model, we remain committed to leveraging our Vision 20/20 initiatives unit by unit to both strengthen our core and extend our reach through deeper market penetration, primarily through a greater number of Tupperware sites and leveraging relationship equity through technology. It's been impressive to see what we have done in China over the last couple of years utilizing technology and social media to drive a stronger relationship through our studios or outlets there. There are members who have become our brand fans and they are the best advocate for our products, not too similar to people committed to Apple products with the iPhone. Our management team in China estimates about 80% of our sales comes from these members. So it's really, in China, a contemporary take on a classic relationship based selling method. And why does it work well? Our greatest success is in the studios located in residential areas where consumers work, live and socialize. So it's easier for them to engage with us repeatedly by participating in product demonstration and responding to marketing campaigns. So in a way, this is China's version of a Tupperware party. Remember most departments are simply too small for Tupperware parties and culturally Chinese rarely entertain in a home. We will come back to China in a bit. Let me also remind you our 20/20 initiatives have two strategic parts, strengthening the core and extending our penetration and reach. Together, these are the pathway to growing our business. We have successfully piloted core building elements in Brazil, Germany and Mexico and are refining them as we launch and scale up in the rest of the world. In fact, in February, we had the Head of Tupperware Mexico, Luciano Azum, join our European managing director meeting and the actions and performance of Tupperware Mexico really resonated with our European leadership. Rick was there. It was really proof of concept for the onboarding and activation programs to improve recruiting and retention, but also reinforced our fundamentals with a focus on the earning opportunity and demonstrations of our differentiated products. So net net we are growing confidence in the strengthen the core initiatives. It's now our responsibly to scale them up in other markets. Meanwhile, we will be refining our thoughts on how we will extend our penetration and reach through such actions as introduction of our 2.0 studios in the U.S. and Canada and elsewhere, which will include building on what we have learned in China. We are also leveraging technology such as through the pilot of party plus. Now let's get into some specifics and turning to slide four, starting with Europe. In Europe in the quarter, the decline came mainly from Egypt and Turkey and I will get to that. But first I will speak to the units that did well. Our South African businesses continue to grow double-digit showing that sound fundamentals can achieve very good results even in a less than robust economic environment. Tupperware South Africa was up 18% with 15% more active sellers. This comes on top of a tough comparison in 2015. Avroy Shlain, our beauty business in South Africa, continued its strong performance up 13%. We continue to see solid sales force indicators with sales force up 17% there. And for those keeping count, this is the 23rd consecutive quarter of sales increases by Avroy Shlain. We expect this momentum to continue in both of our South African businesses. Germany was up 3% in the quarter. They had a slow start to the year with a tough January after a strong finish in the fourth quarter when they were up 9%. They began to strengthen as the first quarter progressed, but that did include some benefit from timing of shipments around Easter. They now move forward with a sizable sales force advantage after really improving retention and productivity in connection with the execution of their onboarding program. We have a tough comparison heading into the second quarter in Germany, but we still see growth ahead. In the Middle East and North Africa, mainly Egypt, we already mentioned the larger than expected decline there. Our business in Egypt really took off in 2015 demonstrating what a local motivated sales force can do when you give them a great product and a meaningful earning opportunity. However in the middle of 2015, we started to see some roadblocks there with regard to government mandated currency controls and more recently incremental product certification rules [indiscernible] put in place. We have seen these types of issues in other places like Venezuela. So we made the decision to significantly curtail shipments for the first quarter. Frankly, we had expected the situation of moderate somewhat but it hasn't. We still maintain a strong relationship with our business partner in Egypt. So the infrastructure for the growth we saw in 2015 is still in place and they love our product. While we need to continue to operate it at this more constrained level for now, over time Egypt and the other markets in the Middle East and North Africa represent a big opportunity for us. Turkey was down 19%. On the one hand there is an overhang on the sales force around --

[Rick Goings:]

Mike, I can take over now, if you can hear me.

[Mike Poteshman:]

So we were just --

[Rick Goings:]

[Indiscernible]. They have restored communications and it falls off again. Turkey is now 19%. On one hand, there is a bit of an overhang that sales force morale from all the political instability and terrorist activity that you been reading about, but also we have got to add, there are some things going on in the business that are also self-inflicted. We really have done a deep dive on how we are running that business and we really see a need and I think for all the activities that are happening, disrupting externally, that's causing us to really a review some of our fundamentals with our large sales force because we have simply got to get greater productivity through building the number of the customers and also adding a bit of a differentiation with the product line and we have been frankly doing too much with regard to incentive and promotions. And when we get back to core fundamentals, that will improve the earning opportunity. Let me turn to France. France, not surprisingly, was down a bit in the quarter, low single-digit. But there was a sequential improvement from the fourth quarter when they were down 11%. Now, an element of this was also timing of shipments around Easter. It is usually all depending on when the Easter falls and the cost either goes in the first quarter or the second quarter. Also, I don't want to forget there the impact of the terrorist attacks in Paris. Yet it's really hard to quantify that. The French are really resilient people and we don't think that's going to have a long-term overhang. We continue to have though fewer managers compared with last year in light of some of the statutory changes related to the government keeps changing how it collects taxes and different classifications in an effort to raise more income. And so they came out with a new classification for our managers and that impacts not only activity but recruiting. But senior manager count stabilized since 2015. France is another business unit where we have made some management changes more effectively. And I think we have put in Michael Tziallas, who had great success as a managing director early in his mid-40s every market we have ever had him run and he had a wonderful positive impact on the portfolio he had in Asia over the last 18 months. So we are happy he his back there in Europe, speaks French fluently and we are already seeing some very positive sign come out of France. Notably, he was first the managing director. He really was raised in the business, in our German business where he became Head of Marketing and then his first managing director assignment was in Austria and he brought that business to double-digit growth and a huge ROS and had the same kind of impact in Italy. So Michael has really figured out what he loves doing the most is being a managing director. So I think we have got good things ahead in France and hopefully you will start to see some improvement before the end of this year. Let me turn seem to Asia-Pacific and probably as Mike said, I am in Surabaya, Indonesia. But two weeks ago I was in China and was pleased to see they were up 16% and strong growth. Now we have 5,500 studios which was up 10% more than we had this time last year and what's nice to see is, you are not only as this isn't a retail business, you would sit there and see same store sales are going up plus the number of studios is going up. When I look at our China business, they really have a special appreciation for the market, having lived there myself. You may recall that China has had a difference and mostly a negative attitude regarding direct selling. So we made the decision to really adapt our business model running through what we call experience studios. Now it's interesting, but there is another fact. A typical apartment in China wasn't big enough and still isn't to have a Tupperware party. So this was like a neighborhood place where people bought their Tupperware, they came for demonstrations and really it's the core relationship based selling. We still demonstrate products. We still bring people into the business and still motivate them through an earnings opportunity and what we have really done is generated deep customer loyalty. It's what we call our brand fans. And 80% of our business is from neighborhood members of that particular studio. Matter of fact, I left China after a number of days there saying, this is more like a core Tupperware business than I ever thought it was. The only thing that's different is the place. They have had great success, by the way. It's a $1,000 water filtration system. Average rents in China is only $500 a month and you will see the opportunity there. We believe to grow this. Vincent's objective is to move this in 5,500 in a matter of five years to more than 7,000. And he believes the long-term potential is 20,000 of these studios. I mentioned the similarities to our core business, but because the other way too and James was real quick to point that out as we were doing a debrief on China and things we can learn from China and plug-in elsewhere. First, having these small, sometimes they are only 500 square feet, sometimes they are 2,000 square feet, having these small studios independently owned anchors, we don't pay the rent and we don't go in and establish the studio. She has to use our signage. So every one of these dynamic young women and the average age is 33, had skin in the game. And it also represents a dynamic earning opportunity. By the way, we have seen in the U.S. business and this is an interesting take away that every place we have a, what we call a 2.0 studio, there is a dramatic increase in our core direct selling business in that area as well. So it really pluses it. Second thing. This is kind of what we have taken away from China. We have learned that we can really demonstrate high ticket items that really enhance the earning opportunity and the number one selling product with regard to units in China is a drinking flask, but the hottest high-tech product in China is $1,000 water pollution system. And she can just sell a couple of these and it pays her rent. So it really is great for the time she invests. There is a third thing that I think we see out of our China business. Rather than segueing our relationship with inactive sellers and let me clarify that. In most of our markets, if somebody doesn't have activity during a certain period of time, some times it's a 90-day period of time, in some markets it's six months, we basically take them off the rolls. We kind of actually unfriend them. And what we blurred with research in Europe and specifically China is many of these people they still want a relationship with Tupperware. And we see the opportunity and I have mentioned this to some of you on one-on-one meetings, to organically mine the relationship equity we have with them and transform that equity through calling them brand ambassadors. They don't get a discount, but we treat them special and they get limited offerings and access. But it enables us to really fractionally monetize that relationship. By the way, no members in our China business of outlets get any kind of discount. It's full retail price. So I mean James coming, moving into this role, I think these were interesting takeaways through virgin eyes. As I said, were not in a position really to start quoting how we are going to implement this and as Mike will talk about, put a bow on it and drop it in everywhere. But we do have some serious learning laboratories going on right now where we want to put together about three different programs that really, they are core focus, but they are more about expanding our footprint. And I think we have got a lot of opportunity there because the brand Tupperware is loved. Interesting on having different offerings and the size of the units that you have in an area. I was just looking at the numbers with regard to some of the franchises in China and McDonald's has been overtaken by Subway. And now they have almost 34,000 global units and the small ones are only 300 to 500 square feet in a neighborhood. So we think we have got a lot of opportunity to expand on our China model. Staying on Asia, Philippine business. It was down in the quarter 14%. It is a market that we have had, we were surprised with the size of this miss, but it was due in large part to a strategic decision we made not too long ago to exit the low margin fashion category. So it wasn't anything systemic. Fashion business is a high SKU low-margin business and we wanted our sales force, we wanted to help her make better use of her time by focusing on core demonstratable products in our Tupperware and our beauty lines and baby care lines. By the way we did the same thing a couple of years back in Argentina and it has had dramatic results. Yes, we were up dramatically in this quarter in Argentina. But even if you take out pricing and inflation, we were still up strong double-digit. It led to a better opportunity and so we really do believe this is the right thing to do. Our core categories in the Philippines, by the way, were up during the quarter. But I will tell you, what we really underestimated here was our ability to create actions short-term to offset the loss of the sales force members who actually specialized in the fashion category. However again, it was the right thing to do. Indonesia and I am here right now, we were down 8% in the quarter. We did expect to be down slightly due to the economic slowdown and it's interesting that by focusing deeply on, there is 13,000 islands here, you really do see that most of our declines were in Sumatra and Kalimantan, what you and I were raised more in the West would call Borneo. Anyway, we are seeing heightened spending there. Most of there exporting is commodities and it went to China. But really overall, the issue is size of the sales force. We didn't make the progress we wanted to and we have got an 8% sales force size advantage. Anyway, what I am doing here with them is, we are doing, we did it about three or four years ago, is power-up meetings where I was with 2,000 of them yesterday and it's young managers in the business and what we call authorized group managers and distributors, trying to get them to get to the next phase of growth. Because we have had a great run here. Now we continue to really put our onboarding programs in place. But we are still in the refining process and we have got to stick with it here. By the way, not all sales force members are really going into this 13-week onboarding program. We have got to get more to the program here. They have to sign up for it and they have got to start showing better results. So I think we have figured out what we need to focus on moving forward. Another thing that we really need to do and I see it as a great opportunity here. All of Indonesia is under 72 distributors and we have been very slow in turning over these distributors and average earnings is right around $0.5 million a year. Well, that's wonderful. But what about the young people in their 30s coming into this business who want a better life and build a business. So we have created a sub distributorship opportunity that will give us coverage in some of the smaller geographies. Probably most of you have not even heard of where I am here, but it's a city of six million people. So we see big opportunity there to change the size of the footprint. And I think we are in the right direction here. We have got a terrific management team. And so, much of the time today we spent talking about high value-added, better price point products where you get away from food storage and serving, as it makes it a better earning opportunity. And it was down in the quarter. However, we have seen some traction in the sales force KPIs with a stabilizing manager count. That's some good recruiting but we have got to get more people activated and see sustained growth in our sales force size. We are working to leverage many of the strategic elements that we have seen work so well in Brazil and Mexico. Most significantly, the manager override program that we call in Tupperware the Vanguard program and that's been a driver of success in our important Mexican business where, yes, they love the products, they love to demonstrate it, but they see this really as a dynamic career opportunity. Anyway Asha will be in India. She is with me here now in Surabaya. But she is going to be there this next week. And she is the one that really grew that business in India. Moving to the Americas. BeautiControl, this will surprise you, continued to be a disappointment with a topline decline. However, we were lapping the last quarter of a change we made with regard to discount levels. It was something we really had to do. Used to be, somebody came in to BeautiControl and regardless of their sales volume, they get what you would call in the retail industry, a keystone markup by up $0.50, sell it for $1. And that is ridiculous. You just don't do this with most direct selling company, but it's the way that it had been done since the company was founded. What I am happy to see is that in spite of that recruiting has been good and they made strong strides in building the sales force deficit. As a matter of fact, we ended the year at minus 10% and we almost chipped away at all of that, we were only down 3% in sales force size. And we were just looking at what we believe there trends are going to be for Q2, Q3 and Q4 and I am going to be extremely disappointed if you don't see by the third quarter pluses again from BeautiControl, because this really does bode well for the future. We have made the changes, recruiting continued strong. So we want to get on with that. Fuller Mexico, down mid-single digit in the quarter. It is disappointing there and largely it's due to the weak sales manager productivity and retention. Now sales managers are company employees and over the last five years we have alternately experimented with a number of different ways to get a fuller complement of area managers and to increase their productivity and there is no other way to say it. We haven't figured out yet. And of course, sales managers who do all the recruiting and when you have a high turnover with them, it leads to a smaller sales force size, which is the net issue there. But I have got to say in fairness to the really strong management team we have in place there, for a growing number of years they have been dealing that is aggressive actions by Avon who have been, you can call it margin investment, I would call it collapsing their margins, to regain sales. Now we didn't follow suit with that. And we know that over half our sales force also carries in Avon catalog. Often you see that in Latin America and we believe that's not a winning strategy for the future because beauty is an aspirational product category and you don't build beauty royalty with discounts. So the battle goes on there. It's still an extremely profitable business. But almost all you have to do is an A/B split between our Tupperware business in Mexico and our beauty business in Mexico and we have got dynamic managing directors of both businesses, but it's a different model and we own the space for the Tupperware brand and we don't deal the same kind of competition. Let me turn to Brazil. Another great quarter, up 21%. And what's really interesting, they were lapping a 46% increase last year. Now we ended the quarter with a 17% sales force size advantage and even with this large sales force, we continue to have a really terrific activity rate, because usually when you really expand sales force size, you can see impact on activity but they are keep it strong. So we see good things ahead in Brazil. And we are operating in an environment where everyday, what they are talking about with the economic environment, what they are talking about with the government corruption, what's really driving our business there is the opportunity. And we really have been building managers. Some of our most profitable distributorships and well off in the world are there in Brazil. So I have got to also add, they have been doing a great job with keeping their prices in line with inflation. And there was also in the quarter, a very healthy increase in volume. So it was quantitative and qualitatively a really good quarter and that management team has just done a wonderful job. Tupperware U.S. and Canada, they were up 9% in the quarter. It was nice to see this, considering that we are managing through a change of the compensation plan in the U.S. during the first quarter. And thus far, steady as she goes, the performance metrics look promising, but it's still early days. And some would ask away, why did we make these changes if the business was doing well. Actually, we made the changes because we really needed to have a compensation program that paid more for career actions and keeping up and continually growing the business, not legacy compensation because of what you did 10 years ago in the business. And that, by the way, is one of the big problems with many multilevel marketing businesses. The group that got in early, collects their checks, but they don't keep active. And we are not a multilevel marketing businesses, but we knew we needed to make these changes. Anyway, it's a culture change for the sales force, buy they were needed to be done. Our manager team did a solid job connecting with the sales force. They are probably better than anybody else, maybe only China using technology to enhance communication in leadership meetings and they are really driving contact --

[Mike Poteshman:]

Rick? Okay, I guess Rick is dark. Hopefully he will be able to come back on. The last unit we wanted to highlight is Tupperware Mexico, where we had another great quarter. We were up 20% in local currency and the market really continued to show the power of what our 20/20 build the core initiatives can achieve once they are fully up and running. Tupperware Mexico is a pilot for both demonstration selling and success formulas and execute the fundamentals of the business very well. They have also started, they are working on the onboarding program along the lines that we designed it under the Vision 20/20 strategy which really is focusing on getting new sales force additions started well in the business. When people are getting started, we don't worry so much about productivity right at the beginning. That can come once she is fully trained and given the confidence to build their business. Then we continue to evolve towards selling higher priced items, more demonstratable products which we have started to see in Mexico. Plenty of opportunity still remains there on the back half of the year. So you have seen in our release and we have discussed the units that were the main contributors to our net 1% local currency sales increase in the quarter. These were Brazil, China, Tupperware Mexico and Tupperware U.S. and Canada, with the biggest decreases being in Egypt and Indonesia versus our unit level expectations within our 3% local currency sales high side guidance in January. The biggest upside was in Tupperware Mexico and the biggest downside in the Philippines. On volume versus price, we had a 3% benefit from price in the quarter that was offset by two points less from volume and mix. The price benefit was the same as in the last couple of quarters, while the volume comparison with one point more sequentially. Our total sales force size comparison was at a plus 4% at the end of March, which was down one point from the end of December and we had 2% less active sellers in the quarter. This was versus 2% more active sellers in the fourth quarter with the difference mainly coming from Fuller Mexico, where there was a decrease in active sellers versus last year in line with the lower number of total sellers and in the Philippine. Given the nature of their models, these units have a much higher than average activity rate albeit at lower order sizes. So when we aren't so successful there, we see an outsized impact on the overall company active seller indicator. At Fuller Mexico, Rick spoke to the continuing issues around the number of field managers in the business and what we are doing to improve that indicator which will lead to more sellers. In the Philippine, as also highlighted, we lost active sellers in connection with exit from the fashion category late last year. I know many of you like to also look at our sales force KPIs including the Beauty North America segment and on that basis, our total seller comparison was two points better or plus 6% versus last year and our active seller comparison three points better or plus 1%. Turning to slide six. Our diluted earnings per share without items was $0.91 which was $0.05 above the high-end of our local currency range, including the $0.04 from better FX. This is even with the local currency sales comparison of plus 1% at the low end of our guidance range. We were 10% higher than last year in local currency on the 1% higher sales. This reflected lower resin prices and success in managing our cost, realized gross margins and leverage under our promotional program. This came through most significantly in Asia-Pacific where we were able to slightly increase our profit in local currency even on lower sales and in South America where segment profit was up 32% of our higher local currency sales. In Asia, the better than foreseen result was most significantly from lower than forecast resin cost while in South America good gross margin management and lower distribution costs as a percentage of sales was the main factor. On slide seven, putting this all together then. Our pretax return on sales without items in the quarter at 11.7% was 60 basis points above the high-end of our outlook range, half of which was from the impact of stronger exchange rates on translation FX and the rest from the better segment results that I just top lined. On slide eight, notwithstanding that as usual, we had an outflow in cash flow from operating activities net of investing activities in the first quarter, we had good performance coming in $7 million better than last year on even net income after taking into account last year's non-cash fixed asset impairment charge in Venezuela. We are also taking up our full year guidance by $10 million to $170 million to $180 million which is in light of our increase in net income guidance for the full year. As a reminder, this guidance is before potential proceeds in any capital spending under our Orlando land development program. Our outlook for full year capital spending remains the same $65 million as in January. Our debt to EBITDA ratio as of and for the four quarters ended March stood at 2.15 times in line with our expectation. Many of you will recall that our target on this ratio is 1.75 times and given the weighting of our cash flow generation to the fourth quarter and our outlook for full year EBITDA, we expect to be about in line with the target ratio as of the end of 2016. On slide nine and turning to our outlook now. In light of where we ended the quarter with our total sales force size and how we did with active sellers, our local currency sales increase range for the second quarter is a plus 1% to 3%. At the high-end sequentially, the two point improvement from the first quarter reflects some moderation in several of the units where our sales were down in the first quarter. Our range for the second quarter earnings per share without items is $1.07 to $1.12, which at the high end is up 4% in local currency on the 3% higher sales. Based on current exchange rates, there is a $0.13 drag on the EPS comparison with 2015. This would give us a pretax return on sales without items of 13.4% at the high-end, which is up 20 basis points from last year in local currency although down 40 basis points in dollars after a 60 basis point drag from translation FX. For the full year, our local currency sales outlook range is now up 2% to 4%, which is one point lower than where we were in January also given where we stand with our sales force statistics and trends in our business units. The comparison with 2015 continues to include a one point benefit from having a 53rd week in this fiscal year. That week will fall in the fourth quarter. Worth pointing out as well is that our full-year sales guidance includes about three quarters of a point drag versus 2015 from the combination of lower sales in Egypt and lower B2B sales mainly from strategic decision to not pursue certain low profitability sales in Korea. Now on slide 10. On earnings per share without items, we are raising our guidance today by $0.21 from January to $4.28 to $4.38. At the high-end, this is up 8% versus last year in local currency on the 4% sales increase and versus last year, there is now a $0.31 hit from foreign exchange. This is an improvement of $0.27 from the $0.58 FX drag included in the January guidance. All-in, the $0.21 raise in the full year guidance range includes the FX benefit and the $0.01 which would be our first quarter range in local currency, net of $0.07 from the profit impact related to the lower sales assumptions in the second through fourth quarter period. Turning to slide 11. The high-end of our earnings per share range would give us a pretax return on sales of items for the year of 13.1%, which is 20 basis points better than in our January guidance and 30 basis points over the 12.8% we actually achieved in 2015. The local currency improvement versus last year's 60 basis points to above our longer-range annual improvement target of 50 basis point and there is a 30 basis point drag on the comparison versus last year from translation FX. The drag narrowed from where we were in January by 40 basis points. Within the full year guidance, we continue to see as in January, unallocated corporate expenses in the low $70 million and net interest expense of about $45 million. The forecast for the income tax rate without items at 25.5% also is the same as in January and compares with 24.8% in 2015. On a segment basis, we now foresee in local currency terms, sales in Europe down 3% to 4% for the full year, in Asia about even with last year, in Tupperware North America up 12% or 13% and Beauty North America down 5% to 7% and in South America up 22% or 23%. For segment profit return on sales in local currency and excluding items, we foresee a decrease of about half a point in Europe, about even in Asia-Pacific, an increase in Tupperware North America of close to one point, down about one point in Beauty North America and an increase in South America of about one point. In the January call, I indicated that in light of the environment we are in with a relatively modest local currency sales increase we are seeing, that related to things not in our outlook we had identified a number of individually relatively minor cost savings initiatives, gross margin management opportunities and promotional leverage initiatives that together with benefits from resin cost not yet in our outlook could allow us to make our earnings per share outlook even if sales were not as robust as we are seeing. This worked in the first quarter in the sense that we were above the high-end of our range in EPS and local currency even with sales at the low-end. We will continue to work on these elements as we move through the year. Speaking of resin cost, specifically in January we saw a full year benefit in cost of sales from lower resin costs in local currency of $8 million, only a portion of which was included in our outlook. In the first quarter, we realized a benefit in cost of sales versus 2015 of about $4.5 million, which was about in line with our expectation. And our update for the full-year expectation is now for $6.5 million benefit in local currency. This amount is included in our outlook with a $2 million or so still to come expected in the second and third quarter. Our outlook is still to have about $130 million for resin in full year cost of sales. So now if Rick you are back on, I will turn it over to you before we go to Q&A.

[Rick Goings:]

Yes. I don't know how long a day we have had. Welcome to emerging markets and our power went out. So I will stay as long there is power. But we have a 1,000 happy people who are out here with us. So we will open it to questions.

[Mike Poteshman:]

Nann, we can start Q&A.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Stephanie Wissink with Piper Jaffray.

[Stephanie Wissink:]

Hi guys. Good morning. A few question, if we can. Just for first, like I think you signaled about the bridge between your 1% reported growth in Q1 and getting up to that 2% to 4% for the year inclusive of the 53rd week is really largely based on the moderation of the decline in your underperforming markets? Can you maybe just give us a little bit more detail on which markets specifically you expect to see some moderation? And what are some of the initiatives that you are use to drive that improvement?

[Mike Poteshman:]

Sure. I mean first of all, one of the things that's in the better performance on a full year is that the 53rd week impact to the fourth quarter. So that's causing things to be better as we move into that quarter and then for the full year. In terms of the units, it's really the bigger ones that we talked about Fuller Mexico, the Philippines. We don't expect necessarily to see Egypt get better, but hopefully as we move through the year we ought see some better results in the Philippine. Rick talked about BeautiControl. So it's really those larger units where we didn't do as well, we would expect that things we are working in some cases, Vision 20/20 type things, but in other cases more the tactical elements that we talked about should cause [indiscernible] there. And at the same time, we don't necessarily expect to grow so fast in our really biggest market that are going so high. So being over 20% in Brazil, Tupperware Mexico will continue to do very well but not necessarily at those levels.

[Stephanie Wissink:]

Okay. That's helpful. And then just a second question related to the active seller counts, which was down in the quarter. Just curious if you can help us dissect that decline? Was it slippage in the conversion rate? Or are you seeing some erosion in some of your retention of your active sellers?

[Mike Poteshman:]

Well, our total sales force by comparison worsened by a one point, from five to four from December to March. And so the active number was down a little bit more than that. As we highlighted, the down in sales in Fuller Mexico and the Philippines had an outsized impact on the active comparison because of the structures of those businesses. So it's real that we have less active because of those units but it's also an outsized impact compared to sales and that's why we weren't as good as we were mainly in the fourth quarter when we were up two, versus down two in the first quarter.

[Stephanie Wissink:]

Okay. Thanks. And then just final question from us is related to the cash allocation or capital allocation. Can you talk a little bit about cash preservation, protecting the dividend and then any indication of what level of improvement you would reengage by that plan?

[Mike Poteshman:]

Sure. Our position on that hasn't changed other than to say that cash flow outlook got better by $10 million. So it's $170 million to $180 million. The full year cash on the dividend that we have been paying for the last couple of years is $137 million or so. So we have got quite a bit of flexibility or room there. We have said that we would look to pay off 50% of trailing earnings, but left ourselves flexibility to not have to reduce our dividend and that's why we have been operating at the $2.72 for a couple of years because we have continued to grow EPS in local currency terms but have had a drag from the FX. So we are running somewhere in the high 50% to around 60% in terms of payout ratio of trailing EPS right now. In terms of the share buyback, we saw to do that last after also targeting our leverage ratio at the 1.75 times where I said it looked like based on what we forecast for EBITDA and cash flow forecast and what that means for debt reduction later in the year, get us around to 1.75 times at the end of the year. And so then we would go from there.

[Stephanie Wissink:]

Thanks, guys. And travel safe, Rick.

[Rick Goings:]

Thanks, Steph. Hi Steph, I would add to that what Mike was saying. I think we spent a lot of time thinking about the formulas we would use with regard to our dividend and we are so committed to dividend and what is unprecedented wind in our face on foreign exchange and strengthening of the dollar and us having the ability to stay with that dividend and even in spite of all of that, it just shows, we made the right decisions there and being conservative on those kinds of things really help those people who were in our stock for dividend knowing the way we think about this and our level of commitment to it. So I think Mike and the guys and all of us who really said hey, this is our formula and we would be able to withstand most anything that happens and still keep this dividend.

[Stephanie Wissink:]

Thank you.

[Operator:]

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

[Jason Gere:]

Okay. Good morning. Guys, I just have a couple of questions. So certainly since the last quarter, the currency environment has gotten better, which is obviously hopefully if it still goes in that direction, will take away one of the bigger overhangs on your stock. But at the same point, you guys have been able to take pricing primarily in South America to kind of help, I guess, insulate to that degree. So I guess as you think about next year, how do you think about the price inelasticity impact in some of those markets where like Brazil, where you have been taking a lot of pricing, it's been encouraging to see volume come back a little bit. How do you start thinking and planning about what the next 12 months could be when if there won't be pricing anymore, how to you, whether it's through product innovation or in terms of what your competitors might be doing, so I was just wondering how if you start to think about that? So that's the first question.

[Rick Goings:]

Jason, I will handle the first part of that. Jason, firstly our standard operating procedure is price through inflation. And the number one reason we do that is to really protect the sales force earning opportunity. And we want to make sure that she invests an hour-and-a-half, putting on a Tupperware party, that all of a sudden the party may say the same, but the real earnings offset and real earnings don't pick up. So that's the first reason we do that. Because we will also own the shelf we had that flexibility. It is one thing I learned during my past life when we owned Tiffany at Avon, we learned that with really high quality products we could command big gross margins and we are known in most of the markets and particularly you get over here into China, India, Indonesia, we are known as a super brand. And so people will pay. The thought that our really hottest high ticket items in China is $1,000 water filtration system, it just confirms that. So the last thing I would add to that is, Jason, we are looking at the products, we are at least two years out on the new products that we are introducing and we keep moving away from more food storage which, it's a hugely competitive category and it's been greatly commoditize. Now over here you would start to go to serving products that would be your next migration. But in many of these markets, where there is high penetration levels of microwaves and we are going to be launching at the end of the year, we gave you guys a peek, microwave products that [indiscernible] energy and you actually can grill steaks. I get it weeks ago myself. Grill a steak in four minutes in a microwave oven and you start to look at these China cities which are mostly high-rises that really speaks volumes for what our future can be like. Mike, why don't you handle the other part of that.

[Mike Poteshman:]

Sure. Yes. Jason, I would say that while we look to price in line with consumer inflation, I would say the tone or the way we have leaned this year is to be a little bit more conservative because of consumer spending concerns. And so we priced, for instance, in Brazil, generally in line with inflation, we are not being overly aggressive. So I think we would actually be happy if there was less inflation and therefore less pricing. I think if you asked our leaders out there, they would say that that would help. We would have more volume and that would be a good thing.

[Jason Gere:]

Okay. And then just following up on that. In terms of, some of those big emerging markets, we think about Brazil, China, Mexico, you guys still can, GDP seems to be slowing there, but you guys continued to outpace. So is there anything that you are seeing or how you are kind of adapting, whether it's within the sales force or within the product innovation that you are adjusting your way of going to business so you can make sure that you don't see a slowdown in organic sales as other companies, I think more that HPC companies are starting to see?

[Rick Goings:]

Let me add one thing on that and then Mike you can go deeper on that. Firstly, I really want to get, I mean I am not an expert on China, but I lived and worked there and spent a lot of time with our business there. Very interesting on, I won't say that the predictions of the demise of the Chinese economy are all correct. But I will say, they are absolutely overblown. The loss of jobs and I just dug into this when I was with our senior people two weeks ago. Many of the jobs that China has lost and then the higher unemployment had been down in Guangdong province, which is about 60 million people. It's the old Canton traders. That's where most of the cotton sow operations where very low tech jobs and where those jobs had moved to is Vietnam, Bangladesh, et cetera. But here is the good news. They have been replaced by high-tech jobs and that really is Silicon Valley of China right now. As a matter of fact, they are investing, they make a phone that's only is coming quick up on the heels of Samsung and they are investing way more than Samsung and Apple is and I looked at it. And you will sit there and look at an iPhone that with the range price ranging from $500 to $700, Samsung a little bit less than that and the China version of the iPhone, $220. That's the jobs that are coming in right now. Now if I was selling commodity products or I was selling automobiles, can be some issues, but they sold 11 million cars last year. Now here is another interesting aspect I want to add to it. One thing is first the relativity of the growth of China. It may have been 11% ten years ago, but it is 10 times the size economy it was back then and all you have to do is work the numbers out. It is a small percentage of a bigger number is still a big number. Last point I will make, government is taking action and this is helping our business there. Two things they have done recently. They had done freezes on salary increases which used to be mandated by the government and that has made all of our studio owners happy because they don't have to raise the salaries of the people that work in their studios. Second action is there has been mandated action on rent increases. Think of the New York City rent controls there. This is also going to enable us to open more studios there. So it's just not a one-size-fits-all situation in many of these markets and I only use China as an example. Michael?

[Mike Poteshman:]

So Jason, I mean thinking about the three markets that you named. In China, we have a long way to go. Rick talked about it with penetration. So we are at 5,500 units. We think ultimately we can be 20,000. And underneath that we have started to rotate more towards residentially sided outlets. It's a bit naturally in that we stop doing the small commercial ones that have been like a showcase or kiosk type of a format and being more residentially located fits into what we were saying about the connection with the members because they are in the neighborhood every day versus they might shop over here in some commercial area in a mall one day, but only come back once a month kind of thing. So that's got an underpinning source of grow in our Chinese business. It doesn't mean that we don't have to do all the other things with product innovation and the great marketing we do, to the road shows, the demonstrations. But there is a long way to go there in terms of penetration. At Tupperware Mexico, things have gone quite well, leveraging the build the core Vision 20/20 initiatives. So we have done good recruiting but not outrageously high recruiting. But bringing the new people in, more and more of them under the activity that they have on the onboarding program, we have seen more productivity and longevity out of those sellers. And so that's also coming through those numbers and contributing to being up 20%, 21% in Tupperware Mexico. They have also, over the last couple years, rotated towards putting in more demonstration selling, albeit a lot more one-on-one demonstration than parties, but that also improves the price points and the earning for the sales force members based on the amount of time that she spends. And so that also something that should help us over a long period of time. And in the success formula, there is also a pilot for that. And that again really talking about what the various types of people in our sales force, the broad group of sellers, the managers should be doing every week that are just the normal things, but by having a communication strategy down through the distributors we get more people with this large sales force doing these activities on a consistent basis. And so we think that those things coming together with the overall product innovation we have in the business will help us continue to do well in Mexico. And then in Brazil, we have this large sales force size advantage where our management team has really been able to have a good pivot to a very good focus on the earning opportunity message, but also the way that they have been able to do inspiration with way of sales force additions four times turning into also preparation or warm up, so eight times a year, which has really led to a large numbers of people coming into the business but then they have also been one of the pilots for onboarding. And so we have seen a good take up there and being able to convert to 17% total sales force size advantage into about the same number of more active sellers is really impressive with that big of a number on the total sales force size. So I would highlight those things in those markets you have named that have really been Tupperware specific things that have helped us and a lot of that or all that can go to other markets if we need to make that happen.

[Jason Gere:]

Okay. Great. And the last one I want to squeeze in, it's on Brazil actually. I know that you raised the organic sales number for the year. I think 22% to 23%. But what are your expectations for Brazil considering the Olympics are coming up? And I was just wondering, maybe if you could talk, how did you guys perform when the World Cup was there? Was there any kind of, just feels as if that's the time of the year when people start to go on sabbatical, they love their soccer? So I am just wondering, with the Olympics coming up, any type of expectation on your business during that period?

[Mike Poteshman:]

Okay. Rick, feel free, obviously, to jump in if you have got something to add. Clearly, our management team has been focused on that. We have heard them talk about how they are getting prepared for the specific weeks that are likely to be impacted and the programs that they are going to be running for the sales force. Clearly it's a bit of an unknown of exactly how that's going to play out. My recollection back to the World Cup is that we heard them talk about that in kind of the same way. They changed their programs a little bit than what they would normally have been. But we didn't see a big disruption. You would think the Olympics are going to be a lot bigger the World Cup. So we will see how all that goes. There were some talk about what the government might do with travel restrictions and things like that. So we will just have to see how that all comes together. But they are very focused on that time period.

[Jason Gere:]

Okay. Great. Thanks Mike. Thanks Rick, if you are still there.

[Operator:]

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

[Olivia Tong:]

Great. Thanks. Just a couple of quick ones. First on the active sales force. For a few quarters, you guys saw some improvements in actives but then obviously this quarter it swung to a decline. So first, it does seem a bit atypical to have such a big swing from one quarter to the next. So maybe you could go a little bit into that? And then secondly, you did talk a lot about the key drivers of this slowdown. You call that Fuller Mexico and Philippines, but it still seems like it was a fairly broad based slowdown with most of the market accelerating. So could you talk about some of the things that happened in other markets as well? Thank you.

[Mike Poteshman:]

Sure, yes. I mean, again, the biggest factors in the swing between the fourth quarter and the first quarter were what we talked about in Fuller Mexico and the Philippines. We also had lower activity which came through in lower sales in BeautiControl, even though we have started to see some recovery that Rick talked about in the total sales force size. Also, there has been an impact on activity, as you would expect in Egypt with the curtailment of the shipments there and that's a fairly large sales force that generally impaired the pretty high activity level. In one of our notes, which I realized everybody probably would have had the chance to look at yet, but on the first attachment to our release, we did point out that there is still a pretty good total sales force size advantage in Egypt where there is a risk of reduction going forward given what's going on there. Those would be the main things that I would highlight. Olivia?

[Olivia Tong:]

Thanks for that. I appreciate it. On the second one, hopefully I didn't miss this, but can you break out the volume versus price overall? And then also by emerging versus established markets?

[Mike Poteshman:]

Yes. Overall, the pricing was up three points in the quarter. And there was an offset from of volume down two. I don't have the emerging versus established.

[Olivia Tong:]

Got it. Okay. I will follow-up offline with that. But I guess as you think about your longer term algorithm, how do you think about price versus volume over that, not necessarily for this year, but over the longer-term?

[Mike Poteshman:]

Right. Well, so we have been running in this 2% or 3%, maybe sometimes 4% increase from price and I would expect that inflation around the world including giving our weighting towards emerging markets, probably net net won't change a lot. There could be something certainly high inflation places that will come down, but maybe a bit more inflation in some other places that are commodity related that might be a little bit dampened at the moment. So I wouldn't necessarily expect to see a big difference there. Where I do think we will see differences as we move forward in a longer range period is that we will see growth in our total sales force size and our ability to onboard people well through the Vision 20/20 strategy and with the success formula that apply then to people who have been with us for a longer period of time that we would be able to drive more longevity and through greater activity the whole sales force through these engagement sorts of activity to be able to see a total and active sales force size growth, certainly better than we have seen in the last few years and that would translate into more volume growth in more places. I mean clearly that is what we expect. We did stop, as you know, giving longer range guidance, but that assumption in the past have been 6% to 8% local currency growth and underlying that, I would say, again would have been the two or three points from price and the rest from volume. So we do expect to do better overtime on the volume side.

[Olivia Tong:]

Got it. Thank you.

[Operator:]

Your next question comes from the line of Linda Bolton Weiser with B. Riley & Co.

[Linda Bolton Weiser:]

Hi. Rick, you alluded to some of the grilling and the microwave products that are new products in some of the regions of the world. But I was wondering if maybe you could just talk about, is there any, I remember when the food chopper item was such a popular item, can you just tell us, what is the trend with regard to sales from new products? Are you trending pretty steady? Or is it declining? And are there any other items that are kind of real volume drivers? Or are you working on some things that can be kind of like that food chopper item of the past?

[Mike Poteshman:]

I think that Rick dropped off. So I will answer that one. We continue to see that about 25% of our sales are from products we have introduced in the last couple years, which is really the track we have been on for a long period of time. So that's been fine. With the success that we have had in food preparation types of products which include the manual choppers and mixers, but then also the cooking products, we have a mandolin which is a slicer for fruits and vegetables that has done quite well and a product that's kind of food mill that can have different kinds of attachments put on it, we can add to that overtime, those have all done well. The are very demonstratable. They are at higher price points. We have seen tick up on them also at reasonable levels even in our emerging markets where we demonstrated them. So we will continue to highlight those sorts of products or continue to develop those kinds of product and certainly the microwave products to bake and grill, that you and others saw at the analyst meeting a year ago February are of that of that sort. So there is a good degree of differentiation there. You certainly need to see it demonstrated to be able to know how it works and understand why you want to pay the price point that we ask for that. But that's exactly, we design those kind of products because of the channel that we are in and the three million sellers.

[Linda Bolton Weiser:]

Thanks. And then can I just turn to China for a minute and you talked about the studios and the potential for growth in those. But I am wondering, do you way of monitoring the level of inventory in those locations? I am just thinking of Avon where they had so many thousands of boutiques and then got into a problem with inventory being reduced over a long period of time. Can you manage through them any way? Or is that is concern in any form for you?

[Mike Poteshman:]

We do have internal visibility to that, yes. The outlets are fairly small. So they don't have the capacity to hold all that much inventory in terms of units. But it is something that we look at with our China leadership every month.

[Linda Bolton Weiser:]

Okay. That's all for me. Thanks very much.

[Mike Poteshman:]

Thanks Linda.

[Operator:]

Your next question comes from the line of Frank Camma with Sidoti.

[Frank Camma:]

Hi Mike. How are you doing?

[Mike Poteshman:]

Good. How are you, Frank?

[Frank Camma:]

Good. I know Rick dropped off, but I wanted his follow-up on one thing he said on Indonesia, specifically. Obviously the economy is creating disruption there that's a little more than you expected but I wanted to know specifically how does that impact your recruiting efforts as far as --? Go ahead. I am sorry.

[Mike Poteshman:]

Yes. Our feeling about that and what we see in Indonesia and other places is when the other types of employment are more difficult, naturally we have got an advantage with our earning opportunity and in a place like Indonesia where there is less opportunities for women to work outside the home to beginning with, that's also been a plus for us. So it certainly directionally helps as. We have said consistently and I believe it's the case today in Indonesia. We are not countercyclical in the sense that we don't do better if consumer spending gets worse. We are a consumer products company selling into the environment. So I think we are seeing that now. So it's clearly an element that is going on. It doesn't necessarily change what we are doing because we need to recruit well regardless and in Indonesia the issue in also on the retention side.

[Frank Camma:]

But is there usually a lag effect? That's what I am trying to get at. Rick usually talks about the different levers you can pull. I mean I was just wondering, is there a lag between how you can grow your sales force and how these things hold there? Or you see that drop off in demand more of the offset? That's really where I am going with that.

[Mike Poteshman:]

So you are saying, if there is a sales force size advantages, are we able to overcome driving sales down?

[Frank Camma:]

Yes. Exactly.

[Mike Poteshman:]

I mean by design, yes. We should be able to do that. And in many places we are successful. Brazil is an example of that. And I would say, to a degree, Tupperware Mexico is as well.

[Frank Camma:]

Okay.

[Mike Poteshman:]

We need to make all the factors work together so that that includes the marketing approach and importantly the activation, because having a total sales force size advantage is as the material to be able to succeed, but we need to be getting the people out there and that's again where the onboarding comes in and in Indonesia, we have put in a revised onboarding program recently for not only for our product sales force but for people coming in, but also for new managers because we identified there that we weren't getting the right kind of action or training to that group. As you can imagine with Indonesia being such a large business, it's a very large sales force, but it's also a large group of managers and as Rick was highlighting on the prepared remarks a fairly narrow group of distributors. So the training element there is key. Another aspect to the way we are addressing that is by looking to ramp up the number of team leaders that we have in Indonesia and team leaders, as you probably recall, are people who have promoted managers. So they are getting compensated on that wider. They can help develop the managers.

[Frank Camma:]

All right/ And then just a little clarification. So on the annual cash flow of the $170 million to $180 million, that's cash flow from operations minus you CapEx? Is that correct?

[Mike Poteshman:]

Yes. Cash flow from operational activities net of all investment activities.

[Frank Camma:]

Net of all investment. All right. That's where I was getting to. Okay. And the final thing is just on oil-based resins. Why is there so much of a lag there with when oil prices fell and how long it really takes the impact? Because you are finally seeing pretty material improvement in your cost of goods sold. Is it because you buy ahead? I am just trying to get a hold of that a little better. I know you saw some improvement in the lion's share.

[Mike Poteshman:]

Yes. Well, actually last year, we had $12 million of improvement. But our guidance from today was $6.5 million, which [indiscernible].

[Frank Camma:]

That's why. Okay.

[Mike Poteshman:]

We have done quite a bit of work on that to try and look at correlations and things. And what we do see, is that there is a correlation but the cost of the oil and gas that's in the resin, looking at the less highly engineered ones, is somewhere around 50% of the total price.

[Frank Camma:]

Okay.

[Mike Poteshman:]

And if oil and gas would go down, it would become less of a share, right.

[Frank Camma:]

Right.

[Mike Poteshman:]

So there is the labor and the significant fixed assets in order to convert oil and gas into resins and whatever profitability and supply variation there is in the resins supply market as well.

[Frank Camma:]

So I mean everything really went in your direction, right. Steel costs also went down. So you should benefit from that as well, I would think.

[Mike Poteshman:]

Steel cost? Well, we don't --

[Frank Camma:]

Well, like for your other gadgets. I know it's not a meaningful component, but aren't just commodities in general down.

[Mike Poteshman:]

Yes. No, I think that that's a fair comment. We haven't seen other elements impact us too notably like everybody else because our products need to get transported and --

[Frank Camma:]

Right. That's a bigger component. All right. Okay. Thanks.

[Operator:]

Your next question comes from the line of Mike Swartz with SunTrust.

[Mike Swartz:]

Hi. Good morning. Mike, maybe you could provide a little more clarity on Egypt. I think you said sales in the quarter to Egypt and the Middle East were down 67% or so. Could you give us a little more context around what that meant to your emerging market growth in the quarter? In other words, outside of that decline, what would have emerging markets growing?

[Mike Poteshman:]

Yes. I gave the indication that for the full year, there would be a three quarter point drag on the overall company sales comparison from Egypt and B2B in Egypt is a bigger factor there. So half a point or so on sales at around $10 million. So we will see how all that Goes. You can see that in the emerging market units breakdown in the press release attachment. We were down 8% in Europe in local currency. And so certainly there was a bigger drags there from Egypt and also Turkey was having an impact. So that can help give you some indication of the size.

[Mike Swartz:]

Okay. And for the full year, you are saying about a half a point to local currency growth for emerging markets. You would say, is that impact is fairly similar to what you would have seen in the first quarter?

[Mike Poteshman:]

Yes. Probably directionally.

[Mike Swartz:]

Okay. And then just switching over to some of the cost reduction initiatives that you outlined on the previous call. I think you had said you are targeting somewhere in the ballpark of $20 million to $25 million in savings for the full year. Could you just give us a little update there? Are you still targeting that amount? Are you targeting more? And then how much of that $20 million to $25 million in savings would we have seen flow through in the first quarter?

[Mike Poteshman:]

Sure. Let me make one more comment about Egypt. The business did start to slow a bit for these reasons in the fourth quarter. So probably things are weighted more towards the first three quarters than the fourth quarter.

[Mike Swartz:]

Okay. Thank you.

[Mike Poteshman:]

In terms of the initiatives, kind of the self-help ROS kind of initiatives, I would say they were still on track to be in that $20 million to $25 million range that I mentioned last time. We got probably 43 million or $4 million of a benefit in the first quarter that allowed us again from being at the low-end of our local currency range and sales to be $0.01 above in local currency. So a lot of that had to do with those types of things. And then some resin benefit beyond what we was in the outlook. In terms of how much we would assess of that $20 million to $25 million is now in our outlook. A rough indication is probably about half.

[Mike Swartz:]

Okay. That's helpful. That is all I have. Thank you.

[Operator:]

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

[Beth Kite:]

Hi there. Good morning. I have two questions on Argentina and also the U.S. So I imagine that that growth in Argentina led to upper provisions we saw for South America. So to that end, sort of that one-third volume, two-thirds inflation driven pricing, are you thinking that for the rest of the year, obviously, we had the deval in December. Does that volume component stick with us now for the rest of the year in your modeling? And what's driving that? And then second for the U.S., I thin I heard correctly that Rick said the comp plan change has obviously started to occur, but it was maybe the early days or something to that effect. So if you could just tell us like are you still concerned for the second quarter for the changes to keep rolling out? Or is that a full year phenomenon? Thanks so much.

[Mike Poteshman:]

Sure. In Argentina, we have done a good job evolving that business to be more of a housewares business than a beauty business, which it was historically and also done a terrific job in cleaning up how we are running the zones and things. So we are pleased that were starting to see these volume improvements and I think that when we look at the sales force KPIs, we would, yes, continue to be expecting to have volume improvement in Argentina. On the comp plan change in the U.S., that was effective as of the beginning of March. And so it begins to show up in the sales force through the check in April. And so we did see, as we alluded to, a bit of a slower or less favorable comparison as we move through the quarter. Not necessarily unexpected. And so we continue with our communication plan and other actions to be able to have a good result for our broad sales force, because the compensation plan change really impacts more the upper levels of the sales force as we move into the second quarter. We continue to see very good results in Canada. I mention that because we made the compensation plan in Canada that change last year. So through the good communication, what we were able to do, we were able to roll out of that very well. We have highlighted in the past, I didn't say it today but the change in Canada was a bit easier in the sense that more of the leadership in the sales force there was already doing the right kinds of activities that were going to work well under the new compensation even when they were under the old compensation plan. So do acknowledge this tougher. Still, what Rick was with conveying is that we are optimistic that we will be able to handle it well. We do have a very good sales force size advantage there. So we are looking to leverage that and continue to bring in new people as we move forward.

[Beth Kite:]

Excellent. Thank you so much.

[Mike Poteshman:]

Welcome.

[Operator:]

Your final question comes from the line of Sofya Tsinis with JPMorgan.

[Sofya Tsinis:]

Hi Mike. Question on Q2 guidance. So you are still seeing a tougher comp on top line and you talked about the drivers of the local trends of top line improvement for the year, which makes sense. But with many of the businesses still struggling, the number of active sales force down right now, what would drive the sequential improvement in local currency top line performance for Q2? Because you are basically to 1% to 3% which is in line to better visibly you did in Q1. Thanks.

[Mike Poteshman:]

Sure, yes. Thanks Sofya. Going into the quarter with a 4% overall total sales force size advantage, we are looking to convert that to a better comparison in the active. And as I said kind in the prepared remarks, it is coming from several of the markets where we were down not necessarily all going to positive but having some moderation there. So we have some very, fairly big decreases in some places and many of those should improve. One of them that we highlighted was BeautiControl was down 19%. The first quarter was the last quarter that we were lapping the compensation plan change there. They had the last yeas was the first. So while we won't necessarily go to completely right there immediately, we do expect things to improve from a comparison point of view. So the comp in the first quarter versus the second quarter of last year, I think was one point harder if I am remembering correctly. So it's not too dramatic. And we sense that 1% to 3% is the right place to be.

[Sofya Tsinis:]

Okay. And then just a final one. On Indonesia, do you expect any improvement there for the year?

[Mike Poteshman:]

Well, we expect to do better in the second quarter than we did in the first quarter. We haven't given an outlook for the full year. If you saying whether it is going to be positive for the full year or not, certainly our local management is aimed at that direction and we are looking to repair the total sales force size advantage. We were down 8% at the end of the first quarter, same as at the end of December. So we need to get that turned and we were hitting that through the manager development program, both we developed managers and to get higher numbers to do that one-on-one hand-in-hand training. And then the on boarding program for the sales force having been revised. Getting that message out should help us get people started in the business better which will lead to better longevity which is clearly important in that particular unit.

[Sofya Tsinis:]

Yes.

[Mike Poteshman:]

So that's what we are focused on.

[Operator:]

And that does conclude our Q&A session for today. I would now like to turn the call back over to Mike Poteshman for any closing remarks.

[Mike Poteshman:]

Well, thank you everybody. We appreciate you coping with our communication issues and we look forward to continuing or to getting better results in the second quarter and as we move forward. So thank you for your participation.

[Operator:]

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