Tupperware Brands Corporation
Q4 2016 Earnings Call Transcript

Published: 1 Feb 2017

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Tupperware Brands Corporation Fourth Quarter 2016 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instruction] Thank you. It is now my pleasure to turn the conference call over to Rick Goings, Chairman and CEO. Please go ahead, sir.

[E. V. (Rick) Goings:]

Thank you and good morning to everyone. I'm in Orlando with Mike Poteshman, our CFO; and James Hunt, the Head of IR. As usual, we have some slides to go along with our prepared remarks. And you also know the usual drill with regard to forward-looking statements. You've also probably seen the earnings release, so I'll try not to be redundant and just dive into it. In slide 3, you can see clearly 2016 has been the year with some dramatic plusses, as well as some rather disappointing minuses. That also held true in the fourth quarter where sales were up 3% in local currency that includes the extra week which is one point under our October guidance range of above 4%. Total sales force remained at 3.1 million, and that's up 1% versus last year. In 2017, very clearly, we must grow our sales force, and that is a focus. Sales force expansion is and has always been the primary lever to get the kind of growth we have come to expect, but little more on this later from me and Mike. We are pleased that despite a $0.05 hit from foreign exchange versus the outlook, we still delivered on the bottom line with EPS of $1.45 which was $0.03 above the high end of our range. Tupperware's ability to outperform on the bottom line is really a testament to the strength of not only our business model, but also the global management team and their ability to execute on defensive spending strategies throughout the year. I'll cover some of the markets for Q4 and the year. But at year-end, we always try to hear and I'm going to do it now here, also to take a more holistic approach to our performance, looking at Tupperware Brands as a portfolio. In Q4 specifically, we were up 8% in local currency in emerging markets versus down 4% in established markets. Now, taking a look starting in slide 4 with the plusses turned to China where we had 5,500 demonstration studios at the year-end. That's 5% more than last year. And we really continue to grow China year after year. Really, drivers were on two specific fronts. Number one, greater penetration of the physical studio location, more doors, as you would say. And number two, studio productivity. This is good because we've started to see that grow as well through more effective digital tools and social media. We did have 28% year-over-year growth in studio members as you look into the studios. Also, helping on productivity front was the leveraging of what I would call our direct selling fundamentals, specifically product demonstration in the studios and more effective personal service through the studio's shop staff. Now, it's early days still for the studio concept, but many of the elements of the China approach we believe are relevant to integrating in studio strategy for us in other traditional direct selling market. It continues to show that we can sell high price point products there in China, a $1,000 water filtration system. We can sell those kinds of products when we perform the demonstration. So, it really doesn't matter where somebody works, lives or socializes, the demonstration is key to our business. And if we continue to get better at digital marketing like we have in China where we can connect and engage with a large and growing base of what they call members in order to get orders inside and outside, we think we can do this in other markets as well. Together, the increase in the number of studios and the growth in productivity in China led to a 31% sales increase in Q4. Again, in China, we continue to shape our future for not only that country, but we expect to leverage the learnings of our demonstration studios and integrate it into the evolving world of digital tools and social media to extend our reach and increase our footprint in other markets as well. Worth remembering, again, we have 5,500 studios in China, but management there believes with 1.3 billion people, we may need as many as 20,000 studios to fully service the market. Now, let me turn to a more traditional model for us, Brazil. Brazil was up 32% in Q4, capping off a wonderful year. We're really proud of Paola Kiwi and her team, what they've done, not only for one year, but year after year after year. We continue to see there the importance of what we call our hub-and-spoke business structure that we have in place with mega distributors and outlying smaller, non-stocking distributors that have a lower cost and breakeven; also, continued penetration through the size of our sales force. Sales force expansion has been a real key there, and we were up 20% at the end of 2016. That bodes well for how we enter 2017. And we often here talk about that China is probably our best-in-class in digital marketing, but Brazil has got to be our best-in-class in sales force expansion, on-boarding and activation. These iROAR strategies, they show they work. This is really done through monthly inspirational campaigns that really leverage the value of our – once we get the people recruited, we get them activated by product offers and also by really stressing and educating the opportunity in career and earnings path with Tupperware Brands. Of course, to get stellar sales, the work with all the other elements have to be in place. We've got the right compensation structure, marketing and merchandising need to really be in sync, and the Brazilian team has really excelled on all these fronts. Also, again, on digital tools, they've created a communications infrastructure that really shrinks the size of the company as far as the geography is concerned – the country, I mean. So, they really can have more and better contact with the sales force, and they can generate explosive action including very attractive short-term pop-up offers during the ordering process to keep people active. Now, we're working on leveraging these approaches that we're using in Brazil in other units. As a matter of fact, as I speak, a number of our Asia Pacific senior management team are there in Brazil, and we're working on really benchmarking what each other is doing. If I turn to South Africa, specifically Tupperware South Africa, they averaged 20% increases through the first nine months of 2016. However, they were up an incredible 53% in the fourth quarter. They've really done a fabulous job there of building the sales force and getting them active. In addition, their growth in the level of what we call – under distributors called team leaders, and I'll comment on that later, really provides the ability to properly manage the span of control and communications down through the sales force. Particularly, this is important when the sales force is large. So, you just not have a distributor and many, many, many managers and sellers, you have really kind of sub-distributors, these team leaders. This is also critical to the initiatives we have for our other units in the portfolio that have large sales forces, particularly as we continue to execute on our 2020 strategies where efficient, consistent communications for large sales forces is critical. Contact we know is vital to keeping people, not only motivated, but for training them as well. Now, the impressive comparison in the fourth quarter also reflected in Tupperware South Africa, much more effective and aggressive approaches to the Christmas selling season, and we've really done there in the past, so bravo to our team there. Also, staying in South Africa for a moment, our beauty business, Avroy Shlain, had another nice quarter, up 13%, building nicely in Q4 after a slower but still positive Q3. So, it's nice to see this pace. Let me shift to Argentina in the Americas. Actually, sometimes we think of it as an underappreciated success story. They were up 42% in Q4. And while it's easy to dismiss these incredible top-line results as just inflation-related pricing, it's very important to note that not everybody in that environment is able to take price. It speaks to the power of our brand. And it's still important to balance pricing with consumer spending power in a very tough economic environment. But we've been able to recently offset that and really keep up with inflation. Remember just three years ago, this business was unprofitable and now it carries a double-digit return on sales. So, really good work by the Argentineans. Another strong contributor in the Americas in 2016 was Tupperware Mexico. They have continued to show us how to implement and execute the iROAR strategy, it's just like Brazil. Particularly, in how to integrate more demonstration sellings, and it's particularly nice to see the results they continue to have in the midst of all the turmoil politically. However, up against a very difficult 25% comp for Q4 2015, they were just up 1% in Q4. However, they carry a 9% sales force size advantage, and they did have stronger sequential improvement as we went through Q4, particularly we saw that in December. So, I would tell you, looking forward, given the strength of the distributor base and the trust in our experienced management team there, we really are looking forward to overcoming most of the externals in 2017 and expect growth in the top and bottom line. I also want to mention here that we had a solid year in Malaysia and Singapore. They were up 9% in the fourth quarter and carried a double-digit sales force size advantage into 2017. They've done a great job at executing the fundamentals and really built momentum throughout 2016. Speaking of momentum, we're pleased to see that in the United States and Canada, and you remember, they instituted, particularly in the United States, a whole new comp structure which we needed to do for the strength of the future and the career opportunity. They had a strong fourth quarter, up 8%. And we were really ready for some setbacks because of this new comp plan. But effective execution, they stayed the course. They really did bring the sales force and leadership along with them. And so, we really kept morale high and in turn, it showed recruiting success in the second half of the year. Also, it's good to see that the texture of the sales force looks good with the sales force leadership focused on real career paths, building their businesses and providing an earning opportunity for others. Now, we're going to lap the compensation plan changes here in the first quarter, which will include some incremental incentives to bring people through that change. So, it will be important to see how we do the first half of the year, but this business is proving that we still have a big opportunity to grow the Tupperware business in established market, especially in a market here where we've been for 60 years now through the use of digital tools, and with the power of the brand, we think we have a very bright future in North America. Now, let me turn to the units which really were a drag on the portfolio, not only this last year but in the fourth quarter. Indonesia was down 17% in Q4. Actually, they were down 9% on the year, a tough year for Indonesia. The soft sales force additions seen in Q3 continued in the fourth quarter, so we ended with a sales force deficit, double-digit. Frankly, looking to Indonesia, doing a regression analysis, we've been too slow in growing the leadership within distributorships. Remember, I talked about South Africa and team leaders. We've got big and successful distributors in Indonesia, but not enough for the second level team leaders, which help you really more effectively get productivity out of the large sales force and to do more recruiting. Key to reversing our slide is really three things. Number one, more leaders, the team leaders. Two, more differentiated product, moving more away from food storage and serving, which these are categories that tend to become commoditized and are easy for knock-offs in the retail or the direct-selling space to jump into, and you can't demonstrate much with regard to food storage. Third, upgrading our whole starter kit and approach with demonstrable products like a product we call the Quick Chopper. It really enhances the sales force's ability to demonstrate and differentiate our products. So, we think we're going to move forward. We'll have progress this year and we'll really be working on these three fronts. We need to continue to aggressively recruit to build the sales force. We are taking some approaches to the sales force additions, a la the Brazil-approach, but it's going to take some time. So, we're starting to chip away at our sales force deficit in January, and perhaps Mike will talk a little bit about that when we look at outlooks. Anyway, it's going to take some time in Indonesia to get this momentum back. But we've got a solid business in place. Remember, there's a 0.25 billion people in Indonesia on 13,000 islands, and we still believe it's early days for Tupperware there. India was our laggard in the quarter. I think our guys on the ground did a lot of the positive things, but we are working on the structure there, better products, better recruiting programs, but I must say, the government hasn't made it easy on us or others in our industry. We were down 14% in the quarter. Two significant factors impacted our performance. Firstly, you've been hearing on our last call, the federal government's industry new requisite, which included requirements to register all new and existing sales force members, which is really an arduous task given the number of people that we have, and you end up losing a lot of your sales force and momentum. And it also makes it difficult to go out and recruit more. So, that's exacerbated our situation there. And also, in November and I think you all know about this, the Indian government's decision to demonetize certain currency notes. Wow. That has had such an impact on consumer spending. However, we feel good about our opportunity. There's 1.3 billion people in India. They love our product, and certainly they need the earning opportunity. Let me comment on one of the markets in our European portfolio, Germany. We continued to struggle there. We were down 3% on the year, but 10% on top-line in Germany in the fourth quarter. Now, I must say, it was up against a tough plus 9% result in 2015, but it was still a tough quarter. So, they're trying to kind of work themselves out of a hole in the quarter. They did start to gain some traction in December, which should provide a good start to 2017, and we'll talk about that later. Now, a comment about Beauty North America, Fuller Mexico was down 8% in the quarter. They continued to work on their strategies to ignite the sales force additions and activation. They've got a new contact platform in place to have more meetings, more training, more recognition, more motivation. And we did see a sequential improvement in the field manager count between Q3 and Q4. But we've got a lot of work to do there. We've got to re-engage some of the lower levels of the sales force, which used to do big levels of sales. We believe in our attempt to grow order size and raise the prestige level of the brand, we have perhaps gone a little too far in pursuing higher-value orders at the expense of the smaller orders. So, we're going more directly to engage this segment because it's clear when we do an analysis, that's the business that we lost is at the lower end of it. Now, let me turn to BeautiControl. BeautiControl, it isn't much of our business, but it is a disappointment, down 24%. We've got the right kind of skin care really strategy in place and I think we're doing the right kinds of things, but it is taking longer particularly to grow the size of our sales force there, and we've got to get this trend reversed. As I stated, turning to another subject here and getting ready to turn it over to Mike, we certainly had our share of puts and calls. There's a lot of volatility in the portfolio, but also we had a lot of success in some not only important markets, but big and big potential markets as well and we're learning from these and we're starting to integrate more what's happening in those markets, and other markets. Meanwhile, we will continue to deliver earnings growth and cash flow that supports our strong dividend, and as well as future growth, and we're very committed to our dividend. We now have January behind us. And while it's just a month, we're happy with our start, particularly as we often see January sets the tone for the year, and we've had a good January. We've baked this into our guidance that you see in our release that shows a high end of our sales range of 3% in both the first quarter and the full year. While this isn't what we've come to expect over time, it is 4 points better than we saw in the first quarter last year. After you adjust for the one week in the full year, it's a 3% improvement on the comparable week basis. Anyway, Mike, let me turn it over to you.

[Michael S. Poteshman:]

Thank you, Rick. Rick has given you insight on what is going on in the units that contributed most significantly to our fourth quarter year-over-year sales comparison. Versus the plus 6% high end of our guidance range, our most significant shortfall was in Indonesia. There were also smaller shortfalls in Germany and France that were only partially offset by better-than-expected results in China and Tupperware South Africa. To give you a bit of color on where the overall 4 point benefit of the extra week came through in the quarter, we had the smallest positive impact in Europe, a benefit of around the average in Tupperware North America, and benefits of about 5% in the other three segments. Looking at the volume versus price impacts on the sales comparison, after the 4 point volume benefit from the extra week as in the third quarter, we benefited by 3 points from higher prices that was offset by 4 points of a drag from lower volume and mix without the extra week. The total sales force size advantage at the end of the fourth quarter at plus 1% was 1 point lower than at the end of the third quarter. We've spoken of our challenges with net sales force addition at Fuller Mexico, India and Indonesia. And these units accounted for 5 points of a drag on the total company comparison. That said, Fuller Mexico's deficit did improve sequentially in the quarter. Hereto, Rick has walked through the main issues we faced and the initiatives for improvement in each unit. For the whole company, average active sellers were down 8% in the fourth quarter, which was 7 points more than the minus 1% in local currency sales without the extra week benefit. The 14th week being between Christmas and New Year and, therefore, a small week had the same estimated 4 point drag on the active seller comparison as it had on sales. Beyond this, the biggest factors leading to the better sales and active seller comparison were mix shifts towards China where we operate under the demonstration studio model without active sellers and toward Brazil that has higher than average order size. Both of these units had meaningful productivity improvements as well, particularly China from its digital marketing initiatives. Also contributing were the 3 points I spoke of coming from higher prices, as well as the change in approach in sales force compensation for managers in India that is now based on unit sales volume rather than the number of active sellers in the manager's unit. This is resulting in less order splitting, meaning larger order sizes per active seller. On slide 6 and before turning to earnings per share, I'll highlight here that our list of units with 2016 company sales of more than $100 million didn't change. Brazil, again, had more than $200 million in sales and, as Rick noted, has become our largest business unit. Tupperware U.S. and Canada made the jump in 2016 to the over-$200 million category, but Indonesia is now between $100 million and $200 million in sales after having been over $200 million in 2015. The other four units that continue to have between $100 million and $200 million in company sales were China, Germany, and individually Tupperware and Fuller Mexico. Along with this, our most important foreign currencies continue to be the Brazilian real, the Chinese renminbi, the euro, the Indonesian rupiah, and the Mexican peso. On slide 7, our diluted earnings per share without items at $1.45 was $0.03 above the high end of our range, but this was in the context of the sales comparison being 1 point below the low end and a $0.05 hit from foreign exchange that came in at minus $0.02 versus last year, whereas the October guidance included plus $0.03 from FX. This reflected versus our expectations a higher-than-anticipated drop due to profit in Brazil from the higher sales even in light of having to absorb an extra week of fixed cost in 2016, a benefit from higher-than-expected sales in China that has a high contribution margin under its model, lower-than-foreseen unallocated corporate cost, and a $0.025 benefit versus guidance from the tax rate that was nevertheless higher than last year impacting the comparison with 2015 by a negative $0.025. There was a partial offset to the benefits versus the guidance from lower profit in Europe on a small local currency sales increase that was from lower gross margin from lower production volume in the plant, and elevated promotional spending in France both for sales force compensation and for recruiting. On slide 8, this meant that pre-tax return on sales without items came in at 16.3% in the quarter or 80 basis points above what we had included in our high-end outlook, and 110 basis points over the last year. For the full year then, pre-tax return on sales without items was 13.4%, up versus 2015 by 55 basis points in dollars and 100 basis points in local currency. Our target for annual improvement on this metric in local currency is 50 basis points, which we continue to expect over time. Turning to gross profit and distribution, selling and administrative expense in the quarter, the GP percentage decreased by 40 basis points to 67.3% from 67.7% in 2015 reflecting higher obsolescence costs, higher resin costs, and a hit from the mix of product sold with a partial offset from less of an impact of Venezuela devaluation that is in the GAAP numbers. The DS&A percentage improved 170 basis points to 49.9% from 51.6% last year. The biggest contributors were lower investments in marketing and certain strategic initiatives where we've been able to better leverage our existing cost structure and lower management incentive costs along with about a 0.5 point from mix impact associated with translation FX. On slide 9, cash flow from operating activities, net of investing activities for the year came in at $213 million over the $205 million high end of our range from October. The $213 million of cash flow included about $30 million of proceeds from Orlando land sales and funded the $139 million we paid in dividends during the year along with debt reduction. Our EBITDA leverage ratio as of and for the four quarters ended December came down to 1.78 times compared with 2.06 times at September and our target of 1.75 times. So, we about met our expectation of reaching our target leverage as of the end of 2016. Looking to 2017 on cash flow, we foresee coming in a range of $185 million to $195 million, which includes an assumption of $70 million in CapEx. We've not included in this forecast potential Orlando land sales or capital spending related to that development project. Many of you know that along with the 1.75 times debt-to-EBITDA leverage target that we have, that we look to payout in dividends 50% of our trailing earnings per share without items. That said, we've set up our capital allocation approach to be able to withstand things like the currency headwinds over the last few years and to be able to continue to pay our dividend. This brought the 2016 payout ratio to 61%. With available cash after paying the dividend and with higher borrowings as EBITDA rises, we've said that we'll buy back shares. Given our end of 2016 leverage being about in line with our target and the fact that we generate the bulk of our cash flow in the fourth quarter each year, we do not plan to make open-market share repurchases in 2017. We expect to then be below our leverage target as of the end of this year after using the strong fourth quarter cash flow to pay down debt and then to repurchase shares in 2018. Related to this, you've seen in our release that the board extended today for three years our $2 billion authorization for open market share repurchases that has $700 million plus to go. On slide 10, a few comments on our outlook beyond what is in our earnings release. As Rick highlighted, the full year sales increase assumption of plus 3% in local currency at the high end is 3 points better than 2016's actual increase when both years' comparisons are adjusted by 1 point from having the 53rd week in 2016. As you would no doubt expect, this reflects better comparisons in certain units that we didn't do well during 2016, while at the same time expected good growth in certain very fast-growing units but not at the same rate. In the first category, we have most significantly Egypt where we've lapped the negative impact from currency controls on shipments into the country. Turkey, where we're lapping particularly the hits from the externals and are settling down under changes to that model. And the Philippines where we've now lapped a late 2015 exit of the fashion category. Going the other way, Brazil was up 33% in sales in local currency in the full year of 2016, and Tupperware South Africa was up 30%. We expect both units to grow well again in 2017, but at a slower rate than in 2016. You'll notice that I didn't mention India and Indonesia as for those units, we've included in our high-end sales outlook only modest improvements in the year-over-year comparison versus how we did in 2016. On slide 11, the first quarter 2017 sales outlook calls for plus 3% at the high end of the range as well which, as Rick also highlighted, is 4 points better than the minus 1% we had in the fourth quarter of 2016 without the extra-week benefit. In terms of profitability, while still investing for growth, we project an improvement in pre-tax return on sales without items in local currency of about 45 basis points in the first quarter and 50 basis points overall in the full year. And a few other elements; we foresee unallocated corporate expenses in the low-$70 million range in 2017 and net interest expense of about $45 million. There's a small increase versus 2016 in the unallocated expenses and net interest expense is about the same. On resin, as included in our outlook, we foresee a full-year hit of $9 million in cost of sales in 2017 that will flow through about evenly by quarter. This takes into account expected resin prices, the impact of our currency hedges related to resin, and changes in exchange rates in cases where we buy resin in a different currency than that of the country we use it in. The full-year 2016 benefit in cost of sales from better resin cost was $3.5 million, although this included $1 million of higher cost in the fourth quarter. Both of these were as we had included in our outlook in October. And with that, we'll open up the call to questions.

[Operator:]

Thank you. Ladies and gentlemen, the floor is now open for your questions. Your first question comes from the line of Beth Kite with Citi.

[Beth N. Kite:]

Hi. Good morning. Rick, you spoke about some sort of good momentum in January. I was wondering if you could give us some more context about maybe which countries that was in or potentially what was driving that? Thanks.

[E. V. (Rick) Goings:]

Mike, I'm going to turn that over to you.

[Michael S. Poteshman:]

Well, Beth, as usual it's country-by-country. But we talked about the better momentum in the later part of the quarter, later part of the fourth quarter in Germany and how that was carrying forward to January, so that was a good one. Tupperware Mexico had that difficult comparison in the fourth quarter. We were up 25% in 2015 in Tupperware Mexico in the fourth quarter. So, with a 9% sales force size advantage and notwithstanding the externals, we were well-positioned in that business unit. We're pleased with how we started there. In Asia Pacific, there's still some ups and downs reflecting how we were running in the fourth quarter as well. But we've taken the step more systematically this year, with really looking to have a biggest party, big start kind of approach that we do traditionally in Europe, in the U.S. and some other places, so that's providing a good backdrop. We had nice momentum in the fourth quarter and through the whole year really in China, so that was a good base to start from, as well as those initiatives continue to work. And then places where it was already going well, certainly, Brazil closed the year with a very good sales force size advantage, we were up 20% in total sellers in Brazil at the end of the year. And so, that also provided a good base to start. So, I think those would be the main places we'd highlight.

[Beth N. Kite:]

Terrific. And then just one quick follow-up on that. Would you then say that your guide for the first quarter for the 1% to 3% sales growth, do you feel pretty good about the high end of that range or kind of just comfortable saying that's the range at this point in light of January?

[E. V. (Rick) Goings:]

Yeah. I think that's the range. At this point, there's so many variables going on in the world right now. But I've got to tell you, we're not starting – there's an old Greek saying, as the morning goes, so goes the day. For us to be able to come out of January and the sales force is bigger than it was at the end of the year, and to have a really big scale markets continue that momentum after a good fourth quarter, that bodes well for us. But we've also with regards to some our laggard markets, we're waiting to see some of those fixes kick in.

[Beth N. Kite:]

Got it. Thank you all so much. Have a good day.

[Operator:]

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

[Jason M. Gere:]

Hey. Good morning, guys.

[E. V. (Rick) Goings:]

Hi, Jason.

[Jason M. Gere:]

I guess going back on the last question, maybe if we could talk about separating between the micro and the macro, because the last couple of years, certainly the macro has been working against you. And you've been working really hard on the micro side of the business to kind of get prepared when things turn better. So, I guess, Rick, trying to get your view on with the guidance of 1% to 3% for the year which really is, I guess, at 2% to 4% versus a 2% when you strip out the extra week, like how your view is on the macro emerging markets in general, and then where you're seeing some of the micro work that you've done over the last couple years really starting to kind of benefit to the company. So, maybe if you could put a little context around that, that'd be helpful.

[E. V. (Rick) Goings:]

Yeah, Jason. Firstly, we were just looking at this impact of foreign exchange out there. We've managed this well. I think, we've almost – Mike, you said over the last three years, $2.50, it would be $7 EPS, if you'd add in this. We don't see that changing. It's unprecedented, but we think this is going to be the environment that we have to operate in. And I've been particularly pleased, and that reinforced to us our strategy with regard to what we were going to do with regard to leverage and what percentage we were going to do with regard to dividend and the formula with regard to after that share repurchase because even through this unprecedented dollar strengthening, our dividend has been secure, and we haven't had to pull back on any investments in our businesses going forward. Let me go back though to the macro. I just got back from Davos, and there's a lot of uncertainty in the world, and actually the number-one thing on everybody's list out there on certainty is the unpredictability on what's going to happen with regard to policy in the United States. But one of this other major things that I put this in the macro ring, is there's not going to be enough. I think, they've got it at Davos now. There's not enough – this gap between have and have-nots, there's simply not enough work out there for people around the world. We've got to keep in mind we've got 5% of the world's population here in the U.S., and Europe 5% as well. But for the rest of the world, now what we're starting to talk about more is we've got to find more opportunities for people. And repeatedly, we're in the sweet spot there with regard to it. And we see it in many of these major markets out there that the problem with poverty isn't she doesn't have a job, it's she just doesn't have any way to earn money, and the cavalry of big global companies moving into these markets, the cavalry is not coming. So, I think, it bodes well for the number-one thing that drives our business, and that is growth in the size of our sales force, and I saw coming through the end of the fourth quarter, almost a ultra-focus now on much more dynamic and sustainable programs to grow our sales force. And, Jason, once I get away from those – that's the major thing for us. You've got all kinds of different stuff going on in different markets of the world that sometimes they're geopolitical, macroeconomic, but we tend to navigate through those quite well. I will tell you, in our very important market of Brazil, you've seen the turnover of a presidency there, the loss of faith in the government there. What has happened is our business is growing there as we do our research because she basically says, I can't count on them, but I can count on me, so she's looking for this opportunity. If I turn to another big market, Indonesia, the new administration, they thought that was going to be shaky. It looks good there. This is not only Muslim, but an incredible democracy over there. And the former mayor of Jakarta is now President, and we see some smooth things happening ahead in Indonesia. Now, we've got to get our sub-management teams in those markets working well. I would comment, too, on this other 1.3 billion market, India, there isn't a single company in our industry in direct selling who has really become big there because of all the barriers the government has put in there. And we started to gain some momentum there and all of a sudden two new things. So, it's a mixed bag and that's why one of the things that is so great about Tupperware is we are a portfolio and particularly, we have a good model for not only established markets, but emerging markets as well. Mike, would you add?

[Michael S. Poteshman:]

So, just to clarify, Jason, on why we say that we're looking for an improvement of 3 points on the full year year-over-year. With the plus 2 points, we were actually up in 2016. That had the 1 point benefit, so without the extra week, it might have been 1 point. Whereas the comparison in 2017, it goes the other way. So, the plus 3 points if it was comparing to a 52-week year, we would have said plus 4 points, so that's the 3 points we're talking about.

[Jason M. Gere:]

Right. And with that, though, but that is a sequential improvement, so I guess the view is that you think the macros are probably not as bad as maybe as they were before. And then the micro, and again, not to put words in your mouth, but the micro, what you've been working on in some of these regions, whether it's the demonstration selling or things of that nature, those are starting to reap some benefits. Is that a fair assumption?

[Michael S. Poteshman:]

Yeah. I think all that's happening, what we also pointed out in that comparison is having lapped the situation in Egypt where the currency controls in that we weren't being able to ship in; we lap this fashion exit now, the fashion category in the Philippines. And in Turkey, we had some particularly large decreases as we went through some model changes and battled externals. And so, those are coming off, they've been a drag recently, which wouldn't occur (42

[Jason M. Gere:]

Okay. Great. And then the second question, maybe if you could just talk a little bit about pricing, pricing added 3 points. I think you said that 2016 you do price to inflation. And I think Brazil, Indonesia, you're still seeing some inflationary pressure. So, I guess, one, can you talk about within that 1 point to 3 points outlook, what's the composition between price and mix? And then, two, tie that into maybe just the outlook for 50 bps of POS improvement, particularly as I think more volume really can get you better leverage in the model. So, I was just trying to understand that 50 bps, where we should be seeing that. Is that on the gross margin or the SG&A and is pricing a big factor in it? Thank you.

[Michael S. Poteshman:]

Well, the 3 points or 3% we saw from pricing in the fourth quarter wasn't out of line with where we've been in the inflationary environment as it is. So, while we don't have guidance split out between volume and pricing for 2017, probably the pricing will be somewhere in that same kind of a range. What we've seen is that in the fast-growing markets, as you might expect, a lot of that is volume, and we have been to capture leverage. We talked about in the fourth quarter that happened in China where we've been getting good growth, and we've got a very good model there that has a high contribution margin. In Brazil where we also moved very quickly, we were able to capture the volume leverage and that showed through to the whole company. So, as we look at that 50 basis points that we have in our guidance, there's places where we continue to get volume. There's places where our value chains are not how they should be. And so, we'll look to continue to rationalize things there, too. And so, that all comes together in allowing us to get there.

[Jason M. Gere:]

Okay. Great. Thanks – oh, sure.

[E. V. (Rick) Goings:]

(44

[Jason M. Gere:]

Okay. Great. Thank you very much.

[Operator:]

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

[Frank Camma:]

Good morning, guys.

[E. V. (Rick) Goings:]

Hi, Frank.

[Frank Camma:]

One quick question here on the active sales force because, Rick, you spent quite a few time on it here, just specifically to establish markets, if you can boil it down to sort of one thing, I don't know if that's even a fair question, but of how you can either stabilize or grow specifically in established market given the retail presence there?

[E. V. (Rick) Goings:]

Well, the first thing we really look for, I'll give the first part of that and Mike the second, is really what matters first is the total sales force size because we get them in, and you got to get them in that funnel first in there. And then as we work on these iROAR programs, on-boarding and activation. Now, I've always said to somebody, if you were to look at one number with Tupperware Brands, I'd say, look at the total sales force first, because under that, it's like sausage there because we have markets there that, for example, India, we had to just flush a bunch because of government's new regulations with regard to industry requisites there. But in businesses like the Fuller where we tend to recruit a lot of people, it's a very low cost kit. They come in, low barriers to entry, but they go out. So, it distorts it that if you compare it against somebody like our European businesses where it's a fairly high-priced kit to come in, sophisticated training. So, add to that, if you will, Mike.

[Michael S. Poteshman:]

Sure. When you look at the first attachment to our earnings release, you could see that we had, in the established market units, 96,000 actives on average in each ordering cycle. So, it's a fairly small share of the total active sales force, the 668,000. One of the things that impacts that number is people entering the business, like Rick is talking about, so they usually hit the ground active sometimes at a lower order size. As we work on on-boarding and the other strategies and to build the core in Vision 20/20, those should help extend the longevity and lead to more activity. The biggest decrease when you look at the segments as they are listed out there is in Beauty North America and that really reflects the struggle that we've had at BeautiControl, so we're working to hit that on the total sales force side and then convert them to actives.

[Frank Camma:]

Okay. So, yeah, I see that now. I'm sorry, I didn't see that. So, what specifically drove the Tupperware North America improvement, I might have missed that comment in the quarter?

[Michael S. Poteshman:]

We had good sales force additions in Tupperware U.S. and Canada. And they did, like I was saying, they're one of the examples of hitting the ground running. So, Stein Ove and the team has done a great job both on getting them in and getting them active. It's good.

[Frank Camma:]

Okay. Thank you.

[E. V. (Rick) Goings:]

Yeah. Frank, they're doing the – boy, they've just had a push week this last week in the U.S. business that I know that they were still here on Tupper TV at 3

[Frank Camma:]

Right.

[E. V. (Rick) Goings:]

And I'm with them. Simon and I are with all our European managing directors this next week. And we have got bright management teams there, but they've been very slow to execute on these things. I mean, some of these activation programs in Europe, they look like (50

[Frank Camma:]

Okay. Great. That's the opportunity. Thank you.

[Operator:]

Your next question comes from the line of Dara Mohsenian with Morgan Stanley.

[Dara W. Mohsenian:]

Hi. Good morning.

[E. V. (Rick) Goings:]

Hi, Dara.

[Dara W. Mohsenian:]

So, given the top-line pressure we're seeing, I guess, are there any levers you believe you can pull going forward to continue to drive earnings if top-line comes in? We couldn't expect it, obviously you're expecting an acceleration next year, but if there's potential risk to that given the macro situation out there and, I guess, the question really is the strong DS&A performance in Q4, and then for the full year last year, is that something that conceptually can be replicated going forward if you need it? Should we think of it more as a one-time kind of belt tightening as top-line trends slowed and I guess your ability to continue to drive earnings if top line is weaker going forward?

[E. V. (Rick) Goings:]

Let me give an A and Mike give the more comprehensive B to that. The near-term biggest opportunity that we have right now is we have too much overall install capacity in Europe which again, and I'm not talking specifically. I'm not talking about manufacturing here. I'm talking about the units that we have in place there and the amount of staff and expense supporting the business that is far smaller than it was a decade ago. That is something that we're taking action on that right now. We had sub-area offices which we're not going to keep open. We're really starting to really differentiate how we manage the overall global portfolio. There is a group of markets Dara that we've called the mega markets. That's the Brazil, Indonesia, China, blah, blah, blah. Anyway, the next are what we call prime markets, they either are powerful in not only their performance today or the size of their potential for the future and then you have a group of alternate markets, which we need to think of alternate configurations. Do we do it through importers? Because importers, that's still highly profitable with regard to the profit, and it doesn't have the expense that the other configurations have. Or that we work through other kinds of configurations, and we're even considering what markets do you put on the back burner or exit on that. So, I think our Europe, Africa, Middle East is the number-one area of opportunity with regard to tightening that belt issue set.

[Michael S. Poteshman:]

Yeah. So, Dara, we talked about when we're going into 2016 of finding ways to spend less and better leverage what we were spending in case we didn't get the sales growth we were looking for. And in fact, we didn't do as well on sales as we had hoped. We went into the year with the high end of our range calling for up 10% in local currency, and we ended up, up 10% in local currency even with the lower sales. And so, that came from a variety of things that you'd expect, but it included the reactions that we had identified to be able to get there in that kind of scenario. So, no. I mean, we don't think that we're going to improve like we did in the fourth quarter, 170 basis points in DS&A. The overall is about 45 basis points for next year and then a little bit from the mix helping us, so that's where the 50 basis points comes from. There are still initiatives that we see that we can do to do better. Rick was talking about the kinds of things in Europe that ought to be different, and so we're working on that. And there's other businesses in spots within our value chain as well where we think we can make things come out better. So you're right, we're ultimately going to win because we grow volume and sales. But we continue to look at our value chains and look for ways to be able to make our numbers even if we're not quite there on the sales.

[Dara W. Mohsenian:]

Okay. That's helpful. And then, Rick, are you seeing any backlash against your business or any signs of backlash in general for U.S. companies in Muslim-centric countries with the new travel policies from Trump, given you've more leverage to those regions than peers? And just in general, any anti-U.S. sentiment with the new administration here would be helpful.

[E. V. (Rick) Goings:]

Yeah, Dara, I have worked very hard the 20-plus years I've been here to ensure that the branding and the image of this company is not wrapped in the American flag. I have had presidents want to come give speeches on our campus of both parties. We have never allowed it when there was big backlash toward American with regard to when the invasion of Iraq, nothing out there, because if you go to Austria, we're Tupperware, and we're thought of as an Austrian company. And, by the way, for what's it's worth, there's an article I wrote on that they've published at Davos on immigration, and it shows a picture at the top and it says, 'Immigrants Welcome.' This was interesting timely two weeks ago that really talked about the real substance of what's made this country great and used specific examples as immigrants. So there's been none of that out there and I think it's because we managed it.

[Dara W. Mohsenian:]

Okay. Thanks.

[Operator:]

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

[Olivia Tong:]

Okay. Thank you. So if I understand this correctly, volume was probably down 4% excluding the extra week, which I think is quite low relative to historicals. And you're looking for an improvement next year. So I guess my question is more around the sales force. Can you talk about what you're doing that's different to grow the sales force? Because it's good to hear that you've got a few green shoots in January, but you also mentioned a bunch of markets that are still underperforming. And given that actives are down in every market and worsening in each region with the exception of Latin America, what's driving your view that you can bounce back to growth as early as Q1 and extend that going into 2017?

[E. V. (Rick) Goings:]

Olivia, you're really hitting the nail on the head. Here is what Tricia and I have been focused on really starting so much in, as we were ending the year and toward the beginning of December, the old saying, if you always do what you always did, you'll always get what you always got. We need a different mindset in many of our markets with regard to expansion of sales force. That's what is the magic of our Brazil business. They just have a different attitude and approach and it's not same old, same old. So, as a matter of fact, the focus for them right now are new and incremental approaches to recruiting. Brazil has been so effective because it is earning opportunity, career path. Regardless of what's happening in your market there, you can be a unit of one and fix your own situation. That very much has been the success that we've seen in both of our South African businesses as well. So, as a matter of fact, Mike and I were talking about it. All you have to do is track our markets that are doing the best, and the first thing you're going to see is they've got the right kind of sales force advantage. And when you get below the surface though as to your question, they are doing new and different incremental things. So I've been really talking to them to look for those kinds of things, and we're not going to go public with those right now, with the new and different and I think some secret kind of things which are new approaches. But through the things that are hiding in plain sight that are leverageable out there, particularly now that we have technology available. I will give you one example, our business is really built FNR, friends, neighbors, and relatives, almost never does somebody run an ad to recruit. It always is, and that's why the power of the brand, the respect for the brand is so important and for the product. We have really never utilized as much really the digital component of connecting relationships that are not – have proximity, most everybody building their Tupperware business, if you look at two planes, the time when they get into the business and the distance away, they generally build their business local, local, local. We're teaching them now, and this North American team has really learned how to do this that you start to do a memory jogger list with her of her friends, neighbors, and relatives, people she went to school with, where she lived elsewhere, et cetera. Now distance doesn't need to be a barrier. You can go out digitally and recruit them. And now we have new demonstration methods there, products, either Skype one-on-one or with Zoom Party Plus with it. But you can train them now online. These are the kinds of things that I think we have in front of us and our people have been too slow to work on. As a matter of fact, we're even implementing new software programs that will enable – it's probably going to take us the whole year to do it. I remember when one direct seller when they were going to open in Poland, they first turned to Chicago and said because they're such a high concentration of Poles and they said, here is the incentive plan for you helping us lead us to someone in Poland. And these are relatives there, and it was incredible, and it started really the base of their business. We have never, never, never done those. Everything we've ever done has been local, local, local. And so we're on a very quick learning curve here. Again, for us to get more incremental recruiting and the goals that Tricia has set for recruiting even in established markets, people have got to do incrementally different things.

[Olivia Tong:]

Got it. I'm glad you brought up LatAm because, obviously, that market's been on fire. But how do you make sure that you're not only capturing all the growth you can in that market, but also making sure that it doesn't overheat, so that it doesn't become the next Indonesia or India where we enjoy this great benefit for a while and then end up paying the price for it in the out years?

[E. V. (Rick) Goings:]

Yeah. Well, I think the first thing is what I talked about earlier about so importantly in Brazil is you just can't recruit a large army out there of sales force. You've got to have to sustain them and convert them to being successful; you've got to have a management substructure in place. They have been so effective with – I talked about the hub-and-spoke where you'll have a mega and that mega handles all the inventory and everything else and you get these bespoke piece of this where you get the sub-distributors out there that always focus on is recruiting, training, and motivating. And under them, you have unit managers and vanguard managers. They have been more effective at doing it. And I've got to say, Olivia, it wasn't an epiphany moment as we're looking at starting – some of the sagging that we started to see early – well, actually 18 months ago in Indonesia that we didn't know what's going on. It's just they're moving from 75 distributors and having a sales force of over 200,000 in effective ways to then create that second level, and it's taken too long. We've had a good management team in place, but it doesn't have to happen this way. We've had a good business in South Africa for a long time. We've had puts and calls over various years, but if you look over the last 10 years, it's been a good run and you see it continue right now.

[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, I was wondering...

[E. V. (Rick) Goings:]

Hi, Linda.

[Linda Bolton Weiser:]

...if you could give us a little update – hi – on Russia CIS. I didn't really hear you mention it, unless I missed it. But can you just give us a little color on how things are going there?

[Michael S. Poteshman:]

Yeah. We, over the last couple of years, have done a little bit of a reset to the model to be able to operate in a more traditional way. I don't mean to make that sound overly dramatic, but we're starting to see now that we're doing better with the fundamentals in the sales force, so that's good. We were up in sales in the fourth quarter. It's not anymore one of our bigger markets, so we don't always highlight it.

[E. V. (Rick) Goings:]

Yeah. What was good to see is I was there earlier this last year. They put a plan in place this last year, and all I can tell you is that I'm so happiest there. I think they're maxing out on their bonus. So they've really made a lot of progress. And this is in the face of a ruble that is far, far weaker and consumer spending has been compressed. But the sales force size has grown and they're more productive. So I think we're making great progress in the market, but again, it has shrunk in its size from what it was.

[Linda Bolton Weiser:]

Great. Thanks a lot.

[Operator:]

Your next question comes from the line of Ashley Helgans with Piper Jaffray. Ashley, your line is open.

[E. V. (Rick) Goings:]

Ashley?

[Ashley Helgans:]

Hi. Hi, this is Ashley from Piper. Do you mind speaking a little bit about the iROAR program?

[E. V. (Rick) Goings:]

Yeah. We continue down this road. But our two-pronged strategy for the future is we called the whole thing Horizons because I think if you put the – if you looked ahead 10 years, you'll see Tupperware studios all over the place where you kind a now see some of these other kinds of the – what's the sandwich up that I...

[Unknown Speaker:]

Subway. Subway?

[E. V. (Rick) Goings:]

Yeah, Subway. But if this will be something that really will be focused on our sales force that they'll come in there. That's where they get trained to look at a city like Munich now where there's two big distributorships which are kind of configuration, actually they're kind of like warehouses in the woods. Munich in the future would have five or six of these studios around town and they are branded. We did a lot of work this last year on new branding, logos, and so that's set. But going back to the iROAR, you can't do that. When you say two pieces of this is the core and more. iROAR is the fundamental concept of, you've got to have a sales force, you've got to recruit, onboard, activate, and retain them, and we have got to get better at that. So, everybody is so quick to – and I'm talking about in our business, not you all – quick to turn to the shiny new toy or new thing, we can't have them turn all their attention to, wow, the studios and bigger market penetration until they have the kind of penetration locally with a solid business on the ground there. So it's the thing that every Monday – I'm in our operating committee room today are kind a war room. This is what Tricia every single weeks when she looks at our KPIs, it's the iROAR things. What's the size of the sales force? Did we expand? And then clearly we look at our other numbers, but it is the fundamentals of our business. So if you noticed that some earnings release we won't talk as much about it, boy, it's not that we're not talking about it in our visit. So that under a studio that you've got a sales force there that are X amount of managers, sales force, that's what makes the studio really work out there. That's what I've been pleased to see in China. Most of the growth we had this last year came from productivity growth, not just expansion of doors, which means you'll have more retention of studios in the future, so it's along that path. Forgive the wordy answer, but an important question.

[Ashley Helgans:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes the Q&A session for today. I will now turn the call back to Rick Goings for any closing remarks.

[E. V. (Rick) Goings:]

Guys, thank you very much for taking the time today, and, hey, Dara, I haven't heard your voice in years. We appreciate you being on the call. And I think we're kind of set. Again, I said, as the morning goes, so goes the year. I am pleased that we're coming out of this January with some decent momentum in a number of our markets. I think we've identified the fixes in the other markets, and I think because of how we're going to segment our overall running of the business this next year and have the right amount of dispensive strategies, I think this will be a year of decent progress in spite of all this turmoil going on around the world. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes the Tupperware Brands Corporation fourth quarter 2016 earnings conference call. You may now disconnect.