Tupperware Brands Corporation
Q1 2008 Earnings Call Transcript

Published: 23 Apr 2008

[Operator:]

Good day everyone and welcome to the Tupperware Brands Corporation first quarter 2008 earnings conference call. Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Rick Goings. Please go ahead sir.

[Rick Goings:]

Good morning, with me this morning is Mike Poteshman, our CFO and Teresa Burchfield, our VP of Investor Relations. You know the drill with regard to forward-looking statements so I refer you to our filings and yesterday’s release. We were pleased to finish the quarter ahead of our outlook and last year with – I’m going to try here not to be too redundant with what is in our release, but distill it down. We had local currency sales growth in all of our segments and we were pleased to see that. Guidance was for this quarter to be up 5% to 7% in local currency and we achieved 10% up. The Tupperware segments were up 10% and the beauty segments were up 9%. Adding a nine percentage benefit from foreign exchange and by the way the foreign exchange now is just not euro, you really start to see pesos and actually the Australian dollar where we have two businesses. Sales were up and out there on a reported basis of 19% but I think the way we run our businesses in local currency and we were really pleased to see double-digit without the benefit of foreign exchange. Our emerging markets also – they’re comprised, nearly half 48% of our sales for the quarter they grew 18% in local currency in China, Indonesia, Russia, Turkey, South Africa, Mexico, Tupperware Brazil and Venezuela were some of the larger contributors. So the real good news here is it wasn’t a one-trip pony across the board we really saw some very positive results there. Our established markets were also up in our range of in the mid to low single-digits, they were up 3% in local currency and we had growth in quite a number of our markets. We were particularly in the first quarter, encouraged with the 3% local currency growth that we saw in Germany and by the way that was the second consecutive quarter of sales growth in that market. I’ll drill down there a little bit in a moment about our progress in Germany and challenges. By the way I’m leaving this afternoon, we’re doing a 10-city tour of Germany over the next seven days and we’re expecting to touch 12,000 to 15,000 of our sales force there. So there’s – we want to build on that momentum we’ve created. We’re also raising our full-year 2008 local currency sales outlook to the 6% to 8% range. We were 5% to 7% that we gave you in January. And this reaffirms the continued success of our transformation of this company from what simply Tupperware to a portfolio of direct selling companies and I’m pleased with the way the management team there managing this diverse portfolio. Also looking ahead as with any portfolio we know there usually are going to be some challenges in some portion of the portfolio but having these numerous beachheads and different kinds of companies in different markets acts as a natural hedge. And I think for a public company this really is going to enhance our visibility and we hope to see that with some depreciation RPE. Our confidence going forward is really driven by a number of factors. Firstly and most importantly we have what I believe to be the strongest global direct sales management team in this industry. People who have institutional skills to grow their businesses in different geographies. Job one for us by the way has been for the last five years to not only recruit but to develop and empower these people and so we’re spending a lot of time in this area. So strong management teams I think are our first really confidence factor. Second almost half our businesses are in emerging markets and these markets have naturally two forces at work that help us. First there are limited earning opportunities for women and that helps our recruiting and secondly they’re generally primitive retail infrastructures and together these make for a kind of a perfect environment for direct selling. By the way the total and an average active sale force in these markets continues to be up double-digits and its important to note that we have a very good value chain in these emerging markets even when the per capita income is lower, we make about the same kind of operating margins. The third factor that gives us confidence going forward is the continued weakness of the US dollar. It is a positive note that over 85% of our sales and more then that in profits come from operations outside the US but again as I said in my opening comments underlying that – great that foreign exchange is on our side, but we’ve got strong local currency growth anyway. But we’re pleased with that natural market basket. And fourth our business model provides certain elements like recruiting that can help buffer us during economic downturns and provide us even a counter cyclical effect. Naturally when you’ve got some compression on disposable income like you’ll see in the US, attendance and spending at parties can be negatively affected but at the same time what we can do is simply recruit a larger sales force. It’s a key defense that we don’t really have to as a business sit on our hands and wait for the economy to recover. Our focus for all of our markets by the way is to expand our sales force and to get them active as quickly as possible while at the same time working to retain existing sales force. In this area with regard to sales force expansion and activity enhancement there’s a number of sweet spots that we have determined where we put pressure to ensure that this happens. Number one it starts with the products that we offer. It’s important that we continue to offer products that are differentiated and demonstratable. We have never taken the road of low cost supplier. As I’ve said on some of our calls in the past they say in the military when you’ve got altitude you’ve got a 50% advantage so we keep looking for new and differentiated products. The power of our brand name also in the respect of the company is also helping us in our recruiting. By the way if you haven’t seen it Fortune Magazine rated Tupperware Brands among the most admired companies in our category and second only to Fortune Brands actually. By the way we believe that’s the first time this has happened for a direct selling company. Our compensation proposition also is a sweet spot and additionally offers us an opportunity that is right for people whether it’s their primary earnings career or supplemental income. It works either way. And then finally again I mentioned sweet spot strong direct sales management team. Having that enables us to translate it into the best training and recognition programs for our sales forces out there. Over this past month I’ve – I just got back from Dallas where I saw the BeautiControl people yesterday and the week before last I was with 800 of our people for Tupperware in Perth, Australia, before that Nutrimetrics in Sydney and I’ve just got to tell you I just see our management teams out there implementing really terrific, strong training programs and recognition programs that are really correct for those markets. Anyway, all of these elements support continued growth and retention for the sales force. Let me take a minute now before I turn it over to Mike and drill down on a couple of our operating segments. In Europe sales grew 23% overall and 10% in local currency. This was driven by the continued strong performance of our emerging markets in this segment which grew 28% in local currency. But we had a lot of our established markets do well. By the way the CIS, Turkey and South Africa were really the star performers in our Europe, Africa, Middle East markets. As I mentioned Germany had its second consecutive quarter of sales growth. We’re not declaring again victory, just progress. This growth was driven by higher party productivity in the quarter and some due to promotional timing. We believe we’ve made progress and we’re going to continue to focus on the sales force size deficit. By the way it slipped to about 8% deficit at the end of the quarter but in the month of April we regained about half of that so we’re starting to see some momentum. I’ll keep you posted on that. As a result changes have been made in recruiting and training programs in order to help these new recruits get more successful sooner. I think we are working more effectively on our recognition programs there in Germany as well for retention. By the way the commission earned by the sales force under personal sales is a large part of their income and the higher party sales is a key way to leverage their time. So we’re starting to really see this strategy work. Markets like Australia really have shown the way and as a matter of fact we had our managing director from Germany visit Australia in January. He’s a smart guy but we wanted him to see where in a market where we’ve been for 45 years where we have a party average north of $600. We believe the combination of these initiatives plus the improving macro economic factors will help us in Germany and in our other markets where we have been established. Incidentally, Germany – the macro economics, we’re starting to see a trend downward with regard to the higher unemployment rates so Angela [Murkle] some of her strategies have been gaining traction. As the macro economic environment improves further we should see a higher party average which in the short-term will offset the sales force size deficit. We’ll continue to monitor that. It’s a strong business there with a terrific distributor base and good management. Moving on the Asia Pacific sales were up 24%, 13% in local currency. Emerging markets played a roll there. Their sales were up 22% in local currency. By the way these markets include China, India and Indonesia where we together we were up 30% and they were offset by partially some softness that we saw in Korea and there are some economic issues going on in Korea right now. Also in China we were the only market where we have some of these store fronts. Some is probably not the right word. We have now 2,700 of them but they have the opportunity for a direct sales force to work out of them. Our focus is to add more of these commercial locations in higher traffic areas and we attract not only more consumers to these outlets but more sellers. It’s working there. The number of parties that are held at the outlets are being – the genesis of these at the outlets, its starting to work well. We’re starting to do more in-home cooking demonstration. So I think this model that we have in China and it’s very profitable. The overall focus in markets like China, India, and Indonesia is really the development of sales force careers and leadership skills and we’re focusing on the tens of millions of middle and upper class level households. And in an environment with increasing food prices, our demonstration methods really helps consumers show how they can economize when it comes to stocking staples and taking better care of their left-over’s. By the way sometimes people ask us how can they afford Tupperware’s high quality products and more expensive products in these low GDP per capita markets, well if you look at Maslow’s hierarchy of needs; food, clothing and shelter, in these markets a higher percentage is spent is these areas. So we really are a sweet spot for them. Regarding the established markets in Asia Pacific; Tupperware Australia up double-digits however our Japanese business was down in sales in the quarter. We’ve still got work to do there. Moving to Tupperware North America, this segment grew 11% to 8% in local currency. Tupperware US grew by mid single-digit and by the way this is the seventh consecutive quarter of that. The more modest growth rate that we saw in our US business was really influenced some early in the quarter by the fire in Hemmingway where there were supply issues and some narrower product line availability but it strengthened as we got into February. This goes back to that warehouse fire in the middle of December. Also we did see some lower productivity in light of consumer spending in the US and that meant lower party sales. Again our natural counter cyclical action is to expand the size of our sales force. So that’s where the focus is. The other key market in North America Tupperware Mexico grew through strong activity. So putting it all together overall the Tupperware segment showed continued strong growth in the first quarter with 21% increase in sales and 10% in local currency. The biggest contributor clearly was emerging markets with almost half our business now. Moving the beauty segments we grew 15% and that’s 9% in local currency. Beauty North America grew 8% in local currency with a low double-digit increase in Fuller Mexico and mid single-digit growth in BeautiControl. At Fuller Mexico we now have a sales force over half a million and Mexico, while it faces some challenges as a macro economic environment from the really the collateral damage in the US economy, however we’ve got really strong incentive programs and customer programs and we’re going to continue to drive for double-digit sales force growth and sales increases. Even if there is some lower productivity. BeautiControl also in the quarter implemented some strengthening changes and we are hoping to have positive impact longer term from them. We did see some short-term moderation in the rate of sales growth and that’s likely to be a result of not only the size of the sales force there but some consumer spending. But again, the consultant count remains very strong and I was with 250 of their strongest field people last week, excuse me Monday of this week, and they certainly are ready for the challenge. The changes we made in BeautiControl on strengthening our recruiting approach and focusing on new consultants really gets back to training incentives and motivation and again we’ve got a strong management team there. We have also realigned in BeautiControl some of our sales force management in the quarter. We brought in a couple highly seasoned regionals from some of our other business units, our Tupperware businesses, and we’ve also worked to get a little more efficiency by flattening the management organization. Going forward with BeautiControl we plan to consolidate our locations there. We have a separate headquarters and a separate manufacturing, we’re working toward the end of the year to put those in our new manufacturing facility and I think that’s going to impact our bottom line. Moving to our other beauty segments, sales grew nicely by 25% on 11% of local currency. The sales increase in this segment largely came from Tupperware Venezuela and Brazil. Units that are included in this segment had increases over 75%. By the way Fuller Argentina and Philippines’ businesses also contributed to sales growth. The Nutrimetrics business, they’ve been struggling. I mentioned the Australian business is still in transition; the Nutrimetrics Australian business. They largely became under [inaudible] ownership, a bit of a wholesale buying club and we have to get them redirected to “we are direct selling not direct buying.” So we’ve made the numerous changes. The heavy lifting is done and we’ve got a good management team in place. I left there optimistic about the future. As a matter of fact if that business was for sale again, we’d buy it again. It’s a good business. In summary, putting all of this together, like any one of your portfolios out there, we’ve got puts and calls. We did still though have a good first quarter. We still weren’t hitting on all cylinders and it’s a rare – those times in business when you really do but being this portfolio we have a natural market basket with products and geographic diversity as well as having a good balance between emerging markets that really helps us compensate for slower growth we see in some of the more established markets. So it’s a good combination of direct selling businesses and it gives us strength in growth and balance. Mike, let me turn it over to you and you’ll add a little color and a little more understanding of some of the numbers here.

[Mike Poteshman:]

Thank you Rick. First turning to where our upsides came in the first quarter versus our January guidance, on sales we had said we expected to be up 5% to 7% in local currency, we ended up increasing by 10%. Among the individual business units, the biggest upsides were in a number of our emerging markets including the CIS, Tupperware South Africa, Greece and Turkey in the Europe segment and Tupperware Venezuela and Brazil in the beauty other segment. The higher than expected profit has led to our EPS excluding certain adjustment items exceeding the high end of our guidance range by $0.07 obtained mainly from the higher sales along with improved gross margin percentages in a couple of the Asia Pacific markets and in Tupperware US. As highlighted in yesterday’s release and by Rick the 10% local currency increase in sales versus last year came from many of the same markets that took us up over our forecast along with Fuller Mexico and Tupperware China and Indonesia. Our 20% improvement versus last year in earnings per share excluding items came primarily from higher profit in the Tupperware segments, all three of which had a higher return on sales on top of their sales increases. The EPS increase from all five segments profit was $0.11. We had $3 million less interest expense reflecting both the benefit of lower interest rates in light of the market environment and the new agreement we put in place last September and lower borrowings. There was a partial offset from higher unallocated corporate expenses that included higher incentive costs under our performance share plan that is paid in cash but based on our share price that has risen. Our tax rate in the first quarter was in line with our expectations and gave us a $0.04 benefit versus last year. This is forecast to turn around as we move through the year. There was also a $0.06 benefit from stronger foreign currencies versus 2007. Turning now to our balance sheet and cash flow our inventory days were down by six versus last March to 136. Inventory on the balance sheet was quite a bit higher than last March much of which was from the strong foreign currency. The only meaningful increase on local currency was in Europe which in large part is supporting our sales growth although days were up four in that segment and we look to bring down our investment over the course of the year. Short-term receivable days stood at 31 versus 33 last year. Payables and accruals were also up mainly from currency. There was only a small local currency increase which would have been higher if not for the payout in January of $19 million of value-added taxes in Mexico. And looking at cash from operating activities and investing activities together we were $52 million worse this year than last which as expected reflected the $19 million Mexican VAT payment. There was also $32 million of hedge payments which were higher than projected, these payments related mainly to net equity hedges that also affectively convert a portion of our dollar denominated debt to euro and yen and these currencies strengthened during the quarter. We are reiterating today the cash flow guidance we gave in January which calls for a full-year 2008 cash from operating activities net of investing activities in the $100 million to $110 million range. This continues to include and assume $65 million to $750 million of capital spendings. Our debt at the end of the first quarter stood at $644 million or $13 million below the first quarter of 2007 which along with higher shareholders’ equity gave us a debt to total capital ratio of 54% versus 61% last March. Our ratio of debt to EBITDA as defined under our credit agreement improved to 2.3x for the four quarters under this March versus 2.9x last March reflecting $56 million more EBITDA and lower debt. As we’ve stated before we target bringing our leverage down such that we get into the 1.5x to 2x range. Turning now to our outlook as you’ve probably seen on our release we’ve raised our full-year sales guidance to an increase of 13% to 15% from 8% to 10% previously. Underlying this the local currency increase range has been raised to 6% to 8% from the 5% to 7% range we gave in January reflecting increases in the Tupperware segments with a partial full-year offset in the beauty North America segment from BeautiControl. Europe’s full-year local currency sales growth is now expected to be in the 5% to 7% range with Asia Pacific’s growth foreseen as 7% to 10% and Tupperware North America as 6% to 8%. Beauty North America is expected to grow local currency sales by 5% to 7% and beauty other by 8% to 10%. Looking at the picture from an established versus emerging market point of view, we have built in a 2% to 3% full-year local currency increase for the established markets at 10% to 13% for the emerging markets. This would put the emerging markets above the 9% to 12% longer term guidance we’ve given in the past for these markets. We raised our GAAP EPS range to $2.44 to $2.54 versus our previous guidance of $2.37 to $2.47 which reflects the upside in the first quarter results and a bigger benefit from foreign exchange versus the previous outlook offset by the impact of removing the $0.10 gain included in a previous forecast from the expected sale of our former manufacturing facility in Belgium. This contracted sale has been delayed under a regulatory process. The expectation for full-year pre-tax for engineering costs of $10 million and purchase accounting amortization costs of $9.5 million has not changed from the January outlook. Excluding adjustment items we continue to expect to growth profitability in the Tupperware segments at or slightly above the rate of sales growth. Profit is expected to raise slightly below the sales increase in the beauty North America segment coming from BeautiControl and a small profit is expected in the beauty other segment following a $3.7 million loss in 2007. The outlook for unallocated corporate costs remains at $43 million to $44 million which is about in line with 2007 and net interest expense of $33 million to $34 million is still expected versus $39 million in 2007. The outlook for the effective tax rate for 2008 also has not changed and is about 23% compared with 18.4% in 2007. The second quarter outlook is for 14% to 16% increase in sales which includes 6% to 8% local currency growth. The outlook for diluted EPS is $0.55 to $0.60 on a GAAP basis and $0.62 to $0.67 excluding adjustment items. This compares with $0.58 excluding items in the second quarter of 2007 and reflects a benefit from stronger foreign currency of $0.07 to $0.09. The increase in local currency at the high end of the range is from higher profit in the segments largely offset by the impact of a higher tax rate excluding items in the 24% range versus 19.9% in the second quarter of 2007. The higher tax rate has a $0.03 negative impact on the comparison. And now we’d like to turn over the call for questions.

[Operator:]

Your first question comes from Doug Lane - Jefferies & Co.

[Doug Lane:]

Can you give us an update on the beauty business in Brazil where you are in going into that market in a bigger way?

[Rick Goings:]

Yes, I went there in the first quarter and had met with all of the senior sales force members and we actually conducted a retreat there and I’m pleased with what we’re seeing. Firstly we are put in place – I like the marketing plans that we have in place. We’ve advance the kind of brochure that we’re selling from to replicate much more of what we’re doing in our Fuller business in Mexico and we’ve strengthened our management team. As a matter of fact, one of our issues is going to be supply this year so we have excess space in our big manufacturing facility in Rio and we expect to complete converting part of that into a cosmetics, fragrance and toiletry production facility. But the most important thing is showing is the sales size of the sales force is really to grow. This is going to be Doug a market for our competitor that does more than a billion dollars a year there and [Natura] does $750 million. It is a terrific marketplace and its growing so we’re going to grow there as we are now by not only taking share from others with a fresh opportunity and the kind of branding we are using in Mexico, but also just to take advantage of a growing CFT industry there.

[Doug Lane:]

Okay also Rick I’ve seen a lot in the general press lately about a plastic ingredient called VPA and in fact it’s on the front page of the Globe today for instance. I wondered if you could give us an update on what is behind this added press on the ingredient and really what’s the danger and what’s the involvement with Tupperware?

[Rick Goings:]

I’d be happy to talk about it. Firstly there’s – what’s behind the recent coverage is an action in Canada by the equivalent of their FDA up there. By the way the product is really a resin produced by a number of – from DuPont and others, they call it lexan, others call it polycarbonate and there is a byproduct of it is Bisphenol-A, and there has been a scientific debate for more than 15 years does Bisphenol-A cause some kind of leeching with food which particularly can impact estrogen and this would impact kids out there. And as I say, the reason I say it’s been a scientific debate is the last time there has been any real science on it was in Europe – the European community three years ago in Brussels and they basically came to no conclusion again. But basically we took action five years ago and we said, you know even though there isn’t any science on this that shows that there could be leeching but you just took a look at the body mass of a child and we said we’re going to exit doing any kind of polycarbonate products for kids because polycarbonates [inaudible]. Polycarbonates are what you see on the windshield of fighter planes, it’s what your glasses are made of, the glass frames. It’s a remarkable very expensive resin. So let me tell you where we are on it. We were one of the first in the entire industry to get out of it for baby products out there even though there wasn’t any science that said that. We only use materials that are approved by government regulatory agencies and so all government approvals are intact for polycarbonate. However I will tell you we are always looking for new and better materials and by the way in Europe we use a product called ultem as a resin and Europeans are willing to spend for ultem. It’s a little higher tech and more expensive but we’re also sensitive to consumers preference. We stay really close to the situation and we’re going to continue to monitor. But right now, what it is right now is it’s a battle that’s being fought in the press, there’s been no new research and I think they were on the Today Show this week, Matt Lauer summed it up at the end when he heard both sides of it, he said, “I’m more confused than I was at the beginning. I don’t know what to believe.” Similar kind of alert to the cell phone controversy on is there negative impact on cell phones. It went away for about five years and now in Brazil a researcher down there is raising it up again. And I think because we’re a responsible company we don’t sit there and say we don’t believe that we put our ear close to the ground and we’re going to continue to monitor the situation based on science and based on government actions.

[Doug Lane:]

Okay fair enough. I just wanted to touch on one last point, in China you mentioned conducting some direct selling activities along with your store front activities, are you approved for direct selling throughout the whole country at this point?

[Rick Goings:]

No we’ve never asked to be approved there but when you have a retail base you don’t need a direct selling license because it’s selling out of a retail environment.

[Doug Lane:]

Okay, that helps. Thanks.

[Rick Goings:]

By the way we have very close relationships with not only the Chinese government but individuals in the Chinese government. One of my sons was born there when I lived there and we have supported their permanent Favored Nation Status and membership in WTO so if we wanted to get it we have confidence we could get it but I’ll tell you, we have a business model there that seems to be working better than all the other direct sellers.

[Doug Lane:]

Okay thanks Rick.

[Operator:]

Your next question comes from Dara Mohsenian - JP Morgan

[Dara Mohsenian:]

Rick I just wanted to start with the emerging market trends, obviously look very strong in the quarter at up 18% and its probably difficult to generalize across all your regions but have you seen any slowdown in trends in the emerging markets either towards the end of Q1 or so far in April based on some of the economic and inflation pressures that we’re seeing globally?

[Rick Goings:]

Dara no we haven’t, we haven’t seen any. I think one of the reasons that had there been any what we’ve seen is such strong growth in the size of the sales force that if there was some underlying trend there it would have been mitigated by the growth of the sales force because for example in – you saw very strong in our European developing markets Asia Pacific up 31% in size of the sales force so I really think that’s buffering it if there is any. But we’re going to continue to monitor that situation.

[Dara Mohsenian:]

Okay and then similarly in the US you commented that sales per parties started to dissipate at the end of Q1, was that a pretty pronounced trend and I’m just wondering how you think about that as the year plays out, if the strong sales force trends really offset the lower sales per party or what type of growth we should assume going forward for the US business on the Tupperware side?

[Rick Goings:]

I think firstly we’re coming up against some really difficult comps there so I would – we’ve had a number of those, I think four out of six quarters we were up double-digit. Those are hard numbers to come so we’re here a little more conservative that we believe that you can continue to see that business grow in the mid to high single-digit that we’re making nice progress when you consider the comp. We did have kind of bookends of issues in the US business. When I say bookends – the beginning of January was impacted a little by a narrower product range as a result of the fire in December and that caused a little bit of slow coming out of the gate; the product range wasn’t up. Additionally the timing of Easter in the first quarter also had a little bit of an impact but in between we had a good February so its only first quarter but we’re not changing our outlook with regard to the US business and the lever here is expand that sales force so that if the party goes down, the average guest spend goes down, you compensate.

[Dara Mohsenian:]

Okay that’s helpful. In terms of longer term margins in the US where do you think your margins can go over the next few years?

[Rick Goings:]

We’re hoping that we get within three years to a 15% margin there. By the way the overall operating margins for the company, we took those up to more the 9% to 10% area. I want to start to see us as the US gets better, as the Nutrimetrics business contributes, as Brazil, Philippines gets in there, I want to see that climb to the 11%, 12% area so we start to get some scale from those.

[Dara Mohsenian:]

Okay and then the US is that margin expansion dependant on sales growth or is it some of the underlying cost structure improving?

[Rick Goings:]

No I think we’ve done all the cost improvement there. As a matter of fact we needed this kind of infrastructure in place to support the kind of a business that we need here in the US. Its purely top-line sales growth.

[Dara Mohsenian:]

Okay thanks.

[Operator:]

Your next question comes from Mimi Noel - Sidoti & Company

[Mimi Noel:]

Mike a couple of questions for you; first one a little tedious, would you mind repeating what the underlying assumptions are for your updated guidance in terms of local currency sales growth?

[Mike Poteshman:]

Sure, its 5% to 7% for the full year in Europe; 7% to 10% in Asia; 6% to 8% in Tupperware North America; 5% to 7% in beauty North America; and 8% to 10% in beauty other.

[Mimi Noel:]

Okay and also would you remind me what the restriction on the debt covenants are that preclude you from paying a dividend at this point, where that threshold is?

[Mike Poteshman:]

We’ve got a few financial covenants and they’re a little complicated but they’re laid out in the 10-K. And so there is plenty of room to support the current dividend, the $0.88.

[Mimi Noel:]

Okay, how close are you to getting comfortable with the idea of potentially increasing the dividend?

[Mike Poteshman:]

I mean that’s a Board decision of what we would do next but what we’ve said is that we’re targeting being in that 1.5x to 2x EBIDTA leverage range and at four quarter rolling at the end of the first quarter we were at 2.3x. We were 2.2x at the end of the year but we have a little bit more debt at the end of the first quarter so based on the guidance we’ve given with the cash flow we should certainly be moving in that direction as we go through the year.

[Rick Goings:]

On that I – we talk about this stuff at the Board, we’re really committed to our dividend and as far as the use of cash going forward. I hope to be at this range, this down – this 40% to 45% debt to total cap by the end of this year. We don’t have – we don’t need to do any other acquisitions nor do we see anything out there. We have enough beachheads. We are not starving this company for cash. We have all we need and so we’re going to look at that at the end of this year, the usual suspects. Do we buy in at a more at a more accelerated rate shares or do we increase the dividend. By the way we usually sit there and listen to our biggest shareholders and as partners at what they’re looking for.

[Mimi Noel:]

Okay and Rick quick question on Germany, since you’ve got a decrease in the sales force size yet greater productivity with the sales growth, can it be inferred that your margins are improving in the region?

[Rick Goings:]

Yes it is. I’ll know more after I’m there because I will see the whites of their eyes this next week. But by the way that dip in the sales force we picked up, we clawed our way back to half way back there in just the month of April. So that – we had close to only a 4% deficit or something like that by the end of April.

[Mimi Noel:]

Okay thank you.

[Operator:]

Your next question is a follow-up from Dara Mohsenian - JP Morgan

[Dara Mohsenian:]

Mike can you explain what drove the gross margin compression year-over-year in the quarter?

[Mike Poteshman:]

Yes, there were a couple of factors. We had a bit of mix in the beauty segments, worse mix in the beauty segments as well as some higher costs. We did have some improvement in Asia Pacific also coming from mix in a positive way as well as getting some leverage from the higher volumes and so we were down a half a point net. That was really the drivers.

[Dara Mohsenian:]

Okay and what was the resin cost pressure in the quarter and outlook for the full year. Mike Poteshman We didn’t see a lot in cost of sales in the quarter; really very little. Our projection based on what we see so far in volumes and pricing is that we’d have about a $5 million year-over-year negative impact in cost of sales from higher resin.

[Dara Mohsenian:]

Okay and that’s a net impact after pricing or is it a gross impact?

[Mike Poteshman:]

No, that’s the gross impact.

[Rick Goings:]

That’s one of the benefits too as you know Dara, we get to pass on some of these price increases out there particularly if you have the features and benefits out there on products. One thing I’m happy about now the new mix is – what are we 15% cost of goods sold is resins now; it used to be in the mid 20s.

[Dara Mohsenian:]

Okay and then the North American beauty margins, they’ve been kind of weak on and off over the last year and a half, I think specifically driven by BeautiControl, can you give us a little more clarity on what’s driving that and what you expect going forward?

[Mike Poteshman:]

We have been working on that and we have struggled a bit the last few quarters. Some of it had to do with over selling some items in the back half of last year and the beginning of this year and that caused some extra distribution expense that we think we’ve worked through. We’ve also been on the gross margin, we’ve moved out some inventory towards the end of last year which had an impact on the gross margin in the fourth quarter and also saw some mix like I was saying, on the gross margin for the beauty segments overall in BeautiControl. So we do think that we’ve taken several steps that will help us move into the right direction as we go through the rest of 2008.

[Rick Goings:]

Dara I would add to that if I look back and kind of regress on analysis, I think as we tripled the size of that company over six years, we did rather at our BeautiControl position, a sloppy job of expanding capacity with regard to do it efficiently. We opened a new manufacturing facility and the transition there hasn’t been as positive as I’d like to see. So that’s what they worked on right now is we’re moving our headquarters of BeautiControl. We’re going to sell that and they’ve already announced it there and we’re moving into this one facility which is beautiful and it’s the right image for the business but we don’t need two of these things out there and that’s going to have a very positive impact with regard to our cost structure out there.

[Dara Mohsenian:]

Okay thanks.

[Operator:]

There are no other questions at this time; I’d like to turn things back to our speaker for any closing remarks.

[Rick Goings:]

We’ll keep you posted along the way how it’s going. Again we’re seeing a lot of progress in these businesses but a lot is happening out there in the world and we’ll try to do a real good job of staying in touch with you on what we’re seeing. But we appreciate the support and belief in this strategy. What’s interesting is that nobody has ever done this before, putting this portfolio of direct sales companies together and the more I see go from one business one day where I’m at one of our beauty companies, to the next day that I’m at a Tupperware business, the more I see it works because it really focuses on the same levers in each business. We had three weeks ago a Chairman Summit here where we brought in about 500 leaders from different selling businesses for four days here and it really worked. We see – they feel part of something very big and if I could contrast it to another business model out there, it’s very similar as I said at some IR meetings to what Rupert Murdoch has done with news corp where he basically said their institution skill is really in communication and that include broadcast print and in print it includes sophisticated publications like Wall Street Journal – maybe not always sophisticated but they also do the London Tabloids. But they know and they do Fox, so they know communications out there and they’ve got a diverse management team that’s culturally sensitive to how to do business in different places. So I think we’re doing in direct selling what Murdoch’s done in communications out there and learning along the way. So we’ll keep in touch. Thank you.