Tupperware Brands Corporation
Q4 2008 Earnings Call Transcript

Published: 4 Feb 2009

[Operator:]

Welcome to the Tupperware Brands Corporation fourth 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.

[E. V. Goings:]

You already have the results for the fourth quarter and the full year. Mike and I will do our best to amplify some comments in a moment and at the same time try to give you some guidance as best we can on a quarter and the year ahead. However, let me say I just returned from a scheduled two week trip to a number of our Eastern European markets and at the same time after that I also participated in this world economic forum in Davos, for the fifth time. My time in our markets as always, it really did provide me with a terrific opportunity to take a look at how our management in the market is leading their units through these challenging economic times. I was in Russia which is a big business for us and Poland. Additionally, the time in Davos discussing this global economic situation with economists, other business leaders and I had numerous meetings with some heads of states and businesses that are important to us. I think it gave me a little more insight on the global situation. More importantly, it was helpful with regard to understanding the road head. Frankly, I must say I left Davos with grim view of the actions that most governments are taking to reboot their economies. There are a lot of finger pointing back and forth waiting for what this current administration does, waiting for what China does, I didn’t hear a lot of proactives so that just reinforces our position to dig in, look for the levers in our business to grow. Yet on the other hand where I was optimistic against this negative Davos back drop was my time in our markets. It reinforced my confidence in not only our business model and also the talent that we have on the ground and their ability to navigate through these rather challenging times. At the same time, we still expect to grow. Let me explain why. Firstly, it is clearly a benefit to Tupperware Brands that about half our business units are in emerging markets of the world and there’s a lot of momentum on our side and it’s early days. In these markets there is limited earning opportunities for women and often a lack of a well developed retail infrastructure. Both of these together gives us a source of competitive advantage. It was surprising and shocking to me as many times as I have been to Moscow and every one of you who have been there knows that Western goods are expensive there across the board with the top tiered brands Prada, Escada, Gucci, 75% off in Moscow. So, it left me with a warm feeling, I certainly am happy that we have an independent direct sales force with no fixed expense there and we’re competing with retailers, many who are scared. Again, also in many of these markets, including Eastern Europe, South America, South East Asia, for us in these emerging markets, it’s early days and either Tupperware or our beauty brands, we’re well positioned to grow and we shouldn’t forget that these markets make up more than half the world’s population and many of the markets have the highest birth rates in the world. Secondly, let me turn to that. First is really emerging markets and momentum. Secondly, our direct selling model is in some ways, I mentioned this before, it’s counter cyclical meaning higher unemployment rates, meaning larger recruiting pool and while the accompanying compressed consumer spending clearly dampens the growth rate, larger sales force helps to mitigate the negative impact. We’ve now got a sales force of over 2.2 million. That gives us the ability to have people on the ground who not only drive attendance at parties or distribute brochures, I’m in Mexico next week and there we’ve got almost 600,000 people and they distribute brochures, but they also give us the opportunity to explain features and benefits of our products. So, in a very real sense retailers are a come to business where you have to spur them to come with incentives, we’re a go to business so most retailers today without an entrepreneurial sales force must simply relay on deep discounts, rebates to lure customers in. Remember to in looking at our numbers as we close this year out, we’re beginning 2009 with a 7% larger sales force and that means more doors. The third point I would like to make that again was reinforced by my trip, the product categories that we are in along with the strength of the brands in each of them, it means we should be less effected by the overall decline in consumer spending. For example, we’re already seeing consumer behavior in many markets shift to more meals at home and additionally more people bringing their lunch to work. They believe it’s up north of 30% in this country alone and by the way, our products fill those needs. Regarding our beauty products, yes it’s a crowded space from a competitive standpoint and yet consumer spending remains high in the CFT area. It’s interesting who’s having the problem is the upper end CFT brands at department stores today and you’ve seen numbers there being taken down. The strength of our brand also matters. The low quality and the generics only have price as leverage as a reason to buy, we focus on value for money. She may spend more, particularly on a Tupperware product today but she’ll still have it in 20 years and you’ll rarely ever see a Tupperware product in a garbage dump. Lastly, I would say it’s our value chain. We’ve got a good value chain, when business is good but I think we’ve got a value chain that helps us to less poor than a lot of other businesses. Bad English but good sense. When times are difficult, the power of our brand supports strong gross margins. We’re starting out with an average gross margin of north of 65% so that gives us room to move. By the way, it gives us room promotionally to do things like you would have seen with upper tier beauty brands. You rarely see Lauder on sale but you see gift with purchase, purchase with purchase and that’s an opportunity to spur consumers to buy but at the same time not hurt your brand and become known as a discounter. Also, the growth of our sales force is a primary driver in our business when business is good and when business is not good in the external environment. Importantly, we have no fixed expense or incremental expenses in growing our sales force, they are independent. At any rate, these and some other factors at our company mean that we throw off a significant amount of cash, we support a strong dividend and we’ve been able to actually pay down our debt ahead of schedule. Now, let me get to more business specifics but I take the time to go through those four things because we’re beneficiaries of having a terrific business model to navigate through theses times. If you compared an analogy to a vehicle, it’s almost it’s ability to lock in to four wheel drive when you get difficult times, sort of raise the frame when you’re having to ford a river, this direct sales if I was in a business school class I would talk to students in this way. These are the differentiating benefits of our business and our management teams are on the ground and aware of it and they’re aware it’s their responsibility to adapt and adopt. Now, let me get in to some more on the performance. In the fourth quarter we achieved, as you read, local currency sales growth albeit it was at a moderated level of 3%. Foreign exchange was the substantial headwind in the second half, it was like two different years last year, the first half and the second half as it moved to even when we did our third quarter release it was $0.37 to $0.39 in our face and it was over $0.60 at the end of the fourth quarter. I don’t know how long that’s going to continue out there but I will tell you given some of the actions that we see around the world I would expect at some point some of these currencies are going to start bouncing back again yet we don’t know. We know that we’ve done a regression analysis over time and foreign exchange has mostly been neutral so we’re going to focus our course of action not on hedging, we have natural hedges in place because we have businesses that we manage in local currency, we have factories all over the world and we source all over the world. We’re simply going to keep our head down, remain focused on running our businesses in local currency with local management teams who are empowered with the levers to grow their business. Let me speak to some firstly to the emerging markets. I’ll kind of bifurcate our portfolio by emerging markets and then established markets because that’s how we really look at it. In the fourth quarter our emerging markets were up 11% in local currency. For the full year they were up 17%, by the way, this was at the high end of our 2008 full year guidance we gave on emerging markets. By the way, under that I must say that our Fuller Mexico business which had a terrific first three quarters was the primary drag on emerging markets in the quarter and it was down 4%. Much of this is really attributed to the loss in the sales force size at Fuller and most of it is that border area, the Maquiladoras area bordering the US. By the way, based on their normal trends, our emerging markets would have been up 15% in the fourth quarter so it was largely attributed to that very large business. Regarding overall emerging markets, we expect double digit growth in a number of them but blended we expect high single digit in 2009. Again, like in the case of Fuller Mexico, it’s a large and profitable business, we don’t know what the impact the US economy will continue to have on that important area. By the way, when I was in Russia and Poland this past few weeks, I was not surprised to see that their local news like ours is dominated gloom and doom with regard to the local economy. However, what I was thrilled to see and I spent a lot of time with them was that the business units continue to grow at the same impressive clip that they were in the past. We’re counting on the strong momentum of these businesses and the power of our earning opportunity to carry us through this rather challenging environment. Don’t forget, Eastern Europe is full of tough people. I’ve used the example in the past that women, and I’ve talked to some of them, that women in Siberia that’s doing two parties a week. If spending goes down she simply can hold three parties a week. We’ve got a really intelligent and I think a motivational management team on the ground in each of these Eastern European markets. In Asia Pacific, China, India and Indonesia, by the way these are 47% of the world’s population just those three countries, they continue to do very well. In Q4, Asia Pacific’s emerging markets were up 30% in local currency. Worth noting is that in the quarter Tupperware, our brand was recognized in both China and in India as either a favorite brand or in the super brand category and this was coming out in their major publications. At the same time, in Indonesia in the fourth quarter their Business Week magazine named Tupperware Indonesia as the best brand in direct selling. Again, putting it all together China, India and Indonesia are nearly $3 billion people. In Indonesia alone, it is the fifth largest population in the world. By the way, I spent some time with senior officials of the Chinese government. It’s interesting, you do a Davos broadcast on CCTV to China and here you’re happy to have a market where there are eight people watching and I asked them how many people are watching and they said 210 million. So, the brand we’ve got now almost 3,000 outlets there and an incredible entrepreneurial opportunity which Chinese women are looking for. I’m also pleased to report that we had double digit growth in the emerging markets of Central and South America and again, we’re using the leverage of the halo of the Tupperware brand to help grow our beauty business down there so we’re really in an attack mode there. Also, in Sub-Saharan Africa, we had growth. We have three businesses down there but, growth was at a more moderated level. Let me turn to the established markets. In the fourth quarter, these markets as a group were down 4% in local currency and for the full year flattish to down 1% for the year. Within this portfolio a number of markets did do quite well including, I’ve got to mention France. We’ve been in France for more than 45 years and last night in Madrid at a managing directors meeting, Glenn Drake our group president there and Simon Hemus awarded France our Country of The Year Award. France was up double digit and we’ve been there more than 40 years so it’s a wonderful template to show our other established markets of the world that through the right levers in sales and marketing, you can grow the business. By the way, France, we’re the biggest direct seller there and it is a tough direct selling market. Greece also did well during the quarter. Tupperware US and Canada also recorded increases, although at a moderated level to a couple of these European markets. There are a lot of markets kind of in the middle, some of our smaller markets, however the significant drag on the established markets were really three

[Michael S. Poteshman:]

First, a few things to flesh out our fourth quarter actual results. In looking at our sales, our 3% increase in local currency included increases in four of our five segments with the exception being beauty North America where we performed below our expectations from October mainly of BeautiControl. Rick talked about the steps we’ve taken to improve results from that unit. While our diluted earnings per share excluding items at $0.90 was above our $0.79 to $0.84 October guidance range, our GAAP EPS of $1.06 was in line with our October guidance range of $1.04 to $1.09. This reflected or receiving $5 million less than foreseen in insurance recoveries from the US warehouse fires we had at the end of 2007 and also our not closing the sale of a building in Australia for about a $4 million pre-tax gain. In both cases we expect these amounts to come in during 2009 and they are included in our outlook. Looking at our local currency profit from the segments excluding items, we were a bit above our October guidance. On the other hand, we had a $0.22 hit from foreign exchange on the fourth quarter comparison with 2007 and this was $0.09 worse than the better end of the fx range we gave in October. This negative impact was more than offset by lower than expected unallocated corporate costs mainly from lower than foreseen expense under an incentive plan where the cost was based on our stock price and a lower than foreseen income tax rate. In terms of our balance sheet and cash flow, we were pleased to reach in the fourth quarter our target range for leverage as we came in below two times debt to EBITDA as measured under our credit agreement. This was down from 2.3 at the end of the third quarter. We decreased debt in the quarter by $125 million and by $22 million for the full year. We did this by generating $92 million of cash from operating activities net of investing activities in the full year and after paying $54 million of dividends. At $0.88 per share, our current yield is around 4%. We didn’t repurchase any shares during the quarter under our $150 million authorization and I’ll have more to say in a minute about our go forward plans for share repurchases. The $92 million of cash flow was below the low end of the range we gave in October by $18 million. Of this amount, $10 million was from the timing associated with the insurance recovery in Australia property sales that I already mentioned. The remainder relates largely to lower foreign exchange rates than used in our October guidance that were applied as we reduced our networking capital in the fourth quarter. As many of you already realize, the fourth quarter is our largest profit quarter and we generate an even higher proportion of our cash in the fourth quarter. Looking at our working capital, setting aside cash and debt, we were at $182 million at the end of 2008 which was up $32 million versus 2007 although on a comparable currency basis it was up $48 million. Net-net the main drivers of this increase were higher inventory than last year and the payout of $19 million of [BAT] in the first quarter of 2008 where we didn’t have a similar obligation pending at the end of this year. The higher inventory balance reflected in part restocking by the Tupperware US business following the December 2007 warehouse fire along with building inventories in some fast growing business units to support that growth and in some other cases, inventory levels being higher than intended due to less than expected sell through to customers. In order to protect our cash flow objectives, we’re working to decrease our working capital position. Turning now to our outlook, the first quarter first, we foresee a local currency sales increase of 3% to 5% which along with the negative impact of currency fluctuations of 17% brings the reported guidance range to a 12% to 14% decrease. Our outlook per diluted earnings per share is $0.29 to $0.34 on a GAAP basis. This includes a -$0.05 impacting comparability such that our EPS range excluding items is $0.34 to $0.39. This is versus $0.51 earned in the first quarter of 2008 on a GAAP basis and $0.56 excluding items and the comparison reflects a -$0.19 impact from foreign exchange. We expect profits from our segments excluding items to fall in a range from up to down $1 million versus last year in constant currency. Excluding items we foresee a tax rate of 22% in the 2009 quarter versus a tax rate of about 19% in the prior year. I do have to say here that there’s a shift in some of our promotional pro ratas to later in the quarter this year compared with last. This together with the very difficult externals in many markets is giving us less visibility than normal as we set our forecasts. While we think the forecasts we have given are the right place to be, there’s a more than normal risk of actual results falling outside of our range. Looking at the full year for sales, we’re looking for a local currency sales increase of 3% to 5% as well. Based on current exchange rates, we would take a 14 percentage point hit on the year-over-year comparison from weaker foreign currencies bringing the reported sales guidance range in dollars to a 9% to 11% decrease. The local currency increase includes high single digit growth in our emerging market businesses and our established market businesses about even with 2008. On a segment-by-segment basis, we foresee low single digit local currency increases in Europe and Tupperware North America, high single or low double digit increases in Asia Pacific in beauty other and beauty North America at around the same level of sales as 2008. Our diluted earnings per share guidance range is $1.90 to $2.00 per share including a net of $0.08 of costs from unusual items. Excluding these items our guidance range is $1.98 to $2.08 versus $2.69 in 2008. The comparison includes an increase in local currency of 1% to 6% and a negative impact from foreign exchange of $0.73 based on February 2nd rates. We expect profit from the segments overall to increase in local currency about in line with the sales increase. By segment we see Europe and Asia Pacific profit rising at about in line with sales. North America at or slightly below last year in profit and a decrease of a couple of points by beauty North America reflecting investments to increase our sales force and bring our sales back to growth. And, improvement by beauty other to a low single digit return on sales. As a reminder, based on the fact that the majority of our segment profit is generated internationally, our business is sensitive to foreign exchange. Based on our numbers on a full year basis for every 1% the currencies would all move in the same direction against the US dollar, the impact on our earnings per share is almost $0.03. We expect our unallocated corporate expense in 2009 to be about $45 million versus $40 million in 2008 and interest expense to be about $34 million versus $37 million in 2008. Putting this all together would indicate a pre-tax return on sales in 2009 excluding items of 9% rounded at the high end of our guidance range. In October, we indicated that our intermediate term goal for this metric was 9.5% to 10.5%. The 2008 actual was at 9.6%. The lower forecast in 2009 reflects the impact of foreign exchange in that we’re taking bigger hits on some of our higher return on sales businesses as well as corporate expense and interest expense being incurred largely in dollars. We continue to expect overtime to be able to operate our business in a 9.5% to 10.5% range. Our GAAP tax rate was 20% in 2008 and our rate excluding items was about 18%. Our current expectation is for our 2009 rate to be about 22% on both bases. We’ve included in our outlook the same number of diluted share in 2008 in actual which is about 63 million. On the topic of share repurchases, in light of how our cash flow came together in the fourth quarter and where we were sitting with our debt covenant, we didn’t make any repurchases under our $150 million authorization. Looking at 2009, based on the current economic environment, trends in our business and foreign exchange rates, we now think it is unlikely that we’ll make any repurchases this year either. Our full year outlook for cash from operating activities net of investing activities is to generate between $105 and $115 million versus 2008’s $92 million. This includes capital expenditures in the $50 to $55 million range. Given the external environment and how that is impacting and could impact our business, we’ve taken a number of steps to find cost savings and ways to otherwise maximize our cash flow. We’ve not fully taken these in to our outlook as we view them as actions that should help protect our project earnings per share and cash flow performance. We’ll keep you updated each quarter as to how our actions are paying off and showing through in our results. One question that we’ve heard from a number of you is how much of our cost structure is variable. Well, the answer varies somewhat by business but about 50% of distribution, selling and administrative expenses is variable and on the cost of goods sold line, about 75% is variable in the Tupperware business and 80% is the beauty businesses. Another item that generates a lot of interest is the impact in the changes in price of [inaudible] and our resin costs. About two thirds of the resins we buy for the Tupperware products we manufacture are the more commodity like items with the other one third more highly engineered. The more commodity like resins tend to move in price more closely with oil and gas. In looking at the impact of price changes on these resins going through our cost of sales, we estimate that the negative impact in 2008 was about $10 million versus 2007. Based on what we see for 2009 expect about a $20 million benefit in local currency this year versus 2008. At this year’s fx rates though, we lose a lot of the benefit and this is all reflected in the outlook we’ve given. With that, we’re going to turn the call over to questions.

[Operator:]

(Operator Instructions) Your first question comes from Doug Lane – Jefferies & Company.

[Doug Lane:]

Rick, can you talk in a little bit more depth about your beauty businesses at Fuller Comesticos and BeautiControl? Where both of those businesses have been such stars for them to deteriorate so rapidly, particularly in this environment and in Mexico where you would think the beauty business would hold up fairly well. I understand the change in the MD at BeautiControl but maybe a little bit more granularity on the specific steps you’re taking today to get those businesses right sized?

[E. V. Goings:]

Firstly, it wasn’t an issue of right sizing there. Let me take them separately. The Fuller Comesticos business in Mexico, it was up nicely this past year. What we started seeing though in late September was a fall off in the recruiting levels and the size of the average active sales force. By the way, you saw a big concentration of that in the Maquiladoras area which banded the US, as I mentioned earlier. What we’ve done is we’ve made adjustments there with regard to recruiting incentives. Secondly, we’ve strengthened regional management in that area. We’ve put our stronger regional managers in that area and we put an added emphasis on expanding the sales force. It has nothing to do with our average order size, that’s generally been looking good. The merchandise in the brochure has been looking good, this is has been sales and sales management issues. By the way, we moved in another person, one of our strongest people in to become head of sales so we made a big shift there. There were about four or five elements that with this weakening in the US economy the pressure felt in Mexico, I just don’t think we had the right sales management senior team in place there so that’s where we made the changes and that’s led to about four or five actions that we’ve taken down there. Let me turn to BeautiControl there, BeautiControl has not been a new problem. We have been lackluster at BeautiControl for almost two years there. We experienced the first three years of that business dramatic north of 20% growth and then it stalled out starting two years ago. It’s become clear to us that this was not just sales management issues, it was also marketing issues. We were starting to go too much toward recruiting people to buy the kit and to buy products at cost rather than getting her to recruit to seriously build a business. That is what that BeautiControl business has all been about. She had to come to a full day of training, etc. so it’s getting it back on track again. I think we also lacked charismatic leadership in that business and us putting Albert Bosche in there I’ve already heard reactions to Albert being there for a month and I’ve gotten many emails. By the way, we’ve made the organization a bit flatter there, we think they had too much overhead. It’s a good business and I’m going to be really disappointed Doug if you don’t see results on the BeautiControl business in the second half of the year. By the way, Albert Bosche, he’s Spanish by second generation, speaks Spanish fluently and the fastest segments of growth that we’ve had in our Tupperware business in the US has been the Hispanic market and I expect that’s going to be leveraged here in Beauty control as well. By the way, from former life, the largest spending with regard to cosmetics is the Spanish market so we’re going to leverage that by having Albert there.

[Doug Lane:]

I noticed the margins had been down and they were down even more in the fourth quarter. I know there is a Peso issue there but on the local currency level, how much investment do you think you’re going to be putting in to these markets to try and get them jump started this year? Should we take another 200 to 300 basis points off margins as you try to get the growth restarted there?

[Michael S. Poteshman:]

Yes, as we looked at the outlook we were just speaking to for beauty North America, we talked about the ROS being down a couple of points and that is for investment to get back to growth with not only the size of the sales force but also the activity drivers and so on that we need to get back to sales growth.

[E. V. Goings:]

With BeautiControl.

[Doug Lane:]

What about Fuller?

[E. V. Goings:]

No. We generally have a target at Fuller of 22% ROS. That isn’t the issue down there at all. We’re spending the money on already the value chain with regard to the sales force, that doesn’t require additional investment.

[Doug Lane:]

Lastly, can you give us an update on the beauty business in Brazil?

[Michael S. Poteshman:]

During the quarter we took the decision to begin selling beauty instead to our Tupperware business and sales force and so we’re going to do that instead of selling through the beauty business that we had previously. We think we get a lot of leverage, we see this throughout South America where the Tupperware brand really adds a lot of [inaudible] and gets people in the door and because we’re more channel focused in that type of market similar to what we have also done in the Philippians we think that’s the right way to really leverage things. That’s the decision we took in the fourth quarter.

[E. V. Goings:]

Let me add to that, that when we did this acquisition of the Sara Lee’s businesses nobody had really ever done this kind of thing before and then merged different brands in. From my former life I knew that in Latin America you’re more channel of distribution than you are specifically a beauty company and we could see from the Avon business, we could sell lots of things and we even called the strategy channel leverage. Well, the more learning we got our of our Philippians business the more we decided, “Let’s do the same thing,” because the Philippians was for 200 years a Spanish colony. It largely acts as a Spanish market, we said, “Let’s do the same thing there.” I guess what helped make the move for us was we saw what was happening in the global environment and we said do we want to continue for the next five years having to invest $5 to $10 million perhaps a year to build a separate beauty business in Brazil or do we want to just go off the growth of the wonderful Tupperware business that we had. It was growing at dynamic double digit rates and we wouldn’t have to build so much the beauty brand because you get the halo of that it’s brought to you in the Tupperware catalog. So, it not only saved us money to do this from an investment standpoint, we think it makes a better earnings opportunity for a person who joins our business there. That’s why we took the decision.

[Operator:]

Your next question comes from Amy Green – Avondale Partners, LLC.

[Amy Green:]

Just quickly, the cost savings that you mentioned kind of at the tail end of your comments, can you give us an idea of what you think kind of the potential magnitude of those are and really kind of what areas you think you can take some costs out of the systems?

[Michael S. Poteshman:]

Yes, we look Amy at a variety of things that can help us. We certainly look not just at even taking cost out but how do we manage our margins in these times so things like how do we run purchase with purchase programs and otherwise work promotionally with pricing while still not looking to discount our products since we don’t think that is consistent with our brand strategy. At the same time we do and have over the years taken select action in our manufacturing and distribution operation that have helped us to become more efficient and take costs out that way so we’ll look to continue to do that and even ramp it up where we can. So, those are a couple of things. Then also promotionally, while we spend a lot promotionally, probably 18% or so, 17% or 18% of our sales, we’re looking at where can we get more leverage out of some of those actions and possibly be able to do more with less. So, we’re being careful about how we get there in both the sense that we haven’t built in things on top in to our outlook, look at it as more protection of the outlook we’ve given and as we move through the year we’ll put these actions in place and see how they go in terms of how much we’re able to make sure that they pay off and then possibly drop them to the bottom line.

[E. V. Goings:]

Amy, as you know the direct selling business is a momentum business and driven a lot by the motivational levels of the sales force. We, through analysis felt we didn’t have to do any broad sweeping cuts that you’d announce, some big restructuring program. Our value chain is sound, we get good gross margins at this north of 65% level. The real opportunity is more the surgical kinds of things and Mike’s so correct when he says we spend 18% on promotions, incentives to the sales force. By the way, the old question they ask about promotions or adds, how effective is that and most people say, “Oh about 50%.” We just don’t know which half is the effective so we’re really doing a lot more analysis there with our spending in that area. The only I think global kinds of things we’ve done is definitely haven’t done a freeze on income other than the officers here, out there it’s normal merit increases. But, we have done a hiring freeze out there that if there is an open [inaudible] right now seal them where they are. On cap ex, hey if one of our factories needs at some point here a new roof, don’t do the new roof this year, fix the one we’ve got. So, very selective and surgical because again, coming out of Davos, the worst thing I see with many of these markets of how governments are running them is overcoming the fear factor with people. Then, I go in to our markets and our people are excited. By the way, it’s confirmed with you see this incredible high level of savings that’s going on in a number of Western markets that people are just afraid to spend. You don’t want to do that on the driving side of a direct sales business. You want to keep your people in the ready position, Gisele like, watch our expenses but let them know they don’t have to sit on their hands and wait to the world gets better, there are things that they can do right now. If she’s a sales person, she can hold another party, if she’s a manger in it and has a downwind organization she can build the size of her organization. That’s what we’re giving them is formulas. By the way, if there’s compression on disposable income as for example you’re seeing here and in Western Europe, we’re sitting here showing how to go to consumers and show them how to save money. We start to bring front and center our products like our FridgeSmart where we can show a women how to save $600 a year on produce if she goes to that kind of a fruits and vegetables storage system. How she’ll do batch cooking on Sunday to make a big thing of lasagna and then store it in Tupperware individual containers during the week. It saves her time, saves her money. By the way, if you turn on any of these American good morning shows, those are the kinds of hints that they’re offering and we’re the beneficiaries of a lot of those. We’re trying to be very common sense. You don’t want to set in motion on our business ut-oh something is wrong because it shuts down the sales organization. Forgive the long answer.

[Amy Green:]

Something that I wanted to ask about BeautiControl, I’ve noticed that you’ve gone away from the $99 kit and have gone back up to the $125 and I think you’ve changed kind of what the overall package is. Have you overall seen any changes in the recruiting patterns coming out of the discounting going back to the higher price? And, should we expect, given the comments that you made about how people are recruiting to kind of get the product instead of to build businesses, should we expect to see any of those purchasers kind of drop out of the active sales count as we move over the next quarter or two?

[E. V. Goings:]

There’s part of the issue is the issue becomes you’ve had too many of those in there where she really got a kit and she purchased the kit just to get the products. That isn’t the way the program works. This is a selling business and so you’re going to see this focus back on – by the way, I was having this conversation earlier this morning about one of our other businesses, the problem when you go to the $99 kit is that you make your sales organization weak. It’s a kit that I think your mom is a consultant, it’s a kit that has more than $400 of items in it and so somebody would go to a BeautiControl party and why would she buy our products if she can buy a kit for $99 and get all of a sudden get wholesale. Too many of our sales organization were doing that out there. Now, you have to gradually move to that. My conversation this morning we were talking about even someone who is a heroin addict, they can’t just stop them cold turkey they put them on methadone and then you move them slowly. Albert is very sensitive to the moves we have to make. We just can’t draw a line in the sand and say, “Okay, by the way that kit is going back up to $250.” You’ll shut down all those other people. But, I must tell you at the same time our BeautiControl business I don’t care about continuing to support people who are wholesale buyers. I’d rather flush them gradually out of the system. That’s what we’ve had to do with our Nutrimetics business in Australia and New Zealand. It took two and a half years but it was the right approach. Where I’m upset and take personal responsibility is we let that happen at BeautiControl. We should have been closer to it and that’s where it’s a stumble that we caused ourselves.

[Operator:]

Your next question comes from Mimi Noel – Sidoti & Company.

[Mimi Noel:]

Mike, I have a question for you, I think in the past you’ve provided a cash flow guidance after cap ex and before financing. Did I miss that? Did you provide that on this call?

[Michael S. Poteshman:]

Yes, we said that for ’09 we’re looking at $105 to $115 million so that’s up from $92 million in 2008.

[Mimi Noel:]

Then relating to that, switching it over to Rick, I guess I’m getting somewhat of a mixed message because I hear you talking about the fortitude of the business and certain pockets of strengthen then on the other hand listening to Mike saying you’re not likely to buy share backs in 2009 even with the stock as depressed as it is. So, how should I interpret the two facets?

[E. V. Goings:]

I would say a balance management team. It’s interesting, we’re very aggressive on the side of growing our business, the promotional side of our business, the expanding the business but at the same time very conservative on how we run from a fiscal standpoint, where our expenses are, debt level and I think the one thing that right now that so much we know, and when I’m talking to most everybody, we don’t know what’s ahead right now so we basically and discussing it after I made it back from Europe on this last trip, as we said let’s not get ahead of ourselves. Let’s keep our powder dry. I’m aligned with Mike. Hey, I hope it’s a lot better on that side. Clearly, with our incentive targets out there we’ll have a good year if our people achieve their incentive targets at their target levels. As a matter of fact, some companies out there are establishing threshold targets that are below last year and I said that just isn’t part of this culture. On that side of the business, that’s the way we’re driving it. On the other side of the business we’re saying get debt down, be mindful of covenants, support your dividend and cash is king. I really would say that just represents the balance we have in our business here. That’s why I think we haven’t missed a number in four years out there. Mike and I we go fric and frac a lot back and forth and back and forth because I’ll come back from a trip where I really saw the whites of their eyes and that gets moderated when we get back here because of the confidence that I have in him which is why we don’t miss.

[Mimi Noel:]

So rather than deploying the cash flow differently this year perhaps, you might be in a position where you’re just building up those coffers.

[E. V. Goings:]

Well, building up or paying down debt. Clearly, the one thing I take off the table, take off the table any acquisitions. The reason for that is strategic. There isn’t anybody out there we have any interest in. We have enough opportunities for a holistic growth given the beach heads that we have. I am developing a new attitude – hey, you’re talking to somebody that I don’t believe in having a mortgage on your house. But, you get down to the point, we’ve had 40% to 45% debt to total equity out there. We may reassess that and decide we want it lower than that and a lot of companies that say, “Hey they become takeover candidates if they have too much cash.” But, you can’t do a hostile on a direct sales company so I would rather err on the side of having the right kind of debt to total cap that regardless of what happens out there we can pay exciting dividends and we can invest in our business. So, it’s more philosophical if you will.

[Operator:]

Your next question comes from [Leslie Soldaviev] – BeautiControl.

[[Leslie Soldaviev]:]

I am currently a consultant and I tend to listen to all the calls but during the third quarter earnings call you mentioned that you were test marketing Armand Dupree in California. I would like to know where does that stand and what are the plans for this year when it comes to Armand Dupree?

[E. V. Goings:]

What we’re really doing is we know there are five areas of the US where you have a substantial Mexican population, you know where the areas are. What we made the decision to do is let’s start to serve some of these Mexican Americans and let’s start in an area where that’s concentrated so we picked Southern California. Importantly, they had done a test some years ago where they picked some high costs areas. We said we’re basically in that San Bernardino Riverside area, test is going very well. Average order is much higher than we thought. What we’re going to do is that at the end of this year assess where do we go with that and then we’ll start adding the same model we’re using in Mexico and you’ll really start to strategically see it down through New Mexico, Arizona, South Texas and then Chicago land area. Armand Dupree, the reason we used that is that is the most sophisticated brand name in our Fuller portfolio. As a matter of fact, we dominate the fragrance business in Mexico and Armand Dupree is the brand we use. By the way, let me differentiate from BeautiControl, BeautiControl lipsticks as you know would be $10, it’s much more class or bridge pricing. Lipsticks in Armand Dupree or Fuller are $3 so where you’d really be dealing at BeautiControl with As, Bs and Cs consumer segments here you’re dealing with C- and D consumer segments with regard to their purchasing. By the way, we think this is going to be a big business too because what we’re really doing is attacking Avon’s heartland.

[Operator:]

Your next question comes from Doug Lane – Jefferies & Company.

[Doug Lane:]

Just to be clear, on the uses of free cash flow, $105 to $115, you’ve got $55 to cover the dividend and then were does the other $55 to $60 go?

[Michael S. Poteshman:]

It would go towards debt Doug.

[Doug Lane:]

Debt pay down?

[Michael S. Poteshman:]

Right.

[Doug Lane:]

And if I understand Rick, maybe even a little cash build?

[E. V. Goings:]

My bias would be more debt pay down. And, by the way Doug, that’s the reason we decided in the fourth quarter when we made the announcement – okay, we don’t need any more cash to invest in the business, the business is fine. If somebody asks us the question, “Well if you had more cash could you grow faster?” No, we don’t need any more cash, we’re quite fine. But, we had to put on the table, “Okay should we raise the dividend?” I think we did the right thing because we said, “If we raise the dividend we lose flexibility there because if things change to there you never want to cut the dividend.” So, we said, “Okay, let’s just authorize more share repurchase and if we feel better about the world head we’ll use it for this level and we could do it up to $40 million this year.” Well, the world has gotten worse out there so we said, “Hey, keep your powder dry, support this dividend, pay down debt.” I think what I feel good about is if I put these two things together, strategically this is a business that wasn’t going to be here 15 years ago and we’re as strong a direct selling company with eight different companies, multiple beach heads, high margins and I’ve got to say the best thing about this company is the talent, the boots on the ground of this direct sales organization, the leadership teams out there. They are terrific. By the way, it’s like multi local businesses, they know what to do out there. By the way, if you’ve ever seen the commercial, probably a bad example but it stuck with me, where they’re advertising the mattress and somebody shows the independent coil so they put a glass of wine in the middle a bed and a mattress and the wine doesn’t tip over. The reason I use the example is that’s the way that we have organized and managed our company. [Alena Putilena] the President of our former Soviet Union CIS, she know the five levers we’re driving, the one thing that drives the business and we are very closely connected so that she is like a repeater station out there who is empowered to do the right thing. What that does is when things happen in that market, she can do something about it. I feel good about that side. The other side is our value chain. We’re going to have the resources that we need. We throw off a lot of cash, good margins and on that side I want to play it conservative.

[Michael S. Poteshman:]

It goes perhaps a little bit more to Mimi’s question if you look at just the fx guidance we gave in October, we said $0.37 to $0.39 for 2009 and February 2nd it was $0.73 plus the fourth quarter was worse also and we’re still at $0.73. You add that all together, it represents something like $35 million less in pre-tax earnings. So, that’s sort of the math behind Rick saying the world has changed. SS By the way, of interest during some of the time in Davos where I had some private sessions with some heads of state that even the President of Mexico, the interest level they had in our business being there to show women because part of the big issue with regard to not so much their economy but with regard to crime in Mexico which is on the short list of their biggest issues is unemployment down there. They’re asking us, “How can we work better together to mobilize Mexican women?” So, they really see us as an actor, a respective actor in this role of trying to get more people in to the workforce. When I had the board down to South Africa to look at our businesses there we also spent a morning with Desmond Tutu and you get the same kind of feeling. So, I think we’re fitting in very clearly with what the needs are out there and that will be an additional support for our business model.

[Operator:]

Your next question comes from Gregg Hillman – First Wilshire Securities Management.

[Gregg Hillman:]

Rick, could you talk about some of the new products? In the last conference call Simon alluded to a couple of them. One of them was the tumblers in China, another was the circus park line of toys in Mexico. Can you talk about those and any other new hot products that you’ve come out with recently.

[E. V. Goings:]

There are some real hot ones that I can preempt launch to the sales force right now. I will tell you one of the things we’re getting very, very serious about is some new and different approaches with regard to this whole subject of water. Bottled water here in the US, if you haven’t read the book read the book Bottle Mania that’s out right now by a very seasoned reporter. You’ll find this crisis with 40 billion of these water bottles going every here in the garbage just here in the US. We have three different kinds of products that we’re going to be launching in various markets of the world that really put together the premium of brand name Tupperware and the efficacy of our brand with regard to also this category which we’ve dabbled in in the past but never got aggressive about. You’re going to see a lot of attention with regard to that. By the way, I’ve got to say also that we have started a initiative here it’s gone past the environment on sustainability with regard to our product line and that’s going to be very important for us in our European businesses. Beyond that, the products that are going to be launched in the next several months I can’t talk about right now or this group in the room would have my head.

[Operator:]

Gentlemen there are no further questions. Mr. Goings I am going to turn the conference back over to you for closing comments. SS You are all probably tired of hearing that these are unusual times but my goodness. I guess the good news is back to the thing I think I mentioned my mother use to always say to me, “You can’t change the direction of the wind but you can always change what you do with your sails.” That’s what I feel good about with our business model, it’s that we spent the last four years on intensive training out there and all these retreats we done 25 people at a time. I was gone 68% of the time this last year and it will probably be close to the same. Where Simon and I really split up our responsibilities, he’s driving the business today, this week, every Monday morning at 10 o’clock regardless of what holiday it may be in the US, we don’t consider ourselves a US business, there is a stand up meeting where we report what happened the previous week. There’s a great sense of urgency, the focus becomes TNT, we talk about it today not tomorrow so that when we start to see when things aren’t going the right way what are the levers you can do to change it for this week. That urgency of today combined with what we’ve invested in on building talent because when you have the right people out there they figure out what to do in their markets particularly if you’ve trained them on the levers. I think those are the strengths that are going to carry us through this along with this very good value chain and business model. We thank you for your time and your continued support. I hope we get to a time here were all of us have a little bit more visibility on what the world is going to look like in three months. Thank you.

[Operator:]

Ladies and gentlemen this will conclude today’s Tupperware Brands Corporation fourth quarter 2008 earnings conference call. We do thank you for your participation and you may disconnect at this time.