Tupperware Brands Corporation
Q2 2013 Earnings Call Transcript

Published: 24 Jul 2013

[Operator:]

Good morning. My name is Kimberly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tupperware Brands Corporation Second Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Mr. Rick Goings, Chairman and CEO. Please go ahead, sir.

[E. V. Goings:]

Thank you, Kimberly, and good morning to everyone. For me it's good night. I'm in Manila, Philippines for a leadership seminar. Mike and Teresa there are in Orlando, and I would say that if we have any disruptions with the telephone service, Mike and Teresa will pick it up from there. As always, similar discussions will involve forward-looking statements about the business, and you all know the drill about this. By the way, in an effort to really improve the clarity and crispness of our communications, particularly on a quarterly basis, you'll notice that we've gone through a new format. We sought a lot of input from what we believe were the best in class with regard to financial reporting and -- plus we want to thank a number of you that gave us input. Frankly, we thought the inclusion of the business highlights section in each quarter in our earnings release could be really helpful in tracking performance in a much more substantive way. Also, for those of you on the call, we've added a presentation on our website to coincide with the call, so those of you who are on the webcast, you can see it. Slides will automatically change as we progress through this call. And there's some supplemental information as well in the appendix. By the way, the presentation is entirely available on our website. By the way, we will also -- we're going to adjust to this new approach, and Mike and I will do our best to guide you through what slide we're on. And as we're on each slide, I'm going to do my best not to simply read slides to you. Number one, it takes too long; and number two, it's boring. What I'll try to do is paraphrase what's going on. Before I get into the slides, let me make 4, I believe, important points that really reinforces this business model we have. Number one, we are a business that generates strong cash flow, and what we do with that cash flow mostly is return it to our shareholders. We do that primarily through the support of the dividend. As you know, we've moved our payout ratio to 50%. The yield right now at current stock price is about 3% plus. And with regard to share repurchase, we'll do about $400 million this year. That's about 10% of the market cap of the company. And we're going to do about $100 million in the second quarter and $200 million in the overall first half. At any rate, you'll see Michael get into more of this, but what we're really trying to do here by this mix between raising of the dividend and share repurchase is to maintain the flexibility that we believe we need to have to be committed to this dividend yield. And ever since the company went public in 1996, no matter what we went through, we've been always committed to dividend. We're going to stay that way. Number two, we are an and story. Some people tend to think we're just an emerging market story. We're very much an and story. The established markets of the world offer high per capita income, but at the same time, they're not going to offer much growth because there isn't much population there. But we have discovered lots of white space in those markets, so we'll continue to grow in those markets. But the real engine of growth will be the emerging markets of the world. 87% of the population lives in emerging market. So we're an and story. Third point I want to make, the levers that are disposed of in this business really provide the opportunity to mitigate a lot of the negatives that are going on in the world

[Michael S. Poteshman:]

Okay, thank you, Rick. First, having a closer look at how we performed in the second quarter versus our forecast. You saw that we were 1 point over the high end of our range in local currency sales with our plus 8%. That was worth about $5 million in dollar terms. And the upside versus the high end of our outlook came primarily in Indonesia, Tupperware Mexico and France. Going the other way. Downsides versus the high end of our outlook were in BeautiControl, Germany, Malaysia and Fuller Mexico. Our main source of the growth in the quarter, you heard Rick talk about this, were really Indonesia and Brazil. And we also had very healthy contributions by Tupperware Mexico and Turkey and good support from a number of the other businesses. We did have a 2-point sequential improvement in local currency sales in the first quarter -- versus the first quarter the 8% versus 6% in the first quarter, and that came also from Brazil and Tupperware Mexico being the main the contributors. A lot of you look at 2-year stack growth in local currency. We were up 13% 2-year stack in the quarter. And in the third quarter outlook that we've given at the high end of our range, that's also 13% on a 2-year stack. So turning now to Slide 12 and looking at our diluted EPS. It was $1.46 in the quarter, which was the high end of our range. Importantly, that was even with $0.02 of a drag from FX versus what we included in our outlook. This was an 11% increase in local currency on our 8% higher sales. You've seen that we have good profit conversion in Europe, in Asia and also in South America, and that our profitability lagged a bit in both of our North American segments. This was from the aggressive promotion -- promotional approach that we had in the Tupperware U.S. and Canada business, which shoot us on the gross margin line and also on our promotional spending and distribution expense. And as Rick has just mentioned, we look to not execute the things the same as we move forward. And then we did invest as well in Beauty North America, but less so then in Tupperware, and that came with a margin line in promotions to really -- look to move the sales force and sales. And this led also to negative volume leverage since sales were down. We do look to have a better profit to sales comparisons in the back half of the year than we had in the second quarter, and this is built into our guidance. We also had the expected drag that we had talked about from higher interest expense, having to do with the notes that we sold in March, which are longer-term, and then higher borrowings to hit our new leverage target of 1.75x versus the 1.5x target that we had before. So our pretax return on sales with that item is at 15% flat, even with last year, and that reflected a 20-basis-point improvement on the operating margin line that was offset by the higher interest expense. On the tax rate, with that items, we were 24.4%, and this matched what we had in our outlook. Looking at Slide 13 then and turning to our outlook, you've seen that for the third quarter on sales, we're looking for a 5% to 7% up range, and that we increased our full year range on the low end. This is from 5% to 6%. And so now, we're at a plus 6% to 7% for the full year. That reflects the good results for the first half, where we're up 7% in local currency all together. On EPS, excluding items and first looking at the third quarter, our range is $0.99 to $1.04, so on the high end, up $0.09 or 9%. This includes a $0.05 drag from FX, so in local currency, up 16%, and that compares with being up 11% in local currency EPS in the second quarter. Now our April full year guidance, while we didn't break out the third quarter, baked into the full year and included no FX impact for the third quarter, and we now have the $0.05 drag, and so that's clearly is a change from when everybody was look at things in April. Our pretax return on sales in the third quarter at the high end of 11.6%, that's versus 11.8% last year. We're taking a 40-basis-point hit from translation FX. We're taking another 25 basis points from higher FX expense. There's a little bit of movement on unallocated, but we really are looking for 30 basis points better at the segment line, and everybody is doing better in local currency other than Beauty North America. And there, we are expecting a drag versus last year, but still sequentially, better than what we did in the second quarter. On the full year EPS, without items, we're now at a $5.44 to $5.54 range, and at the high end, that's an 11% increase versus 2012 in dollars and 14% in local currency. So this flows through the upside that we had in the second quarter of $0.02 in local currency versus the high end of our previous guidance. But then it's offset by $0.15 of worse FX versus last year whereas we had no FX impact in the April guidance. To give you a sense to where the biggest impacts are coming from, it's the Brazilian real, which is negative 10% versus April on a full year basis; the Mexican peso, which is minus 2%; the Indian rupee, minus 9%. But we're also admitting for a negative comparison, the differences in the Australian dollar, the Malaysian ringgit and the South African rands. So versus the previous guidance on sales, we're better in Asia, Tupperware North America and in South America. There was no change in Europe, and we're worse in Beauty North America. On ROS versus the previous full year guidance, it was a better improvement than what we said in April in South America. No change in Europe and Asia and larger decreases in the North American segments. Our unallocated corporate expenses were now at $66 million, that's $1 million higher than in April. And there's an offset in that interest expense being at $38 million, which is $1 million lower than where we were in April. The tax rate excluding items remains at 24.5%. At the high end then, our ROS, without items, is at 14.3%. This is our pretax ROS, which is up 15 basis points versus 2012. You know that we normally target a 50-basis-point improvement, and the difference is a 15-basis-point drag from translation FX versus 2012, and then a 20-basis-point drag from the higher net interest expense. On share repurchases, Rick highlighted some of this. We bought 1.2 million shares in the second quarter for $100 million, so that was at about $81 per share. And our outlook assumes $100 million of repurchases in each of the third and fourth quarters to get us to the $400 million that we have for the year, which is also where we were in April. And the assumed repurchase price is still in the low 80s. Turning to the balance sheet and cash flow. We've had good year-to-date cash flow performance from operating activities and investing activities at $55 million, which is $29 million in the first -- higher than the first half of 2012. We continue to forecast for the full year. That will be a $70 million to $80 million of CapEx. And our full year cash flow guidance remains at $245 million to $255 million, which is what we said in April. And that includes on the one hand, the lower EPS and profit guidance because of the FX, offset by the sale of the property -- piece of property in Australia in the second quarter. And then finally, to give you an update on the picture for our [indiscernible], we're at $180 million in terms of our expectation to what we'll have in cost of sales for the full year. That's $10 million higher than April. But in terms of price comparison, we remain at a negative $5 million impact year-over-year in local currency, and that is no change from where we were in April. So in summary, the outlook...

[E. V. Goings:]

Mike, I want to jump in here on this. Thank you very much, but one of the problems of doing this, where I am 12 time zones difference, is I unilaterally change the flow of one thing. What we want to do is, I want to focus on one market, if we can, every quarter to amplify, and I don't want to get it lost into the core of what happened in the quarter. So Mike, have you got anything else on that right now?

[Michael S. Poteshman:]

No, that's fine, Rick.

[E. V. Goings:]

Okay, I want to take this opportunity. I want to go back to Slide 8 -- Devon, if you'll do that -- just take a couple of minutes and comment on China. Again, I was there in June. We had very strong relations with China. I was there, not only to visit our business units, but also to speak at the Beijing Business School, where a very good friend for 20 years, who's head of the World Trade Organization, he was their ambassador as their guest. And those of you who ever worked or lived in this part of the world, relationships are key and fundamental. But I want to give you an update on what's going on, what we're seeing in China. Importantly, this week, the China Daily this week quoted the new Nielsen study on consumer optimism, and their most recent quote this week was "China's consumer optimism hit a record level in the second quarter of 110." Put that in context to the United States. The U.S. consumer optimism is 93. The global average is 94. So when we read all this about China is slowing, yes, fine, from the 10% plus, you see it in 9s, the 8s, and the mid-7s range, but it's still dynamic. I can tell you the -- when I lived in Hong Kong in the mid-80s, had a visit to Shanghai, there were 12 high-rises in Shanghai in 1985, 12. And a high-rise means it's over 25 stories. There are now 13,000 and that's just in Shanghai. So here's what we've got going for us. We've got a population of 1 billion. Very interesting. The land mass, it appears to be the same as the U.S., and it is if you include Alaska. However, all of Western China is uninhabitable, it's mountains. So that's why, imagine the concentration of population of 4 times the U.S. population and half the land mass. That's why you've read articles in the Wall Street Journal just last month the enforced moving of 0.25 billion of people into urban centers that didn't even exist 10 years ago. But what's so dynamic for all of us in China is the growing middle class. Over 2/3 of these urban households now are to be considered middle class. It was 4% in the year 2000. And it's considered that 75% of the population by 2022, 45% will be middle class by then. So they're looking for premium quality. They're looking for brand names. And I'll tell you how it's working so well for us there. We created this outlet model because most of the flats weren't big enough to have a Tupperware party. The outlets are owned and operated by people who -- they can have as many as 15 of these and they do traditional Tupperware parties in them, but it allows the space for it. Now we're at 3,900 operating units there. We believe we're only 40% penetrated in the eastern part of China. But the big opportunity, Mike and I talked about, is the opportunity for productivity improvement per outlet. So that's kind of the information on Slide 8. If you go to Slide 9, there's a picture. This is what an outlet looks like. Guangzhou is the old Canton. That's the Cantonese name down there -- they used to speak Cantonese and now it's Mandarin. And it's Guangzhou. That’s what the outlets look like. And imagine 3,900 of those. And if you go to Slide 10, you get a picture inside of what they look like. Very interesting tools as far as mix of product line, which is considered that there's not a single city in China where you can turn the spigot on and the water is safe to drink. And much of it has got to be a result of 4x the population and half the land mass of the U.S., and it also is a result of their less environmental friendly practices in both agriculture and in manufacturing. As a result of this, what's interesting for us is 40% of our business now is in water-related products, from water filtration to simple flasks, and it's interesting at this Beijing Business School when I mentioned that we did big business in Tupperware drinking flask, such a number of young women in that graduate business class held up their Tupperware drinking flasks. It's kind of thought as like Louis Vuitton there. But it's an incredible market for us, very profitable and lots of runway left for growth. At any rate, with that, what we'd like to do is now open it for Q&A.

[Operator:]

[Operator Instructions] Your first question comes from the line of Olivia Tong with Bank of America Merrill Lynch.

[Olivia Tong:]

You used to give some more commentary on sales force activity. And I realized that the active sales force number has a lot of moving parts with it -- within it. But can you give us a sense by market what the activity looks like and what your expectations are for sales force change in the second half?

[Michael S. Poteshman:]

Sure, Olivia. This is Mike. Well, I guess what we've looked at in the past is it compared to how we've done on restated sales to the active sales force, and we do have a 12-point gap in the second quarter. A couple of points to that is because of the change we made in how we measure activity in the Tupperware U.S. and Canada business, so you can kind of put that aside. And then we've been getting a mixed benefit coming largely from higher sales in Europe, which has a much higher order size, and coming out of Beauty North America, where Fuller Mexico, for instance, is on a campaign basis and so is a much lower order size. We do get some productivity improvements, kind of split at 6% -- 6 percentage points mix and 4 on the productivity. So in that sense, we see a little bit of a lag versus our sales but not nearly as much has come through in our numbers. In terms of where we think that's going to go, we were up 5 in the second quarter in Europe, which is pretty good number in line with our total sales force. In Asia, as well, we've made some progress, but are seeing there some of the mix shift as well. The Philippines has been growing nicely, and that's -- we see some productivity improvements there, but it's got a fairly large sales force given the sales size. The North America, Tupperware North America comparison is fairly normal, given with that definitional change. And then Beauty North America is really where we took a bit of a hit. On the one hand, we're recruiting and selling under more normal programs than in the past in Fuller Mexico, and Rick talked about being more normal in our approach there and not looking at it by sales. We did -- we were down quite a bit in recruits in BeautiControl in the second quarter, which is not what we wanted, and recruits drive a lot of the activities. So as we recover on that metric, we should see a better activity comparison there. And then in South America, there's a big mix impact from Argentina as we transition from being more of a beauty and personal care products business to much more on the houseware side, and we've taken on unprofitable zones. We've seen a huge increase in the order size because of the mix of products, and that's coming through the number for sure. So we started to see recovery there, but we would expect to see much more there in the future.

[Olivia Tong:]

Got it, that's helpful. Maybe if I can turn to just return on investment within the spending behind your branch. I mean, this might not be the fairest of questions given your organic sales growth accelerating, but it seems like you're spending behind brands. First, we had Mexico where you spent and then decided that may have -- you may have gone overboard on that. And now it sounds like with the U.S. spending, you didn't quite get the ROI that you expected. So can you talk about your thought process going forward, how you're going to sort of rejigger the thought process in terms of brand investment spend?

[E. V. Goings:]

I want a piece of that. Mike, can you give the other? First thing, with regard to -- because they're for different reasons. The U.S. was really an invest not to build brands. We think they had some promotional activity in the second quarter that really went well, but it went wild. And it was excessive. And it caused a margin impact, and it was really a result of them not doing the kind of analysis that they needed to do. So it was, I would call, foolish spending. Mexico was very deliberate. What we've been doing in Mexico, getting away, separating ourselves from the competition there requires us being more powerful with our brand. Having a better brochure, that requires investment even down to the stock of paper you use. Having better packaging there and in moving it more toward this Armand Dupree. We also had to -- the investment is in skincare, which consumers have a tendency to be much more loyal to over time. So we've been working in that direction to get our house in order there. Additionally, Bolivia and our Fuller business, we made investments in the quality of our sales management. We felt that our group sales or group managers, local group managers. The base compensation of the new group manager, it just wasn't high enough. So we had fairly significant attrition. So we put money behind that. So these are really chalk and cheese between these 2 markets. We're a very big business with our Fuller Cosmetics business in Mexico. We wanted to be a bigger business, but with better brands. So that when emerging middle class starts to have more disposable income, they want to come to our brand and not come to us because we're cheap and cheerful. Mike, would you add anything?

[Michael S. Poteshman:]

Just a couple of things. On the Beauty North America segment, the other thing that's happened, which I wouldn't call an investment, but you see it in the ROS numbers, is we had negative volume leverage because of how the sales went. So again, not an investment but something impacting the profitability comparison. In particularly, at BeautiControl, while we've taken many steps as we've lost volume to improve the value chain, clearly, we're going to need to do more in order to have the right sales versus profitability mix there. Then in Asia, our ROS was flattish in the second quarter. And there, we've been investing more offensively in the branding types of things that can help us in future periods. And there's a bit of timing in there in where we're spending during the year. We had a good improvement in the first quarter. And for the full year, we're talking about a 1 basis point improvement or so in ROS. And so really, there's some timing in that one. Those are the other things that were impacting the quarter.

[Olivia Tong:]

Got it. If I could just follow up on that. You had mentioned within Tupperware U.S. that you didn't do the kind of analysis that should have been done. What changes are you making to make sure that, that gets done in the future? And then just following up on Fuller. I understand you're trying to move Fuller upmarket and I think some transitional changes as you try and reposition that business, but why is that the right thing to do long term? I guess, what allows you to reposition the brand and change brand perception in the mind of the distributor and her end consumer?

[E. V. Goings:]

Let me -- I'll answer both of those. Firstly, with regard to the -- it isn't rocket science, the analysis that needs to be done. When you put -- we're pretty good at merchandising. And you're going to launch merchandise offers unless you do the right kind of analysis where behind what's the likely take going to be on a particular offer. Again, we've seen this happen at certain markets. You have the huge oversales where on low-margin items that were just in the initial stages. The purpose was to get activity. Well, consumers are smart about cherry-picking. And what they did is they run overboard with these offers. And when I sit there and say, we do great financial analysis, it is rare we have this kind of mistakes that are made because of the rigor of our financial process. And that's usually the rigor within our marketing units of the merchandising people. They just push the button too quickly without going through a step. Now back to brand building. The key to Mexico in the future, and in all of these markets, is to have brands that people want. To be low-cost supplier is not a sustainable strategy out there. And so what you've got to do is reposition these brands. For us, in Mexico, it was easier ground to move to because we're the dominant player with regard to fragrance. And fragrance is a great perception builder in the CFT business, but we've got to extend that beyond fragrance into our skincare lines and into our color cosmetics. It's worth doing because that's how you get high gross margin. And consumers, as they become more affluent, you want them to stick with your brand. Olivia, if you want to look at the 2 big powers in Beauty in Brazil and you want to ask the difference between the 2 -- Natura brand builds and they don't discount. That's the sustainable approach for the future. And we're willing to take that in Mexico. Our Mexico Fuller business is a very profitable business. But right now, we're willing to invest a little bit of margin there to get a better sales management team, to get a better product line and to get better merchandising offers. And that takes time. You don't turn the dial and get it in the quarter.

[Operator:]

Your next question comes from the line of Connie Maneaty with BMO Capital Markets.

[Constance Marie Maneaty:]

I have 2 questions. Can you talk about the impact on your Indonesian business going forward of the big increase and gap prices, what steps you've taken and how you think it will affect disposable income and purchasing power?

[E. V. Goings:]

Mike, why don't you answer that because of my gang here. Instead, I'm losing my voice.

[Michael S. Poteshman:]

Yes. Connie, obviously, that matters because it hits consumer spending, but we haven't had our management team highlight that as being an issue for us so far. I think that what we go back to is -- I would say if we have an overall consumer spending issue in a market, and I don't know that we do and I don't think we do in Indonesia, but we do talk -- we are able to talk about value and how you can use our products to save money, which in times that are more flush, we emphasize more style and functionality and things like that. So we would go to that kind of a conversation. But to your point on are we seeing an impact on consumer spending and how things are coming through, we really haven't seen that.

[Constance Marie Maneaty:]

Okay. And a follow-up question is on BeautiControl. It sure seems that we spend a lot of time talking about a business that is now less than 2% of sales. And I imagine it takes a whole lot of your management time. So how much more time do you give it before you start to think of strategic alternatives for that business?

[E. V. Goings:]

Firstly, Connie, I had 4 lines in my script about it. We talk about it because you guys talk about it. So let's agree, quit talking about it. I mean, we're focusing on BeautiControl. We tripled almost the size of that business. What we have to do and we've had businesses where -- I'll give you a couple of examples. Our Brazilian business went through a massive slide for about 5 years there. And we spent incremental time on it, and we didn't give up on that business. And we finally got that modeled back right again. And it's just exploded. I think our 5-year CAGR on Brazil is 40%. Ditto, if I took you to South Africa, Mike, you were in the room when we had the discussion about South Africa probably 10 years ago about "Let's just close it. It's taking too much of our time." I would've hated that we'd done that because it turned into a massive business for us when we got the dials turned right. I feel the same about BeautiControl, Connie, so it is frustrating. Trust me. But we also -- and are we spending more than the 2% of management's time on it? You bet we are because we think it's a business that's worth it. And what it's really helped us do is learn some things that we apply as a learning laboratory in other markets of the world. But seeing what's happened in BeautiControl since 2008 is really frustrating and I think you can tell that by the tone of my voice.

[Operator:]

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

[Linda Bolton-Weiser:]

So can I just ask you about your share repurchase and your slight levering up of the balance sheet? I'm just curious about your viewpoint, Rick and Mike, about like maybe levering up even a little bit more? You're certainly not leveraged in any sense of the word. And your business seems to be doing terrific and actually accelerating a little bit. And your cash flow is strong. So would you consider that? And if so, would that be something you'd think about for this year or not until 2014, maybe levering up a little more?

[Michael S. Poteshman:]

Well, this is Mike. We set out our approach in January, as you know, and that was in thinking about the dynamics of our business, the global footprint, the rating agencies and flexibility, all those things. And so I don't foresee us changing our approach in the near term. Does that mean it's impossible? No, but I think that Rick talked a bit on the prepared remarks already about the split between dividends and share repurchases. And we think it makes a lot of sense to have the dividends set at a percentage of earnings that we're comfortable we'll be able to maintain over any sort of a cycle. And then the share buybacks really come with what's left after we invest in the business and do the leverage target. But we've had no indication that we should have changed really the leverage target, the 1.75x.

[Linda Bolton-Weiser:]

Okay. And also, could you just talk a little bit about Fuller Mexico? And I'm not quite sure I still understand. Is the Armand Dupree marketing strategy, that brand meant to kind of intentionally cannibalize or replace over time the Fuller brand? Are you still trying to grow the lower-end Fuller brand or -- I'm not exactly sure what the strategy is.

[E. V. Goings:]

Here is what the strategy -- and it's a very important question there. What we don't want to have happen, and this is what has happened. One of the direct sellers in Brazil, I was alluding to why Natura has been so successful is that Beauty has a very aspirational category. When a woman pulls out what her lipstick tube looks like, that's show -- I mean, that said something about her. And you want to have brands that the emerging middle class wants to have because that's who's going to spend money on it. And you don't want to get caught with all of a sudden there's this incredible middle class that are willing to spend more, but they don't want to have your brand. And so you can't wait until that happens, do you? You have to preempt that happening. Why we're shifting in steps because we're not going to leave behind the consumer step that we have as we swing this to this next trapeze. I'll give you an idea of how we're doing it. When Hertz sold their trucking business to Penske, Penske was smart enough the first year. They didn't change the name to Penske. As a matter of fact, it stayed Hertz trucking the next year with the yellow trucks. The next year, you saw it said Hertz Penske. And then within 5 years, the only trucks you'll see now say Penske on it. So if you'll look at a Fuller brochure, 3 years ago, it just said Fuller on the cover. Now it said Fuller and under it, Armand Dupree. That isn't just some brand we made up. Within the brands of Fuller, the prestige brands within Fuller was Armand Dupree. Just like within the brand of Volkswagen, their prestige brand is Bentley. Within General Motors, it's Cadillac. So what we're doing is shifting the company to its most significant prestige brand and then evolving. That was just a fragrance brand. Evolving that, now we have new Armand Dupree in skincare, in color cosmetics. But it's a gradual shift that it's happening because we don't want to lose -- I mean, this was a $300-million-plus business that is very successful and makes very strong double digit margin. So we're trying to do this, Linda, boldly but carefully down there, and because I think it's the key to winning in Mexico.

[Linda Bolton-Weiser:]

And then, Mike, can I just ask you, I guess the impact on the EPS growth of the currency was a little bit bigger than maybe I would have calculated, and I know it's sometimes often bigger of an impact than it is on the top line. But is there any way you could explain the exact reasons why the FX impact on bottom line is bigger than on top line? And any helpful hints going forward as to how to calculate the relationship between the 2 impacts?

[Michael S. Poteshman:]

Yes. Well, we -- what we're seeing a $15 million or so impact from FX on the sales line. So it's about 2%. And $0.15 on last year's EPS was about 3%. So it is not a big difference. So it should write. And it can be from a couple of things. One is there's some units where we've got sales in a disproportionately low profit. The place like Japan comes to mind. And so depending on which way the rates are going, that can cause a swing between the 2. And then we also have some level of costs that are in dollars that are sort of not sales-related like interest and so on. And the value of those costs in the other currencies can be also swing. So that can also cause a difference in sales. When we look at where the $0.15 impact is coming from versus where we were in the second quarter or the guidance we gave in April, which was even, it's coming mainly from the Brazilian real, the Mexican peso and the Indian rupee, and then there's a couple of others that are a bit smaller. So the Brazilian real, for instance, it's 10% worse on a full-year basis than when we last gave the guidance.

[Linda Bolton-Weiser:]

Right. And do I still have that correct in my understanding that the Mexican peso and the euro comparison for the full year is still favorable?

[Michael S. Poteshman:]

The euro is favorable. The peso is around even, I think. I'd have to go look at that.

[Operator:]

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

[Frank A. Camma:]

Just a quick question on China, you called that out. Can that be one of your largest market someday based on the demographics there? I mean, just get your thoughts on that.

[E. V. Goings:]

Well, there's this very strong chance, Frank, that, that could happen. Just I mean, yes, you just sit there and look at 1.3 billion people. It is interesting. I think we sent it out to some of you. But 3 weeks ago, BBC did something on China on how many cars are being sold per hour in China. It's just significant. I happen to believe that the way they have, Frank -- we've had 2 markets that have shifted away from simply planned economies to more market economies in recent history since 1990. And one of them is the former Soviet Union, CIS and the other is here, China. I believe China has done it the right way. They let it out slowly. Interesting, Frank, this is an interesting sidebar. Yes, there's a growing number of billionaires in China, but CIS, Russia right now has 82 billionaires. How did that happen? Well, it happened because all of a sudden, Frank, here you can have all the platinum that was once leased, once they owned. They turned over all of it to these oligarchs out there. Not an efficient way to do it. China let it out more slowly. They're creating enterprises within the country. And I've got to tell you, the best news in China this last year, when you saw Bo Xilai was the guy that everybody thought was going to be the next President. To take this guy out, his wife's in prison. He is, too. And to have a public, yes, it was China style to have that happen, it's a different China than it was. And it's amazing, too. You can sit at the table with senior Chinese people and talk about those things. It wasn't that way when I lived there in the past? So I truly do believe that unless things change, China is going to be a lot of people's biggest markets in the world.

[Frank A. Camma:]

And just as a quick follow-up to that. Would you ever need a direct selling license there? Or is it the model that you're employing is really a retail model so you don't need it? Is that correct?

[E. V. Goings:]

No. We wouldn't need that. As a matter of fact, I mean, I worked very closely with people I knew in China when we created this model. And we do have direct selling, but it's from a fixed base. Their real instability about that was there was a lot of Taiwanese pyramid, MLM pyramid companies, not legitimate multi-level marketing, but pyramiding. And that's what originally caused their government to really have this jaundiced eye toward it. I think we've got a model there that works. So now we have 4,000 of them. At a point in time here, we could have 10,000 of these units. And out of these units, people do parties and salespeople go out and sell. The government is -- they're totally comfortable with that.

[Operator:]

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

[Michael A. Swartz:]

I just wanted to start off and to beat this horse fully into the ground, just with the Beauty North America business kind of as a whole, just looking at the updated guidance on just top line and ROS. It looks like it's about a $10 million incremental change from the prior guidance. First, I guess is that the right way to look at it? And then how do we look at it as far as what percentage of that maybe is good, the top line deleveraging versus some of the investments you're making there?

[Michael S. Poteshman:]

Yes, Frank. It's somewhere in that neighborhood in local currency in terms of the full year impact on pretax profit. That's right. We did get more conservative on what we would be able to do with the ROS for the full year. So I don't have the breakdown but that's a couple of points worse than where we were before in terms of the ROS.

[Michael A. Swartz:]

Okay. And then just thinking about that as we kind of go to the back half of '13 and '14. I mean, is it going to be a similar level of investment? Should we see a little bit more leverage as the top line comes along? What are your thoughts there?

[Michael S. Poteshman:]

Well, on the Fuller Mexico side, we do expect to have a better ROS moving forward, including in the back half of -- versus last year, in the back half of 2013. And we certainly would look to build from there including, yes, from the volume. In terms of BeautiControl, as we mentioned, we do need to work on the value chain there in light of the size of the business because we have lost a lot of sales. So we will do that. I wouldn't think sitting here today that we'd expect things to get worse in 2014, in that sense. Certainly, that's what we need to make sure it doesn't happen.

[Michael A. Swartz:]

Okay, great. And then just touching on Japan. I mean, that really kind of stood out to me because I know that you talked about that for the past couple of years as kind of being a drag to the business. And I know it's a smaller business than it was maybe 3 or 4 years ago. But could you maybe provide a little more color about what you saw this quarter? Is it sustainable? Or how do we think about that kind of going into the rest of the year?

[Michael S. Poteshman:]

Yes. Well, on Tupperware Japan, and Rick might want to jump in, too, we were down in the mid-teens in the first quarter in local currency sales. And we're up a few points in the second quarter. And that's been a longer term shift there as we've gone back towards a more traditional approach, both with how we work the sales force and on the product mix. And we think we're starting to see -- we know we're starting to see better metrics there, both in the sales force leadership numbers and in the numbers of people that are out there doing parties and running the business in that way. So that's not the sort of thing -- unfortunately, that happens generally very quickly. And a close to 20-point swing between the first quarter and the second quarter is a lot. So we wouldn't forecast that every quarter. But we are optimistic that the strategies that we have in place are the right ones because we're seeing them start to work. And we would need to build from there. The external is probably or could be helping some as well. Certainly here, the consumer confidence is growing in that market. And we were positive in the NaturCare business in Japan, too, in the second quarter.

[E. V. Goings:]

Yes. Mike, adding to that. Confirming, I've confirmed personally, confirm everything Mike said. But add to this, Japan, by consumer spending, is the largest direct sales market in the world. Most of the problems in Japan with regard to Tupperware are problems of our own making. We let it become from a couple of things we didn't do. We didn't refresh the distributor organization as aggressively as we should have. And as you know that in Asia, the elderly are highly regarded and respected. We have some distributors who were north of 70 years old there. If I were to take you now to our French business, every distributor contract is a 1-year contract. And they usually were replace the least productive 10%. So it starts firstly with an attitude of our business that we've got to refresh our distributor organization. But you cannot do that culturally too radically. I know Albert's on the case on that. Next, we let the business get to too many third party-sourced high-ticket items there. And that got us nice top line. It impacted margin, but it got them away from really core Tupperware products. And it's slow to get back in that again. I mean, I think we've got a 5-year fix on the way in Japan. That doesn't mean fix to profitability. It means really getting to kind of the four-part -- we have 4 pieces to our operating strategy

[Michael A. Swartz:]

And if it's a 5-year fix, I mean what year should we look at this as? 2, 4?

[E. V. Goings:]

Until which?

[Michael A. Swartz:]

How far along are we in the fix out of the 5 years?

[E. V. Goings:]

Yes. Actually, we're at second year into it. It was, obviously, significantly pushback, any momentum by the natural disasters a couple of years ago.

[Operator:]

Your final question comes from the line of Gregg Hillman with First Wilshire Security Management.

[Gregg Hillman:]

Rick, can you talk about whether the local country managers could be given more authority to introduce products themselves or source products themselves for their countries that they think will do well as opposed to have everything being centrally controlled by some marketing head in Orlando?

[E. V. Goings:]

Yes. Well, it is. That's what it's like. There is a -- here's how we're structured. Firstly, and it's interesting, I will be -- I gave that presentation in Europe just a couple of weeks ago. Every one of our marketing -- or excuse me, our Managing Directors of a given country, they are responsible for not only looking at the products that come out of our regional offerings, but also bringing products forward. We bring it right down to the distributor level. We want distributor ideas on where do new products, where should we be going in the future not only with regard to individual products, but new categories. I sat through a 3-hour presentation on innovation with our headquarters team about a month and a half ago. And I was just so pleased to see the spawning of ideas that is coming from everywhere in our organization. So Gregg, they aren't just here's the products you're going to sell. I'm telling you, I'm sitting here in Manila, Philippines looking at 3 different eco-water bottles. And these eco-water bottles, those were created by our management team in India. And they're now sold all over the world. The hot selling product that's called Quick Chef, that was -- it's really a food processor. That was spawned out of our Filipino business about 7 years ago. It was their idea. So when I'm there in a market like yesterday morning, I'm doing new product review meetings. It's amazing to see the ideas they bring forward. But here's how the organization was structured. Every market has distributors. Take for example, Germany. There's 135 of them. That's 135 buildings all over Germany where every Monday morning on average, there's 480 sales force in every distributorships. Do women have the tendency to give you their opinion on products? You bet. They bring in the ideas to the distributorship. The distributors, each -- there's a Regional Manager for every 20 distributors. And those Regional Managers, they report up into a Head of Sales. Every country has a Head of Marketing who reports into an Area Head of Marketing. And that Area Head of Marketing reports into a Global Head of Marketing, Gregg, as much flows in as flows out with regard to ideas. 25% of our sales, much come from new products. And where do we look for those new products? Everywhere.

[Gregg Hillman:]

Okay. And just a couple of follow-ups and questions. The water filter in India, is that the same one as in China?

[E. V. Goings:]

No. It's a different one, a different technology, yes.

[Gregg Hillman:]

Okay. And in terms of store fronts in China, who pays for that? Is it just the local distributor paying for the cost in the storefront?

[Michael S. Poteshman:]

Yes. The local, she can have one, but she can have up to 15 of them. Yes, it's our signage, it's hers. And by the way, she just can't come to us and say, "Oh, I want to have one of these." She has got to earn her way up for that, working in one of our outlets there, show she's competent there. She's got to go through an intensive training. And then she's got to show she's got capital resources to have it open 3 to 6 months. So, no, it's a wonderful business model that we've created in China.

[Gregg Hillman:]

Okay, great. And then finally, Rick, about brands in Mexico. I was just wondering, what is kind of, basically, wouldn't it need itemization of brands when there's other premium fragrances in the world like Chanel coming into Mexico and being sold in Wal-Mart since the retail in the infrastructure, in the retail infrastructure is improving in Wal-Mart -- in Mexico, rather. And how would that play out in Mexico or any country in the developing world, wouldn't that tend to decrease the value of your Armand Dupree brand over time?

[E. V. Goings:]

Well, if we were a pull business, it was. But we're a push business. And she sends -- she sells to her friends, neighbors and relatives, and is recommendation selling. We can, as a matter of fact, because in our value chain, we don't have what a retailer has, rent. And we don't have advertising. And so for fragrances, for example, Gregg, we can use higher compound percentage levels. Which means that at 5

[Gregg Hillman:]

But in a more mature market, it's hard to sell Beauty in a multi-level sales organization, like what's happening in North America right now.

[E. V. Goings:]

Yes. But I mean we're not a multi-level marketing organization. I mean, we do -- I mean and I think it's -- if I was starting a beauty company right now, would I do it in Western Europe or the U.S.? No. It's harder. If I'm in it, can you make it successful? Absolutely. But it's a harder market.

[Operator:]

That was our final question. I would like to turn the call back over to management.

[E. V. Goings:]

Yes. Everybody, thank you for your time. We'll work through this new structure on how we presented. But I just don't want us reading scripts to you and I want to be able to cut to the things you guys really want to talk about. So net-net, many things about the quarter we were happy with, some things we weren't happy with. But I will tell you now, for 7 or 8 years now, every one of these quarters continues to get better. And I've got to tell you, the strongest feeling I have about the company is that we are not concentrated in any one area. 1996, it was all about Germany. We still love our Germany business. And it's important that we have so many engines that I have confidence in this future growth of not only sales, but profit in the future. Thank you, everybody. And guys, back in Orlando, thanks.

[Operator:]

Thank you. That does concludes today's Tupperware Brands Corporation Second Quarter 2013 Earnings Conference Call. You may now disconnect.