Tupperware Brands Corporation
Q3 2013 Earnings Call Transcript

Published: 23 Oct 2013

[Operator:]

Good morning. My name is Cassandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tupperware Brands Corporation Third Quarter 2013 Earnings Conference Call. [Operator Instructions] At this time, I would like turn the call over to Rick Goings. You may begin.

[E. V. Goings:]

Thank you, everybody. Hello, I'm in Salvador, Bahia, Brazil with 1,000 members of our Brazilian sales force. Also, Paola Kiwi, our President of our Brazilian business. Paolo, thank you for being here. Later in the call, we're going to here from Paolo about our Brazilian business, which is incredibly successful and dynamic. Mike Poteshman, our CFO; and Teresa Burchfield, our Head of Investor Relations, are in Orlando. Last quarter, we began including in our presentation something online for you will relate to the slides as I go through that. The feedback has been very positive, so we'll go along the same way rather than have such a formal presentation. Our comments will relate to the slides. As usual, you know the drill, on Slide 2, with regard to forward-looking comments and so I'll refer you to our company's position on that. Let me get into Slide 3. Overall, it was successful quarter. Sales were up 6%, which was in the middle of our guidance range. Our adjusted earnings per share of $1 was also in our range of $0.99 to $1.04, in spite, I might add, $0.04 worsening from foreign exchange that we had in the outlook we gave you in July. And we're hoping that analysts in the future will start to take into consideration movements in foreign exchange. 69% of our sales were for emerging markets. That was up 13% -- they were up 13%. And while a number of our established markets were up in the quarter, the overall established markets were down 8%. By the way, the majority of that, and I'll drill down, really came from Germany, France and BeautiControl. You'll hear later that Germany and France are really short-term issues. We feel really good about those businesses, while BeautiControl is a longer-term issue. Regarding cash flow, pleased to see $92 million, that's $21 million ahead of last year. And we returned $132 million to shareholders. $32 million of that was in dividend and $100 million in share repurchase. On Slide 4, I'm going to drill down here. First, I want to reiterate the strength of having a global portfolio. I've often been asked in the 1,100 IR meetings I've done over the years, what keeps you up at night? And for the first 6, 7 years running this company, it was simply 1 word, Germany. That's not it anymore. We have a global portfolio, and you see that in that slide that it's a small quarter for Europe and also that Asia Pacific continues to be a growing contributor. And it's going to continue to be getting bigger and bigger if you just look at the size of the population in Asia Pacific and the size of the growing middle class. Importantly in the quarter, I would say, that in spite of some internal miscues on our part and issues in some markets and in spite of some disruptive externals like political issues in certain markets, economic chaos and actually, the dramatic weather challenges we saw in our European businesses, these externals, obviously, we can't do anything about, but we were still able to deliver 6% sales increase in the quarter. And what that really speaks to is the power and the flexibility and leverage of our business model. Also, it's coupled with the fact that we are an and story. We're emerging markets and established markets. We have strong businesses in each and strong operating margins. Also, it speaks to Tupperware Brands is a brand and a channel, and both of these contribute. It means that all of our business units don't need to prove to really -- we don't really need to hit in all cylinders to deliver our outlook. We operate in 80 countries, and there's a lot of noise in the world. And frankly, we believe, I said to those individual meetings I've had one year with my business value where all markets hit. We're always going to have some issues with the diversity of our markets around the world and the internal and external forces. But what really gives me confidence that we will continue to grow and make our outlook going forward is, firstly, the strength of our global management team; and second, our expertise with direct selling fundamentals. Regarding our management teams, these managers -- they're run by local teams in every single market, and they spend the bulk of their time in the field with their sales force. And what that gives us is daily interaction. We know what's working, we know what's not. We can turn the levers. And it also gives us immediate exposure to the consumer. However, I've repeated this, we are not perfect. This business is a bit of art and a bit of science. And just because we know what to do and should know what's causing an issue, we don't always get it and we don't always get it quick enough or put the right actions in place. But I am pleased to say we're getting better at that, which is why over the past 6 or 7 years we've always been making our numbers, and we're working to get better at it. Slide 5, talk about the importance of being the brand and the channel of distribution. Tupperware's brands have premium positions. Clearly, everybody knows Tupperware and people aspire to have that product. However, most of the other brands have the same power and positioning in their respective markets. Equally important is our channel. We've got 2.8 million sellers. Our sales force makes money from their sales and the sales teams that they manage. Now our job is very clear not only at corporate, but at also in country management. It's simply to train and support our sales force by getting them the right product, by providing them a compelling earning opportunity, and also by training and motivating them to really -- to go higher in the business. That's what Paola and I are here doing in Salvador, Bahia, with this super seminaria. Ours is very clearly a push business. And unlike retail, we don't have to wait for the customer to come in the door. Our sales force goes directly to the end user. And our customer, importantly, is usually her mother, her sister, her neighbors and her friends. Each of these people lead us to new friends. And that's why you can track 25-year Tupperware sales consultant and you say, who does she go see? Well her friends lead her to new friends, who lead her to new friends, so it's always a friend dealing with a friend. So our system, if you actually wanted to call it by what it should be called, it's really not direct selling. It's a relationship selling method where friends recommend products to other friends and therefore, we don't need to advertise. And that's good news also because latest studies show people don't believe 78% of all ads. That money is redeployed to the sales force. So this relationship selling that really works. We also, importantly, don't have to pay retail rent, and that is the big plus of our value chain. No advertising, no retail rent, and we redeploy that money for opportunities for sales force. Now the sales force members, they earn the money to support their families. Importantly, too, in emerging markets, these matters and many of these, less than 30% of women work outside the home. So it's very important. Let me turn to Slide 6. Another area I want to take a few minutes to talk about is our sales force size and active sales force numbers. I'm going to make just a few comments. We've got I think a very well-detailed chart there. And in a moment, Mike may drill down further, and we can handle other questions you may have in our Q&A session. I do want to preface it by this

[Michael S. Poteshman:]

Okay, thanks, Rick. And turning to Slide 9 and looking a little bit underneath our 6% local currency sales increase in the quarter, which again was at the midpoint of our range. Our main growers were Brazil, Indonesia and Venezuela. But beyond that, we also had good sales contributions from Argentina, China and Malaysia/Singapore. Our larger decreases, as Rick has talked about, were at BeautiControl, Tupperware Germany and Fuller Mexico. In terms of upsides and downsides on sales versus the high end of our July guidance, we were better in Brazil and Venezuela. Some of the same names and then worse in India, France, Germany and Fuller Mexico. And looking at our diluted EPS without items, the dollars that we earned in the third quarter. Our range was $0.99 to $1.04. As Rick mentioned, the FX -- the impact that we had in the comparison came in at $0.09, which was $0.04 worse than what was included in our guidance based on the rates in July. So excluding this FX impact, we were at the high-end of our EPS range without items even with being at the midpoint on sales. At the segment level, we were better than we had baked into our outlook in South America. And that was balanced by lower performance in Europe and Asia versus what we had included. There was a $0.02 benefit versus our guidance from Texas as our rate without items came in at 23% even versus 24.7% in our outlook. Our EPS, x items, was up $0.05 versus last year in the third quarter in dollars and $0.14 in local currency or 16%. In terms of our contribution margin then at the segment level, we were up 22% from the higher sales coming through, and that was after 5-point hit from pension settlements, primarily in Asia. At the pretax profit line without items, we had a 14% contribution margin. That also included that pension hit, as well as 6 points from higher interest, and that came from the termed out notes that we sold in March, the long-term notes, as well as the higher level of debt to execute on our new leverage target, 1.75x, that we announced in January. So that gave us a pretax profit ROS in the quarter of 11.3% without items, 20 basis points above last year in local currency. That was already after a 30-basis-point drag from the higher interest. But then there was a 70-basis-point drag from translation FX that brought the comparison in dollars versus last year to minus 50 basis points. Rick mentioned that as we had planned, we did purchase $100 million worth of shares in the open market. That brought in 1.2 million shares at an average cost of $82.83 each. Along with our repurchases from the previous 3 quarters, lower shares gave a $0.07 benefit in the quarter versus last year, or half of our $0.14 increase in local currency versus 2012. Turning then to Slide 10 and looking at our outlook. On sales, we're calling the fourth quarter at plus 5% to 7% in local currency, and that gives us 6% to 7% up in local currency for the full year. Both of those are no change versus where we were in July. At the high-end of that range, then, the 2-year stack, local currency increase in the fourth quarter would be 13%. That would be up 1% versus 1 percentage points versus the third quarter, and at the low end we'd be 1 point lower in terms of trends. So at the midpoint, we're on the same trend we have been. Our fourth quarter EPS, excluding items, is at $1.83 to $1.88. And at the high-end, that's up $0.17 or 10% in dollars and $0.23 in local currency, which is 14%. For the full year, that would take us to $5.45 to $5.50. That's $0.04 lower than the high -- at the high-end in our July guidance, which is all FX, because we're now at minus $0.19 versus minus $0.15 in July. That would give us a pretax ROS x items at -- of 14.3%. That's up 35 basis points versus 2012 in local currency. The hit from the higher interest on the full year is 20 basis points, so that's already in that 35-basis-point improvement in local currency. And then there's a 20-basis-point hit from translation FX. So leaving us up 15 basis points in dollars. In terms of the impact from shares on the full year, at the high-end of our range, we're up $0.70 in local currency and $0.33 of that come from shares, which would be 7 points of the 15% increase that, that gives us. For some of the other details in the outlook, there's been no change in unallocated corporate expenses. Expenses, we still see $66 million there, or in net interest expense, we see $38 million there. Again, the same versus what we said in July. For the tax rate, we have flowed through the $1 million benefit versus our outlook in the third quarter, which gives us now a full year rate without items of 24.2% versus 24.5% in the July guidance. Turning to Slide 11. We now expect to repurchase $75 million worth of shares in the fourth quarter, which would bring the full year to $375 million. That is $25 million less than where we were in July, really reflecting the FX impact on earnings, cash flow in our euro-denominated debt. We -- for the 4 quarters ended September, we're at 1.93x debt-to-EBITDA as we measured under our credit agreement, and that is laid out on an attachment to our earnings release. And that compares with our 1.75x target, which we do expect to be at year end with the $75 million of repurchases. We'll give more specific guidance in January 2014, but I will point out here that 2013 share repurchases included catch-up as we started the year at 1.34x levered and we're going for this 1.75x. So the 0.4 turns increase during the year accounts for about half of the 2013 share repurchases. I'll also point out that when we get into this more normal case in 2014, our repurchases will be heavily weighted to the end of the year, which is in line with our cash flow generator pattern and also taking into account that we pay dividends evenly through the year. You probably recall that our dividend target is 50% of our prior year diluted earnings per share without items, and the high-end of our range business at $5.50 would imply a quarterly rate going forward of $0.69, and that would be an 11% increase from this year when we're paying $0.62 per quarter. And again, our board normally resets our dividend level in conjunction with our fourth quarter earnings release in January. Another item that I'd like to point out is that in the third quarter, we made the decision to reclassify our Fuller trade name intangible asset to definite-lived. It had been classified as an indefinite-lived. And this decision stems from what we've done over time to change the company name in the Philippines and Argentina to Tupperware Brands from Fuller, and importantly, our expectation to migrate over time to the Armand Dupree name in Mexico. This decision will result in about $10 million per year of non-cash amortization, and it began actually in the third quarter with about $1 million and the fourth quarter guidance now includes close to $3 million. This is a "item" that we'll talk about consistent with what we have in the past with purchase accounting amortization. Looking at Slide 12, on the balance sheet and cash flow. As Rick mentioned, we had a good quarter. Our cash from operating activities, net of investing activities, was $92 million year-to-date, and that's $21 million better than where we were last year at this time. Our full year capital spending outlook is now $70 million to $75 million, that's down $5 million at the high-end from where we were in July. And our full year cash flow outlook on this measure is $240 million to $250 million, also down $5 million, which is related, again, to the weaker FX rates and how that impacts our numbers. For one thing, our cash flow is more heavily weighted to the end of the year than our earnings. And then finally, an update on resin. There hasn't been too much movement. We continue to expect to have $180 million flow-through cost of sales from resins that we've purchased in 2013. There's no change from July. And the look on the negative impact on the cost of the resin flowing through our numbers is now $6 million in local currency versus 2012, and that's $1 million worse than our outlook in July, and that's built into our guidance. So with that, I'm going to turn the call back over to Rick.

[E. V. Goings:]

Mike, good job. Thank you very much. As I mentioned at the beginning of the call, I'm in Brazil. And before we go into Q&A, as we've done in the past, when I'm in these markets, I want to introduce you to our President of our Brazilian business. I've said that the real strength of the company starts with the strength of our leadership team, because all a company really is at the end of the day is a collection of people. Paola Kiwi will give you some insights on what's driving our business here. She's been with the company 14 years. Twelve years here in Brazil, and she's been running this company for 8 years. I might add that this dynamic young woman, like many of our country presidents and MD, started in finance. We say finance with great leadership skills. Paola is Chilean. She was educated in Santiago and in Tel Aviv. And among other experiences, she served 2 years in the Israeli defense forces. So she's not only a warrior, she's a great leader. Paola, if you'll take it.

[Paola Kiwi:]

Okay, thank you, Rick. So this is going to be a very quick business overview for Brazil. On Slide 14, we've list some facts about Brazil, and in particular, the business model that we use. Brazil has a population of almost 200 million. We look at our continuous opportunity in terms of households. Of the approximate 60 million households, just over 70 million -- 17 million or 29% of them are currently considered to be middle class. By 2020, the number of middle-class households is expected to increase 5 million to 37%. Before, people look for basic products, but now people are looking for premium quality products and they especially like international brands like Tupperware, of course. In terms of our current penetration, it is still low. And this is absolutely a great opportunity for us. As we look at the business, we see opportunities in additional geographic expansion, as well as additional penetration in cities that we are already in. We have around 200,000 sales force members, a large sales force with varying level of productivity, the majority are part-time. Our selling method is currently mainly one-to-one selling to her friends, neighbors and relatives. But as we continue to trend to the parties, it is the best way to demonstrate our product, we see additional productivity opportunity. We have independent distributors which recruit, train and motivate the sales force. But one unique difference is that we have 2 types of distributors

[E. V. Goings:]

Thank you, Paola. By the way, I might add to that, up on Slide 18, you see that picture of mega distributors. That's an example of what can happen. That woman started in the business more than 20 years ago. Like every distributor, started as a demonstrator, then she became a manager, and eventually, a distributor. So you may have demonstrators at the very entry-level who joined the business to make an extra $100 or $200 a week. As they became -- become distributors, you can get a distributor in Brazil make 6 figures in U.S. dollars per year. And the mega distributor you see in that Slide 18, more than $1 million a year. So -- and just -- I've been here 21 years and to watch that distributor, Andrea, grow, it is like watching a flower open. But next week, I get to see it in Indonesia. But this is the core of it, we're a multi-local business. This is how it works. Mike, I'll turn it over to you. Keep the mic open. On that end, we'll do Q&A.

[Michael S. Poteshman:]

Yes. Cassandra?

[Operator:]

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

[Olivia Tong:]

I think I had started with a similar question last quarter, primarily around the sales force. But can you give us a sense of what you're doing to improve the active sales force numbers? I understand there's a lot of puts and takes in that some sales force members are better than others, productivity has improved, which is all great. But at the end of the day, you need to grow your actives to keep that sales momentum going. So can you talk us through what's going to drive that?

[E. V. Goings:]

Yes, Olivia, I'll -- and Mike, you can back up with anything else. Olivia, last week, importantly, I had -- we created a team called 2020 of our strongest 20 leaders. Paola was, in fact, in that room, and we're going to be meeting. But our whole focus was how do we get this company to $5 billion in sales. And relevant to your question, it is -- all has to do with the growth of the size of the sales force. And too many people spend all their time just talking about recruiting. There's really the concept of getting them in the business, the whole recruiting think of a funnel, then the on-boarding process, and then the retention process. And we are really -- we've always worked hard at these, but we've got to find even new and better ways to do it. I'll give you an example. The recruiting, we've always been good at that. But it's the on boarding, keeping them, getting them in and -- she usually, when she quits the Tupperware business, she quits because either she didn't had a pleasing experience or a pleasing result. Either, I didn't like it or I didn't make any money. Or thirdly, something happened in her life. Very interesting. Many of the people that we recruit -- let me qualify that. In some markets, it's about 20%, were people who already were in Tupperware but things changed in her life, but she had -- but she likes Tupperware. She likes the brand of Tupperware. But let me get into the on-boarding process. We don't need to work on how do we recruit. We need to get better at on-boarding and retention. The on-boarding. One of things we've just launched, we worked on it for more than a year. Most of the people in the U.S. and many in Europe have learned a foreign language. It did -- they went to an intensive course like Berlitz. That's how I know Spanish and German. However, one of the most successful new programs is Rosetta Stone. And what Rosetta Stone does is it builds off that because it's interactive. And let me relate it to the Tupperware business. We bring them aboard and she's got to come to training. That's a class. That's face-to-face. She's given a unit manager as her success coach. That's important. But this new group that we're recruiting, the millennial's, and I've seen this from -- I've been on a university board for 20 years, how they want to get information is more and more they want to back it up on online. We launched -- we worked on it for a long time. We launched it in Germany. It's called iTUP, so that as you start, Olivia, you go to the training class, you have a unit manager who works with you, who goes to your first party with you. But you then can go to iTUP and it carries you along on you can learn more about the products. You can learn how to do a memory jogger list on who your friends and neighbors and relatives are, how to get started. You can learn how to ask -- answer questions when consumers ask those questions. Well, they put together 5 modules. And I must say, we've been tracking those and we shared it with our group last week. It's outstanding, 6x the level of sales from an individual who went through the iTUP program. So now we're beginning to -- we're going to modify this for the rest of the world and launch it. We haven't even launched that here in Brazil, and look at the great results we're getting. The last thing -- piece is the retention piece of it, and there's an old thing that relationships equal retention. And too long a subject to discuss on this call, but there's a whole series of elements that we're including that include the retention. But, Olivia, you started with the most important question in our entire industry side, the sales force.

[Olivia Tong:]

I guess, if I can follow up on that. Has there been a measurable change in terms of, if you could parse it out, between recruiting, on-boarding and retention? Like, where -- is there a clear area where there's been a big drop off? Whether -- it sounds like recruiting has been okay, but do -- are people staying for a shorter time? Are they joining and leaving quickly? Is -- where is the delta versus where it has been in the past?

[E. V. Goings:]

Good. Olivia, very clearly, the issue has not been on the on-boarding. We're getting better around the world on that. It's been the total recruiting numbers on there. And it's got to be much more of a focus on they've got to get them in because we're getting better at #2, on-boarding and retention. And I might add, I'll give you an example. All over Asia, they've been the best launch. Firstly, they've got a strategy blueprint there that if you're a distributor in Indonesia, there are 5 different kinds of meetings that you must hold every single week in your ship. Now if you're a sales consultant, you don't have to go to all 5. But you're -- it's so much more engagement. The very key piece that causes someone to stay longer, as I said, is relationships. And the key piece of relationship is contact. So it is -- this has been our issue in our U.S. business. They got away from weekly meetings in the U.S. about 10 years ago and Stein Ove is getting them focused on this. So I feel very good about that. Now we've got to get the top end of that funnel getting these people in and then converting them. But I think we've got the strategy down. As a matter of fact, we put down with regard to how to get to $5 billion, what do we need to change with regard to our business model, outstanding products and unique products, the way we sell, the career path and direct selling fundamentals. And we basically put it up there, what do we retain, refine or radically alter. We've got tremendous endorsement from our 20 youngest, brightest, let's stay the path, we just need to -- most of our things are really refining and it's not radically altering it. But it's all in this area of expansion of the sales force.

[Olivia Tong:]

Got it. I think -- I mean, I'm still a little bit confused as to whether the issue is more a function of the recruiting, on-boarding or the retention portion because it sounds like you touched a little bit on all 3 of them.

[E. V. Goings:]

Because they -- all 3, and we can talk off-line on that but -- where we've got more time.

[Olivia Tong:]

Okay. Maybe I'll follow up afterwards. And then you touched on Indonesia and I want to talk a little about Asia Pac because it seems like your guidance seems to imply that Q4 growth rates are about in line with Q3. So given all the noise that we've heard from a macro perspective, why do you think you're not seeing more pressure at this point given all of the things that are going on?

[E. V. Goings:]

I think the counter levers are actually strong enough. And I've been in China in the last 90 days and Indonesia, and I'm seeing -- driven by the amount of women that are really looking for an earning opportunity, again, remembering that other than China, most of these markets, less than 30% of women outside the home. Women are being connected. They want a different kind of a life. So our expansion of the sales force is countering that. Indonesia is a classic example. Our size of our sales force is up about 25%. Size of the business is up just a little north of 30%. That is countering what's going on there. I think the second thing is our management team there, from a product standpoint, has been very responsive with the offerings that match what's going on in the market and what the needs of consumers are.

[Olivia Tong:]

Got it. And then just lastly, can you parse out the South American organic sales growth a little bit? How much is pricing versus volume? And I assume that the Venezuela number assumes a fair bit of pricing in a market that has price control, so can you just give a little bit more color on that?

[E. V. Goings:]

Yes. Brazil, our dominant one. It's really units. It's growth of the business. Inflation is only, here, at 6.5%. It's higher inflation down in Argentina. We think the real inflation rate, while the government talks about it only being about 11%, we think it's just on the north side of 20%. But our business is up better than that. And Venezuela is mostly -- but we're holding our own in Venezuela. So we have real growth on our businesses down here.

[Operator:]

Your next question comes from the line of Leigh Ferst with Wellington Shields.

[Leigh Ferst:]

Could you give us a little more on your outlook in terms of your target growth rate for sales and sales force? And also, how many cities you expect to move into?

[E. V. Goings:]

Paola, why don't you comment on that? How many cities are we in, in Brazil?

[Paola Kiwi:]

Right now we -- our penetration is around 25% entire country. So to improve that -- Brazil has about 5,000 cities or small cities, so we probably are around 8% of that. So we should improve that.

[E. V. Goings:]

So a lot of growth left here. And I'll tell you, I mean, your average CAGR has been north of 30% for...

[Paola Kiwi:]

Seven years.

[E. V. Goings:]

For 7 years. So as long as she keeps -- when we have this kind of runway ahead and there's so many women thirsty for this opportunity, and that's what we really do here, put together this multi-local structure so that -- and it even comes down to that you want to start as a demonstrator, okay, here's what it is. This is -- I always kid in our seminar is that most restaurants fail in 5 years, but most McDonald's don't because it's a formula. We give -- I've kidded about Muhammad Yunus got the Nobel Peace Prize for micro-financing, and we're waiting for ours because we micro-finance her, then we send her to a training class. She didn't get charged for it, and then she -- then most all of your people are go to a training, explain how that works when she comes on. What does she pay for a kit?

[Paola Kiwi:]

She doesn't pay anything, but she needs to do a party or her unit manager does a party and then, because of that party, she receives the kit with that commission.

[E. V. Goings:]

Rather than the commissions, she clears the kit.

[Paola Kiwi:]

And that's how she starts. And once she becomes successful, she can become a top seller or a unit manager.

[E. V. Goings:]

What can she make as the unit manager?

[Paola Kiwi:]

Around $2,000 per month, an average one, which can be equal to a lawyer, an average one, with 5 years school. So it's a very good income for her.

[E. V. Goings:]

So it's early days here in this country. So I would tell you if I said back of a envelope, I'd say I would be disappointed if we can't continue this kind of a run rate for the next 3 years or so. And then you keep lapping, then you're getting -- I mean, we're -- it's a big business here now and very profitable. Then you start to see it, well, okay, you're lapping 30-some percent, then you start to say, "Well, 25%, that's not a bad number off a big number." Next.

[Leigh Ferst:]

And you had featured India last year, and obviously, there's a lot of macroeconomic factors there. Could you cite what hurt your business mostly in terms of the slowdown besides currency?

[E. V. Goings:]

It really did -- the currency really had an impact but it led to also, with the size of our sales force, we lost some of our advantage. We do party business there and we do one-on-one selling. But you really started to see a smaller sales force. Mike, would you add on that?

[Michael S. Poteshman:]

Leigh, we did see consumer spending pressure, which I think is related to inflation, including chicken and egg, but the fact that the currency is devalued. And so that their consumer spending power is hurt. We've also seen, over the last few quarters, that we've had less traction in the south part of the country, which is our largest share of our business. And we really worked with our -- and continue to work with our distributors and team leaders, the top end of the sales force there, to be able to have a better structure for how they're approaching the recruiting. And importantly also, their training of people as they come on and the first level managers because that's really our engine in all of our businesses, is getting people to that first level where they do a lot of the recruiting.

[Leigh Ferst:]

And in France and Germany, you said that a lot of these issues are short-term, and obviously some of them are extraneous. But if the volatility continues, what kind of contingency planning do you have in place to manage it?

[E. V. Goings:]

Well, the contingency planning is by distributorship. It's different things in different ships. If I had to put one word with regard to our German business, is counter the momentum. What we've had is -- what we lost in the first part of January, was we lost momentum. You remember, we had a great year in our German business last year, and it's a very good business. We've got to get this momentum shifted back again. The kind of contingency we actually dropped in is -- and I -- and basically if I can be critical of one thing, I believe we should have dropped it in sooner. It was, you get out there and you have all hands on deck out there to reverse that momentum, being out there in the field with the sales force. Even if weather was bad, well, you've got to pick it up where you are and get out there and recruit, train and motivate the sales force. So there's a plan in place and it's been implemented, but I think it should have been implemented 2 quarters ago. Yes, it's clearly working because we saw what our recruiting was thus far in October. We saw a extreme change in the recruiting pattern in the second quarter versus the third quarter, where we were down double-digit in recruiting the second quarter. And it was -- started to be positive in the third quarter. It showed some of the actions started to take place. I think they should have been implemented earlier. And that's where I say, we're good but we're not perfect.

[Operator:]

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

[Dara W. Mohsenian:]

So Mike, over the last couple of quarters on a local currency basis, you haven't been experiencing as much incremental margin expansion as you have in prior years, even if you exclude resin. Why is that? And as we think about margins going forward, should we expect it to move back up to that longer-term trend in terms of incremental margins or are there -- is there investment behind the business or other impacts that could linger here and limit the margin expansion?

[Michael S. Poteshman:]

Yes, Dara, we do expect to continue to be able to grow our margin in local currency. And you've heard us talk about before that on average for our company, we see around a 40% initial contribution margin from higher sales, and we do think we'll continue to see that but then continue to invest a portion of it to net out at the 50 basis point or so improvement per year. What we've been saying, yes, we've got the incremental interest expense. This particular quarter, we had this pension settlement, net pension settlement charge, which hit us for a little bit. So clearly, there are some places where we can do a little better, but we do think that our basic approach will continue to work.

[Dara W. Mohsenian:]

Okay. And then, Rick, your local currency sales growth guidance for Q4 is 5% to 7%, and the full year is towards the lower end of your long-term target. As you look out to next year with some of the momentum in emerging markets, are you comfortable you can return back to the long-term target range or do you think some of the near-term pressure points from this year could continue to limit growth versus your long-term target?

[E. V. Goings:]

Dara, we've just had [indiscernible] and Simon and Mike had, while I was holding these other meetings on growth for -- to get to $5 billion, they were starting the early meetings on profit plans for this next year. So I don't know where they are on that. But our initial discussions are returning to that level. And the issue wasn't on a lot of our emerging markets growing. The issue was some of these weak markets and the drag that they've been. I'll tell you, I hope -- and nobody's asked the question about BeautiControl, but we just put in one of our best, young dynamic leaders, Nikola, who ran our Nutrimetics business. We put Nikola in there, and he's been in there -- he's only been there 1.5 weeks. We've been -- he's in his 30s, dynamic. I'm expecting improvement in our BeautiControl business in 2014. That will have a positive on it. I want to start to see, with regard to our Fuller business, and that will be an important delta for us. Certainly, the plans are in place. We're not in search of what to do there. We've seen the improvement start to happen on our Japanese business. We've seen -- we put in the things in place in our South African business. So I mean, kind of, Dara, that's kind of the example of -- and none of the markets that have really been the drag on causing the top line growth are we in search of what do we do. Now it's a question of execution of it. In Mexico, it's the only -- Fuller, that I'm -- I don't know how long that's going to take here because we're not going to play the discount game there. We're going to -- as Mike mentioned, we're moving more to Armand Dupree. That's the long-term win. If you look at what's happened here in Brazil, in the big competitors in the beauty business, the way to win is have a brand name that people really respect. That could be -- and we don't control what the competition does. So it could take us some time in Mexico, but we're going to stay the course because we've got a good and profitable business there. I wish I could give you more texture on it, but I'll know more as we finish this fourth quarter.

[Operator:]

Your next question comes from the line of Michael Swartz from SunTrust.

[Michael A. Swartz:]

Maybe I'll just touch on for a bit, just 2 questions. Could you just maybe flush out -- I think you had a footnote, and Rick, you even touched on it in the preamble, about some unfulfilled field manager positions. Could you kind of walk us through what that's about and what's going on there?

[E. V. Goings:]

Yes. In our Fuller -- if I understand you correctly, Mike, you meant with the Fuller business in Mexico, correct?

[Michael A. Swartz:]

Correct.

[E. V. Goings:]

Yes. We've got a level called field sales manager there that, really, she's responsible for managing locally the sales force. We are short a couple hundred there. Now we could fill this real quickly, but it would be counterproductive to what we're trying to do, is to reduce the turnover. So we're trying to get in better -- compensate them better, but also have standards in place. So we made the changes with regard to increased compensation. We made the changes with regard to the standards, and we made the changes with regard to the new training that she was getting. It's just, now, taking us time to we're still going through turning over some of the ones we have. And as we fill the new slots, we're not filling them fast enough, to take care of the ones that we had to get rid of. So we're going through this transition right now. Hopefully, we can be through this by mid 2014. But it's kind of we're doing 2 things at that one time, and one is causing the other problem, but they're the right things to do.

[Michael A. Swartz:]

Okay, great. And then just sticking with Fuller Mexico, I think you had called out some heightened promotion going on there with one of your competitors. Is that something that ended in the third quarter, or is that something that's continuing into October?

[E. V. Goings:]

I heard it got worse, that they're doing more of that. And if you effectively give your sales force member x commission and then you give a discount on the x commission, it gets to -- we saw that with the number of products, it was as much as 80%. We're waiting to see what kind of effect that has, but we're not going to play that game. It's an endgame that will really hurt, particularly the emerging middle class. It hurts brand building. I never will forget, I've mentioned this in the past, but you go buy a Louis Vuitton or Hermes, and just -- when is the last time you ever saw a sale window there? I never will forget going in one day, there was a line out front and I walked inside, I said, "You guys having any sale?" And the manager proudly said, "Sir, we burn it before we put it on sale." The only way we're going to get this Fuller brand to be a brand that is highly regarded is we've got to move away from all this discount merchandising. You can do what Lauder does and Lancome, a gift with purchase, a purchase with purchase, but not a flat-out discount with it. Because beauty is an aspirational category, and when you discount something aspirational, then it's not aspirational anymore. So it's counterproductive. And I sure -- I can't control what competition does, but we can control us staying the course.

[Operator:]

Your next question...

[E. V. Goings:]

I know they'll be another question, but it's really interesting on that question, but philosophically and strategically, all of those of you who are in the U.S. will understand this, and I know intimately the senior management that this is why they made this decision. You've seen the introduction of The Lincoln Motor Car Company, and they've spent a fortune on it over the last year in the U.S. They had a conundrum at Ford Motor Company that they didn't have a prestige-level automobile to offer anymore. And if you'll remember during the -- most of you won't remember, but during the '50s and '60s, the Lincoln Continental was -- that's what went up against Cadillac, and you've seen what a great job Cadillac has done with their image. That, too, goes against Lexus, Mercedes, et cetera. Well, what they found they had done is they have let the Lincoln line become the town car line. And you're used to seeing -- that should pick you up at the airport. And they've made the very difficult decision that we have got to separate this, we've got to create the Lincoln Motor Car Company, reestablish that image and we got to get out of the town car business, even if it hurts initially. And they have. And that's why a lot of limo drivers you'll see right now, they don't know what to do because this guy -- they don't make town cars anymore. That's kind of the same philosophical positioning that we're going through in our Fuller business. We could stay in the town car business, but we'd always be known as that. For us to really be the kind of brand that the emerging class in Mexico and Brazil wants, you don't want to be thought as a discount brand. Forgive the long answer, but it was an important question.

[Operator:]

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

[Frank A. Camma:]

Just 2 quick questions. One, the $0.04 negative for the FX, can you just tell us the principal currencies that attributed to that negative?

[Michael S. Poteshman:]

Sure, yes. We saw that hit mainly coming from Indonesia. We also saw a little bit from some of the Asian currencies and from Mexico.

[Frank A. Camma:]

Okay. And the only other question I have is a clarification. You had mentioned the dividend and can you just say that again, was that based on approximately 50% payout, is that correct?

[Michael S. Poteshman:]

Yes, we look at that really once a year and we do it under prior-year EPS of that item. So the high-end of our range this year, 2013, is 5.50. And what I was saying was 50% of that 2.75 on a full year basis comes out to about $0.69 on a quarterly, and we're doing $0.62 right now.

[Operator:]

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

[Constance Marie Maneaty:]

If the pressure on purchasing power in India hurt your results there, why won't inflation and how your interest rates do the same thing in Indonesia despite the growing size of your sales force?

[E. V. Goings:]

Well, firstly, Connie, the -- we've been more effective at keeping the growth of our sales force ahead of all that wind in our face. They haven't been as effective in India, particularly in southern India. That's the number one issue. We've got -- you've got to get a significant enough sales force size advantage. So the average net per unit that a sales force member may be lower, but you got a bigger sales force and that counters it. Mike, would you add something?

[Michael S. Poteshman:]

I think that that's right, and from an execution point of view, in terms of what been able to do with that sales force, we've continued to be able to stay in front of the inflationary pressures based on the timing of when we've done price increases and positioned them effectively. And then more importantly, I think combining everything we've done with social media and our ongoing programs, including the earning opportunity that we've been able to continue to move that mass of sellers. So that's how it all come together.

[Constance Marie Maneaty:]

Okay, great. I think earlier in the year, you said that you didn't expect the Indonesian growth rate, which I guess was like 35% last year, or something around that, to continue this year but it has. What was your outlook for 2013 for Indonesia sales and what's your preliminary outlook for 2014?

[E. V. Goings:]

Well, I haven't been in those meetings with Mike as we're doing the 2014, and even if we knew what they were, we wouldn't express it at this time. We want to get through the fourth quarter. But let me characterize a big diff between our India and our Indonesia business. Frankly, I think we -- in our distributorships in Indonesia, you would think they are Swiss or German with regard to the standards, and you will follow the rules of the business. They do a better job of that in Indonesia than our businesses have done in India. We've got talented distributors in both places, but the operating mentality within the distributorship in Indonesia is stronger with regard to following standards. And therefore, they can hit a lever and get -- be more responsive. They haven't had the same thing -- it's not the same kind of a culture in India and we've just got to get better at it with our India business.

[Constance Marie Maneaty:]

Okay. Is the Tupperware top 2020, whatever you call it, team 2020, with sales of $5 billion, is -- do you mean to say you're aiming for $5 billion in 2020?

[E. V. Goings:]

No. 2020 is more in terms of visionary, having 20/20 vision and you get your bright people in. We operate under the model that every successful business model works until it doesn't. And you don't ever get to that point. And so we dug back and peel back a lot of stuff, we said what's working like we wanted to work, where do we need to -- that's why I said, Connie, we put it what do we need to retain, refine or radically alter. And so we don't lead this just from a group in Orlando. I'm sitting there like I am with Paola, and we sit there and talk about what do we need to do, what are you seeing that I'm not seeing, and then we build off those things. So the only decision we really have to make -- I think we've focused on the things we need to work on and where we're going to find this other $2 billion-plus in sales and where it's going to come from, the decisions we need to make is the execution and when the due date of the $5 billion is.

[Operator:]

Ladies and gentlemen, we've reached the allotted time for questions. I'll now turn the call back over to Rick.

[E. V. Goings:]

Thank you very much. Anyway, thank you, all, very much. I guess I want to reiterate one thing I said on the call is, business models are critical, and I think what has made Tupperware very successful is we've got a dynamic business model. But at the start of the whole thing, it's really the quality of our management team and us -- how we're managing not only brands, but the push element of our business. So I'm expecting this kind of growth is going to continue. I might call your attention, I help them some on it, but the Boston Consulting Group put out a wonderful piece called Playing to Win in Emerging Markets, and they did a lot of work on this. And they just introduced it about a month ago. I'd get it because it really talks about the future and the real shift that American companies have got to stop thinking about that there's the U.S. and then everything else is international. It's a global marketplace out there, and the U.S. is -- it's a big consumer market, but it's only 5% of the world's population. And the things that really drives a business like ours is an individual looking to change her life. And that's the push element. And at the same time, the consumer, the pull element of our business, she wants Western brands. There's a lack of a retail infrastructure, and she's finding an efficient way to buy products from a friend, neighbor or relative. So we're very much right for the times, and that's why we even do well in Paris in our business, and we've been there for more than 50 years. So I have a lot of confidence that this business model will take this company to $5 billion sooner rather than later at some exciting operating margins. Anyway, thanks for your interest.

[Operator:]

This concludes today's conference call. You may now disconnect.