Tupperware Brands Corporation
Q4 2013 Earnings Call Transcript

Published: 29 Jan 2014

[Operator:]

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

[E. V. Goings:]

Thank you very much, and good morning, everyone. I'm in Rome, Italy, after a week at World Economic Forum in Davos. I'm here with our Country President, Michael Tziallas. We're in the midst of a 4-city sales force seminars all over Italy and down into Sicily. Later in the call, I've asked Mike to talk with us about what he's been doing to bring new levels of growth through our Italian business. Mike Poteshman, our CFO; and Teresa Burchfield are there at our headquarters in Orlando. Forgive me if you hear sirens from time to time. This is Rome. And if we get cut off for any reason, Mike, as always, I would ask you to just continue the call. We have -- sometimes things work wonderfully well here, and not so good at other times. On Slide 2. We've got the slide here as usual. Some of our discussion is going to involve the future outlook for the business. So you know the drill here on forward-looking statements. If you'll turn to Slide 3. The top line of the fourth quarter we were pleased came in with another quarter of growth, 5% in local currency. There were, as always, puts and calls. I'll get into those. And -- But as a group, what you see is the strength of our emerging markets contributed 63% up in the quarter -- excuse me, 63% of our sales and up 12% in the quarter. Established markets, while they were down a bit, they did improve sequentially to minus 5%, because they were down about 8% in the third quarter. And from an earnings per share standpoint, we came in at $1.81. That was $0.02 off the low end of our range that we gave. But we had $0.03 more negative hit from foreign exchange, so we did come in within our guidance. And I must comment here, we manage our business in local currency. We pay incentives to our management in local currency. And then we work our butts off at our headquarters and our regional offices to mitigate the negative foreign exchange translation effects. Mike will get into that. We're pleased with our full year cash flow. Came in at $263 million. Was way ahead of our guidance. And also particularly pleased in the way we're returning cash to our shareholders. And this combination of doing it by raising dividend and share repurchase, often on these individual meetings, you'll ask why we have this particular kind of mix. And it's -- it basically is for this reason. You don't do it all in dividends because I never want to have a time we reduce -- have to reduce the dividend, because things are happening in the world that you can't support it. And yet, if we feel that we get to a certain point and there's enough cash, we'll buy in shares. It gives us a relief valve and management the flexibility of what to do. Mike's going to give you more texture on that in just a minute. On Slide 4. As you see, currency has an impact on our top and bottom line results. Got to keep in mind, over 90% of our sales and earnings were generated outside the United States in this past year. And in line with our continuing effort to provide transparency to our business, with a lot of input from many of you as we've done one-on-one IRs, we said, "Hey, how do we help?" And you've asked, "How can we help keep you more informed on the translation impact?" So we started providing monthly guidance in November with our close, and we update that at the end of the fiscal month. And we've had a lot of positive feedback on that because we see which markets and which currencies. And we want to give you that update on a regular basis. So we hope you find it as useful as we believe it is. Let me comment on the results by first discussing our total sales force, which is the driving metrics of the direct sales company. We ended the year with, knocking on the door of 2.9 million sellers, up 4% versus 2012 [ph], and that was a 4% improvement over where we ended the third quarter. And this puts us in a much better position coming out of the gate in 2014. Sales force size continues to be the driver of sales. In Slide 5. I wanted to give you a little bit more texture on what we do with regard to moving our sales force ahead in the future. Really there are 4 elements that really contribute to this process. We basically call it ROAR

[Michael S. Poteshman:]

Thank you, Rick. As highlighted in our release and by Rick, we came in with fourth quarter sales up 5% in local currency compared with our outlook range of plus 5% to 7%. Versus last year, the biggest contributors to our growth were Brazil, Indonesia, Tupperware Mexico and Venezuela, while our most significant decreases were BeautiControl in the CIS, in Germany and by Fuller Mexico. And Rick has talked through the highlights of what we have going on in each of these units. Versus the high end of our range, our bigger upsides in sales were by Tupperware South Africa and Venezuela, while we were down more significantly versus what we had included at the high end in Brazil, where we were still up significantly versus last year, just not by as much as we had foreseen, and we were down in the CIS, Tupperware United States and Canada as well. Looking at our largest markets. There was no change in 2013 in the list of businesses where we sold $100 million or more. These were France and Germany in Europe; Brazil, both Mexican units and Tupperware U.S. and Canada in the Americas; and Indonesia and Malaysia/Singapore in Asia. Among this group, Indonesia joined Fuller Mexico as a unit with more than $200 million in company sales, and as Rick said, was, in fact, our largest business unit in 2013. On Slide 10. You can see that our diluted earnings per share without items at $1.81 was $0.02 below the low end of our range, but this reflected $0.03 worse of an impact from exchange rates compared with when we gave our guidance. We did lose some return on sales in our segments versus what we had expected to do, and this came most significantly in Brazil and in Malaysia. In the case of Brazil, we had a higher-than-expected take-up on more heavily promoted items. We're seeing the impact of higher resin costs in local currency, and we're working to handle higher costs associated with outsource production as we've grown. In Malaysia, we also had a big take-up on a promotional offer, and we had higher than expected costs from an incentive trip. There was an offset to this in unallocated corporate expenses, mainly due to lower-than-foreseen management incentive expenses, and our tax rate benefited us by $0.03 versus the rate we had included in our outlook. Although I will note the rate for the quarter without items was still about 1 point above last year. Versus last year, our diluted earnings per share without items was up 12% in local currency and 6% in dollars. Our pretax return on sales was 17% in the quarter. This was down 20 basis points from last year's fourth quarter in dollars. But setting aside an approximate 25 basis point negative impact from translation FX and about 35 basis points from the negative impact of higher interest that was primarily associated with the longer-term debt we sold in March 2013 in our raised leverage profile, our pretax ROS would have been up by about 60 basis points. This reflected lower unallocated expenses associated with the lower incentive cost offsetting the impact of the higher cost in Brazil and some difficult comparisons in Europe versus last year. This included lapping an accrual true-up in France in 2012, aggressive spending by Tupperware South Africa to grow and motivate the sales force and elevated costs in CIS in light of the motivational issues surrounding the entrepreneur tax in that unit that Rick talked about. Turning to our cash flow. We had quite a good year coming in with $263 million of cash from operating activities net of investing activities. We were above our range we gave in October, where the high end was $250 million, which most significantly reflected lower receivables in light of our sales levels and their timing. Our cash flow also compared favorably with 2012 when we had cash generation of $234 million. We repurchased in the open market in the quarter, as planned, $75 million worth of stock, buying 832,000 shares at an average cost of $89.97 per share. And for the full year, we had $375 million of open market repurchases buying back 4.6 million shares at $82.25 apiece. Looking forward on these items, for cash flow from operating activities net of investing activities, in 2014, our outlook range is $250 million to $260 million. This is built up in relation to our net income with assumptions for working capital growth in light of expected sales growth and capital spending of $70 million, which would be about $15 million more than depreciation. As for share repurchases. About half of our $375 million open market repurchases in 2013 related to going from being at about 1.35x debt-to-EBITDA leveraged as of the end of 2012 as we aimed at our new target of 1.75x at the end of 2013. As laid out in one of the attachments on our press release, as of the end of 2013, we were actually at 1.8x on this measure. Our full year repurchase expectation for 2014 is to do $185 million, of which most will be in the fourth quarter, consistent with our pattern of cash flow generation and considering our dividend payouts that happen every quarter. In that light, we've included in our outlook $10 million of repurchases this quarter. On Slide 11. You've seen that we increased our dividend today. That increase was in line with our announced approach to pay off 50% of our diluted EPS without items. This is part of our overall capital allocation strategy to of course first fund our operating needs, to then fund the dividend and then with remaining cash flow availability and in line with our leverage target to repurchase shares. In 2014, dividends and share repurchases together would lead to over $6 per share going to our shareholders. Turning to our outlook in Slide 12. You've seen in our release that we've gone with a 5% to 7% local currency sales increase range for the year. As Rick highlighted, we continue to believe that over the intermediate term from 2015 forward, that we'll grow our sales in the 6% to 8% range. But given our fourth quarter results, our current sales force size advantage and the trends that we see, we have concluded that the right range for this year is the plus 5% to 7%. The longer-term expectation still contemplates about 10% growth by our emerging markets and a low single-digit growth by our established markets, which is what we've said previously. On Slide 13. In terms of our earnings per share, our full year diluted range without items is $5.51 to $5.66. This includes about a 50 basis point improvement in operating margin in local currency, offset by hits from translation FX and from higher net interest expense until we lap our March 2013 sale of the $200 million of senior notes due in 2021. Taking it all together, at the high end of our range due to the offsetting factors, this would put our pretax return on sales in dollars at 14.1%, the same as 2013. We've included in our outlook a 25% income tax rate excluding items, which is up from 23.8% in 2013. As we've said before, we expect our rate to rise over time by a few percentage points to 27% or 28%. Also on the 2014 versus 2013 EPS comparison, there is between a 4 and 5 percentage point benefit in 2014 versus 2013 from less diluted shares coming from repurchase activity, from 2013 having a full year impact and from the partial year's impact of 2014 repurchases. At the high end of the range, there would be a 13% increase in local currency diluted EPS without items and a plus 4% in dollars after a now $0.44 hit from foreign exchange rates on the comparison. Included in the full year guidance is net interest expense of $40 million to $41 million versus $38 million in 2013 and unallocated corporate expenses of $67 million compared with $62 million in 2013. On a segment basis, we foresee local currency sales comparisons of even to up a couple percent in Europe, a high-single-digit to low-double-digit increase in Asia, a mid-single-digit increase in Tupperware North America, a mid-single-digit decrease in Beauty North America and an increase in South America of about 20%. We foresee modest improvements in return on sales in local currency in all of our segments, other than foreseeing a decrease in Beauty North America from negative volume leverage. I would like to take just a minute to go through how our assumptions flow through to get to our EPS guidance. As laid out on Slide 14, we start with our prior year actual result. We then add or subtract the FX impact on the comparison with the current year in order to start the -- or state the prior year number at the current year's rates. Since this is where the rates actually are, we consider this starting point to be where we need to work from. You can see on this slide the $0.44 negative impact from rates for 2014. We then have an increase from the impact of higher sales, an increase from the impact of improved return on sales, a negative impact in this case from the change in our tax rate and an increase from having lower diluted shares. Turning to the first quarter outlook, we also foresee a local currency sales increase in the 5% to 7% range, with a diluted EPS range without items of $1.13 to $1.18. At the high end, this would be up 13% in local currency, and even in dollars, after a $0.14 negative impact on the comparison from FX. Slide 15 lays out the elements we've spoken to in our longer-range outlook. Then finally, on resin, in the fourth quarter of 2013, we had a negative impact in cost of sales from higher resin cost of $4 million. This was $1 million more than what was in our guidance and brought the full year impact to negative $7 million. Our current expectation is that we'll have about $175 million run through our cost of sales in 2014 in constant currency, and that it will cost us about $10 million more than it would have in 2013. About $4 million of this is in the first quarter, and then it goes down from there. And with that, I'll turn the call back over to Rick.

[E. V. Goings:]

Thank you, Mike. I know it goes without saying all these movements of these different currencies in the world could kind of make somebody go blind. We're used to dealing with it, and the #1 way you deal with it is you manage your business in local currency. You come up with hedging strategies where you try to mitigate what can happen with regard to translation. We try to source locally our products, and we try to -- even our raw ingredients in many of our markets. We hedge known transactions. But I'll tell you, our -- the only experience we've ever had at hedging translation was in the mid-90s, and it was a mistake. We'll never do it again. That's why most companies don't do it. We do know that over time it generally is neutral. Although this is -- we did 1 study over a 10-year period, and I think it was $0.05 off over that 10-year period of time. But it's a difficult year with regard to that, but not when you manage your business in local currencies. Let me -- I'm going to turn it over to Michael Tziallas. The reason I want to have our country -- and I've done this now when I'm in India, Brazil, Africa, numerous countries. The reason I want you to hear it from some of our Managing Directors is I don't want to take them out of the field to come to an analyst meeting where we do a show and tell. But when I'm in these markets, it doesn't take more than a couple of hours of their time for them to be part of this. One of the reasons I want to you hear from these people is all a company is, is a collection of people. And I think we've got some of the best and brightest, and we've been working on it with my 20-plus years with this company, and it's to illustrate the strength of our management teams. I've got to tell you, a direct sales company shouldn't. It's such a unique industry. If a company has to recruit leadership people from the outside, they're doing something wrong. You've got to grow from the inside. Rarely do we get managing directors past in their early 30s. They grow up functionally, then they get cross-functional training, they become general managers, and we move them on. I -- for that reason, we've got 5 -- I'll be here another 5 years or so. We've got 5 succession candidates for me. Only one is an American -- from all over the world, and they will have been different positions from functional positions to running portfolios of small markets to big portfolios by the time they get the nod of CEO. Michael Tziallas is Managing Director here in Italy. Mike's in his early 40s, and yet he's got 18 years with the company. He has had his ticket punched in our Greek business, in Switzerland, in our German business, where he was head of marketing. He has most recently the head of our Austrian business and led that business to incredible double-digit growth. And now he's running our Italian business since 2011. Mike, let me turn it over to you. And share a little color on our business here.

[Michael Tziallas:]

Thank you, Rick. I'm very happy to share with you what I think have been the key changes that have enabled Tupperware Italy to go from, let's say, small to no growth in sales to the high-single and double-digit increases that we have achieved over the past 3 years. And Slide 17 has several key facts about Italy as a country which I think are very important for you as well as our business model. Italy has a population of around 60 million. It is ranked fourth-largest economy in Europe and is also, and this is very relevant to us, fourth-largest direct selling country in world. It is a culinary country with an appreciation for quality. The people in Italy tend to be highly communicated with a strong sense of family, friends and high emotions. I would say that this creates a great environment to enable Tupperware to perform well here. We have had the presence in Italy for 50 years. I have to say that Italy is one of the first markets that Tupperware entered 50 years ago. However, unlike a number of our European markets, we didn't really have the right formula for the market, and we had a large number of small, home [ph] distributors and less of a focus on the culinary culture and the part which is, for us, of course, the preferred selling method. With the changes I will be discussing that we've recently implemented, we think we now have the right formula. As a result, we are attracting, recruiting and retaining people in our sales force that appreciate quality products that can be easily demonstrated in a fun and relaxing party atmosphere, while in the same time, providing a very dynamic earning opportunity. Just to give you a good idea of the progress we've made over the past 3 years that I have been here in Italy, here are some important statistics. Tupperware brand awareness in Italy is around 80% today. We've performed the marketing research last year. It used to be 40% 3 years ago. However, the actual penetration, meaning households that own a piece of Tupperware, is only around 45%. And I say only because, for European standards, that's quite low. We estimate the percentage of sales coming from parties is now around 70%, up from 50% 3 years ago. This has been achieved through continued focus and training to the party, which is the preferred selling method for our Italian Tupperware business. And because of that, our party average are just under $400 today, up over 60% that was -- used to be 3 years ago. Looking at Slide 18. You can see that our sales office is in Milan, in the northern region of Italy. We have today 48 distributors, of which 28 are mega distributors, which are the same as traditional distributors, but much larger and tend to be much more profitable. We function under the same distributor model that most of Europe does, with distributors supported by team leaders and unit managers, and notably, a total sales force of 30,000 consultants. The colors on the map get darker, you will see that on the slide, just to illustrate higher sales volumes. Our higher volumes clearly come from the north area of Italy and the deep south area of Italy. And as you can see by the lighter shading in the center, lies an important area of growth opportunity. If you go to Slide 19. You see an example of one of our distributors. The average size of our distributors has increased 75% versus 3 years ago. We have transformed our distributor base, reducing the number of distributors by creating fewer but for sure larger mega distributors. These mega distributors have a stronger focus on sales force growth and leadership development through specific initiatives, training and personal development. But on the same hand side, they have the ability to invest the results in the growth of our Italian business. In Slide 20. I would also like to take a moment to talk about our use of our celebrity chefs in Tupperware Italy. You know very well that the Italians are fashionable people and image is very important. We are really using our chef, Mattia Poggi, to help change the company image to new, fresh, young and modern. We have found utilizing chef Mattia in our catalogs and recipe booklets, as well as at large and small sales force events, help excite the sales force. I would like to say a small thing here. I remember one of my bosses once said, "In Austria, it needs about 5 years for the people to implement the blueprint. In Italy, they have fashion shows every 6 months, so you better be fresh every 6 months." And that's what we are trying to do now with our celebrity chef. And we are trying also to reinforce our promotions locally, inviting sales force to perform and to attend cooking classes and training shows with Mattia Poggi. In Slide 21. Gives you an idea of what items are currently included in our sales force demonstration kit. The demonstration kit in our business is very, very important. The product that you are offering to a new consultant is not only a reward. It's actually the path to her successful career. On the left side of the slide, we show some of our top products in 2013. You can see that most of these are products designed to be demonstrated at the party and reinforce our culinary culture. If you want to see a little bit of the road ahead for Tupperware Italy, on Slide 18, even though today our brand awareness for Tupperware Italy is around 80%, our business is mostly focused in the northern and not [ph] southern areas. As I mentioned, penetration for Italy is only around 45%, and we have a very low penetration in the center of Italy. I can mention an area I think you all know. Tuscany is not only a dream destination for vacation, it's also the richest area of Italy and also the most culinary area of Italy. And for us, the last 50 years has been an area that, unfortunately, we have not been able to enter. Over the next 5 years, we will open 4 new distributors in this region to start recruiting sales force and growing sales with a strategy that we are applying from 2014. We will also focus on an urban strategy for penetration in Milan, Rome and Napoli, focusing on products that help busy working woman by making their lives easier, but also making sure that our product and our opportunity is much more easier for people who live in big cities. And like other established markets, we will continue to look for new products and new product categories that will help us excite our sales force and grow our business. And now I'll turn it back over to Rick.

[E. V. Goings:]

Michael, thank you very much. Before we open it to Q&A, let me make a couple of comments I think that are relevant to our business. We were at some of the discussions that went on at the World Economic Forum in Davos. As you know, pretty much the stage at Davos is represented by markets from around the world. And lots of discussion on what are the some of the most significant issues. Of the 5 top items we talked about, 2 of the items really hit our sweet spot. And there was a lot of conversations about the growing gap between have and have-nots in the world, the growing affluent classes and those who have very little. Our business, and there was conversation on this, our business model really is set up to assist that. Most of the new job creation is not coming from traditional methods, and they're looking for more entrepreneurial growth, and that's what we do. The millennials, at the same time, are also looking to become entrepreneurs. And we're well positioned, particularly in the emerging markets, for these middle class that -- people that want to have a different lifestyle. She can come into Tupperware. We'll finance her. She can move up to becoming a manager, a team leader or distributor. So it really is beginning to work there. But adding on to what Michael said, we have big meeting rooms today. [Indiscernible] yesterday in Milan, with more and more, as I look out into the audience, younger women, that are, even here in established markets, looking to become entrepreneurs. So I think we're in a sweet spot, and this is going to assist us in Tupperware in the future. The second thing we're talking a lot about at Davos is the continuing subject of gender parity. Even the President noticed, in watching his State of the Union, even brought this up last night. I'm very pleased with what we're doing with regard to this. You heard my comments with regard to the Global Fairness Initiative studies, and not only in Mexico but Indonesia. But I'm pleased with the direction we're taking, not only within sales force in growing numbers of women, but in our management team as well. As I joined the company, we had basically 1 woman as a Managing Director. I'm pleased to say a growing number of our officers and leadership team are women. Of our Group Presidents, 2 of our 3 Group Presidents now are women, the Head of the Americas is a woman, the Head of Asia Pacific. And we're not doing this to check the box that they're a woman. We're doing it because these are dynamic leadership people. As I look into our markets, Malaysia/Singapore, President of that business is a woman; Indonesia, both of our Beauty businesses; in South Africa, in Australia, in France, run by women; Venezuela, Brazil, Argentina, Czech Republic, Poland and even Muslim Turkey. Very interesting, 2 of the largest Muslim populations in the world, Indonesia and Turkey, both of those are run by women. So one of the things I think that is most important about Tupperware and the key to our competitive advantage is we are focused on growing talent. And we're seeing it, and that's what's contributing to our results. Mike, we'll turn it over to Q&A. And again, the hard questions go to you.

[Michael S. Poteshman:]

Got it.

[Operator:]

[Operator Instructions] Your first question comes from the line of Jason Gere with KeyBanc Capital Markets.

[Jason M. Gere:]

I guess I want to talk a little bit about the margin side of the business. Obviously, the top line, you still hit that sweet spot of that mid- to high-single-digit organic sales. But it just feels that the cost of doing business in a lot of your markets is getting a lot more challenging. So I guess the question I have is, have -- what are you doing, like internally within the company to kind of challenge your employees to find more cost cutting? Or have you thought about anything more on a broader scale like some of your competitors have done to maybe find more cost cutting that it gives you more flexibility to reinvest in the businesses as you need without kind of impairing some of the EPS as we're seeing fiscal '14 maybe shaping up to be that way?

[Michael S. Poteshman:]

Yes. Jason, we're doing quite a few things. So let me run through that. And first, to point out, that in the fourth quarter 2013, while we did have a drag from this translation FX and from the higher interest expense, our local currency margin from operations was up about close to 40 basis points, so not too bad there before those drags. In terms of what we're doing to manage our businesses, in light of the environment, as we did our planning for this year, we were more careful to look for near-term payouts from our strategic investments. You've heard us talk before about how we split the drop-through on higher sales between what we're going to keep and what we're going to invest. So we were very cognizant of the external situation and what was going on with our businesses there. So that's number one. More specifically, while we're not doing the kind of broad-based re-engineering that you were sort of alluding to, we are looking closely on a market-by-market basis of where we are with our value chains and benchmarking across our units to be specific on where we need to improve things. So you've heard us talk before about the greater opportunity, normally in our DS&A lines or SG&A, as you might think of it, and that's because a greater proportion of those costs are fixed. So we're looking to get more leverage and more effective promotions, as an example, to be able to come out on the other side. But it is much more on a market-by-market basis.

[Jason M. Gere:]

Okay. And then as you look at the margins, the ROS this year being flat, can you kind of parcel out between gross margin and SG&A? I mean, if the organic sales are going to be in that 5% to 7%, I would think there would be some SG&A leverage in the model. But I was just wondering, as you talk about some of the commodities and things like that, can you maybe give a little bit of color just between gross margin and SG&A, how we should think about that?

[Michael S. Poteshman:]

Sure.

[E. V. Goings:]

Okay. Let me take the first part of that, Mike, if I may. The first piece, we're -- our guys have done a great job with regard to gross margin. That's not where you're really moving [ph]. And the biggest thing that I want to point out, in a direct selling company, it is really important that we continue to move this top line of the business and grow. When you see direct sales companies really focusing on, mostly on expense reduction on it, it's because they're having problems growing their top line of the business. It's a big warning signal. For us, I'll tell you the best thing that we could impact our margins on is not our SG&A. It is our weak sister markets right now where we used to -- we have a benchmark in there of an ROS at 15%. But I can take you through, starting with our Fuller business, where we've had to invest more in our Fuller business and we always averaged a 22% ROS. That's down, and we've got to get that business growing again. And it's not the next quarter ahead. We're kind of in a reactive position to what the market leader there is doing. Yet we're unwilling to get into a discount battle there, so that compresses it. But there are a number of markets there that are less than our 15% range. We don't have to hit on all cylinders to get to the kind of double-digit growth to get into that mid, that 14% area of pretax earnings. But we've got to get some of these weak performers, CIS, Fuller, BeautiControl, these -- U.S. business, we've got to get these businesses operating at plus 15%. Mike?

[Michael S. Poteshman:]

Right. And, Jason, to address a little bit of what you said on the broader part of it, on gross margin, we -- I highlighted that the resin impact that we see year-over-year in cost of sales is about $10 million. And so we go against that by managing the mix of products we're selling and the promotional structure that we're using, and then we do also price in line with consumer inflation. And so that is meant to come together and get a better result. And then to Rick's point, it's a unit-by-unit process where we aren't performing well. And in some cases, our margin is not as high as it should be, and there we need to do more to have a better outcome in those specific units. Likewise, on the DS&A line, there are some costs that are in nonlocal currency. And so we have to manage those, and that's considered in our outlook. But with more of our -- a higher share of our cost in that caption fixed, in those units where we're struggling, a lot of times that's where the leverage needs to come from, is more on the DS&A line.

[E. V. Goings:]

Jason, don't expect us then to have any re-engineering program. We feel good about our business model. We feel bad with how some of our units are doing. And that's where we're throwing a lot of resources at time and energy, get those businesses perform in the right way. And I guess the -- my experience has been, okay, you're going to see just like South Africa and a number of these. You're going to see them move back into the winner's circle here as we move forward, but you're going to see some new ones crop up on us. And we're trying to become better at anticipating these markets before they go into a decline. And I think we're getting much better as a company and as a management team. And that -- but it is eternal vigilance.

[Jason M. Gere:]

Okay. I guess just one follow-up question, and then I'll hop off the call. Just wondering, your guidance on Asia, saying it's going to be up high-single digit to low-double digit. And I guess I've always kind of viewed Asia as a lot of growth opportunity there, the emergence of the middle class. As you look at 2014, within this guidance, can you see a scenario where there would be a re-exploration in '15? So maybe '14's guidance kind of reflects just some of the near-term fear and trepidation that's out there. But there should be stronger growth, I think, over the next couple of years.

[Michael S. Poteshman:]

Yes. Jason, I think one of the elements -- I know one of the elements that's in there, we were up 12% in the fourth quarter and did very well for the year to your point. And one of the ones that's dragged us in the third and fourth quarter that we talked about, is having India up only low single digits. And clearly, when we look at the opportunity there, it's not one of the markets where we're yet over $100 million in sales. But with the population, the rising middle class, the things you've talked about, that's a huge opportunity that we've talked about before. So yes, we should see better results there going forward. And when you look at the share of the businesses, the share of sales from businesses that are in emerging markets in Asia, which, again, I know is what's you're going towards, it's very high towards the emerging markets. So we should see, all things equal, a greater share of growth coming from places like Asia and South America, which is what we've seen.

[Operator:]

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

[Linda Bolton-Weiser:]

Can you just talk about, in terms of the currency hits, your sales and profitability? I mean, a lot of the other multinationals are suffering from the same thing. But in many cases, they are hoping to price up to be able to offset some of that. It doesn't seem like you're including that at all in your thinking, and I'm wondering why. Because I always understood you had probably more pricing power because you're a direct seller and you sell kind of high-end goods that are not price -- based on price. So can you talk about why you can't price a little bit more to offset the currency?

[Michael S. Poteshman:]

Linda, our approach has been to really price in line with consumer inflation, and that's to protect the earnings of the sales force and in light of the good value of our product and the fact that people aspire to our product. So you're seeing that our assumptions in local currency are for this 5% to 7% growth and double digits on EPS. So we're getting what the market has, market-by-market, in terms of price increases. But we don't really see that as an avenue to offset translation impacts.

[Linda Bolton-Weiser:]

Okay. And then just looking at the profitability of Beauty North America in the quarter, and I'm sorry, I missed the first part of the call, maybe you talked about it. But you're really down to very small level of profit. So I'm assuming BeautiControl is in the red, losing money at the operating profit line, and I would think that Fuller Mexico has probably declined quite a bit also on profitability. So, I mean, you're really on the verge of being loss -- making a loss in this area. So can you just talk further about how long you're willing to give this a chance to go, especially BeautiControl, which you've been on the third manager, at least, in recent years there?

[Michael S. Poteshman:]

Rick?

[E. V. Goings:]

Oh, yes. Firstly, Linda, on the other part of your question, I just want to reiterate what Mike said on the translation. We do have that pricing power in markets but -- and we manage it in local -- we manage these businesses in local currency. But at the end of the day, our issue is, when you got to convert it back to U.S. dollars, that's where we get hit. And we use our pricing power. But what you've really seen is, in Indonesia, that there -- it being down 14%. Brazil, Turkey and then the South African rand, that has been -- normally, you're at 8% to 9%, go to 11%. When all that happens, that doesn't really inflect our pricing power. That just reflects translation to us. So -- and that's confusing, but there are 2 different stories, okay? Now back to your other question. There are 2 parts to that. I feel very good about the Fuller business there. We could, I mean, I guess, we're -- we have a very nice mid-teen ROS in our Fuller business. Our issue -- and I want to see that get back to north of 20%. But we can't do it right now given the sensitivity of pricing, given the big discounting going on with the other big direct seller. We're -- so this is -- we're not going to play that game. We've got a very good management team on the ground, and we've just got to stay the course there. BeautiControl has been such a disaster for us, and you're correct. We've been through 3 general managers there, and we are in the red in BeautiControl, but we are committed to that business. It's a very good product line. It's a very good market. We tripled the size of that company since we bought it and have now given almost all of that back. But we're all going to put a stick in the ground, and it's a market in that kind of a segment, we believe, worth being in, and we utilized a lot of the R&D from some of our other units to drop into BeautiControl, and then we translate it into some of our other beauty units from BeautiControl, so it's important us having the South African business. We've got the one in France, the one in South Africa. And Beauty is important to us most importantly for Latin America, where they spend more than $20 billion on beauty products. So BeautiControl, it contributes in other ways. I want to see it get back to growth. It's got a good sales model, and I want to see us do a better job at executing with it, but I'm just disappointed as you are. No, I'm more disappointed than you are. Next question?

[Operator:]

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

[Dara W. Mohsenian:]

So, Rick, the emerging markets growth was clearly still robust in Q4, although it did slow a bit sequentially, and there's been some concern, obviously, in January with some of the volatility we've seen in emerging markets. So I was just hoping for a bit of perspective on -- if you believe softer macros in emerging markets are impacting your business, the potential risk as you look forward to 2014 and just kind of your level of visibility in those emerging markets.

[E. V. Goings:]

Yes. The highest level of risk right now that we have, first thing is I -- I'm going to take it -- the -- I can't do it globally. You always have to look at the areas of the world, and then markets within those areas. For Asia Pacific, the concern is not China. We've got a very strong business model there. I think our new product program and new categories we've gotten into, particularly with water, is going well, and we've shown our ability to be able to sell higher-price, more exotic products where there isn't a lot of competition. The one I worry about more right now is, I want to get to almost to step 2. In India, it actually would be step 3. Our first decade in India took a lot of time. They had never seen any -- the only food storage category there was people buying tins. So we had to go on the ground and really start to educate consumers food storage matters and sealable food storage matters even more. Well, stage 2 of the business there, Asha took over, and we really got into more sophisticated products, more sophisticated direct selling techniques that are -- and then, we expanded the product line dramatically. We've got to tweak it. And to get step 3, what we lack there is some direct sales fundamentals that work in other Asian markets. Indonesia is much better with regard to contact programs than we see in India. I mean, if you were a distributor in Indonesia, you hold 5 separate meetings a week. You will have Monday morning assembly. There is a manager meeting that goes on. There is a new product session every single week. There's a -- I go through the whole -- that is, you would think the Indonesians are Germans. They have really got -- they've got -- they call it the blueprint, as a matter of fact. They did better at executing that than we've had in certain parts of India, where the business is a bit looser with regard to direct selling standards, and I know that's what management is really working on. Product line is fine. Yes, there's some macro stuff going on. But when you have India come in at single -- modest single-digit, third and fourth quarter, that's a dampener. That's about the only ones in Asia that I have concern on. Now I think you're going to see it continue in Indonesia. The only issue in Indonesia now is their currency. The rest of it, China, we continue to believe we'll have double-digit growth there. We've had some bumps in Malaysia, but I think we'll get through that. Philippines, we were impacted by the horrific storms there, but fine. Let me go to Latin America. The big story is our Brazil business. We continue to be up double-digit in Brazil, but you're starting to see around the edges, Venezuela, who knows. Mike and I keep talking about the impending devaluation in Venezuela. We stay in that market because we've got a sales force and we're not going to abandon them. But Argentina, recently, even though we're having dramatic increases in Argentina, the government's fiscal policy is a bit shaky right now. And then I go to the emerging markets of Africa. We're back on track again there. I feel the right direction in our Eastern European businesses. Turkey's up strongly. I think we've finally got somebody dynamic running our Polish business, which is a huge direct selling market, and we've never done anything with it. And we've got to get through this pig running its ways through the python in CIS with regard to getting managers back engaged [ph]. So there -- I've been most of these places in the last 6 months or so. That's kind of my bird's-eye view of it. Some disruption, but a lot of order out there as well.

[Dara W. Mohsenian:]

Okay, that's helpful. And then, Mike, I know you discussed your forward pricing strategy. But can you also help us parse out how much of the local currency sales growth in Q4 was driven by pricing versus volume particularly down in Latin America, given the large pricing in Venezuela, and if that was any different than the year-to-date rate through Q3 in terms of pricing?

[Michael S. Poteshman:]

Yes. The pricing in -- impact in South America was pretty big in the fourth quarter. As we looked at it, it was about 3 quarters of the increase there. And that had to do with Brazil having good volume, but not as much volume as the third quarter and earlier in the year. When we look at the overall picture on the full year, it was probably somewhere around, for the whole company, half pricing, half volume. And so that reflects pricing decisions on a market-by-market basis at different points in time rolling through the numbers still from the past, and that'll be the case going forward as well.

[Dara W. Mohsenian:]

Okay. And did that pricing build sequentially throughout the year, or it was pretty consistent?

[Michael S. Poteshman:]

Well, there was a bigger impact in the fourth quarter, clearly, in South America, which is where we have the biggest pricing impact, than earlier in the year. I think we were -- we said we were around 60% in the third quarter, maybe 2/3 in the second, so it wasn't -- it was a little bit higher, but not dramatically.

[Operator:]

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

[Constance Marie Maneaty:]

I have a housekeeping question, and then another one. Did you give -- I'm not sure if I missed it or not -- the FX impact on earnings in 2013 and what the organic EPS growth was?

[Michael S. Poteshman:]

Yes. The EPS impact in 2013 was $0.21, and the full year organic EPS growth was 12%.

[Constance Marie Maneaty:]

Okay, great. Also in Venezuela, I appreciate that you've quantified what the impact of a full devaluation to the black market rate would be. But if the devaluation is 50%, is this a linear relationship? Is there a way for us to figure it out?

[Michael S. Poteshman:]

Yes. I think it would be linear.

[Constance Marie Maneaty:]

Okay. So 50% is like $0.16, and 100% is $0.32. Right?

[Michael S. Poteshman:]

Yes. Something like that, right.

[Constance Marie Maneaty:]

Okay. And then I just have one final question. That is on Indonesia with its really extraordinary growth. What are the things that you see that could either slow the growth a little bit? Or what are the trouble signs, if any, in that market?

[Michael S. Poteshman:]

Well, the first thing that we always look at -- and I'm sure Rick will have input, too -- the first thing we always look at is how are we doing with the sales force size, and we did end the year there with a greater than 20% sales force size advantage. So certainly, the right kind of thing. We've also had good activity with that sales force and, in fact, have put in higher price levels and things as we worked that business and that's allowed us to get productivity as well. So really, what we look at first and foremost is, how is the recruiting going? Are we getting a good sales force advantage? And then are we turning them into actives? And then the next step, or it should happen at the same time, is are we getting the right kind of productivity? From a longer-term point of view, we look at how are we running our distributor structure. Do we have the right number of distributors and, underneath them, team leaders, who are people who have developed sales force managers, which is a -- sales force managers are our first level of sales force leadership? So those team leaders are key because it gives more leverage to the distributors without having to add a lot in that way. And distributors, they would have a higher cost structure for themselves. So we've been running all of that very well in Indonesia. We work closely on the supply chain as well to be able to supply, and we've been able to bring that together well, and we keep working on those details.

[Constance Marie Maneaty:]

And then just finally, is Indonesia now your second-largest market after Mexico? And where did its sales end up for the year?

[Michael S. Poteshman:]

Well, it was over $200 million in sales, and so it joined -- the other unit that we have with more than $200 million is Fuller Mexico. It's not larger than Mexico in total. No.

[E. V. Goings:]

It's our largest Tupperware business. Germany is second. But as a market, Mexico, that's because it's our Fuller business and our Tupperware business, both are extremely profitable.

[Constance Marie Maneaty:]

So Indonesia passed by the U.S. this year. Is that right?

[Michael S. Poteshman:]

No, I don't think that, that's right when you consider BeautiControl and Tupperware U.S. and Canada together.

[Operator:]

Your next question comes from the line of Sofya Tsinis with JPMorgan.

[Sofya Tsinis:]

I just wanted to follow up on Fuller Mexico. I understand that you would like to get to margins over 20%, but is that a realistic assumption given that the competitive environment hasn't really eased for a number of years? And when do you really think that you could reach an inflection point in that business or potentially make other decisions about it?

[E. V. Goings:]

So we had a 22% margin -- over 20% margin for the first 7 years, I think, that we owned that business down there, and then the competition, namely Avon's, crazy pricing. We know some of their pricing is on products that -- they're hardly 20% gross margin. How long can you continue to do that? We're not going to get into that with them. We've got a profitable business down there. It's interesting. When we sit there and look at our business, we say, "What are our issues down there?" We just did a marketing review. Very strong marketing team. Feel very good about our cosmetics, fragrance and toiletries business. Our gift business looks very good. Really decent margin. We dominate, really, in fragrance because we have higher concentration in our compounding in our fragrances. We've been moving all of our businesses more from a Fuller branding standpoint to our Armand Dupree, which is really the sub-brand that is a prestige brand, and is what women would really rather have. It's our upper brand of that. So marketing looks good. I like what they've done with regard to our distribution side of the business. Cost structure is decent. Our issue, the big lever for us right now is on the sales management side of it. We still don't have -- we have too a high turnover of our field sales managers. We still have a gap in the size of the sales force. Most of that is going to be on the sales force size -- may get easier when we don't have a competitor that's doing this kind of pricing. So we're not going to get into that. Somebody once said to me, "Never get into fight with a pig. A, you'll get dirty; and b, the pig likes it." So we're going to put our stick in the ground and keep running our business because we're going to be a quality brand down there. I mean, I hope we can be back there in 2 years to that, but it may take longer. But we're solidly in a nice position there with regard to what we've done with our branding, and I think we're really strengthening the sales management side of it. What usually happens is, when somebody gets into the discount game, after a point in time, they either give up or they go out of business. And we're not going to engage in that strategy.

[Operator:]

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

[Olivia Tong:]

I wanted to talk little bit about iTUP because -- can you all help me understand? Is that meant to be an addendum to existing training programs or potentially a replacement in some cases? And I ask that in tandem with the commentary around Indonesia doing better than India because of the high contact and the improved contact in Indonesia relative to India.

[E. V. Goings:]

Yes. Olivia, well, first thing, it's not a replacement. Never, never a replacement. It is interesting, I was showing the group this morning. If you did a thermometer like on intimacy at the -- at low end is, not Internet cold, high Internet at the top. At the bottom end, there's Twitter, then texting, then e-mail, then a letter, then a telephone call, then face-to-face contact. Contact is key in our business. Contact really is the greatest cause of keeping people active in our business. So it will -- nothing is going to ever replace us having assemblies at our distributorships out there or is this going to replace training face to face. As a matter of fact, my wife says it better than me on this, that social networking has become antisocial, actually, where people are looking for this. iTUP is really a way of having an additional method that if you went to the training session, Olivia, and then you want to get ready to -- you really want to bolster and have -- it's almost like students prepping for their SATs by taking an SAT course. You could go onto iTUP, and it would take you, first -- first of all, there's a whole section on getting started. How to come up with your list of your first parties? How do you do a memory jog or list? And it's interactive. You do this, it gives you feedback, and then you go to the next step. Then it says how to make the phone calls. You do the invitation. So it's -- you've got this is in a class, but this is really in addition to it. And then when you decide, "Okay, the kind of products I want to focus on are for busy working women, the UltraPlus or MicroGourmet steaming systems," you can sit there and take that online and with iTUP, and so you can tell the story. So you understand, here are the different menus that you could do. So what it ends up doing is, really, is a supplement to the learning you've got and a support. And I'll tell you, the average activity level and party size when we first launched it in Germany was just astounding there. Now to Indonesia. That, I'm pleased to say, Olivia, is the market who is leading with iTUP for Asia. They're the ones who designing it, and they've done everything else with regard to their standards so correctly, we feel that they're going to do the right thing there. It's going to take us this year to get this implemented. But I've got a senior management team that are -- we call them the 2020 Vision Group, Michael is on that -- Mike Tziallas here is on that group, and we've already met for about a week on the subject of recruiting, onboarding, activation and retention. And Michael, we meet again in March, don't we?

[Unknown Executive:]

In March.

[E. V. Goings:]

March, we get back together there. So we're really looking -- how do we turbocharge this thing to a program that we can get implemented everywhere? Sorry for the long answer, Olivia, but an important question.

[Operator:]

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

[Michael A. Swartz:]

Just wanted to touch on the outlook for Beauty North America. I know we've gone through it here in detail, but just in terms of the guidance being down mid-single-digits. In light of the 2 years of kind of high single-digit, low double-digit decline we've seen, how much visibility do you have that, that can improve? And are you lacing that upon some kind of sales force to be closing that gap or greater productivity?

[E. V. Goings:]

Mike, let me comment, first piece and you end up the second piece. Firstly, because where we really had the visibility is down at the unit level, I will speak to a market -- I'll be, Friday afternoon, in Germany and Michael Tziallas here who's head of marketing there. We have -- we can see into a distributorship, and there in Germany, there's 135 distributorships. We can see into her books and we can see what the party lineup is, which means it gets right down to, "Oh, what do the demonstrators have in their party lineup?" We can see out about 5 weeks in Germany, but it's interesting. 5 weeks out, it's a little fuzzy on week 4 and 5. You get about week 3 out, and you start to have 75%, 80% certainty that you feel it's pretty good. So that what that enables you to do, Mike, is, if you see that the part -- we know what the party average is. It's a math formula. For example, here the party average is $400. You know what kind of party lineup you have set up there. You just do the math on it, and you see, "Uh-oh, we're missing some parties." And that's the way our guys talk about it. So they would drop in 2 to 3 weeks before that. They would drop in some kind of promotional incentives to get -- they need to make, for example, 10,000 more parties. What are you going to do to get -- you have a sales force of 60,000. You sit there and you understand, "I know what to do." That's where the marketing lever puts it now. Sometimes, what you'll have, like last year, weather will come in, and all of sudden, devastating storms came in, huge party cancellations. What you try to do is rebook those parties, but you lose some of them. I'm sorry to get so granular, Mike, but we manage this business, for example, by a country. And then in the country, they manage it down to -- how many regions are there?

[Unknown Executive:]

4 in Italy.

[E. V. Goings:]

Okay. And how many in Germany?

[Unknown Executive:]

8 [indiscernible]...

[E. V. Goings:]

8 regions. And under those 8 regions, each one of those regions have about 15 to 18 distributorships, and so you manage it right down to that. That's why you get granular, and that's why we have pretty good predictability. Now on a macro level, the biggest thing we will manage from visibility, size and sales force. And that's why there was a huge push. It was week 48 of the year. There are 52 weeks in a year. You figure out, it was the first week of December. All across the world, to reach a certain recruiting level and we did reach that recruiting level. Because what that sets the tone for is what kind of first quarter we're going to have because you get the size of the sales force up, you get those people trained and active, you hope weather doesn't, in Europe, for example, absolutely undermine you. Now the offset to weather in Europe is, the southern hemisphere, it's the middle of summer for them. And the more Asia Pacific comes on, when people ask me, "What's your biggest hedge against bad weather in Germany?" Indonesia is. Because it's the middle of summer for them -- in that southern hemisphere.

[Michael A. Swartz:]

Okay. And just, I guess, in terms of the -- some of the competitive activities you've talked about in Mexico, with one of your largest competitors -- I mean, did that actually accelerate from the fourth quarter? And how does that look kind of as you see it now in January?

[Michael S. Poteshman:]

Mike, the feedback...

[E. V. Goings:]

I can't give you January, but I can tell you, I do know it accelerated in the fourth quarter. Mike?

[Michael S. Poteshman:]

Yes. The feedback we've had on the beginning of the year is that there's a higher level of price discounting going on, a greater number of low-price product offers and more aggressive recruiting promotions, call it, so the prizes somebody gets for recommending somebody into the sales force. So that's not by us, but it's by the competition.

[E. V. Goings:]

And, Mike, I must add, for you to get the granular nature of it there, in a country like Mexico, we will have -- we have this very significant-size sales force, but our latest estimate is 50% to 60% of our sales force carries competition's brochures. And when you see one is -- oh, they're selling this thing, giving it away. I mean, that impacts us. She doesn't -- she's not active with us then.

[Operator:]

Ladies and gentlemen, we've reached the allotted time for questions. I would now like to turn the call back over to Mr. Rick Goings for closing remarks.

[E. V. Goings:]

Thanks, everybody, for your time. I -- we look forward to bringing you up to date. I hope some of this currency settles out, and I think that the thing I'd most want you to understand is we're working very, very hard with a couple of these problem markets to get them contributing at this ROS level. That's what's going to lead us to this -- not only this mid-teen contribution margin pretax, but it also is going to lead us to that climbing this 50 basis points per year and getting even more productive in the future. Anyway, thank you very much for your time.

[Operator:]

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