Tupperware Brands Corporation
Q2 2014 Earnings Call Transcript

Published: 23 Jul 2014

[Operator:]

Good morning. My name is Goran and I will be your conference operator today. At this time I would like to welcome everyone to the Tupperware Brands Corporation Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Rick Goings, you may begin your conference sir.

[E. V. (Rick) Goings:]

Thank you, Goran and good morning everyone. Seems unusual I am in Orlando, I think this is the first time I’ve been here for a conference call in a couple of years. I’m here with Mike and Teresa Burchfield, our Head of Investor Relations. Just back from Indonesia and off to afternoon to Mexico and I’ll comment on both of those. As usual some of our discussion will involve the forward look of our business so you know the drill on that on slide number two. As you read our release you -- it becomes apparent that we had some headwinds in selected markets in the second quarter and that mostly impacted sales. Sales at up 3%, we’re around a 0.55 below the low end of the range that we expected in April so when you put it all together it meant that our emerging markets were up 10% and established markets were down 7%. I’ll comment on some of the elements that caused this. Now on the profit side we were able to say in the range on earnings per share, this really reflects a better tax rate plus a lot of good work that’s been done by our management teams across the world with cost in the efficiency side of our business and it also speaks to the attractiveness and the flexibility of our business model and the power of a blended portfolio and that’s what we have been working towards. So then in spite of what happens out there when you put it all together the key thing you see is progress. The key themes through the quarter if we were having a personal conversation I would say there is four main stalwarts. On the plus side first thing I’d say well we continue to perform well and a good lead number of big and important markets and importantly we saw sequential improvement in the quarter in both of our large beauty businesses for the Mexico and BeautiControl. Secondly on the negative side, while some of our markets like Germany, CIS which is mostly Russia and TUP U.S. and Canada didn’t perform well. We do have actions in place and are already acting on them in order to change the momentum of the business. We feel good about that. I’ll go over those actions in a minute. Importantly we believe that the issues in these markets, Germany, CIS, TUP U.S. and Canada are not long-term issues and we expect progress in a matter of quarters and not years but I’ll get into that, now we always do, we always get that right. No, but our expectations really are based on experience based actions, I would call it. Third, so what we are end story we can and we do well in emerging markets, think China, Indonesia, Turkey for example and established markets Italy and France we’ve been there for 50 years and there’s still white space for us. And fourth and finally we continue to generate good cash flow and return significant amounts to our shareholders through dividends and share repurchases. Now let me take a deeper look into the portfolio. We saw mixed results as mentioned and I’ll talk about those and then Mike and I will talk about some of the outlooks in these markets. If I go to sales force size and you turn to slide four, looking at that we’re at 2.9 million sellers, that was up 5% versus last year. You did see the active sales was down 1% but that was a percentage point improvement from the first quarter and as you do see on that slide four the five point difference between active and our sales increase reflects three points from mix of countries, the sales came from and two points from productivity, primarily reflecting inflation driven pricing in our South American segment and you’ll remember it’s important for us to keep our prices at inflation to protect the sales force earning opportunity. I might add that on this whole thing of sales force size so much conversation is about recruiting but you have -- internally we’ve talked about it, we’ve got a global focus on not only keeping that recruiting gates open but like never before in the years I’ve been here, not just recruiting but retention. It’s a focus on how we on-board them, how we activate them and even the retention levers because when you put those two things together that’s where you get to these double-digit sales force size increases. It’s not just the front door. Now turning to slide five, our Europe, Africa and Middle East segment the standouts there clearly, Turkey and our South African beauty business, Avroy Shlain, both were up 30% in the quarter. Italy also performed very well and we’ve been there 50 years. I think Michael Challas and his team, that just shows that you can wake up a market and we’ve never had a big business in Italy and for the first time during my time here I think it’s set to be one of our bigger European businesses and move much more in the direction of France, more toward rather than a Tupperware bowl company to a company that really is in many different product categories in the house and in the kitchen. By the way sales in each of these units, I just spoke about were supported by underlying strong performance indicators, sales force size, leadership level growth and also activity. Interesting in Europe, Africa and Middle East, if I turn to some of the smaller markets in the Middle East in spite of some of the political tensions in the area even countries like Lebanon and Egypt developed 20 plus percent sales force growth in the quarter with a significant increase in the sales force size. By the way on that same chart, on slide five you see South Africa was off 3% on our Tupperware business. We have really had some actually very difficult strikes going on by unions this week, this last week even the front gates of our manufacturing headquarters were bombed out. The new good news is it appears this week things have settled. So we really had some big service issues but we have been there a long time and we have navigated through such situations in the past and we have got a great South African business. We are pleased also with France. It matched the prior year, I’ve got to tell you given the French economy matching prior year feels like a win and it was improvement from the first quarter where we were down modest single-digit with 11% sales force size advantage at the end of the second quarter. In our big French business we are in a good position to continue our positive momentum. Now let me turn to Germany, that was such a disappointment for us, down 29%. And let me drill down on the issue. Firstly I’ll bifurcate them between externals and internals and there is a bit of both there. I have lived and worked in Germany for numerous years, so I have some sensitivity to how things go there. Particularly with regard to the externals, we can’t change the calendar when holidays are. But we had in the second quarter what they call in Germany, Bridge Holiday Weekends. We had five of them. Now that is -- and it’s a bridge usually when it’s a three or four day weekend. Now how that exacerbates our business is that we generally do it’s a relationship selling business via the party. We on average do 70% of our sales on weekends. And again from my exposure of living there when there is long weekend generally Germans don’t stay at home, they are on the road so it’s hard to have friends, neighbors and relatives over for a party. We had Easter that went from Friday through Monday, we had Labor Day in Germany which is a May Day, Ascension Day, which is May 29th which is a Thursday but it also includes a Friday. We had With Monday and I don’t even know what that is, and then finally Corpus Christi Thursday, June 19th I mean so there is only 12 or 13 weekends in a quarter and we really lost almost half of them. Now let me turn to internals because that was some of the corporate as well. Three major things; number one, weak activity from new consultants. Some of the new recruiting techniques we brought -- that we used in the first quarter brought in quantity but with not the same intimacy of relationships and we are fixing that. Number two, similarly our new product program, while we thought it was wrong enough it wasn’t. And then thirdly, and I think this is the biggest factor, our management team there are very experienced and in place for a long time and frankly in our kind of a business there is a -- it’s a bit of head and heart and the right level of passion versus logic is what really drives our business and frankly our assessment along with a dear friend in our Managing Director, George Jaggy believes it we’ve become too structured in our approach and too logical European management George and I’ve made the decision therefore that -- here are the actions we have taken in Germany and we are feeling much better about the third and fourth quarter. First, we have made management changes. We have moved up into the organization some of our young leaders who are in their 30s and have a long serving in Tupperware and have been trained and a couple of them in multiple markets, a new Managing Director, a new Head of Sales, and a new Head of Marketing, Merchandising, [inaudible], I know each of them very well and they're energy driven people but very smart and they understand our business. Second, and we've already made these actions and they are in place as at 1st of July. Two, we're refreshing our marketing promotions to energize more. And thirdly, we’ve brought forward some new product introductions to make sure that are going to happen in the third and fourth quarter. I'll be over there next month with thousands of them and I'll be pleased to report back when we do our Q3 report. And it's my hope that we will be reporting progress in Germany at that time, still a very solid business in Germany. Now let me turn to the CIS. As you are undoubtedly aware, it’s interesting with all the turmoil and actions going on in different markets of the world, somebody was asking me what would be a good degree or course of studies to become senior manager in Tupperware. I'd say go to Georgetown and get a -- pass the foreign service exam, understand history and geography because we deal with so many different cultures and actions around the world. The environment in the CIS has been tension filled, particularly this last year and even more recently and I am pleased to say our guys navigate through such externals where it’s usually moderate negative impact. However our business has been at the very early stages in the CIS of a turnaround and these events have dampened those efforts. And then you add to that in Kazakhstan which is about 20% of our business, they have a 20% devaluation. The recent Ukraine which is about 7% of our business, all this at the very least is a distraction. Now what are we doing? There is some wonderful management changes that our new incoming Group President of Europe, Africa, Middle East, Gavin Little has made, got a great Managing Director who is experienced in the company, dynamic head of marketing and communications. We're working on distributable structural changes. This started two years ago and that was really combining some of the smaller less profitable shifts way out in the euros in some cases where it could be a three day train ride to get there, with the larger more profitable one. Gavin was saying to me the other day, actually when talking to the big distributors and talking about sales trends, they kind of say to him what's the problem, we're doing fine. Well we've got to get our structure right there. Lastly, better merchandising, had way too much discounting in the past and that would cause consumers to sit there and wait for picking, cherry picking of deals. So enough about CIS. Of note, the comparisons in Germany and the CIS are going to be much easier in the second half of the year, so we do expect good improvements in both of these units starting in Q3. Now let me move to Asia Pacific where we saw strong growth in China, up 28%. There you know our outfit model where we held parties in these outlets, now we have 4,500 of them, we're a superbrand and the outlets were up 16% from the end of June last year. Water carrier -- category continues to be very, very important there. We sell $1,000 nano water filtration and we're doing very well there. Indonesia, up 16% in the quarter. Now while that doesn't match the 25% CAGR that we saw in the first quarter and I guess Mike we've been seeing that kind of level for quite a number of years, this is our largest business unit with over $200 million in annual sales. And I would say you can't expect continuing to lap 25% year-over-year when you get a business that size but still double-digit growth. I was there for five days last week doing a leadership training seminar with 25 of our agent high performers including Indonesians and I liked what I saw. I took the opportunity to spend an afternoon there and Mike last month brought one of the senior partners for PwC also to do a business review on a routine basis of our orders procedures and businesses and they left with the same feeling. What happened that brought up to 16%, first we had a very strong price increase there which really hurt consumer spending. We needed to do it because increases in price of our product and to keep solid our distributor earning opportunity but it was a stiff price increase. Also there were the distractions of the Presidential elections. Again I was to meet with the Foreign Minister, Friday of this last week who I know from Davos and there was a lot of tension between a former general who is running for President and Jokowi, the Governor of Jakarta, no violence but a lot of tension. It was hard for our campaign and that meeting had to be canceled. But the good news is the election is over yesterday, just yesterday, they certified the results Jokowi is taking over and this is not a Venezuelan populace. This is a guy who came out of business, who’s educated, he became the Governor of Jakarta and he’s known as a reformer. And what’s particularly got to be good for a big business there, it’s the first time a member of the elite hasn’t been President and in the past that’s usually led to more corruption and cronyism. I think you’re going to see some very positive changes from this humble very decent man. But anyway that’s over. Third piece of our business here, new product program. We’re getting more aggressive on not just selling Tupperware core food storage and serving products. I reviewed the new products like the quick Chef, the urban chopper, microwave products where we’ve done a great job in moving to some of those products in other markets and that really speaks to serving the needs of millennials because many millennial she doesn’t cook and she knows how to cook in a microwave. So it’s going to help us in our penetration. Finally the sales management levels there in Indonesia were strong and we have programs in place to strengthen them even further. Frankly second half of the year I hope to continue kind of in the same trend that we saw in the second quarter, double-digit so looks good, Malaysia, Singapore, up 8% in the quarter. We rebounded nicely after a challenging first quarter impacted by a continuing drought and then there was a big tax change that was announced by the government. I do want to add at some point here, because often we have some issues in particularly not with non-Americans but with Americans on the subject of foreign exchange but we also sometimes have issues when I talk about things that are going on in other parts of the world that you don’t hear much about here in the U.S. Ramadan started at the end of June and continues through July and you know that’s a month long of fasting. I had an analyst once asked me why a hotel chain would impact our business and I said it’s not Ramada it’s Ramadan on it. We’ve learned to navigate through this and still have good performance and what I’ve seen already in July I think the impact of Ramadan is not going to be that significant. India, down 7% in the quarter but strengthening from the first quarter. It’s going to take some time to get this back on track, very strong foundation, this market’s potential. This is going to be one of our biggest markets and again I would comment on what’s going on externally. Big focus second quarter on Prime Minister elections, Narendra Modi won, this is very important if you read anything like in the Economist, important you have to go to back to the assassination of Indira Gandhi in ‘84 the last time you saw a strong pro-business leader in India. And a very interesting thing and I want to quote it, they said the most important change in the world over the past 30 years in the world's economy has been the rise of China. The increase in its average annual GDP went from $300 to $6,700. Over that same period of time hundreds of millions were brought into the world economy and that changed the geopolitical nature. However India’s GDP was the same as China's three decades ago and now it's less than a quarter of the size. So bringing in a leader who -- it's a hard country to manage because you have powerful states there, by contrast he has huge authority and we think within his party and within the country we think he can help make this work better, and make it easier for us to business there. So India is going to be important and we feel good about its future. Looking to North America, Tupperware Mexico, down 3% in the quarter in local currency. However we have a big partner there, big food chain called [Soriana] that was a 5% drag on their promotion program and we built customers. They go into Soriana, they can earn a Tupperware product if they buy something there and that bounces back them to a party. So really works together with us. But that was a five point drag on it. The core business actually grew in the quarter for Tupperware. For Tupperware U.S. and Canada, while down 6% in the quarter sequential improvement over the fourth quarter and very importantly, while it’s modestly negative impact on the top line we intentionally did not invest in the kind of discount and they did in the second quarter last year and that's why it was much better profitably. And discounting in our industry is unsustainable so the underlying progress is good. Now the North America Beauty business; BeautiControl delivered an 8% sales increase in the quarter, Simon Hemus our President that was at their big annual celebration last weekend. They had doubled the number of consultants there that they had the previous year and just maybe that the wind has turned in that business. I think we got the right leadership there. And this is by the way is the first significant quarterly increase since 19 -- it feels like 1908, Mike, but it’s since 2008. Fuller business, I'll be there this afternoon, again was flat and we've been fighting one of the competitor’s discounting like mad and when you're not discounting and you get a flat sales and you're moving toward a higher margin skincare and fragrance products this is good news and good for brand building. This was a 9% improvement on the first quarter. So we still have work to do in both of these units but it's good to see a trend change. Just a sidebar note as you know in the last quarter we decided we had a Armand Dupray business that we ran out of West Coast of the U.S. frankly it was so small it was a distraction. We decided to shut that down. Now finally let me turn to South America. Brazil in spite of the World Cup, Brazil was a standout performer, there were up 22%. We have some customer service issues there. We just moved in one of our strongest operations people there and are already hearing anecdotally some great things. That's going to be refining our warehouse and distribution operations. So I feel good about that business. Venezuela, up 90% in the quarter, most of that as you know is prior to -- it has to do with the Bolivar, Mike will talk about that. You saw the release that we're going to make moves to go to the SICAD II rate and Mike will cover that. But I’ll add now that we have made a commitment that we are going to minimize the money we lose in Venezuela but we have got a sales force of 70,000 there and once we exit a market it’s almost impossible to come back and get any kind of momentum. We’ve got to learn how to navigate though it while we minimize the incremental investment in a company. Anyway let me turn it over to Mike and then I have got some comments after that and then we’ll do Q&A. Michael?

[Michael Poteshman:]

Thank you, Rick. And first having a closer look at our sales comparisons, are up 3% in local currency in the second quarter, include good increases in Brazil, China, Indonesia, Turkey, Venezuela and then on the downside, CIS and Germany. Rick has spoken about these units results, including what we are doing to improve things in CIS and Germany and our expectation of much better comparisons in the third quarter than in the second in these two units. Versus the hind of our guidance range for the second quarter we had meaningful sales upsides in Italy, Turkey and Venezuela with drags in CIS and Indonesia where we were up 16% but not as much as we had included in the high-end of our outlook range. Germany and Tupperware U.S. and Canada also were below our expectations. Turning to side seven our diluted EPS without items at $1.47 per share was towards the high end of our April range even before considering the FX at negative $0.14 versus last year for the quarter, was $0.01 worse then in our April outlook. So despite being 1.5 points below the low end of our forecast range on sales we were well into our earnings range. The better than expected profitability came from several factors; we had a better than forecast value chain rebound in Tupperware North America where we spent very heavily last year and had a much more normal approach this year. Higher sales and profitability in South America that came from Venezuela and lower than expected unallocated corporate expenses from lower incentive accruals given our performance and our forecast and then $0.02 from a half point lower than forecast year-to-date tax rate. Versus last year second quarter our adjusted EPS was up $0.01 and 1% in dollars and $0.15 or 11% in constant currency and that’s excluding the $0.14 hit from FX on our comparison with 2013. Turning to slide eight, our pretax profit return on sales excluding items was 14.7% which compares with 15% last year as we reported it but 14.4% looking at last year in constant currency. We had a lower drop through to profit from our higher sales in South America, that was mainly due to the higher warehousing and distribution cost in Brazil given our high volumes that Rick mentioned and this is being addressed but these cost are expected to remain at an elevated level now through the remainder of the year. Also as we expected there was about a 20 basis points drag from higher interest expenses that was associated with higher borrowing levels, now that we are operating at a higher leverage target that we phased in over the course of last year, and also from higher costs associated with cash flow hedges. Looking at slide nine and turning to our cash flow situation, we generated $45 million in the second quarter of 2014. Our cash flow from operating activities net of investing activities and this compares with $49 million in last year's second quarter with lower amount this year related mainly to higher planned capital spending to improve our operations, mainly in Brazil. Year-to-date our cash flow is below last year’s and as we look to our full year forecast we are now calling for it to be $235 million to $245 million -- $235 million to $245 million or $15 million lower than what we said in April./ This reflects the impact of our lower earnings guidance. Our capital spending outlook for the year remains at $75 million and it’s included in the cash flow guidance that I just gave. We of course continue to prioritize returning cash to our shareholders. We repurchased $14 million worth of shares in the open market in the second quarter which brought us to $24 million year-to-date and our outlook includes $10 million of repurchases in the third quarter and $96 million in the fourth which would bring our full year in at $130 million. The $55 million reduction in full year repurchases compared with the $185 million we talked about in April reflects our lower cash flow outlook along with EBITDA from our current forecast for earnings in conjunction with our 1.75 times debt-to-EBITDA target. We stood at 2.04 times on the debt-to-EBITDA measure for the four quarters ending in June of which 0.5 times was from Venezuela balance sheet generated FX hit. Now before I go into our earnings and sales outlook a bit more in Venezuela on slide 10. As outlined by Rick two things have happened since our last earnings call. First in mid-June the government in Venezuela mandated that we reduce our company suggested retail selling prices by an average of 55%. While we will still discuss further with the government how they analyzed their value chain as we believe that our pricing and profitability as we were running it with inline with local law, we nevertheless of course made the required change. Second, as of our June balance sheet date, as Rick mentioned we concluded it was appropriate to begin using the SICAD II exchange rate which is 50. And since our going forward operating activity will be translated to this rate we also took a large FX hit in our second half 2014 sales and profit guidance and in light of the mandated government price decreases we've assumed our Venezuelan operation will be at breakeven in the second half. Our release -- this slide 10 and another slide that is in the appendix of the presentation that you will be able to see after our call, layout more of the details on the “items associated with the change in rate.” Turning to slide 11 and our full year guidance, we've revised our local currency sales increase range to plus 4% to 5%, which in addition to our first half actual local currency sales increase of 5% has the third quarter in at up 3% to 5% and the fourth quarter at up 4% to 6%. In both cases at the high end this would put our two year stacked increases at the same 11% that we had in the second quarter actual. Our full year EPS range without items is now $5.40 to $5.50 per share. And looking at slide 12 at the high end of this range it's up $0.07 versus 2013 or 1% in dollar and $0.55 or 11% in local currency which is in dollars after the $0.48 drag on the comparison from FX. Looking at slide 13, the high end of our range is $0.31 lower than our high end in April. $0.10 of the decrease is from FX rates which is from the Venezuelan devaluation and an additional $0.03 is from Venezuela now being in our outlook at breakeven in the back half of the year. The remaining $0.18 is mainly from our lower sales increase assumption in Asia Pacific. It was 6% to 8% for the full year which is up from high single to low double-digit previously along with the continuation of higher warehousing and distribution costs in Brazil that I mentioned earlier. Our outlook for unallocated corporate expense is at about $60 million, is down $2 million from our April guidance and net interest expense at about $46 million has not changed since April. On slide 14 our full year pretax return on sales at the high end of our range is at 13.9% which compares with 14.1% last year, that was reported but 13.6% with last year in constant currency. The approximate 35 basis points local currency improvement reflects 60 basis points plus in operating margin on that line, partially offset by a 30 basis points negative impact from higher net interest expense for the higher borrowings and cash flow hedges that I've talked about. For the third quarter along with our 3% to 5% local currency sales increase range we foresee earnings per share without items in the range of $0.89 to $0.94 which at the high end would be down 6% in dollars but up 7% in local currency given a $0.12 hit on the comparison from 2013 from FX rates, versus what we included for the third quarter within our previous full year guidance, we've taken a $0.07 hit in the third quarter from Venezuela now being included at breakeven and $0.05 of the $0.07 is from FX. Looking at slide 15 and our longer range guidance, while we will see how we call 2015 in light of our sales force position and trends around the end of this year, going forward into 2016 and beyond once we work through many of our issues we continue to expect to be able to achieve 6% to 8% annual local currency sales growth comprised of about 10% growth in our emerging market units and slight increases by our established market units. As well we continue to foresee our local currency pretax profit return on sales improving by 50 basis points per year to the mid to high teens and for income tax rate excluding items to move up over the next few years from this year’s outlook of about 24.5% to 27% or 28%. Finally just to round things out on resin prices there has been only a modest change versus our April guidance with the negative full year impact going up $2 million now to $14 million. So before we go to Q&A I am going to turn it back over to Rick.

[E. V. (Rick) Goings:]

Thank you, Mike. Just some summary comments before we do open it. Net-net it was challenging quarter, you can see all that but we do feel good about our business outlook. I want to comment that 10 years ago we brought together a group of 24 of our young leaders from around the world are brought together in a little town in Ireland and there were high [parts] and many of them moved to very senior levels, a couple of them are Group Presidents now and with that group we met for four days and we crafted a formula and created a business model and implemented it around the world and the results of this can sale meetings really and the formulas that the outputs led to ten solid years of growth. While nine months ago I convened another set group we called it the 2020 team and charged them with crafting -- they are from all over the world, different levels of the organization and charged them with crafting the plan that will take Tupperware brands to $5 billion in sales and their focus really was getting the sales force to $5 million and as I mentioned earlier it wasn’t just the front door recruiting amend but how do we get the turnover levels reduced. And I'm already seeing -- we met twice that group at four day meetings we’re going to be meeting again in a couple of months, but as I'm out there traveling in the markets I am already seeing things implemented. So I feel very, very good about that. The -- on slide 16, on the confidence looking forward, I really think there’s a couple of key things there. Firstly our business is especially dynamic in emerging markets. The products match the needs of the households and family formations and the brand is powerful there. As a matter of fact as I hear from heads of state in many of these countries we are involved in nation building there and more than a billion would be added to the middle class in these markets, the opportunity for women really to have, who work outside the home has been minimal up to now. And lastly, when she gets outside major cities like Jakarta the retail channel is clearly primitive. Second point, we are very much an in story and we have adapted our model, product, party and our opportunity in the tour markets in the Western world. It is very interesting and I want to comment that we basically when we talk about chain of confidence and the DNA of our business is really showing women how to move her life and have confidence and most people believe if you look at mass [inaudible] hierarchy of needs that just deals with the lowest levels of poor countries, low DNA women just looking for food clothing and shelter and not for the basics, go online in Google and get Wikipedia’s list of the top 100 countries of the world of the suicide rates and you will see that the bulk of the top 20 are established markets in the world. So from our research with change of confidence and the ability to attract women and her -- change her self-esteem, it’s why our business continue to grow in these markets like Italy and France as well. So we are an in story as well and it’s interesting an average party in Indonesia is a $100, Belgium it’s $900. So it really works both ways. Teresa often points out to me though the lessons we’re learning on urbanization in Europe we’re able to plug those things in, in our emerging markets of the world whereas New Delhi doesn’t act like the rest of India and so we go right into our toolbox of what did we learn in France and then we implement those things. Turning to slide 17 also the major trends that are happening and our 2020 group has identified them and it’s providing significant leverage. The most significant growth will be in this middle class, mostly in Asia and South America. Second Millennials they are right now 50% of the workforce, they’re going to be 75% of the global workforce by 2025. They’re relationship driven and unlike baby boomers they want to be entrepreneurs, so they’re not looking for a traditional job. And finally I think with urbanization and technology we’re on the right track there. We’ve learned product wise and urbanization, how to make nesting products, spark esteem year products, we’ve learned to adapt the party to be a gross night out and we have used technology down we’re seeing it in many of our markets online ordering, training, the apps for menus and shopping and if you go on the Twitter and Facebook really connecting throughout the world. So feel good about the outputs of this 2020 group and our ability to get to $5 billion. So with that let’s turn it over to questions.

[Operator:]

(Operator Instructions). Your first question comes from the line of Jason Gere with KeyBanc.

[Jason Gere:]

Good morning, I guess that’s me. Good morning Mike and Rick. A couple of questions I guess the first question really is on the long term outlook. I know you have talked about 6% to 8% organic sales as kind of the longer-term and it sounds like maybe we may not be there next year just with some of the issues in Germany and the CIS. But I was just wondering if you could kind of talk about is this a feasible long-term model. It sounds like the cost of doing the business to recruit, retain some of the reps and even some of the tough comparisons in emerging markets you know I think you guys are talking 10% organic sales. I am just wondering if you can lay out where you whether that organic sales number’s the right thing to do? Or in some of the markets you are talking about you’re focusing more on the profitability? So I was just wondering if you can maybe talk about the algorithm of how we should think about this business model going forward and if that 6% to 8% really is the right model.

[E. V. (Rick) Goings:]

Jason, it’s Rick good morning. I do think it’s the correct one and if you are asking me here in July of 2014 what we will say for 2015 I want to wait and see what happens in the -- excuse me in the third and fourth quarter. But as I commented on Germany for example and CIS I think those are shorter term in nature with regard to fixes there. We have got solid businesses and we are not in search of what to do strategy wise there. When you sit there and look at the U.S. business I think it’s going to take a little bit longer there. We are working on four things. We need to really think about how to get our business back to much more weekly business? More percentage of our people doing parties, them to each have places where they are weekly meetings. So we have got a -- I think a good strategy in place but it’s not going to be a couple quarter strategy for the U.S. but I do work on, on progress. If I look to Asia Pacific we had this drag in India after five dynamic years in India but we have got our penetration level is probably 15% there. I think we have gotten past most of this bump in the road. We are getting back to getting the right people out there. We got a fresh young management team who has been with us a dozens years. So almost to answer your question Jason I have to look at the key contributing units out there and just not do it at the macro surface. Indonesia is a strong business, fresh management now in the Philippine business, South Africa should continue, 6% to 8% I will be disappointed when Mike and I are kibitzing in December what the outlook’s going to be if it isn’t there but I’ll know more then, Mike we…

[Jason Gere:]

Okay.

[Michael Poteshman:]

I think that says it on sales, we have big opportunities in China and India. They weren’t businesses where we did more than $100 million last year in company sales but given the size of the population and the trends in China are quite good and we should be able to come back there in India. We were up 10% in the emerging markets in the second quarter. The only one that had a significant drag emerging marketwise was CIS but that took a nick out of things. But we are going for 10% in that group of businesses to get to 6% to 8% and we ought to be able to do that for a long period of time and we fully expect to be able to execute better and more consistently in the established market. So that’s how it should come together. In terms of your question Jason on profitability, not by model but by where we sit right now our emerging market businesses as a group have a higher ROS. And as more of the share of the business goes there, everything stayed the same and that would pull profitability along right there. But at the same time we should be able to do better in the established markets and as we continue to do the leadership development among our management teams and leverage the skill sets that we have and have better execution there I think I’m sure we'll see better comparisons in the minus seven that we had in the second quarter and then that should be able to build on the profitability as well.

[Jason Gere:]

Okay, and then just kind of following up because I think last quarter when we were on you guys were talking about the five to seven sales and we knew you had the toughest comparison out there and you had a month under your belt. So it seemed a little bit aggressive to get that five to seven. I guess can you just talk about the cadence of the quarter, what went wrong maybe in May and June and then if you could talk maybe a little bit about July's performance that gets us comfortable that around the -- I guess the three to five that you're kind of talking about for the third quarter.

[E. V. (Rick) Goings:]

The biggest thing that really went wrong was Germany that's our big European business and everything looked pretty good. I was there twice in the first half of the year. And almost all -- as we've talked about this personally Jason and when you've got a sales force size advantage you usually can convert that to about the same kind of sales. I had never seen a couple point sales force size advantage deliver a decline in 30%, particularly in a market like Germany that's a very predictable, not a volatile market. It really -- it was three things came together there and I think we're all over it. And back to your first question again you put Germany back to a level of being flat, boy does that change our top line numbers. The other thing about it is we knew we had to do this price increase in Indonesia and it was fairly dramatic and so we didn't get as the quarter unfolded more on the end of May and in June, the run rate of 25% and Mike handed me a note at our executive meeting on Monday showed that the impact of Indonesia going from a 25% up to only 16% up is two percentage points overall to the company. So I mean we don't have to look out there in 10 markets to say, how do you get back to the 6% to 8%. These were very isolated in both. Things are being done, we're not sitting here wondering what do we need to do? We kind of tend to triage and look at our businesses, long and short term what do we need to retain, refine or radically alter. In none of these situations do we need radical alteration, which usually is two, three year re-engineering kind of a program. This is more refined miniatures. This is more moving some different people in and out and I got to tell you one of the things I am most excited about, I have often said all the company is, is a collection of people. I spend more than half my time on leadership development. We have a 40 something year old dynamic Group President in Asia Pacific who has had multiple assignments all over the world. We have a young new Group President over the last six months in the America, multiple assignments all over the world and almost 20 years’ experience with us and we have a dynamic new Group President in Europe, Africa and in the Middle East who has been an MD in multiple countries prior to joining Tupperware from another industry and fantastic general management experience. So the depth of our management top -- at the top of these units and under those units I'd go into any battle with them. That gives me the most confidence that we're not sitting here looking for Oh, my goodness what do we do? Mike.

[Michael Poteshman:]

Couple other things to mention we had some favorable comparisons versus our outlook as well and I mentioned those in Italy, Turkey; Venezuela’s okay but also BeautiControl. The other ones or the other things to mention beyond what Rick said on the downside Indonesia we also didn't have the same run up to the beginning of Ramadan as we necessarily expected in June when we were setting that guidance in April. We talked about the CIS and that was below our expectation as we’re kind of in somewhat of bottoming out process there, and then in U.S. and Canada we were optimistic that running our programs in a more normal way a year later than when we were in the situation last year in the second quarter that we would get more traction from those programs on the top line than we actually did even though it came fine on the bottom line. So those were some of the factors. When we look at how we set the guidance for the third quarter and the fourth quarter I mentioned in the comments that we were at 11% in the two year stacked local currency comparison in the second quarter and that’s the same place we are at the high end in the third and fourth quarter. So it does reflect the easier comparison in the third quarter than we had in the second.

[Jason Gere:]

Okay and I'm going to jump off but just sounds to summarize that as we exit 2014 and looking at stack rates and some of the improvements in Germany and CIS you would expect that at least a 5% local currency rates should be in play for next year. I know you’re not pausing anything right now but just the sale that are coming in lower was a little bit of surprise this quarter and I think just in each of those conviction behind the next 12 months I think would probably help investors right now.

[E. V. (Rick) Goings:]

The one thing Jason that’s also and it’s a bit of an odd ball is we had very high growth in Venezuela in the first half of the year and while the comparison with the prior years is an FX that growth now as it goes forward will be at a exchange rate that’s 80% to 90% less than the prior year. So that has an impact on the total as well.

[Jason Gere:]

Okay fair enough. Thank you.

[Operator:]

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

[Dara Mohsenian:]

Hey guys. Sorry I missed part of the call earlier, but I guess it sounded like in the response to the first question and some of the country commentary that your view is the organic sales growth slowdown in Q2 and guided for in the back half of the year is more of a situation where a few key markets are having issues that drags down the corporate average. Is that the right characterization because the 3% odd sales growth number is a material slow down from recent trend. It looks like it’s probably your worst result ex-Venezuela since the downturn. So I was just hoping for a bit more perspective on if there are kind of bigger issues do you think are pressuring your business here or if it’s more a case of a few isolated markets pressuring sales growth?

[E. V. (Rick) Goings:]

You’re right, Dara, Rick, you are spot on, it’s a few isolated markets that are really fairly dramatic negative deltas, that’s the bad news. The good news is we really do think these are one or two quarters before you see those things get back to actually and they start get to flat to modestly up in a couple of those and that will have a dramatic effect there. So we have certainly not an across the board slowdown out there. Michael?

[Michael Poteshman:]

Yeah that’s right as we look out at just near end Dara on the third quarter and what some of the differences are we do expect a much better comparisons in Germany and CIS and that’s just those businesses improve and also because the comparison in the third quarter is easier than the second. And then there’s also, should be a better comparison in Tupperware Mexico. You might recall that there was a big hurricane impact towards the end of the third quarter last year and so that’s something we will be lapping as well. There will be some of that drag I was just talking about when we were speaking to Jason from Venezuela because again the growth will be at an exchange rate that is so much less.

[Dara Mohsenian:]

Okay and then as you look going forward do you think you’ll need to spend more on your sales force side in terms of recruitment or bring in reps or incentivizing existing sales people to drive reinvigoration and sales growth and I'm just wondering how we should think about that forward spending back behind the business?

[E. V. (Rick) Goings:]

Dara, I don’t think so because the reason for that is they’ve -- all the analysis, this new 2020 group has done on, on asking the question how do we get the 5 billion in sales, do we have enough run rate left in our current business model. It really talked to getting to 5 million sales force but it didn’t talk to the need to change our recruiting rates, of bringing the men it’s really spoke in a very mature way that the biggest problem is turnover of the sales force and I can say quite frankly for this -- I have been in this industry a long time and I’ve hardly ever seen dramatic focus on retention and we did a regression analysis that if we could had over this past six years, 2% better retention rates the company would have had $800 million more in sales. So and when we start to even further peel back where do you lose these people, you generally lose them the first 90 to 120 days. So no company of our kind is ever focused as much on how do you on-board how do you activate and then the key retention things are contact, a place to go every week, competition and recognition. It’s just refreshing to see us looking at this in this way and it gives me a confidence that we can stay with the same kind of value chain. The only place right now we’ve had to invest more is to really ramp up in Brazil to get our distribution in line there because we can meet the big needs of our sales growth. So I don’t see a change in the value chain and I would hope to stick with Mike’s, continue try to work toward 50 basis points improvement as we move along. Mike would you add to that?

[Michael Poteshman:]

That’s right, we wouldn’t see a change in our value chain. Of course tactically we look at how we are going run our product our purchase types of program and our promotional programs and so that comes to our numbers sometimes like the big benefit we saw in the U.S. and Canada this quarter as we were in a more normal situation but from an overall compensation to the sales force and how do we think about we haven’t changed our approach.

[E. V. (Rick) Goings:]

Yeah, and Dara, a very important point here is philosophical important for the company at the core of it we recruit more than 2 million people per year. The head turn of an organization, if you can get this organization to understand and I’m seeing that change that the next recruit you get is the last recruit you’ll ever get, how would you treat her differently? Now that is being really pushed down in the organization to the point of wait, don’t change your recruiting levels out there, recruit quantity but develop quality. So it’s almost becoming a mantra, it’s this inspirational leadership recruiting, on-boarding, activation and retention and it’s becoming a slogan out there in our organization and we are even starting to measure within operating units not just their front door recruiting efforts, what about your back door? And this is an…

[Dara Mohsenian:]

Okay.

[E. V. (Rick) Goings:]

And this is an important focus I think.

[Dara Mohsenian:]

And then Rick, I mean we often see a tremendous amount of volatility in your business at the country-by-country level. Normally that’s offset by some of the portfolio effect and the puts and takes across various countries. But I was just wondering if you view that as the volatility as more of a function of being in the direct selling business or if there is ways going forward to mitigate some of these instances where you do see a pronounced deceleration in individual countries like Germany for example this quarter?

[E. V. (Rick) Goings:]

I think the volatility is usually a combination of a couple of things. Firstly, on externals I mean this month it is hurricanes -- its Monsoon and Typhoons in the Philippine. So you get that kind of stuff and we’ll deal with that and the good news, that’s temporary. The other issue is all we are is just collection of people, of the 2.9 million people out there, the bulk of them are volunteers out there. So therefore the levers that drive them are what’s happening with regard to what drives them. What are their promotional programs like, incentives to go out and sell to buy, what are the you know -- what kind of trip are they are running? Next, out there how do they like the new product program out there? And then thirdly the people who were leading them under it, some can’t as they stale, they need more. So at the country level those are the things under it that if you and I went into a market and looked I would tell you Dara pay attention to these three things and that's what I will do in Mexico. I'll be sitting there looking at okay, what's the new product programs for the Fuller business and because I am working to bring up to speed a new Group President and I want to see how I look at it. And those are the three things I look at. And you don't get it always right. I mean that's where part of it is, Dara it's like somebody once told me I said there is some elements to your business just like the movie business that it all looks good but then the audience doesn't like the movie. And what we try to do in some markets is how do you take out that volatility, for example in our Fuller business we have 10% of the sales force in the Fuller business who are trendsetters. So they are selling the same brochure but a month ahead of time. What does that help us to do, how are the offers. We can oversell or under sell, what do you retain, refine or radically alter in their brochure. So that's what management works toward is continuing to take that out. And then the only other thing that gives you the ability to sleep at night, have a big enough portfolio out there, sometimes you are going to get it right. I mean it's just like -- I am sure it's happened to some of you out there in your portfolios and sometimes and that's why I said sometimes you are the windshield and sometimes you are the bug. And I was certain this product would be a hit but it wasn't and so that's under it. So it's not just wild out there, there is an order to it but at the end of the day it's how people act.

[Dara Mohsenian:]

Okay. And then just last, just Mike can you break out pricing versus volume in the quarter. Sorry if I missed that bit?

[Michael Poteshman:]

Sure. I guess we looked at it a couple of ways. When we look at our business units that grew in the quarter, we had about a half, about 10 points of volume improvement and about the same in terms of price. When we look at it overall we were down in volume, 3% and we were up in price and productivity, 6% to get to the net-net plus 3.

[Dara Mohsenian:]

Okay. Thank you very much.

[Operator:]

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

[Connie Maneaty:]

Good morning. Just a point of clarification, what was the size of the price increase you took in Indonesia and then I have a follow-up?

[E. V. (Rick) Goings:]

It was around 10%.

[Connie Maneaty:]

Okay, and it seems as though there have been more than the normal number of management changes referenced on your call today. So could you just walk us through the decision process or the dynamic here, is this normal succession, is it because you are addressing trouble spots, or is it people who have changed, are they still with the company or have they retired. Could you give us a little clarification there please?

[E. V. (Rick) Goings:]

Well. On the leadership development I mean I, with Lillian Garcia, EVP HR and I work with the -- if they are line people, that's how we manage it. And the bulk of our changes here have been planned. I am doing with the Board next month a leadership succession process and you normally make these changes then at the beginning of the period either the beginning, the end of the year, so that -- you got new people in the saddle in January or July 1. So you are really getting some July 1st things happening. The bulk of the people that I look in each one of the situations we -- one was a planned retirement. That was just we decided to do it six months earlier, he did too, another was a planned retirement in one of our markets. And all the other people they are still in the company. They have moved to other positions in the kind of -- but we do that a lot for management development as well. So it's if you are getting more now, it's in the middle of the year and we generally don't talk about it that much.

[Connie Maneaty:]

Okay. And then on Venezuela, how were you informed about the price reductions, was this Tupperware specific reductions? Was it because of the profit margins that were imposed earlier this year? And you know the combination of a price rollback of 55% plus inflation of 50 you might be at breakeven in the back half of the year but it looks like the business will go unprofitable next year. So how do you balance your interest in Venezuela as the company with the interest of shareholders? Thanks.

[E. V. (Rick) Goings:]

Firstly I would say and Mike you can follow up on this. But this is widespread action like I got a check sheet they are going after company by company by company and so we don't feel isolated here. We don't like it and disagree with it but it's what they're doing. Mike?

[Michael Poteshman:]

Yeah. So on the go forward and how do we manage in that situation, I mean first of all, we do believe and understand that we'll be able to increase prices as there is future inflation because the law and the regime is based on starting with your -- what are costs are. Where we need to discuss further with the government is their understanding and interpretation of what's in our value chain and who is getting compensated for what and so that will happen in the coming months as the government goes through its process. So we wouldn't expect to be at the same price level indefinitely.

[Connie Maneaty:]

Okay, thank you.

[Operator:]

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

[Sofya Tsinis -- JPMorgan:]

Hi. Thanks for taking my question. Going through [standards] some of the performance this quarter on the development market side was more abnormal in nature. Your local currency sales in the developed markets have been down year-over-year during '11, in the past ‘12 quarters so what gives you the comfort that you could actually grow them low single-digits longer term to achieve your long term target?

[Michael Poteshman:]

So Sofya I mean the issue or the biggest one in this quarter that we had was Germany. We did enter the third quarter with the sales force size advantage so what's going to give us confidence overtime is where we're able to execute more consistently on the elements that Rick has talked about to be able to have sales force size advantages that we then lever with the better focus on urbanization and the on-boarding and therefore activation and ultimately retention of the sales force. So we expect to have better results as we move forward in that vein. We do realize that it's more difficult in an established market in our case because we mainly been in them for a longer period of time. Of course GDP overall is growing more slowly and that's why we call it at a low single-digit.

[Sofya Tsinis -- JPMorgan:]

Okay. And in terms of Indonesia you mentioned that pricing there was 10% – have you ever taken 10% pricing before and was the volume impact similar to this quarter and would you actually consider rolling back pricing for top line growth and incentivize the reps in a different way?

[E. V. (Rick) Goings:]

This was a -- we're talking about a particular price increase. Sometime we have more than one price increase in a year, particularly in more inflationary types of places. So have we had 10% before, I don't -- couldn't name specifically but I would expect that probably we have had accumulative increases over a year in that range in the past as well. In terms of price rollback, I wouldn't expect that we would do that. We do in combination of whatever our prices are, suggested retail prices are. We're always running offers again, purchase with purchase, gift with purchase, other promotional type element that ultimately are part of realized pricing even on the case of promotions that doesn’t show up in sales directly. So that’s where we look to manage the situation and bring people through and we didn’t get the exact reaction we were looking for this time but we were doing those types of things and we will continue to work in that direction.

[Michael Poteshman:]

One of the main reason you never do a price roll back there is you really got to protect the profit margins of your distributors out there and also you don’t want to get consumers into that. We are high quality products, we demonstrate and I never will forget I one was walking by a Louis Vuitton store in Copenhagen, there was a line and I asked the manager, are you guys having a sale? And the manager said oh no, we just have new products. We burn it before we put it on sale. When you start in these markets when you’re a prestige brand, when you start doing sale and discounting of products you break the brand. So we try not to do that. And even though you didn’t ask the question I want to follow up on this question on management and succession. Probably nobody does it better, I know in our industry then us working on leadership succession. I have four succession candidates. Typical one has been 15 years with the company each one of our Group Presidents out there has succession candidates and we do these orderly successions. Usually search firm don’t -- aren’t attracted to us because we generally recruit people in our business in their late 20s and early 30s and we develop them through our business. They’ll get multiple assignments, multiple countries and even the Group Presidents they would have been area wise presidents in an area and before that they would have been Managing Directors of countries, and before that they came up in a functional area, sales, marketing, finance what have you. So when we move them around sometime it’s just pure development and sometimes we need some new levers in that particular business. And as for a matter of fact the MD of Germany will be moving to here to the U.S. will become Head of Marketing. He’s one of our smartest people; he’s run portfolios, countries. He’s just absolutely terrific and he’s been part of the company for many years. So that’s our most precious resource. And I apologize I went through those so quickly and I didn’t talk about the process. Okay Goran I think we can take the next question.

[Operator:]

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

[Michael Swartz:]

Hey, good morning guys.

[E. V. (Rick) Goings:]

Hi Mike.

[Michael Swartz:]

Just maybe talking about Germany and kind of looking at some of the moving pieces and kind of what hits that business this quarter. Can you, maybe looking at it kind of break it out in the buckets and what was the biggest impact and what was the least impact, just trying to get a sense of how much of that should come back in third quarter and fourth quarter versus maybe something that’s longer term in nature?

[E. V. (Rick) Goings:]

Yeah biggest impact was a whole slug of new recruits that came in the fourth quarter and the first quarter who simply didn’t get activated in the business and we’re already seeing recruiting levels that are coming on that are very positive. What we also saw that was a very negative delta was how many parties were dated at the party. And you can kind of get into a doom loop, if you don’t at least get one party dated at the party then you’re starting to slip. I mean that’s how you perpetuate it, you try to have a party do three things, sell products, number two, perpetuate the party, find out there one or two people who want to hold a party, that’s your future business. And then thirdly, you’ll recruit somebody, if you see somebody that’s good and so we had slippage there. I think they are on it. And I do think it’s -- Michael I think it’s shorter term.

[Michael Swartz:]

Okay that’s helpful. Thanks Rick and then just on the floor, Mexico I mean I think this is one of the first quarters where we’ve actually talked about a positive acceleration or stabilization however you want to call it. How much of that was on easy comps, versus did something just click this quarter?

[E. V. (Rick) Goings:]

I think what’s coming [in the year], what’s clicking is we’re getting the momentum from the strategies that we put in there. We made the decision Michael very importantly, we were not going to play that discount game, that the well-known beauty company that starts with an A is doing there. We would stay the course there. We had to, we had a slippage in our sales force size, we had to get the recruiting up but we’ll look the underlying of that as we had two higher turnover field sales managers and we changed how we were doing that. Finally, merchandising and new product problems got better. So there are like five things that came together. And Michael that’s a classic example, [Louis Victoria] that runs that company there he has been there, what Michael about two years now. How we bring somebody along, I mean Louis is 42 years old. He has been with us since his 20s we have got him in audit. He started with us in internal audit and then we sent him to Brazil as a finance person to Brazil and then we brought him back from Brazil and then we sent him to graduate business school and then we sent him to the Fuller business as the CFO what five, six years ago and he worked in that business as a CFO. But this guy is dynamic and then we moved him to the Tupperware Mexico business as the CEO, he just shut the lights out, double-digit growth. And then two years ago we put him in our bigger Mexico business, that Fuller. That is typical career path of somebody and you say and he is only 42, he’s had his ticket punched in all those places.

[Michael Swartz:]

Thanks for the color.

[Operator:]

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

[Connie Maneaty:]

I think you mentioned in the call that you were discontinuing Armand Dupree in the West Coast. What does that do for your strategy for Hispanics in the U.S.in the beauty business?

[E. V. (Rick) Goings:]

Well our strategy in the beauty business for the U.S. I’ll tell you where it stands up at our BeautiControl business and we basically said we don’t need two different armies to do that same penetration. So I will tell you the highest attendance of people at celebration this year on the Delta were Hispanics. So we decided come on, why have to two cost centers there, two different brands let’s just refine it but big opportunity for us there Connie.

[Connie Maneaty:]

Okay, great. Thank you.

[Operator:]

And there are no further questions at this time. I would now like to turn the call over to Mr. Goings for any closing remarks.

[E. V. (Rick) Goings:]

I think I have said it all. Mike I think you have too. I think the most important thing I can say is I think a couple of markets I think, Dara Mohsenian said it best, we are really the big drags in the market and I think you are going to see improvements in those and just like you are starting to see some of these business like BeautiControl come back, the Fuller business come back, the Avroy Shlain get bigger and bigger. I am not going to say we are perfect we don’t miss it in some of these markets. My mother always said this to me you don’t drown when you fall in the water, you drown if you stay there. And we keep learning how to be better in these markets at catching the stuff sooner. And so I hope we are reporting on a better quarter when we talk in October. And thank you for your interest.

[Operator:]

With that, this concludes today's conference call. You may now disconnect.