Tupperware Brands Corporation
Q3 2014 Earnings Call Transcript

Published: 22 Oct 2014

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Tupperware Brands Corporation Third 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. I’ll now turn the call over to Rick Goings, Chairman and Chief Executive Officer. Please go ahead sir.

[E. V. (Rick) Goings:]

Thank you very much. I am in Orlando with Mike Poteshman, our CFO and Lien Nguyen, our new Head of Investor Relations. Lien has been with the Company for eight years. He was in IR last year and before that she was one of the key people in our strategy group. Teresa Burchfield, our former Head of IR is now the Chief Financial Officer of our U.S and Canadian business and we tend to move people through our organization as they get more experience. And anyway let me move forward. As usual, some of our discussion will involve the future outlook or our business so I refer you to the Company’s position. You know the drill on that and I say Slide 2 a reminder, I’m going to reference slides that you can follow along with this call that can be found on our IR site. Let me go to Slide 3, and let me acknowledge that it’s been a tough external environment, more than usual, Russia and the Ukraine situation and sanctions, the issues in the south border of our wonderful Turkish business, particularly in border to Syria. The situation in Venezuela and there has been pressures in a lot of places over the world. But we look at it holistically and the world is most restable, we are out there and most of these markets. And I must say that we’re committed in these markets not just for a year or two, but for their potential now and in the decades ahead. So we’ve many markets where we’ve long runways and we’ve got a lot of experience navigating through whatever is going on in the world be it political, be it economic, we generally find our way even through those distractions. I’m pleased that we were up in the quarter. Sales came in 4%. I’m going to try not to be redundant with what’s been printed. This is in the middle of our outlook range that we gave you. Sequential improvement from our plus 3% in the second quarter and as we highlighted in the release, this was in spite of a much smaller contribution from countries like Venezuela where there were significant changes in not only the exchange rate, and therefore their contribution, but also what we had to do with regard to our -- with the government there with regard to our margins. Anyway more on that later. Our established markets were down 4% that was better than what we did in the second quarter by 3 percentage point, as expected, CIS in Germany. They both had nice deltas in the quarter, and we were pleased with that sequential improvement. Our emerging markets came in up 8%. While it isn’t a strong double-digit we’re used to for almost the last decade, there were some elements that really caused that are -- that tend to be isolated and temporary and actually we think we can get back to double-digit trend lines in these units soon, maybe even into fourth quarter. We are not on the other hand pleased with our profitability in the third quarter or in our outlook in Q4. While we delivered third quarter EPS in our outlook range, our spending levels specifically in South America and in Europe, they were elevated. Mike will explain more on this in a bit. And we continue to see some of this continuing into the fourth quarter and you see reflected in our outlook. Some of this spending was promotional and all of it -- and also some of it had to do with growing pains in our Brazilian business. On Slide 4, our sales force you see now with 2.9 million, up 5%. You will see also in that slide, the active was down 2%. We can explain on that. Our analysis shows that 2.5% of this difference is from the mix shift among our units. You don’t get to see all of that stuff, but as always, I’ll leave it to Mike to explain that. Remainder is really driven mainly by inflation price increases in South America. Looking at Slide number 5, I’m going to review some specific market performance and as we often do here I’m going to segment it by three categories. Number one, the strong performers. Two, those markets showing improvement and third the laggards and this is how we tend to always manage our portfolios. Let me begin with the strong performers. Brazil out of the gate is our largest market in South America and once again it’s a star up at 21%. It’s been at a very strong double-digit run rate for about seven years. Fortunately, we’ve had normal service levels starting in September, after big problems in Q2, in the beginning of Q3 including a record campaign we just finished in October. Unfortunately, the elevated costs of our distribution impacted our margin. Frankly, this is a mea culpa. Two years ago when our operations people pushed for additional warehousing and distribution location, we were too conservative, and shame on us and it has really caused some disruption. Let me move to Mexico. One of our units over a $100 million in annual sales, it was up 9% in the quarter our Tupperware business there. That was a sequential improvement of 9% -- excuse me, 7 percentage points. As you recall, last quarter we had a five point drag comparison with less B2B than 2013. There was no meaningful impact from B2B in the third quarter, although there maybe some in the fourth quarter. We do big business with Soriana, which is a big chain that -- actually it’s a bounce back to get people to then get one Tupperware product and come back and complete the set by going to a Tupperware party. So over the years we only do a certain amount of those to really stimulate our business and grow our customer base, but it’s a value. Let me turn to Asia Pacific. There we saw strong growth in China, up 24% driven by a combination of increased outlets and also increased productivity. We now have 4,600 of them there which is up 15% from the end of September last year. Indonesia too our big business -- that’s actually our largest in the world right now, it was up 14% in the quarter. In July we mentioned a large second quarter price increase by this unit and we had some lower activity that followed. This continues to impact the first part of the third quarter, but we also had good growth late in the quarter. I must also remind you that it’s the largest Muslim country in the world and Ramadan started in late June there and continue through the end of July. At any rate, in Indonesia we continue to work on activating our new consultants. I think we’ve made a lot of progress there. We are still on track for double-digit growth for the entire second half of the year. By the way, results are worth noting, as you saw in the Wall Street Journal this, Europe and following very closely the elections you had a populist former mayor of one of the major towns against actually one of the former General whose father was President and this was really a lot of people were watching and wondering, could the populist win? And they did. And so it’s been happy -- well, we’ve been happy to see the level of how they’ve evolved to a real democracy from more than 20 years under Suharto. So it’s again amazing. It’s the largest Muslim population in the world, but it is not Arab attitude Muslim. You see really a gentle engaged population there. Feel very good about Indonesia’s future. Let me turn to Europe. We are showing strong growth there in our Southern Africa, Avroy Shlain business. Our Middle Eastern businesses, they’re not very big, but it’s amazing how you get 64% growth in -- excuse me, Egypt, 36% Lebanon and I guess the only reason I indicate that is because even in the midst of disruption what’s going on in the Middle East, our business navigates through that. It is -- I used to be asked often why we did with a guerilla activity in the southern Philippines and Mindanao, how we continued to do business and I used to add because I did the interviews, her husband maybe a radical, but she sells Tupperware during the day. So its -- we find a way to navigate through it, because we’re dealing with local people and providing them a earning opportunity. Turkey was up 9% in the quarter. Would have been more, but might look negative, because we were up 28% in the second quarter. But again this is backed for Ramadan and we start to shift some of the sales from June to July, our campaigns it isn’t a question we shift when we send, its how the distributors manage it. If you normalize both of those quarters, you still see they’re operating in a run rate of about 20%. And I was just there about a month ago. Our business there looks wonderful and it is remarkable. President of our business there is a women and on the same days that we’re holding wonderful chain of confidence meetings with rooms full of hundreds and hundreds of women who were talking about empowerment and enlightenment. The government is talking about, they don’t think women should really laugh in public. I mean, I’ve never seen a country of so many conflicting views, but we’ve a great business there. Now let me move to our businesses where we’re seeing some progress also. Second quarter, we saw a sequential improvement in Germany. Germany was down only 6% in the quarter. So a lot better than what we saw in Q2. As mentioned, we moved very, very quickly in Germany to add more stronger motivation to the business. Frankly, my appraisal of the situation is I believe that over time we allowed some of the sizzle in our German business and direct selling is really a sizzle business, the sizzle in our products, in our promotions and even our tone at the top to get a little bit too cerebral and I think we’re getting back to the right thing again. We’ve got a dynamic managing director, new head of sales in there, dynamic marketing director. These are 30 some year olds who have been with us in some cases a dozen years and trained well there and in other markets. So we’re not sitting our hands in Germany and we hope to see more progress moving forward. Italy did well in the quarter, up 4%. And that was on top of 12% increase in last year’s quarter. France was up modestly in spite of the macroeconomic environment there. Still stable after being even in the second quarter. South Africa though had a tough quarter in our Tupperware business. I’ve got to say the bulk of this had to do with the strike early on, and a strike that lasted almost a month and a strike that actually at times turned violent. We mentioned in our second quarter call that we were going to try to accelerate some shipments into June in anticipation of the strike and we did that, so it took it away from the third quarter. So incrementally this disruption in our supply chain impacted our promotional campaigns through August. The good news is business performed well in September and we expect to see sequential improvements in the fourth quarter. And I think even above all of that peace and stability has really returned to the operation there. Let me move on to Tupperware U.S and Canada. Business was up 3% in the quarter. This was a sequential improvement of 9 percentage points when we lapped our overly aggressive promotions from 2013. Back then actually in the second quarter, I believe we bought sales, and so this was the right direction. Moving to Beauty, in North America, there was a distortion there. We closed our small Armand Dupree U.S business which accounts for most of the negative sales comparison for Beauty North America. And simply stated, it was a small business. It was taken way too much of management times and we just agree strategically get rid of distractions. Our – but so when I look at our businesses here, I’m pleased to see that our Fuller Mexico business it move 1% in the quarter, showing signs of stability. Interesting, we are not playing this promotional discount game that's we are seeing with the major competitor down there. And so we are making progress. When we get a sales in this level, almost flat, even though we’ve got a sales force size deficit, it shows qualitative improvement with regard to productivity. And so we feel good things are going to happen as we move there. We continue to work on attracting the emerging middle class and we are moving our brands up to this Armand Dupree, which is our prestige brand down there and in skincare and in fragrance, those are the kind of consumers that we’re really looking forward and they tend to have much more dedication to those kinds of brands. BeautiControl after a better second quarter, not a good third quarter. We did though finally launched the rebranding of their new color cosmetics, which they call three looks, work, weekend and wow, at their annual sales force event. So we will keep you apprised on our progress there. Turning to Venezuela, someone asked early on in the day, why are you guys still there? Because we’ve 75,000 women there who -- while it may not be a good business environment for us or them, for many of them it’s how they feed their family and so we, the management team have been very proud, they’ve come up with a method of how we can mothball our business there. Still supply the business there, try to keep down the levels of cash that we need to invest in the business, but keep that as a lifeline and so Mike and the team have just done a fabulous job there. And I think even we’ve got Mike some more cash out of Venezuela than we’ve even thought we’d get. So everybody must remember, largest oil reserves in the world I thought things would get better at Chavez and his replacement is even worse than Chavez, because he is not as charismatic, but he also doesn’t have the same level of support. So I don’t think this is going to be a long problem in Venezuela. Now let me go to our lagging markets. CIS down, but sequential improvement in the quarter. Still disappointed with our third quarter results there. This has proven to be a -- after 10 incredible years of growth, it seems like we're given a lot back. We grew a little bit too fast, wasn’t enough focused on fundamentals of the business. We got a little too far stretched into the Urals, and then we depended too much on promotional actions to drive sales like pricing and discounting and not enough on teaching people the fundamental value proposition of our products. So it didn’t -- its going to take quarters to get this business back on track. The good news is it's still profitable. India, and I might add with regard to CIS before I even go to India, the actions of Putin not only in the Ukraine, but he has never been more popular in Russia. But it’s been -- there's been a lot of disruption there and it's caused distraction in our business and it was the way it used to be I think we can get this thing moving faster, quicker up. India, work in progress. We had seven years of double-digit growth there. Our momentum when we go back and do a regression analysis, it seemed to have really shifted when the rupee was devalued and you started to have some compression of their middle class. But simply stated, I think we have got great people running the country there. Its huge potential, most recent study show India has the world’s youngest population and they will outpace China as far as being the largest country in the world. We only have about 15% penetration level there. Good news to on a political front there, the Prime Minister Modi is -- he just recently had a visit to the U.S., but even in the country there this is an individual who really is pro business and wants to see more of their women become entrepreneur. So I think we’re going to have a lot of government support there. Malaysia, Singapore was down modestly in the quarter. We had some sales there pulled to the second quarter. Again, Malaysia is a Muslim country and that was the effect of Ramadan. Highly competitive market, but we’ve got a good business there. We’ve been there almost 50 years, so we continue to work on how to activate that sales force. At any rate, enough from me on that global scan. I will take it back from Mike in a moment, and then we will do some questions. But Mike let me turn it over to you.

[Michael Poteshman:]

Thanks, Rick. On Slide 6, and as Rick highlighted, our plus 4% in sales in local currency was in the middle of our external range for the third quarter, and better than our plus 3% in the second quarter. As we had expected on the year-over-year comparison, we did much better in the third quarter than the second quarter in CIS and Germany. And worth noting as well, overall, we were able to improve versus the second quarter after overcoming a much smaller contribution to growth from Venezuela. From that unit in the second quarter, we got 1.7 points of our overall 3% growth. But in the third quarter just 0.4 points of growth from Venezuela. The decrease in Venezuela’s contribution was of course mostly from the weaker exchange rate used, but also reflected the late second quarter selling price reductions mandated by the government there. Versus last year, the biggest contributors to our local currency growth in the quarter where Brazil and China where we grew over 20% and Indonesia where we grew in the mid-teens. As you can see on Slide 7 now, our diluted EPS without items at $0.90 was in our range even though we took a $0.02 hit from foreign exchange versus what was included within our guidance from July. With our sales growth at the midpoint of our range, we’d normally have done better on our earnings, but we had an incremental drag versus what we had expected from elevated costs in the supply chain in Brazil. This cost picture is expected to continue for the next couple of quarters before normalizing as we move through 2015. As Rick mentioned, to the extent that there is good news here, it is that beginning in September things have been running much more smoothly from the view point of our interaction with our sales force. In addition to the situation in Brazil, we had some severance in our underleveraged promotional spending in Europe in the quarter. We do expect to be able to get better leverage in our promotional spending in 2015 here and expect to get back into local currency sales growth. So we’d -- we should achieve a more normal relationship between incremental sales and profit in Europe than what we had in the third quarter and what is built into our outlook for the fourth quarter. Offsetting these third quarter value chain hits in Brazil and Europe, we had lower unallocated corporate expenses, mainly for lower forecast achievement under our incentive plans and lower marketing costs. We also picked up $0.01 versus our outlook from a slightly lower tax rate without items, although our rate was still up marginally in the quarter versus last year. Turning to Slide 8, reflecting the impact of the value chain items I’ve mentioned in Brazil and Europe, along with translation effects, our pre-tax return on sales excluding items came in at 10.2% in this year's third quarter, which compares with 11.3% last year. As you can see on this slide, a 100 basis points of the decrease was from translation effects much of which is in the Venezuela numbers. The results and impact from higher interest expense which as we’ve been seeing is from higher borrowing level than last year when we were still getting up to our new leverage target announced in January 2013 as well as from having more cash flow hedges in place. I will comment on what we foresee for our fourth quarter profitability when I get to our outlook in a minute. On Slide 9, turning to cash flow, we were marginally below last year in the quarter on cash flow from operating activities net of investing activities. This reflected $8 million of negative translation effects on our net income. As we look at the full-year, we now foresee cash flow in the range of $220 million to $230 million, which is a $15 million reduction from the range we gave in July about in line with reduction in our net income outlook. Our capital spending outlook for the year remains at $75 million and it’s reflected within the overall guidance I just gave. On share repurchases in light of our updated outlooks for cash flow and earnings, and therefore EBITDA in which our leveraged target is keyed, we now foresee doing a $105 million for the full-year. This will mean $71 million of repurchases in the fourth quarter after having done $34 million year-to-date including the expected $10 million in the third quarter. A word here as well on our dividend. We’ve previously said that we expect our Board to target declarations at 50% of prior full-year diluted earnings per share without items. This is where our current annual run rate of $2.72 in dividends come from and that we made $5.43 in 2013. While our 2014 EPS outlook is now below the $5.43 we made last year, we expect that our Board will continue to declare quarterly dividends in 2015 of $0.68 per share or the $2.72 on an annualized basis. The small amount by which this would exceed a 50% payout will be offset through the algorithm used to set our share repurchases. And to refresh your memory on that, this is used cash generated after investing in the business in paying our dividend along with putting our borrowing level at the 1.75 times EBITDA. At 2.13 for the four quarters ended September, we’re running above the 1.75 target both because the fourth quarter is our biggest cash generating quarter and because in setting our repurchases we’re putting aside the amounts triggered by the Venezuelan exchange rate changes in the end of the first and second quarters. This Venezuelan element raised our turns by about 0.2 times as of September. Turning now to our earnings, sales and earnings guidance on Slide 10, for full-year 2014 a plus 4% to 5%. There is no change in our local currency sales growth outlook versus where we were in July. This includes a 3% to 5% local currency increase in sales in the fourth quarter. At the high-end of the range this sequential improvement from our 4% growth in the third quarter is mostly in Asia and Beauty North America. On a two-year stacked basis for the whole Company, the high-end thus would put as a plus 10% in local currency in the fourth quarter after having been 11% and 10% on a two-year stacked basis in the second and third quarters. Our full-year diluted earnings per share range without items is now $5.21 to $5.26 as shown on Slide 11. This was down from July by $0.24 with the high-end in $0.19 at the low end. The $0.24 reflects $0.12 of a hit from worse foreign exchange rates as we now stand at negative $0.60 from FX versus 2013 for the full-year versus $0.48 in July. Another $0.02 of the reduction is a flow through of the amount by which we were below the high-end of our third quarter range in local currency. And finally our fourth quarter local currency EPS outlook is down $0.10 mainly from our high-end sales outlook being down one point versus July along with a continuation of elevated promotional spending in Europe and the warehousing and distribution costs in Brazil. On Slide 12, within our guidance, our outlook for unallocated corporate expenses is now about $56 million, down $4 million from July for expected lower incentive achievement and marketing expense, and net interest expense is now at about $44 million versus at about $46 million in July. Our tax rate assumption excluding items is to come in at 24.4%, marginally below the 24.5% in our outlook in July. The full-year rate compares with 23.7% last year. On Slide 13, our full-year pre-tax profit return on sales without items is forecast at 13.6%, which is down 30 basis points versus July and is versus 14.1% last year. As you can see the pieces of the change is on the slide that along with a negative impact from translation effects, we’ve had an impact in our segments from the supply chain issues in Brazil and most leverage from spending in Europe and Tupperware North America with partial offsets from unallocated corporate expense and interest expense. Our diluted EPS outlook range for the fourth quarter, excluding items is $1.55 to a $1.60. At the high-end, this would be down $0.02 versus last year in local currency or 1% and down 12% in dollars after $0.19 drag from foreign exchange of which $0.08 is from Venezuela. Also on our outlook, we included in our release an initial sales outlook for 2015, where we have indicated we see local currency growth in the 46% range. This of course bands the high-end of our fourth quarter and full-year 2014 ranges for sales. We have also highlighted in our release where we stand based on current rates as the foreign exchange impact on our comparisons with 2014. For sales there is a hit of 4.4 percentage points and in earnings per share $0.37. Of these impacts, 1.8 points on sales and $0.23 on earnings per share relates to Venezuela in the first half until we left the move to the (indiscernible) exchange rates starting in the third quarter. Just to round things out now on resin, you’ve of course all seen the drop that has occurred recently on oil prices. And naturally the resin prices are particularly the less highly engineered resins are somewhat correlated with oil and natural gas prices, but there is also separate supply and demand characteristics for these commodities. So in any event, our 2014 full-year outlook for the cost of sales impact of resin purchases from price changes in local currency improved from July by $1 million to negative $13 million for the full-year. Only about 1 million of this hit will be coming still in the fourth quarter, which is in our outlook. Looking out to what we currently see for next year on resin, we’re showing a full-year of $4 million benefit that is more heavily weighted toward the back half of the year. I'll point out that in some geographies resin prices do tend to be dollarized, so that to the extent a currency appreciates or depreciates versus the U.S dollar, we get a benefit when the local currency appreciates and then take a hit if it depreciates. So anyway, with that, I will pass the call back to Rick.

[E. V. (Rick) Goings:]

Thank you, Michael. We are going to open in just a second to Q&A, but just a couple of comments. I have over the last several earnings calls been sharing with you that we created a group called 2020 which is -- actually its 20 of our young, dynamic leaders around the world. We did this two years ago and what they are working on is really what are the next levers for us to have long-term growth. We’ve had this wonderful 10-year run and we’ve now been working two years with this group. We meet about every three months and there is adult supervision and to make sure that agreements that we make, we can fund them and we can move them forward. And I will tell you where our real focus has been taking to consideration particularly the established markets of the U.S and Europe, but the emerging markets which are 87% of the world population and the forces under that. We are spending a lot of time urbanization, the engagement of Millennials, new technology. So we’re making some real progress. I will tell you just outlining some of it. Our dynamic model in China has provided us an insight on how to operate in dense urban markets through smaller local distribution centers where you may not do as much per unit, but you have them sprinkle all through out the population. So they become neighborhood like and we are now going to the point that we’re going to be experimenting with a hybrid version of that in a direct selling model and a relationship group presentation model in Japan and Korea. We think there is some -- there is going to be some great learning. Also with Millennials, the shifting not only product line, but what they want to do job wise, it is interesting, almost 60% of all Millennials say they don't want a traditional job. They really want to become entrepreneurs and us targeting the products, and how they get started. Actually, we are going to be doing some experimentation with Skype parties for Millennials where a couple of people are present at the party at one place, but then they Skype in their friends from other locations. So we have got learning laboratories going on across the world on these kinds of things. Working too with regard to better on boarding and training, and that's coming out of this group to rethinking how to do it. They -- our Brazilian team has created this incredible internal intranet site called Tupper City where you go online and as a new demonstrator and all of a sudden you see this city ahead that’s Tupper City and it’s a simple and fun way to normally be brought into the business, but to onboard yourself, but to feel a sense of membership in this community. So anyway, I'll be -- we have another meeting in three weeks; I'll be updating you on that. We are even starting to do some wonderful things with regard to the product categories. And I kind of put it together this way. We really offer to people an entrepreneurial opportunity and the three key elements of that our product, what kind of products are they selling and it's interesting in China, third of our product line is, water related products. The second piece of that is our demonstration of the features and benefits of the products. So we generate only want to be in products where there are features and benefits that we can demonstrate and we call our method their group presentation selling. And the third thing we really leverage and this is the core of this business since the beginning its relationships, friends, neighbors and relatives. So when you put those three together, product with this Tupperware brand name, the presentation method which is demonstration and third it’s sharing it with a relationship. This is the magic of our business and it works whether you’re in Beijing or Boston and the key is how do you contemporize it so it works well in each one of those markets. Having said that, let's open it to questions.

[Operator:]

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

[Jason Gere:]

Okay, thanks. Good morning. Hey just a -- just a couple of questions. I mean, the first one, if we could talk maybe about the promotional spending that we saw that's going to continue and Rick, I appreciate you guys kind of going to a 4% to 6% organic sales for next year, I know longer term you still talk about that 6% to 8%. But can you just talk about the cost of doing business? Are you seeing that in many of these markets? And again, I understand it's a portfolio that you just are going to -- it’s a new reality that there is just going to be higher promotional spendings along the way and even so higher investments what you’ve seen in Brazil to kind of feed that growth, but maybe other markets as well. So I was wondering if you could just talk about the cost side of things in order to kind of drive, I guess, the sales that you guys think you should do longer-term?

[E. V. (Rick) Goings:]

Yes, overall fundamentally I’m going to answer part one of that and then which is the overall strategically what’s going to happen with this value chain and then secondly I will have Mike talk more to the short-term things that we needed to do here which require that kind of investment. Firstly, overall no, I don’t think you’re going to see a fundamental shift in our value chain. We had operating margins in 2005 of 5%. We moved that up to mid-teens. Mike still believes very strongly we can move it up 50 basis points per year. We’ve had some isolated incidents where we had to do some things. And the important thing is if you don’t do those things, Jason, you lose sales force on there. So the important thing is do them quickly. It is -- that’s where some people talk about quality of life when somebody is on a respirator, it’s not very good, but it beats what the other alternative is. So you go in and shore up a business on it. But as I look at our businesses overall, I think this is we’re going to be able to maintain this in the high 60% gross margin level. I think a big opportunity for us is we can spend 14% to 18% on promotional costs and I don’t think we’ve done a good enough job this past decade at really teaching our young promotion managers in markets how to do this effectively and its not only promotions to get customers to buy, but to get sales force to go out. It is, we spent a fortune on incentive trips and you're going to see us really get better at that. And I was saying at one of our meetings this last week, we simply -- it isn’t going to require a new investment, its going to require us learning better how to redeploy what we're doing and stop doing some of the things right now that don't give us the payback. But fundamentally, I think this is a business that can deliver in these operating margins in the mid-teens. Mike would you talk more on a short-term basis?

[Michael Poteshman:]

Sure. Jason, you asked about Europe and its one of the places that we highlighted in the near-term. One of the places where we are spending more in Europe is in Germany where our current management team was looking at the situation with our -- the top of our sales force organization, our distributors and looking to rebalance a bit how much of the value chain, we're keeping versus what they're getting to also to drive the business. And so that's part of what's been going on in the third quarter and we will continue. And there are several other markets where we are spending more than we were before as well. And it's really to get a good base as we move into 2015 to be able to be there with the sales force and have everybody’s heads in the right place. So I do think that that will work out as we move through 2015. And when we look at the situation, more broadly, well first I will comment on Brazil. So some of the costs that we have incurred in Brazil are reflective of the volume growth we got over time having to add another line to be able to pack and ship the products and things like that. In other cases, it's not as Rick was talking about, it not have getting to where we need to be as quickly as we should have been, so there is some incremental costs there because of the labor situation, how many people have to come in, their level of experience, all those kinds of things. And of course those are things that we should be able to bring back. So as we look at the situation in 2015, some of these elevated costs will come back, some will come back more from as we grow volume there will be leverageable because we’ve got into the -- well we’ve gotten to this new plateau of infrastructure. As we look at the value chain, overall and why we will get that 50 basis points, when you look at the range of the ROSs in our businesses, it’s wide. So there are some that unfortunately are in a loss right now and some that are doing quite well. And so the 50 basis points can be achieved by just and I say just, but leveraging fixed assets or fixed costs that are in place, but that’s not our only lever. These places where we’re not getting acceptable profitability are clear redeployment opportunities where if we can spend better and get more out of our spending, we can grow sales without incremental costs. So our greater leverage on the even on the variable costs. So that’s really how we look at it and there is a lot of runway to go. Our highest ROS segment is Asia in the low 20s whereas of course Beauty North America is now in the moderate single-digit. So there is a lot to do just there without having to get to some astronomical ROS in particular markets.

[Jason Gere:]

Okay. And I guess just to clarify, so you don’t think that there is a longer-term need to spend to rebuild the active sales force, because we’ve seen the declines there for a little bit. But in many cases there is an investment and then over time you start to get those returns. I’m just trying to think about, again it's a portfolio, so I’m just trying to understand broadly speaking, how you kind of think about turning that active sales force around and what the drivers are to get there?

[E. V. (Rick) Goings:]

No, it’s fundamentally we’ve got a sound value chain. I think we’ve got to make sure our distributors are always making money and we try to make sure in our traditional model they make 7% to 8% and they net out of their retail sales of their business in and almost all markets that works quite nicely when you have a market that’s headed dramatic sales downturn, there can be pressure on their breakevens and that’s where we’ve stepped into help on those. But I don’t think we’ve seen a fundamental shift in that, no.

[Jason Gere:]

Okay. And then just the second question and I will hop off. I mean, so we are hearing initially about 2015, obviously you’ve given us some pieces of the top line and a little bit on the cost side. We will wait on the EPS. But with the Venezuela headwinds, still some supply chain and promotional costs, Rick, can you talk about some of the things that you’re seeing that should swing positively, I guess, for 2015, in terms of maybe new market opportunities or which markets do you think will stabilize quicker, because I know you broken the portfolio into strong, progressing and lagging in terms of those markets. So, which of the lagging markets do think are going to be progressing and which of the progressing have become strong? Maybe if you could provide a little bit of the context in terms of how you are going to get that 4% to 6% sales next year that would probably give investors a little bit more color.

[E. V. (Rick) Goings:]

Yes, on the top line if I took it by areas of the world Jason, I would start off with inner Europe, Africa, Middle East and I would say hey, this number we saw in the second quarter with Germany its been a very dependable business for us where you’re not going to see dynamic deltas any quarter. It’s a very solid business with a well trained distributor organization. You’re not going to see that drag this year. Even if only Germany was flat look what kind of incremental would that be to the top line? The disruptions we’ve seen in South Africa in our Tupperware business this year. All you got to do is neutralize that disruption on that and you start to see big plus on top line. CIS and we’ve seen sequential progress in CIS, and the management team there has done a good job of taking out expense of that business and getting it refocused. Obviously it hasn’t helped what the government is doing there. So, as I just look to those businesses there in Europe, Africa, Middle East that starts to look better there. As I turn to the Americas here, the big -- we’re not going to be able to do much about Venezuela. We’re going to keep that business that at some point it will kick in again under what you see the business they’re just doing fine in that business. We’re just trying not to lead cash there. Our fuller business there, I want to see it get back to the same kind of 20% operating margins there. We’ve had issues the last couple of years, particularly with deep discounting on competitors down there. We weren’t going to get in that game and we knew we’re going to loose some sales. We don’t think that can continue there. Mike, I think the rest of the thing in Americas is fine.

[Michael Poteshman:]

Yes, there would just be two things I would highlight Jason based on what you are asking. One is and it’s not a big deal of course, but because we shutdown the Armand Dupree business in the U.S. in April we took a drag in the third quarter for instance I think it was six points on the company overall. Obviously we’ll lap that in the first half of next year. And on Venezuela it’s not actually a drag in the local currency comparisons because sales are up in Venezuela in local currency, but we’re getting a big hit in the FX column, so just to be clear on those elements.

[E. V. (Rick) Goings:]

Yes. And then Jason, I’ll go to Asia Pacific and the weak businesses there, look we had seven years of double digit, I mean dynamic double digit in India and there’s no reason to believe. And again we have got 15% penetration, got to get that back over there. That’s job number one for our Asia Pacific. China is going great. Philippines I think we’ve got the right people in place on the Philippines. We want to see something start to happen in Japan, but we’re not sitting on our hands in Japan. We’re going to take a hybrid from the Chinese model in Japan because the Japanese love our products and we’ll do similar things in Australia. So, I mean we believe we have a lot of opportunities out there and that’s why it is interesting going through some of the heavy weather that we’re going through right now. What makes me pleased and ready for this is that, I’ve had these 20-20 people working on this kind of stuff two years ago. So, when you have these issues it isn’t people who are scratching their head; Oh what do we do? It’s more reinforcement. Isn’t it good that we’re working on these other kinds of things? So, I have -- fundamentally Jason we’re so well positioned with our platform of value proposition. This platform to create entrepreneurs, we see these externals, large population mostly in our markets in these emerging markets. There’s a primitive retail infrastructure, limited leveraging of women. Many of these markets only 30% of them work outside the home. So, at the same time I think we can deliver as we have been delivering a lot of value to shareholders in dividends and buybacks. I think Mike, over the last four years we bought in, what almost 20% of the company?

[Michael Poteshman:]

Yes.

[E. V. (Rick) Goings:]

Yes, so it’s -- while we figure out to the end -- with the big global portfolio we are always going to have some mush going on. The deal is, somebody used to say to me you don’t drown when you fall on the water. You drown if you stay there. So when we have these issues how do we fix them.

[Jason Gere:]

Okay, great. Thank you.

[E. V. (Rick) Goings:]

Good question, Jason.

[Operator:]

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

[Olivia Tong:]

Great. Thank you. I appreciate it. First, one point of clarification for this year. You said plus 3% to 5% organic sales outlook for Q4, and then plus 4% to 5% for the full year. But if my math is right, even at plus 3%, you would get to about 5% for the full year. So, can you talk about why keeping the floor end of that range or what could potentially get you to the floor end of the full year outlook range? Thanks

[Michael Poteshman:]

Sure, Olivia. We did see the math as being up 4% to 5% with 3% to 5% range. So well have to go back and maybe get with you on why you see that. But given where we were in the third quarter the plus 4% we went with the 3% to 5% including because of some of these timing effects in the emerging markets that Rick and I talked about where in a sense the run rate was even a little better. So, that’s what we’re shooting for the high end of the range.

[Olivia Tong:]

Got it. I’ll follow up later on that one. And then the two factors you highlighted in why the [ph] [ex-FX] EPS outlook from this year is coming down, the elevated promotional spend in Europe and the warehousing costs issues in Brazil. First, are there any other big components that are driving the [ph] [ex-FX] guide down? And then on Europe, it sounded like you guys said that the incremental spend on promotion didn't really yield the benefits that you had hoped for. So, why continue spending it in the fourth quarter?

[E. V. (Rick) Goings:]

Hi, Olivia. Rick.

[Olivia Tong:]

Hi, Rick.

[E. V. (Rick) Goings:]

Firstly we were down 29% in Germany in the second quarter and we were almost flat in the third quarter. I think it is yielding results there. So, that’s why we’re going to continue in the fourth quarter with those kinds of things.

[Michael Poteshman:]

Right. And in terms of other local currency impacts Olivia, the sales range embedded for the fourth quarter in our July guidance was 4% to 6%. So we’re one point lower than that. That’s a few pennies of the difference.

[Olivia Tong:]

Got it. And then just on the fiscal ‘15 outlook, can you talk a little bit about first half versus second half expectations? Like from a quarter-to-quarter basis, would you expect to at least hit the low end of that range each quarter? Or do you sort of expect to start in the low side and then build as the year progresses especially given that Q1 comp that you have to go against?

[Michael Poteshman:]

Yes, I wouldn’t say that we’ve got real specific insight to give right now. But given the sequential improvement in the third quarter from the second this year including overcoming not having as much of a benefit from Venezuela, being optimistic that we can hit the high end of our range in the fourth quarter always going for the high end, hopefully we’ll be able to say 4% to 6% starting in the first quarter but we’ll have to see how we close the year where our sales force is, all those kinds of things.

[E. V. (Rick) Goings:]

Olivia, we philosophically internally here always try to create a plan that’s the high end of the range and because then we start to measure what are those initiatives, what are those investments at it and that’s always our plan A. Our plan B, and plan B is always hard to plan A, is at least be in the range though if you get surprises during the quarter. And that’s why I want to get through this fourth quarter just because the day changes to January 1st, the size of the sales organization and where we end the year, how they feel motivationally, that sets the tone for January. And so, as we know right now we’ve got two more months of work to do.

[Michael Poteshman:]

Right. Which is why we’d like to do better. Its why we’d like to be in our longer term 6% to 8% range, but given where we are, why we came out with 4% to 6% for next year because that’s reasonably in line with where we’re operating now.

[Olivia Tong:]

Got it. Thank you.

[E. V. (Rick) Goings:]

Before the next question, I do want to mention one thing. On the Brazil situation we have been working for, I know Mike and I for more than 10 years on shifting our whole product side of the business to more what I would call a Nike model. We’re not building factories all over the world. We have the same number of factories there, more of them are new than when I joined the company. But about 50% of our production is from factories that we don’t own. And what that has enabled us is to free our cash to increase the dividend and do share repurchase. And when its done right, I’ll give you an example, our biggest market is in Indonesia, those aren’t our factories in Indonesia, they aren’t our distribution facilities, but we have taught those that are partner there how to do that our way and that we said in our value chain we’ll make it on the other pieces of the business not on the backend of the business. If we’re going to keep a presence in manufacturing and product sourcing and in distribution so that when we go there we can show them here’s what best practices are. So fundamentally don’t think this issue we’ve had in Brazil is going to happen elsewhere around the world. I mean all I would take you to do is to visit that facility outside of Jakarta and you’d see wow, this is a terrific business model. And you know to this day, Nike doesn’t have a single factory.

[Operator:]

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

[Dara Mohsenian:]

Hi. Good morning, guys.

[E. V. (Rick) Goings:]

Hi, Dara.

[Dara Mohsenian:]

First, can you give us your volume versus pricings in the quarter? And then the real question is you highlighted the margin expansion outlook, its not really changing longer term. But given the recent top line slowdown and I would think at least less visibility around promotional levels in the market. Are you looking more aggressively at any cost cutting options or broader productivity plans to be able to give you some funds to maybe offset some of this top line pressure from a bottom line standpoint or reinvest behind the business to drive top line growth? I'm just wondering if there's any change in focus on looking at productivity here?

[Michael Poteshman:]

Sure, Dara. In the quarter we had a 6% benefit overall from pricing, so we were down 2% in volume. And as we were talking about in the second quarter as well, we did have some fairly significant price increases including we had highlighted in an audition. So that’s rolling through our numbers obviously for the next four quarters. And in that case it was a bit above the consumer inflation low double digit sales price increase. In terms of getting more productivity out of the business, yes we are doing several things. I wouldn’t characterize what we’re doing as being across the board kinds of restructuring actions but you’re starting with what I talked about and Rick talked about in Brazil. Some of those elevated costs are things that do need to come out of the business and that should be a leverage point as we move forward. One of the ones where we’ve struggled, one of the business units we’ve struggled clearly has been at beauty control as we’ve lost volume. And so we are working on ways to make that come out as you would expect, to come out much better. So that’s another example of somewhere where we should be getting a much better picture on sales versus what we’re spending to get those sales. So those will be couple of the specific units. The other thing that we’ve talked about, we alluded to it a bit on this call is, while we spend about mid-teens of our sales on promotional cost and we need to do that, we need to spend aggressively in that area and we’ve talked about it more, some of it more today. We do think that we can get more leverage out of that spending in various places and have a commitment from our three group presidents to go back to their units with a mindset of not spending much but getting more out of it. So, clearly over time we expect that to lead to not just sales increases but volume increases underneath those sales increases.

[Dara Mohsenian:]

Okay. And then Rick I wanted to delve a bit more into the promotional spending issues in Q3 and implied in the Q4 guidance. It sounds to me like conceptually, basically some of the areas you've spent behind, one is effective as you would like and the issue is more internal efficiency of that promotional spending than the external environment. Is that the right way to think about it? Or do think the higher promotional spending is more related to the competitive environment and macro pressure in general?

[E. V. (Rick) Goings:]

I think it’s the previous in many internal environment, I don’t think it’s the competitive environment. And it relates almost Dara to Mike’s last comment. I mean we spend a hefty amount on promotions and I will tell you case in point that I alluded to in my prepared comments on Germany very bright people there, a well trained distributor organization. But I truly believe when I say it didn’t have the right focus on the sizzle we were going through motions on a lot of things, but I think we got too intellectual with it. A lot of people come into this business. They come into this business; yes she wants to make money. But she wants to have a pleasing activity. I think we got too serious about our business there. I’ll give you a case in point, we used to do in most of our countries of the world we do a thing in the summer time its called Jubilees and I mean thousands come and it’s almost where many of our people who become career oriented, they have their epiphany moment. She looks around and she says, this is a serious business. I see people here who have been 10, 12 years. I see a parking lot full of Mercedes, and she says ‘wow’. And then she goes home and convinces here husband that, I’m going to jump into this thing. Well, even our German business starting about five years ago rather than do big Jubilees they started doing the thing called, they called Grand Prix. So rather than have 4000 people, they sort of have in 500 people. Let’s just get the best to the best. Well, a lot of people don’t starve out the best to the best. They starve kind of wondering in as kind of a neophyte about it. Dara, there were so many things that we were face to face, I’d go through the list and I would say, I understand intellectually why they did all of these. But when you put them all together you’re taking the sizzle out of the business and that’s what makes this business cook. And so, we’ve redeployed where they were spending the money, not more money short-term we’re going to do it for two quarters, because we can't redeploy so quickly but you’ll see things different in Germany this next year.

[Dara Mohsenian:]

Okay. Thanks.

[E. V. (Rick) Goings:]

And what it is to us on that, that’s why we hold these monthly progress reviews. It’s a shame on area management for not staying but ultimately it rests with me. I’m in Germany a lot, that’s why we have a lot of oversight of our businesses and these are the things that we look at. I don’t go into a business unit there and just look at their numbers. That takes 10 minutes. The numbers are a result of what they’re doing. We spend most of our time looking at, okay what are the elements that drive the numbers and I think our oversight with European leadership there was weak.

[Operator:]

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

[Sofya Tsinis:]

Hi, good morning. The one question I had is that -- I think in the release you said that you expect emerging markets to pick up in Q4 back to the double digit pace. So other than Indonesia what other markets do you expect to accelerate sequentially and why? Thanks.

[E. V. (Rick) Goings:]

Well there’s a litany of the markets that are -- we have yes, very clearly Brazil is up 20% -- if I understand your question correctly, Brazil is up dramatically. We are up nicely in our Argentine business, in our Uruguay business, Turkey I mean we have been averaging north of 20% up in those businesses there, Avroy Shlain up very strong in the past. I mean we have seen --we want to see this return back to the double digit in our big South African Tupperware business, that’s a very profitable business. China is up, what will be 24% -- 21% something like that, and the Malaysia, Singapore business where we’ve been there a long time, that’s generally a big double digit although we have had a couple of quarters. Mike, what would you add to that?

[Michael Poteshman:]

Yes, so Sofya we were up 8% in local currency in the third quarter and we’re saying that we should get back to a double digit rate in the emerging markets perhaps in the fourth quarter. What we mean by that is that the high end of our range that would assume a double digit. And we talked about with some of the units that weren’t doing as well as some of those factors of course we should do better just in outrunning the businesses but also the timing impact in South Africa with the shipments in June instead of July and then the disruption in the promotional campaigns in July and August were a drag. With Ramadan in Turkey and Malaysia and having a ship between the second and third quarters we said we’d have a more -- at a more normalized run rate 20% over both quarters in Turkey, but it was 9% in the third and 30% or 28% in the second. The same sort of dynamics not as bigger numbers in Malaysia. So those are some of the things as well as what we’re working on in places like India where we didn’t have a good comparison, but sequentially we would expect to do somewhat better.

[E. V. (Rick) Goings:]

Yes, a sidebar Sofya, I mean for those on the call who don’t understand how Ramadan works. Muslims fast all day and so it’s a disruptive fact on our business but it moves along when Ramadan occurs. So, we kind of build that into our plans.

[Operator:]

The next question comes from the line of Linda Bolton Weiser of B. Riley & Company.

[Linda Bolton Weiser:]

Hi, Mike, I was wondering if you could just explain the reduction in the share repurchase for the year. Is it that you just prefer to stick to your target rather than your leverage target rather than let it creep up a little in the near term? Or is there something specific with regard to your debt covenants? Or are you afraid of a rating downgrade? Or why not just let the leverage creep up a bit, and do a little more share repurchase, as we expect you to generate good cash flow in 2015? Just can you give the background behind exactly why your decision is what it is? Thanks

[Michael Poteshman:]

Sure, Linda. In setting the target that we came up with in January of ‘13 and working through it with Rick and our board looking at it and talking to rating agencies over time, that’s how we came up with the 1.75 times leverage target which fits in with being investment grade and all those kinds of things. And so we’re really just executing on that. We’re investing what we should in the business in terms of operating expenses and capital of course we expect we’re paying our dividend in line with the targets that we’ve laid out, and that’s what we do next after we fund the business. And then the swing factor becomes the share repurchases. So the amount we’re buying is based on our expected cash flow after funding the rest of those things and then going towards that leverage target. The one accommodation that I mentioned that we made on that is we didn’t put in these Venezuelan, the elements of the Venezuelan situation that will lap in a year and that caused our leverage to be about 0.2 turns over what it otherwise would have been.

[Linda Bolton Weiser:]

Well can you just give -- remind us what are some of the requirements under some of your debt covenants? Is there any particular leverage ratio you have to achieve?

[Michael Poteshman:]

We do have a leverage limitation and an interest coverage limitation but we’re not …

[E. V. (Rick) Goings:]

We’re not even close yet.

[Michael Poteshman:]

We’re not that close to those. So, it’s more of having step back and decided what that leverage target -- what we want to target as opposed to what the requirement is. I think the requirement maybe 0.75 in a quarter.

[Linda Bolton Weiser:]

Okay.

[E. V. (Rick) Goings:]

Yes, Linda on that too, is when we made the decision to go to 1.75 we didn’t go to rating agencies and ask what's the limit of what we could do and still be investment grade because we don’t go to the rating agencies, they don’t know how to run businesses, we do. We basically looked at ourselves and said what's the level of comfort that we have with regard to leverage and I tend to be fairly conservative about that and I look at the one, two, three on this. Number one, we spun this company off in ’96 no matter what kind of a year we always kept this dividend sacred. So we said, number one, we want to have always money to invest in our business. Two, we want to be able to support the dividend and in fact if we’ve got the ability to grow that dividend and I think we’ve worked four years in a row. We had double digit increases of it and then thirdly the swing factor is Mike would say is, if you got more beyond that, then we’ll do share repurchase. So our fundamental thinking hasn’t changed on that.

[Linda Bolton Weiser:]

Great. Thanks very much.

[E. V. (Rick) Goings:]

Thank you, Linda.

[Operator:]

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

[Connie Maneaty:]

Good morning. Could you talk about the hybrid model that you’re going to be testing in Korea and Japan? And how that would tie with the existing sales force in both of those markets?

[E. V. (Rick) Goings:]

Now the differentiation first Connie is that because of laws in China, in the past there we really haven’t operated on the direct sales, pure direct sales model, that’s what we never went for a direct sales license and we have very good relationship with the Chinese Government. But there was a second fundamental in China as well as that the typical apartment in China was 30 square meters and you had one and half families living there, you would have enough room to do a Tupperware party there anyway. So we said, is there an alternate kind of a physical place. And then we came up with this little storefront ideas. We don’t pay the rent on any one of them. There’s 4600 of them. A distributor and I’ll use that term, she starts with one, she had to invest in a signage. She has to abide by, now its gotten like McDonald’s, you’ve got to run it, its got to look this way and we were to Version three so they all start to look the same. And what we’re doing there is moving them more to a direct sales model where store clerks hold sessions there where they do cooking classes, but they’re now starting to sell out of those. Now, how the hybrid will work in vision of it, is today a traditional distributorship, let’s take Germany you have a 135 distributorships all throughout Germany. They tend to be on the outskirts of town and our distribution locations that have a meeting room and she comes in on Monday. She turns her orders in, and she sits for a one hour sales meeting in either during the day or comes in the evening if she has another job and then she gets her order after the end of that and drives away. Well, if you look at Millennials imagine even that town; it’s a Homburg for example, not just one location on the outskirts of town where you’ve got this density. You have the issues with regard to traffic. Imagine that in town there are six smaller locations that one distributor still owns it. But what they have is a front on that which is like a display area for the products. Now consumers can come in, look at the products. Goodness, what's the coffee company you’re seeing all around the world that it has those same, you go in there they look for memberships, it will come to me in a minute. So, it’s a hybrid of that and in the back it is a distributorship. So there’s a place you build up the brand name. There’s a place to demonstrate products. There’s training rooms in there and that -- and move away from distributors having big amounts of inventory and we go to a non-stocking distributor model which is what we do in many of our countries around the world. But what we don’t do is bypass the distributor and go to the customer. Our customer is our three million sales force, and what she has and this is the same as in China, she has -- I think five million members that are connected to these 4600 locations. So we call it distributorship 2.0 and it’s evolving. Yes, its Nespresso is the company I’m thinking. You’ll see that -- if you just walk in and think it’s a Starbucks, its not.

[Michael Poteshman:]

And Connie, you could also think about it as an extension of the team leader concept. So we’ve got underneath distributors people holding sales meetings, sometimes as team leaders in a different location. And this is talking about how do we leverage some elements of the China model in terms of how does that face consumers, end consumers and the sales force in a way that’s going to be more engaging and more appealing and perhaps in a better location. So its not, I would characterize it as a wholesale move. It’s the leveraging of a lot of those elements in the China model.

[E. V. (Rick) Goings:]

But don’t for the least think that it’s a retail play on our part, because let me tell you what would happen. Year number one, look we went had the target experience where we never went around the sales organization. We allowed here to set up an end cap and a target. Well, consumers thought we had gone retail. And a full week of a target sales equaled one party. And what would happen, if this kind of a company went retail year number one, everybody would love to have Tupperware and then the companies would say wow, 60 some percent gross margins, Rubbermaid gets 32%, you watch what would happen. How our product is sold. We recruit a woman into this business and she has friends, neighbors and relatives and she shares the products. Two things that come out of our value chain that we don’t have to spend. We don’t have to do advertising and we don’t have to do retail rent. We redeploy that money so she can be an entrepreneur. So we never forget that’s our model. Our model is not even a hybrid retail.

[Connie Maneaty:]

Okay. Thank you.

[E. V. (Rick) Goings:]

Great question, Connie.

[Operator:]

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

[Frank Camma:]

Good morning, guys.

[Michael Poteshman:]

Hi, Frank.

[Frank Camma:]

Just a clarification, the 2015 sales, just basically here you're saying 4% to 6% on local currency basis. So, after the FX, you're basically saying zero. Is that correct roughly? I mean of you adjust it for the Venezuelan and everything, zero growth next year?

[Michael Poteshman:]

Based on the rates right now is that …

[Frank Camma:]

Today, right.

[Michael Poteshman:]

(Indiscernible) it’s about 4.4 points.

[Frank Camma:]

So, it’s roughly nothing. Okay. And the other thing is on …

[E. V. (Rick) Goings:]

Hi, Frank, Rick, good morning. But on this that -- I just had a Nick Poucher, our Controller to pass me a note. This past year what we’re dealing with right now is and you kind of match it to our markets. The markets the dollar is really strengthened against Turkish Lira, Indonesia Rupiah, Brazilian Rial, Rand in South Africa, the Europe and the peso. So people could say, Oh My God. But we tend to look at this over time and most of the time when we look at it over decade long periods it’s pretty neutral and so we keep -- we say that’s -- which is why we don’t hedge translation. And secondly we don’t know how to hedge translation. And there’s a lot of people who are in currency speculation who don’t know how to do it.

[Frank Camma:]

The other thing was, the reengineering charges this quarter, did you say those were from Germany?

[Michael Poteshman:]

No.

[Frank Camma:]

I’m sorry. Did you say what that was?

[Michael Poteshman:]

There was a fairly small but a software write-off in beauty control.

[Frank Camma:]

Okay. I thought it -- okay, I will have to go through the detail. I thought there was $2 million.

[Michael Poteshman:]

We’ve also highlighted earlier in the year cost related to exiting our Armand Dupree business in April. Not in the third quarter.

[Frank Camma:]

Okay. And the last question was just on the -- what is the other income of almost $4 million, the $3.8 million?

[Michael Poteshman:]

That’s also primarily an item, quote unquote where we were able to exchange some bolivars at a better rate than the 50 rate. So that’s not in the $0.90, but it’s in other income.

[Frank Camma:]

But it’s not in the $0.90?

[Michael Poteshman:]

Right.

[Frank Camma:]

So if you strip that out you’ll still get to $0.90 because …

[Michael Poteshman:]

Right.

[Frank Camma:]

Okay. That’s what I would have thought you were done but I must be adding something up wrong. So, I’ll go back to my model. Thanks.

[Operator:]

Your next question comes from the line of Gregg Hillman of First Wilshire.

[Gregg Hillman:]

Good morning. I was wondering -- number one, if you could talk about China a little bit in terms of constraints to growth. I think it costs $4,000 to $5,000 for a distributor who need to open a store and I was wondering about going to more kind of, to a franchise thing. I think the number of outlets one distributor can control; you just reduced that from 15 to 10. Now just wondering aren’t there some superstar distributors out there that could or people in China that could handle more than 15 outlets under their span of control? And also why couldn’t you experiment with advertising in an individual market? I know you have to build inventory in the stores but are you doing any experiments with advertising in the individual city in China lets say to get to cleaner water and to see how that would work?

[E. V. (Rick) Goings:]

Hi, Gregg, Good morning, Rick. Firstly with regard to China, it actually that’s where it started, it was around $5,000 and now it is escalated, we’ve got a proven kind of a method and so in some of the cities right now, she may have to invest as much as $50,000. That doesn’t mean she is giving it to us as a franchise fee but you get to certain places like Shanghai it’s expensive and we want her to have enough working capital. I think that’s the highest we’ve had thus far. Yes, to the second piece of that is that we’ve reduced the number and the key piece of that is what Vincent has learned very quickly is we get higher productivity when she has fewer units and you can learn some lessons from McDonald’s with their master franchise too. They started going into that direction too because they found their master franchises were spread over too many units out there so they were going for productivity increase. Third with regard to advertising, advertising just isn’t part of our value chain, it’s in the neighborhood. They get people who are locals to that neighborhood. They get friends, neighbors and relatives who tend to all live in that neighborhood, and that’s who comes to the shop and because we don’t have to advertise that’s more money for the women to fuel her business. So with growth rates Gregg in the mid 20s over a long period of time and the expansion of the number of places I think we’re doing just fine. As a matter of fact one great litmus test is, two years ago we were named a power brand in China. Just image, you see 4600 store fronts all over the place in China. That’s great advertising. Those are billboards.

[Michael Poteshman:]

And Gregg, I mean right we don’t do traditional advertising. One of the things we are doing very well in China is promotion through social media and that includes people who have their kitchen done and then they take a picture and they share that and they get …

[E. V. (Rick) Goings:]

They do WeChat.

[Michael Poteshman:]

Yes, WeChat. So it’s a great example of being able to use social media to directly drive our business and so that’s another thing that we look at from what China is doing so well in trying to figure out how to translate in that to our more traditional types of models, traditional for us. So, that has been a big effort there.

[Gregg Hillman:]

And then also Rick on the water filters, you mentioned in past calls you sold a $1,000 water filter. Have you segmented the water filter? Are you hitting lower price points also? How many different price points do you have in water filters?

[E. V. (Rick) Goings:]

Well there’s an entry water filter actually that has a water filtration system in the actual small little bottle. Its not -- it’s technically proficient as a $1000 water filtration systems but -- I was speaking to Beijing Business School this last year and I was talking about our water bottles and our water flasks. And interesting, 75% of the students in that business school are business are women because you get accepted based on your grades and they’re worried about there won't be any more men that get MBAs in China. But I asked, has anyone ever seen one and they all reached in their purse and backpacks and I thought every single one of them had one in there. We have really become and this is what's interesting about our China model and what we want to adapt to it. We have become a millennium business, a Millennials business. Very importantly 50% of the world right now are Millennials ever worked for us. In 2025, 75% will be Millennials and if we have adapted our products this message of us demonstrating products and their way of sharing products through friends, neighbors and relatives. Millennials don’t believe -- this is not my opinion this is fact. Millennials more than 80% don’t believe advertising. What they do is they WeChat with their friends in China. They ask, what do you think? And that’s why when we have a product that they love its part of their life and more of our products are now, make your life easier. I was chatting with one of our people yesterday. One of the hottest selling products that we have in the world is a microwave rice maker $20. And you got rice in four minutes. And so we’re bringing and that’s a millennial product. Where as we get to this really high-tech space age like this space shield, that’s a 45 year old woman in Provence.

[Gregg Hillman:]

Okay. Michael, do you pay for keywords on Alibaba to get higher in the search engines in China right now?

[Michael Poteshman:]

We’ll have to look at that Gregg. I don’t know.

[Gregg Hillman:]

Okay, if you get back to me on that one I would …

[E. V. (Rick) Goings:]

I think not though.

[Gregg Hillman:]

And then finally Michael, could you comment on -- you have been below the trend for the last two to three years, below the 6% to 8% trend. What are the big reasons for that Michael in terms of -- I know it’s happened; a lot of the individual things has happened in countries, are there any other bigger trends that you can identify?

[Michael Poteshman:]

I don’t think so. We really end up being a market by market. I mean our overwriting bigger opportunity is because of the populations and where we are in penetration in rising middle classes in the emerging markets and we’ll continue to do things to look to do better in your service markets as well. But it really comes down to not hitting in some of those established markets and then we have -- we haven’t had as much growth in some of the emerging markets. But several we have but a couple we haven’t.

[Gregg Hillman:]

So the established markets have been weaker and there had been a few laggards in the emerging markets?

[Michael Poteshman:]

The 6% to 8% is built upon an assumption of 10% increase in the emerging markets and just the low single on the established.

[Gregg Hillman:]

Right. Okay, and so lately like Germany for example has been slower. And then in the emerging markets, what's been the laggard in the emerging market?

[Michael Poteshman:]

I mean the ones that have been down recently have been India, CIS in most of the quarters.

[Gregg Hillman:]

Okay, got it. Thanks for your comments.

[Michael Poteshman:]

Thank you.

[Operator:]

At this time there are no further questions. I will now turn the call to (Rick) Goings for any additional or closing remarks.

[E. V. (Rick) Goings:]

Guys all I would say is that we, this was a tough quarter. We had a handful of markets that really were -- pulled it down. But we’re going to get through this year. I think fundamentally I’m pleased that we have a value proposition that is strong, well positioned and I have confidence that we are going to get back to the 6% to 8% in the years ahead. So thank you very much for your time.

[Operator:]

Thank you for participating in the Tupperware Brands' Corporation third quarter 2014 earnings conference call. You may now disconnect.