Tupperware Brands Corporation
Q3 2015 Earnings Call Transcript

Published: 21 Oct 2015

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Tupperware Brands Corporation Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Mr. Rick Goings, Chairman and CEO. Please go ahead, sir.

[E. V. (Rick) Goings:]

Thank you very much. Hi everybody. I'm in New York City. The rest of the gang, Mike, Lien, and the rest are in our headquarters in Orlando. For first timers, you can follow this presentation with slides. I'm turning to slide two. You know the drill with regard to forward-looking statements. Let me now turn to slide number three. As you can see, our sales came in at 7% up in local currency and that was above the high-end of our range. Even with the economic and political disruptions that we're seeing in some countries and had some tough comps versus last year in the second quarter, the management teams really they did an effective job navigating through much of the volatility. We're pleased to see strong performance in a number of markets, I've just mentioned here a few; Argentina, Brazil, China, Indonesia, Tupperware Mexico, both of our South African businesses, the United States and Canada, particularly nice to see that when most companies in our industries are suffering in the U.S. and Canada, our guys are growing double-digit. We're also pleased to see the improvement in France and Italy, but we've got more ahead there with regard to needed improvement. We had an 11% increase in emerging markets, 3 points improvement from Q2, important was Indonesia, we were even with last year in the established markets and a 2 point sequential improvement driven by strong double-digit growth in, again as I mentioned U.S. and Canada along with that improvement in France and Italy. Sales force, it's now at 3.1 million, that's a 5% plus 2% improvement over the second quarter. Pleased to see too the – it's early days, but we've started to implement the 20/20 initiatives. We updated you in the video, and I hope with most of you we've gotten some positive response that we clearly can't get that granular on this kind of a call, but we'll do that from time to time as needed. But you heard from our German MD there, really that was one of the first countries in Europe we launched and starting to see improvement there with those who went through the 20/20 programs and that toolkit, in not only activity but their sales levels, ditto in the Americas, early launches in Brazil, and we're in a little earlier stages in Mexico. Anyway, active sellers were up 3% in the quarter and that also was an improvement. If you'll turn to slide four, let me try to take you through some of this and I'll do my best not to be redundant with telling you what we've already told you, may be here I can give you a little bit more color. Let me start with Europe, Africa, Middle East, we saw strong performance in Tupperware South Africa. Starting with our Tupperware – South Africa business was up 52%, we're really executing well on our fundamentals. And on top of that, we did benefit in full disclosure from unusual timing of shipments last year in connection with a transportation strike at the beginning of July and that impacted our July and promotional activity in August, so a little bit easier comps. We also continued to do very well with our beauty business, Avroy Shlain in South Africa, double-digit 23%. 21st consecutive quarter of growth of that business and we're driving the growth in Avroy Shlain with not only building the sales force, so they're just doing a great job with new products and brand building and a lot of focus on fragrance and skincare. We've paired this with strong focus on leadership development and that's why often when we look at how are we growing the sales force, the key to that is keeping the ratio of sales management and sales force together. So it's good to see that. We've also continued to have good contribution in the Middle East, and I'm laughing when I said good contribution, in the Middle East and North Africa. I just was in the spring went through this business with our management team and it's just amazing the kinds of increases we're having in markets like Egypt, where you believe that the instability and we get incredibly strong double-digit, it speaks to the strength I think of having local sales force, and at the end of the day, she needs to earn money, feed her family, and so we continue to move forward. Let me turn to Germany, 4% decline wasn't good, notwithstanding a much more difficult comp than we had in the second quarter. You'll remember the second quarter 2014 was a disaster in Germany, so they had a good quarter this year, but it's sure against easier comps. The momentum that we created in Q2 softened during the summer period and we weren't able to attract enough sales force. I can tell you from my junior days in direct selling, running a German direct sales business, things shut down. You guys who travel to Europe know this is in July and August. So it's hard to really expand your sales force much. We continue to work through the Vision 20/20 initiatives and as I already mentioned in Christian Dorner, our MD, we're starting to see some real improvement there. In Germany specifically, what gives me confidence is we've got a strong group of distributors, a young, but very experienced leadership team. And so, we expect to see more improvement. France and Italy, we need improvement there. We saw some sequential improvement. France was down 6%, an improvement of 12 points from last quarter. This reflected the actions that we're taking to reinvigorate the sales force. I've got to say though wind is in our face because of changes the government made concerning what its requirements were for our managers. And managers there are employees of the distributors and that really impacted our promote-out level. Promote-out managers are the managers that really are the most dynamic, young, fresh managers in building the sales organization. So, we've got work to do there too, but we've seen this happen in the past in other markets and it usually takes a couple of quarters, but we adjusted government changes. Italy, down 15%. This was a 10-point improvement from last quarter, and it's mostly the gap in the active sellers. There we're working to really develop more new managers and unlike France, we saw marked improvement in manager promotions in the quarter and that bodes well for what's ahead. We also really plugged in some actions and formulas that we do in some of our best sales management countries at the manager level and that will boost earnings and increase retention. So, it's going to take us couple of quarters, but I think we'll get through that. Let me turn to Turkey. I've spent a lot of time there. I've been there twice already this year. And lot of disruption from the political and economic environment there. It's mostly driven by the war in Syria, the upcoming elections there. It's just a raft of things going there, a lot of noise, a lot of distraction. But we've got a good management team there, a large sales organization, but being down 10% in a market like Turkey, which is one of our middle-sized market doesn't feel good, but hopefully, we get through this sooner rather than later. Turning to Asia-Pacific, our APAC businesses, I just returned last week from Singapore, where we had all of our country managing directors and presidents. APAC, we're pleased to see the quarter, the real frontrunners there were China, India, Nutrimetics Australia & New Zealand, all with double-digit growth in the quarter, China up 18%, continuing the strong performance on top of 24% growth in Q3 of 2014. Growth continues to come from a combination of more – we used to call them outlets, we're really moving towards experienced studios. So to kind of get used to that's what we're going to be calling them outlets generally which you would do if you sold discount merchandise. So we say it in English, but it's inappropriate for our experience centers, but also we're starting to see the productivity go up in these experience studios. We now have more than 5,200 of them. That's up 13% versus last year. And we mentioned this in our prerelease in September. China continues to perform well, as we leverage our product line and push the other elements of our business. Worth noting is our ability now to prelaunch products to our – every one of these experience centers has a membership base, so it's a relationship and they really have been using chat and text technology like nowhere else in the world that drive people into our experience studios, where they come in for, it's really a cooking class. In fact, I think this is something very important and worth noting, I spent a lot of time with Vincent, the head of our China business when I was in Singapore. And he mentioned to me that only 30%, that's their best estimate of the traffic that comes of their overall sales is people that come in off the street, so 70% of the business are previous members. So very bullish for the China business, got a lot of runway in a number of these experience centers to be opened in the future. They're almost non-existent in Central and Western China. Indonesia, up in the quarter. That's 12% and that was quite a delta of 17% change from the second quarter comp. We've been focusing on improving our recruiting to build our sales force count, but we still have a gap of about 5% in the total sales force numbers. The good news is we saw small growth in our active sellers, in part we're leveraging more demonstration selling and our on-boarding efforts related to new sellers are starting to have some effect. We saw impact in also a sales force incentive trip promotion that really engaged more of the sales force, not just the top tier. But again let me stress, we're pleased with the progress we saw in the quarter in Indonesia, but we still got a gap of 5% in our sales force count, so we've got more work to do in the months ahead. Korea, again solid performance, up 7%, and that was right in the face of a 6-point negative impact on a business-to-business transaction we recorded in Q2 last year. Also it was a bit of a heads up, we have a big B2B we did in 2014 in Q4, so that's going to diminish the comps there. And by the way, we'll do business-to-business transactions in certain markets for time-to-time with major brands, I mean it could be an auto dealership, an upend brand of some kind of luxury goods, where as an incentive, they can get Tupperware and then we have bounced back coupons that get those people to hopefully want to attend a party, but we do them very, very selectively. Now, let me comment on Nutrimetics Australia, New Zealand, up 11%, higher activity, bigger sales force and our Managing Director Natalie (14

[Michael S. Poteshman:]

Thanks Rick. You've seen in our release and Rick has walked you through that we were 1 point over the high end of our local currency sales increase range at plus 7% in the third quarter. We improved sequentially from the second quarter's 4% local currency increase, despite a 1 point more difficult comparison versus last year. As foreseen in our July earnings call, this came from Indonesia turning positive, along with better comparisons in France and Italy. In fact, our 12% increase in Indonesia in the third quarter was quite a bit better than we had included in our outlook and this along with better than foreseen increases by Tupperware U.S. and Canada and South Africa, were the main contributors to our being above the high-end of our local currency external range. Touching on volume versus price of our 7% local currency increase in the third quarter, 4 points was from volume and 3 points from price. The volume comparison improved by 3 points from 1% in the second quarter and there was no sequential change in the benefit from higher prices. We also again had sequential improvements in our total and active sales force size comparisons this quarter each by 2 points to plus 5% for total sellers and plus 3% for active sellers. The most significant contributions to the total seller improvement came, as we start to recover in CIS, following the necessary change to stricter standards that we implemented in late 2014 and early 2015. And from improvement at Fuller Mexico whereas Rick noted, we managed to come in in plus in the third quarter after having been down about 30,000 sellers at the end of the second quarter. I mentioned last quarter that we had a 2 point drag on our total sales force size advantage from less sellers in CIS associated with the change in standards and from Venezuela as we've modulated our approach in light of the externals there. This hit continued in the third quarter and should fade out as we get through the first quarter of 2016. The plus 3% active seller comparison reflected all of our segments other than Beauty North America and Plus territory. The biggest drag from within our numbers on the comparison was in Fuller Mexico, which accounts for about 25% of our total active sellers, but given that we entered the fourth quarter with an advantage in total sellers in this unit, hopefully, we'll also be able to achieve better comparisons going forward on actives as well. On slide six you've seen also that we came in on diluted earnings per share without items at $0.79, which was $0.05 above the high-end of our July range, even with $0.05 of a drag from exchange rates versus when we gave our guidance. A portion of the upside came from the better than forecast local currency sales with additional benefits in the value chain versus what was forecast, most significantly associated with gross margin and supply chain cost in Brazil and the value chain improvements launched in BeautiControl in the second quarter. As shown on slide seven, this led to a pre-tax return on sales without items of 10.2%. That was 80 basis points better than what was included at the high-end of our outlook range in July. We were even with last year in dollars and up 170 basis points in local currency. The improvement versus last year also came most significantly in Brazil and at BeautiControl. Turning to cash. Cash flow from operating activities, net of investing activities, was $36 million in the third quarter, up $5 million versus last year, which was about in line with the increase in GAAP net income. Our full year 2015 cash flow outlook is now $175 million to $185 million, which is down from $180 million to $190 million in July. This reflects the worst exchange rate picture versus July. Within the cash flow guidance, we foresee full year capital spending of about $60 million, which includes a benefit from the weaker exchange rates versus last year and compares with our July guidance that was at $65 million. Looking at our EBITDA leverage ratio, we target 1.75 times and for the four quarters ended September, we stood at 2.15 times with the overage reflecting the impact of weaker exchange rates on EBITDA and cash flow. Based on our EBITDA, this ratio says that we were about $165 million above our debt target at the end of September and based on our guidance the over target debt position would go down by $65 million to $70 million in the fourth quarter with the rest being taken care of next year through the pay down of debt and an increase in EBITDA. I'll note here that we have substantial cushion under our leverage covenant and our revolver, and with our $175 million to $185 million cash flow outlook that we're generating significantly more cash than we're paying out in dividends, which totaled about $135 million annually. Looking on slide eight at our sales and earnings outlooks, the fourth quarter sales comparison is more difficult than the third quarter by two points at plus 6% last year in the fourth quarter in local currency versus plus 4% in the third quarter last year. Based on this, our sales force size comparisons and the trends we see in our businesses, we foresee fourth quarter local currency sales growth in the plus 3% to 5% range. At the high-end, this would be up 11% on a two-year stacked basis, the same as in the third quarter and four points above the two-year stacked increase of 7% in the second quarter sequentially versus our 7% year-over-year local currency sales increase in the third quarter. At the high-end of our fourth quarter range, the bigger drags are in

[Operator:]

Your first question comes from the line of Steph Wissink with Piper Jaffray.

[Stephanie Schiller Wissink:]

Thanks. Good morning, everyone. And thanks, guys, for the added color. I want to just focus on two areas. First, Rick, if you could you talk a little bit more about the Experience Centers and your plans to roll those out worldwide, where we should be focusing on the key markets of opportunities first? I think North America is one area that you've been looking at, particularly in Canada and maybe the U.S. So just give us a sense of how we should kind of think about the four walls and how you look at some of the productivity measures? And then separately, just with respect to some of your product initiatives and some of the partnerships that you've recently announced, can you just give us an update on how we should think about those influencing the out year the 2016 guidance figures? Thank you.

[E. V. (Rick) Goings:]

Yes, Steph, and good morning. They really go together – more of the experienced studios and the kind of products that I see, some I can't talk about here today. The real key to our demonstration is it unlocks the features and benefits of a product and that's why often we're selling products that someone else a competitor could knock off and put on the shelf of a store, but people don't buy because they don't know what it does. But let me talk about the Experience studios (35

[Stephanie Schiller Wissink:]

Thank you, Rick. Appreciate it.

[E. V. (Rick) Goings:]

Krystal, next.

[Operator:]

Your next question comes from the line of Jason Gere with KeyBanc Capital Markets.

[Jason M. Gere:]

Okay. Good morning. Hey, actually, nice to see the micro do well in a tough macro environment. Hey, Rick, just a quick question, I guess and Mike as well. Just on the fourth quarter thinking about the margins, I was happy to see the FX was obviously lessening sequentially versus your prior guidance and even as it translates into next year as well. But just one thing I guess I want to get a little more clarity on is you provided some reasons why the margins on the local currency basis would be lower in the fourth quarter and you talked about the European investment. I guess, is this kind of a one-off thing or is this kind of the cost of doing business in certain markets that elevated to kind of keep within that mid-single digit organic sales? I was just wondering if you could provide maybe a little bit more color on that, first. Thanks.

[E. V. (Rick) Goings:]

Mike, why don't you take that? I want to comment too on what we've been talking about with regard to FX?

[Michael S. Poteshman:]

Right. Yes, in Europe, Jason, I would say there is two main elements. Yes, we're investing and we put those costs into the guidance when we were talking about it in July, and we highlighted Turkey, and France and Italy being the three markets where that was particularly the case. Those are tactical investments. We would expect those to pay off over time. And moving forward, I wouldn't say that the expectations for the value chain are really different because of that. The other thing that's happening in the fourth quarter is we're lapping some cost benefits last year that aren't coming through again. We touched on it briefly in the fourth quarter last year. So that's hurting the comparison and that's also not something that you would expect to see on an ongoing basis.

[Jason M. Gere:]

Okay. So then I guess if we think about some of the offsets that we've seen, because obviously the margins have been impaired a little bit for FX predominantly. So as we think about next year and I know you haven't given that part of the P&L guidance yet, do you see with the lessening FX, do you see with some of the cost savings that are still out there and maybe even the resin market as well, do you see that margin expansion is something that could kind of come back into the conversation as we think about next year?

[Michael S. Poteshman:]

Well, you are right, the $0.22 that we said for FX based on the current rates for next year would imply that would be less of a drag from translation FX that we've seen on the ROS in the margin this year. We haven't changed our thoughts around looking to generate the 50 basis points per year in local currency improvement in pre-tax ROS. And so, as we finish our plan process and continue to roll with the initiatives that we have and others, then we'll be working against that longer-term expectation. The local currency improvement for this year built into the guidance that we updated today is 50 basis points. It actually improved 5 basis points in local currency versus what we said in July. We were at 45 basis points for the full year. So we're on track to continue to work against that longer range expectation.

[Jason M. Gere:]

Okay. No, thank you for the color on that. And then just the last question I guess is as we think about next year with the 4% to 6% organic sales excluding the extra week benefit that you have out there, would you anticipate that that was going to be more volume-driven than price? This quarter, obviously, we saw a better blend between price and mix than we've seen in the past few quarters. But do you see that price element kind of lessening out there? And it's going to be more volume-driven.

[Michael S. Poteshman:]

Yes, I don't know if it'll be less. So a 3% of the seven-point improvement this quarter, 3% is probably somewhat representative of inflation around the world, if you also take into account our mix towards emerging markets. So I wouldn't expect a lot of variability around that 3%. It could be 2%, it could be 4% kind of a thing.

[Jason M. Gere:]

Okay. No, great. Thank you, and good quarter, guys.

[E. V. (Rick) Goings:]

Hey, Jason, a comment on FX too, Michael and I were talking about it at our exec committee earlier this week, I think it speaks to the – I guess this helps give us sanity in spite of the loss from FX of actually over these last three years, almost 50% of our profit, it went $5.43 then to $2.22, we were able to claw our way back from almost up to $4.44 and if FX hadn't been even, our EPS would be around $7.50 a share. So we continue, but it says that when Mike and I were putting together with Nick what is our targets with regard to our policy on dividend, share repurchase, would we invest in the business to have that and move through that environment and continue to be able to support our dividend and a number of those I think in five years raise it. It just it gives us confidence that we were prudent in doing it. We will continue the same balance of aggressive on some things, conservative on some others, but FX has really hurt where we would be right now.

[Jason M. Gere:]

Okay.

[Operator:]

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

[Olivia Tong:]

Thank you. First question is just around the deceleration in Q4 on the top line. I realize that there is a two-point more difficult comp, but it looks like you're looking for about two points to four points of deceleration. So the comp explains part of it, but can you talk about what else is driving the growth deceleration because you mentioned there are a few markets where you have one-offs like Korea, but then you also have easy comps in other areas like Russia-CIS. And then really what I'm trying to get to is, you've made a lot of efforts to get the market to understand why you're confident in getting back to that 6% to 8% target longer term. But you're looking for 4% to 6% in fiscal 2016. So what are you seeing that gives you confidence that that growth can accelerate another two points from that 4% to 6% in 2016 to get back to your 6% to 8% over the longer-term period? Thanks so much.

[Michael S. Poteshman:]

Sure, Olivia. Like you said, the sequential change from plus 7% to plus 5% at the high end in the fourth quarter came or is coming most significantly from not having the B2B that we had last year in Korea in the $3 million range. It's the very high growth in South Africa in the third quarter, the 52% which had the strike impact, benefit of the strike was last year in 2014 in the third quarter. And then the other bigger one was France. So when we look at the rest of the units, we're seeing somewhat similar or same trends as we move forward from the third quarter to the fourth quarter. And that would set us at the same two-year stacked the 11% that we had in the third quarter. In terms of ultimately getting into the longer-term 6% to 8% range, that again is I know you well know is built on an expectation of being able to be at around 10% in the emerging markets, low-single in the established markets. We actually have more or less accomplished that in the third quarter. The confidence that we would get to be able to get there moving forward, it's the big penetration opportunity that we have in the emerging markets and going back to the Analyst Day in February, particularly, in places like China and India where we're kind of a midsize businesses, but huge addressable population that we're beginning to get more and more traction towards. And then on top of that, the Vision 20/20 initiatives include things that are designed to help us execute better on what we do, those are things that we label under IRR (47

[E. V. (Rick) Goings:]

I think you've covered it Mike.

[Olivia Tong:]

Thank you.

[Operator:]

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

[Linda Bolton Weiser:]

Hi. I know the currency movements are kind of all over the place, but can you just highlight in terms of the improvement from the negative $0.36 to negative $0.22 impact for 2016, what were the key movements that happened in the last few weeks on the FX that drove that improvement?

[Michael S. Poteshman:]

Right. The Indonesia improved. That was one of the bigger ones and then we also saw some benefits from the Mexican peso, the Malaysian ringgit and euro; those were the bigger contributors.

[Linda Bolton Weiser:]

Great. And then, Rick, I realize that all of these initiatives you have in place are important and they're geared toward getting you back to that 6% to 8% local currency sales growth target over the long term, and I know it could be hard to gauge the timing of how they can positively affect your growth. But have you considered kind of putting out there for investors a long term more specific timeframe for getting back to the 6% to 8%, just to give us some confidence that everything you're doing is actually going to result in kind of the achievement of the goal you're looking for? So, maybe it's saying, we get back to that in five years or seven years or maybe it's sooner than that. Have you thought about kind of framing it in that way? Thanks.

[E. V. (Rick) Goings:]

Linda, I very much agree with that thinking. And what we want to get by right now is in these learning laboratories, particularly starting out with the on-boarding, deactivation and then the retention piece, we want to get under our belt more the proof-of-concept, so that we're just not giving you things that we end up having to change later. I would be disappointed if that – perhaps in the first quarter call when we wrap up the year or by the second quarter, we shouldn't begin to put pressure on ourselves to come out there and talk to you about that kind of range. But I certainly want to get a number of quarters under our belt before we do that. And as I mentioned, Germany, Mexico there are issues. If we come out right now, we sell very early on when we came out with iTUP, distorted numbers. And if we projected that out, we would have been way ahead of the game. So, I want more proof-of-concept before we do it. Hope we can do it before July.

[Michael S. Poteshman:]

And, Linda, probably worth mentioning is we've been growing over the last eight years, nine years, 10 years in the 5% to 9% increase range in local currency sales. And while we should ultimately be operating in the 6% to 8% longer-term range, there is nothing bad that happens if it ends up being the 5% to 6%. If you look at the consumer product peers out there, that's very good organic growth, right? So nothing bad happens, there's nothing that we need to do obviously to be able to fund our business and so on. So the 6% to 8% will be a great place to be, and we should be able to operate in that range ultimately. But it's, for context, worth recalling or remembering, I know you do, that even the 5% at the high-end this year is very good in the universe that we operate in.

[Linda Bolton Weiser:]

Great. Thank you very much.

[Operator:]

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

[Frank Camma:]

Good morning, guys.

[E. V. (Rick) Goings:]

Good morning, Frank.

[Michael S. Poteshman:]

Good morning, Frank.

[Frank Camma:]

Hello. Hey, Rick, just a little more clarity on China specifically, I mean, obviously numbers were good in the quarter. But I was just wondering are you getting any feedback from your guys that are actually there on whether, I mean, obviously the economy is decelerating, as to like how your sales force is responding. Because I mean, it's a little different model there as far as their commitment level, they have to actually have a spot to sell this stuff. So I was just wondering if you're seeing a different level of commitment there?

[E. V. (Rick) Goings:]

And I spend a lot of time with Vincent there like in – the answer is right now, no, but this is a really good time to be in the kind of product categories, if you get back to Maslow's hierarchy of needs, things to deal with food, clothing, and shelter, if I was selling cars or a high-end luxury equipment with a worst real estate, it'd be a tough place to be. But perspective on it again where the external world, the conversation about China moving down from 10%-and-better growth to 6%, we've got to keep in mind, look how big that economy is at 6%. So when you have the numerator change so dramatically, but it's off such a huge base now. When I'm up in China, I don't see a nation in meltdown.

[Frank Camma:]

Yeah. Yeah. No, I was just wondering because I mean they actually have to take a commitment, right, like lease some space I guess versus your other markets.

[Michael S. Poteshman:]

Yeah. And Frank...

[E. V. (Rick) Goings:]

Yeah. No I...

[Michael S. Poteshman:]

...when it comes to our numbers, we were up 13% in outlet.

[Frank Camma:]

Yeah...

[Michael S. Poteshman:]

...at the end of the third quarter versus last year, the same as the second quarter. And then productivity on top of that from the more residentially-based outlets got us to the 18% and if you think about...

[Frank Camma:]

Sure.

[Michael S. Poteshman:]

...the announcement this week that the economy was growing 6.9% in China that kind of all hangs together. So our message to potential outlet owners continues to resonate, it accelerated a few years ago as we rethought about how to do that and it's continued to work well for us.

[Frank Camma:]

And then I guess. So just to look at a different market like Brazil, I mean, your numbers were outstanding there as well and I mean that's not exactly a great economy right now, right? So is that just a different level – I'm sorry, go ahead.

[E. V. (Rick) Goings:]

That's driven by something else.

[Frank Camma:]

Yeah.

[E. V. (Rick) Goings:]

In Brazil, it's really driven by an entrepreneurial spirit and the earning opportunity there. She can come in to be a demonstrator and a sales consultant or she can go into management within a six months period of time. And so that, we'll certainly look at what is the average order and the kind of products we're selling, but what drives Brazil is the size of the sales force and what drives the size of the sales force is our ability to attract new people who want to become managers.

[Frank Camma:]

Okay. So, it's like you always say, the different levers you have for the different economies.

[E. V. (Rick) Goings:]

Yeah.

[Frank Camma:]

Okay. And the final question just on the resins, just some clarity there. So if you look back at the beginning of the year versus where you are now, is that number that you threw out, Mike, of a benefit. Is that in line with where you thought you would be, because I was just wondering – I wanted to check that number?

[Michael S. Poteshman:]

It's improved during the year, we might have started off at $5 million when we talked in January, I could be wrong.

[Frank Camma:]

Okay.

[Michael S. Poteshman:]

And then it's been $6 million, and now today, we said $8 million.

[Frank Camma:]

Yeah. Because it sounded at the beginning of the year, you were actually expecting oil to kind of go back up, right, so you should have had a positive delta from that, I would have thought, and it looks like you have, I was just not sure?

[Michael S. Poteshman:]

Yeah. It has improved.

[Frank Camma:]

Okay. All right. Thanks.

[Operator:]

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

[Gregg Hillman:]

Thanks. Hey, I'm just wondering, Rick or Mike, if you could talk a little bit about technology. Number one, for the simulcast you did a convention in the United States, I think you added 8,500 people, was that just for the United States, those 8,500 that you added?

[Michael S. Poteshman:]

U.S. and Canada, yeah.

[Gregg Hillman:]

Yeah. Okay. And you alluded to a tax in China. But also the remote party plans, where somebody views the party plan remotely and orders it, that would be in the category of a trial, is that correct?

[Michael S. Poteshman:]

I mean I would call it an extended pilot. So we were doing some and we talked about it at our Analyst Day in February and Stein also updated it on the web posting from last week, and it's an extended pilot. So we know it works, we're getting more enthusiasm from the sales force, building enthusiasm through the sales force and I'm sure we'll also make some further refinements coming out of the pilot.

[Gregg Hillman:]

So that thing, that in and of itself could be important by having more people remotely participating in these party plans?

[Michael S. Poteshman:]

Yeah. I mean it allows us to have the personal contact at the party which is important. We've in the past tried to do things completely virtual in terms of everybody on video. And we've tried it where it's a virtual party in a sense that it's by Facebook or by email, somebody is a host and she's asking for orders from her friends, and we find that having the actual contact is important and this is a blend of a way that then also has the technology and the remote your aunt in (59

[Gregg Hillman:]

And Mike, maybe you could talk about your Facebook strategy maybe just in Europe and the United States. I noticed other companies such as Educational Development selling children's books off just their Facebook parties, have seen sales through the roof. And I was wondering if you could talk about your Facebook strategy?

[Michael S. Poteshman:]

Well, I think...

[E. V. (Rick) Goings:]

Mike, let me comment on that.

[Michael S. Poteshman:]

Yeah, yeah.

[E. V. (Rick) Goings:]

Yeah. Yeah, our Facebook strategy is not a selling strategy and that it's more a communication strategy. And they use it to work with their – distributors do with their sales organizations and we use it globally. I mean I think they've got close to 100,000 people follow me when I'm going different places. But we're not using Facebook to sell. Again, everything we try to do is off the core business, face-to-face relationship and then have been extensions of that. The Party Plus idea is again, you're on a screen, there'll be four people that join it, they are on the bottom of the screen, their friends, roommates in the past of the people who are holding it and the people who were there together. So, it is very important to understand that ours always have connection to a face-to-face relationship, and I've seen people come at us with strategies to why don't you make this a whole online business. The more you take us away from a relationship-based selling business, the more you really lose what gives us competitive advantage.

[Gregg Hillman:]

Okay, great. And then finally, Mike, in terms of the payment method for your sellers, let's say, in the established market, what percentage of the payment is made with credit cards and is any payments being made on Square and can you help your distributors by having a lower take-out than 4.5% by having an alternative software that you helped themselves to get a lower take-out?

[Michael S. Poteshman:]

I don't have an overall percentage; in a place like the U.S., the use of credit cards is very high and in some places we take credit cards, other places we don't. In terms of alternative payment approaches, we've looked at, for instance, Square in the past, and we looked at how that would interact with our sales force's value chain. It was costing a very high percentage of the party sales versus our current methods. And we see it that these sorts of things continue to evolve and are certainly applicable for us, and I think will be even more so in the future. But it's very much step-by-step and country-by-country given both the infrastructure and how the different – the statutory environment and how it works with our sales force.

[Gregg Hillman:]

Okay. And then lastly, again, Rick, in terms of just in the negative macros for the emerging markets, certain countries are doing well that are improving their infrastructure, but there are certain countries that are really seem to be deteriorating such as Brazil, and if the fundamentals continue to deteriorate in Brazil as a country, wouldn't that catch up with you eventually as a multilevel sales organization in Brazil?

[E. V. (Rick) Goings:]

Well, firstly, very importantly, we are not a multilevel marketing sales organization.

[Gregg Hillman:]

Okay.

[E. V. (Rick) Goings:]

90% of our product is consumed by a customer and nobody earns anything just by recruiting somebody. They earn sales overrides and I'm going to make a very, very important distinction there. We have a way of navigating through countries when there are problems. I mentioned, Egypt, the week after the first revolution there, we were up 100%. Our business in Lebanon is doing well. Actually, through Northern Africa, the businesses are doing well. The strongest area, the Philippines, for us is Mindanao, which is the island, it is the only place they never allowed me to go there because of guerrilla activity and it's strong for us. So, somebody may be a guerrilla, but there are women selling Tupperware and she still has to take care of her family, and so, I think the important – it's probably a good way to look at, I'm in New York and I remember, there used to be when I lived here, a mattress company that had a commercial on how individual box springs in cylinders, they had a person jumping up and down on a bed, and there was a glass of red wine also on that mattress, and it didn't fall over. We are a multi-local structure, so if you're going to use multi with us, use multi-local structure and there in that local community, there is a woman; she is the distributor, she has 400 sales people there. And regardless of what's happening in the external environment, she has a desire to earn a living, take care of her family, probably the best case in point today is our Venezuelan business. Now we have made some progress in being able – our big problem was sourcing raw materials and not wanting to spend a bunch of dollars – bolivars, but I think Mike, you could speak to this, but I think even our sales clearly were up when you talked about the inflated bolivars, but I believe we were up in units there, but Mike you can speak to that more accurately, you're there at headquarters.

[Michael S. Poteshman:]

Yeah, we might have had a small volume improvement there.

[E. V. (Rick) Goings:]

Yeah. So if you can do it in Brazil, you can do it almost anywhere.

[Gregg Hillman:]

You mean if you could do it in Venezuela, you can do it anywhere.

[E. V. (Rick) Goings:]

Yeah.

[Gregg Hillman:]

Okay. Okay, thanks Rick. I really appreciate your comments and Michael also.

[E. V. (Rick) Goings:]

Hey, thanks Gregg. Good talking to you.

[Operator:]

At this time, there are no further questions in queue. I will now turn the conference back over to Mr. Rick Goings.

[E. V. (Rick) Goings:]

Guys, I think nothing else to say. We're pleased with the quarter. We hope we can have a positive conversation in January about Q4 and thank you for your interest. One thing I would appreciate getting some feedback on, was it a value us doing that 30-minute strategy update, because if we hear from you that it was of value, then we'll do those kinds of things more often. It's informal, it's not hard to do and if it gives you more substance, then we'd be happy to do it. Thank you for your time.

[Operator:]

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