Tupperware Brands' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Jan.29.13 | About: Tupperware Brands (TUP)

Tupperware Brands Corp. (NYSE:TUP)

Q4 2012 Earnings Call

January 29, 2013 8:30 am ET

Executives

Rick Goings - Chairman & CEO

Teresa Burchfield - Head, IR

Mike Poteshman - CFO

Georges Jaggy - President, German Operations

Analysts

Olivia Tong - Bank of America-Merrill Lynch

Dara Mohsenian - Morgan Stanley

Jason Gere - RBC Capital

Michael Swartz - SunTrust

Sofya Tsinis - JP Morgan

Frank Camma - Sidoti

Linda Bolton Weiser - B. Riley Caris

Bill Leach - Crest

Gregg Hillman - First Wilshire Securities

Ian Gordon - S&P Capital

Operator

Good morning. My name is Felicia and I will be your conference operator today. At this time, I would like to welcome everyone to the Tupperware Brands Corporation Fourth Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Goings, you may begin your conference.

Rick Goings

Thank you very much and good morning everyone. I am speaking to you this morning from Frankfurt, Germany. I'm with Teresa Burchfield, our Head of Investor Relations, and in line with our goal to increase our international shareholder base, we've just finished the meetings over here in Europe and we will have some additional meetings with investors in Frankfurt tomorrow.

Frankly, our approach is to get more of our investor base over here. Most of the investor base over here the kind we like tend to hold fewer names and hold them longer, and this leaves senior management time to work on the business rather than Investor Relation. So, you're going to hear more from us here and from in Asia.

I'm also going to take this opportunity to let you here today from Georges Jaggy, who is with me. He is the President of our German business, which many of you know is our largest in Europe. We've been doing a review of that business this morning. And also Mike Poteshman, our CFO, and the team that's there in Orlando, and I would just kind of alert that if we have any kind of problems with the telephone, Mike will pick it up here and we will do our best to reconnect. Also, you all know the drill on this discussion will include some forward-looking outlook, so refer to our company's position on this.

Before I get into the kind of prepared core comments that I have, I would like to kind of informally draw out three takeaways that it's my hope you will get from our not only our release that you already have, but also the time we spend together this morning not only our text but also the Q&A.

Firstly, Tupperware Brands is very much an and story, and by that I mean we're a business that is both very profitable and has an exciting future in emerging and established markets. That's what will fuel our profits. And it's interesting to note that I was just going over the last four quarters, where we did earnings releases, and I have yet to be in the U.S. for one. Today, I'm in Frankfurt, last quarter Chennai, India, a quarter before that São Paulo, Brazil, and before that Jo'burg, South Africa. So, this really does suggest our business isn't reliant on just one part of the world.

And I say this too because the old traditional question what keeps you up at night in 1996, 60% of our business profits came out of Germany. And I am pleased to say now we've just added Malaysia, Singapore, as our eighth market producing north of $100 million in sales, and what's nice to see is we've got a queue of other countries strong on their way. And this means we don't need to hit on all cylinders to meet our 5% to 7% top line growth targets near-term. So first, we are an and story.

Second, we do have confidence in our future and our ability to reach our sales and profits targets or we wouldn't have raised both our, the leverage level that we're comfortable with, our share repurchase authorization, and this 70% increase in our dividend payoff. So, we have confidence.

And thirdly, the Tupperware Brands business model, and this is perhaps the most important takeaway, the Tupperware Brands business model is a cash generating machine that provides not only enough for us to provide significant levels of cash to our shareholders, but it still provides us enough fuel to power the future growth in sales and profits. So, as Mike and I were just talking very strongly, we are a growth company and will continue to be one.

Now, speaking to our business model getting into my comments, there are four really components that fuel this business model. No matter if I'm talking about Germany or Japan, number one its innovative products. 25% of our sales come from new product innovations, and we basically call that new products if they were introduced in the last two years. And more of our products these days are to attract younger and working women as the world becomes more urbanized, and I'm sitting here looking at just three examples of timesaving products that are recently introduced.

One is an incredible microwave method of making omelets, and it's basically you put whatever vegetables you want into it. You put in two eggs. In about two minutes it's ready. Ditto, I'm looking at one we made for pasta maker and also a rice maker. So there's been a litany of products that have been really designed to for today's younger women who really doesn't have enough time and is looking for convenience.

Importantly too, when even in emerging markets of the world like India, they have established markets components in places like New Delhi, where there is a growing middle class. She is looking for these same kind of products. So I'm looking to countries like Germany to help fuel the new product program for the middleclass or even the emerging markets of the world.

The second element of our business model is entertaining and informative selling systems, and we adapt that based on the kind of market and based on the culture in that market. So, in Germany, it's traditionally a party where a group of six to eight women, two varieties of parties, one is for the woman we say here they're the kleinen, the hausfraus in kleinen Städten that housewives in small towns, it tends to be in the day or on a weekend. And then, we have for the busy working woman who lives on the fringes of Frankfurt or Berlin, and for her it happens to be much more social interaction. And by the way, because her mother probably worked, she doesn't really know her way much around the kitchen, but she still loves to entertain; time is of the essence. But we had to come up with a party selling situation that she would enjoy.

To a China that now the average apartment there is about 30 square meters and often one and a half families living in that space, not enough room to do a party. So, we now have 3700 little storefronts that she basically has and she can own up to 15 of these and she covers the rent. So, it's a neighborhood place for them meet very much like a sorority house.

Third piece of our model is a compelling earning opportunity, and here I just reviewed what Germany has done. We've really been pleased to see that the core of our opportunity has to be for the consultant, if she can make real living, and it is usually is a supplemental income for her at that level. But as she moves into a unit manager role or into a team leader, it's a replacement income, and it's serious money. And because of some of the moves we've made on enhancing this earning opportunity with these management levels, we're seeing that we're able to have fewer but bigger distributorships in many of our markets. As a matter of fact, we have a number of distributorships in the world that are north of $20 million in annual sales. And when you consider their profits are about 7% to 8%, it's a very serious business opportunity.

And lastly, is the skillful knowledge and implementation of direct selling fundamentals, and here we have very much a student mentality, continuing to learn and refresh those things that drive our business; contact, competition, recognition, the knowledge of how to train new people coming in, how to give her confidence. And I truly believe this is at the core of our real strength.

Now, let me take a few minutes and go over from the top line. Sales were up; you read it 6% local, emerging markets were 60% of total sales. They were up 11%. Established were even with last year. Let me go through our established markets, beginning here with Germany, and then George will drill down a little bit later. Germany is up 5% for the year, 4% for the quarter. So very solid top line growth. We've been here 50 years.

Also had quite a number of other markets in Europe that were up in the quarter. Belgium up 6%, Netherlands 9%, Portugal 5%, and in spite of all that's going on in Spain, Spain recorded sales increase, and that was good to see. We also had sales increases in the established markets of the United States and the Canada unit, and for the first time in a long time in both of our Australian businesses. That was good.

Turning to the emerging markets, there were a number of really outstanding performers and that contributed to this 11% increase. First, continued momentum in Russia and the Confederation of Independent States businesses up 13% in the quarter. And by the way, that's three consecutive quarters of high single-digit to low teen growth in that market. And we're really, Glenn Drake, our Group President over here, just told me we're approaching back to that 100,00 level of the sales force, and that's good to see. And this signals we've made the right changes.

We learned from this. As a matter of fact, what we did wrong is we move from six distributor ships not many more than 10 years ago to almost 200. But when you got out toward Vladivostok and in the euros, they were small and with the devaluation of the currencies they were marginally profitable and some went unprofitable. So, we've learnt from the structural ways we're doing it in Germany how to get that righted, and we won't make that mistake again. But be assured, we will figure out some new ones.

Turkey by the way grew over 30%. Our beauty business in South Africa, Avroy Shlain, up again in low teens, and in Asia-Pacific, India, Indonesia, Malaysia, Singapore, all of them were up in the mid 20% top line range. By the way, rounding out was the Americas up 8% in our Tupperware Mexico business, and Brazil and Venezuela were up 30%. Now, we can a bow for Brazil, because that really, most of that was really from units. Venezuela about 50% was from pricing, but I've got to pat our management team on the back in Venezuela they're doing a wonderful job managing in this hyper inflationary environment.

Moving on, I am also pleased to see some positive trends in a number of our businesses that are in various stage of implementing strengthening strategies where we've been having some problems. And I'm not going to claim a victory in any of these markets. But we're seeing some positive signs.

In Europe, France was down 6% in the quarter. By the way, France is highly profitable for us. We are the biggest direct seller there with a culinary company. And we were up slightly in the third quarter, but the issue has been there ever since the disruption of the election. And now, what kind of new social provisions Hollande and his government is going to implement. There has been a lot of disruption with regard to consumer spending. We did end the quarter in France with a 4% sales per size advantage after having been down 2% at the end of the third quarter.

Structurally, again the business is sound, great management team, highly profitable, and frankly we're looking to grow that business again in 2013.

In our Asia-Pacific as far as those that are starting to turnaround, boy, I'm pleased to say that for the first time in a long number of quarters we had an increase in both our Tupperware business and our Nutrimetics Australia business, and for those businesses it's been a couple of years.

Now, let me take a few moments to discuss some of the businesses where we still have more work to do, Tupperware South Africa, Tupperware U.S. and Canada, BeautiControl and Fuller Mexico. Let me begin with South Africa. All this started with really the disruption caused by counterfeit, knocked off products. Coming out of China, I think we've been very effective with regard to getting not only legal support, but government support with regard to confiscating and destroying those products, but it really sent our sales force advantage spinning. We're focusing on getting it back up to the 11% advantage we had in 2011. I believe it's fixed.

I'm hoping for some progress in South Africa, but there is a lot of other people. I've spent some time at Davos with their current President and a lot of people there I think the firming up in South Africa and the government is going to be when they get their next President.

Sales in our U.S. and Canada business were up slightly for the quarter. This is a much better comparison than the down teens we were in the third quarter. Some of this legitimately was due to timing in the third and fourth quarter. We're still having a difficult time predictably in that U.S. business. In 2013, we're working to get our sales force advantage back up. And I think our greatest opportunity and also the area of greatest lack of progress in 2012 has been in the Hispanic market, and we're going to pay extra attention to that.

I just was at BeautiControl and at Fuller in Mexico earlier this month with both management teams. In Fuller, while we were down in the quarter, we have left that sales force comparison anomaly from the previous year. They're doing a great job in a couple of areas that were the important areas. Firstly, product-wise, on really moving to separate ourselves from the discount beauty company there, rebranding it more with our Armand Dupree lining, and moving towards higher priced products, and less discounting. That's going to take time, but we're committed to that strategy. It's the right margin and the right image. As you grow a middle class, she doesn't aspire for beauty products that are discounted, she inspires to pullout a tube of lipstick and for her friends to see it, they would say, wow, I'm not poor anymore. That's what middle class becomes in these markets.

Secondly, they're really focusing in that market on the whole level of local sales manager. After extensive analysis, we've determined our turnover was too high, and one of the reasons for that is she lacked enough compensation, fixed compensation during the early stages while she was learning the business, and we've made a tremendous change there; it doesn't really cost us a lot.

Thirdly, we focus a lot more on training in that business. Again, so I think with regard to the sales force we're going to get more from the sales force that we actually do have.

Finally, BeautiControl. Again I spent a day there. I believe we have the right management teams in place. I've got to say we bought that business in 2000, we tripled the size of it over a matter of about six years and we gave a third of that back, and most of it was with the old saying of pogo we have met the enemy and its us, we made mistakes there. Wrong management teams, wrong incentives to break out directors, we moved away from a Mustang program, and basically started giving her jewelry, while what a Mustang mattered is it was a trophy in her driveway. And we didn't save much money moving away while we reinstituted a better program; it's now our Mercedes in her driveway and we've got about 500 dynamic people on track for that.

Thirdly, we moved too much into exotic products for really to retard the aging process. And I've got to tell you most women we know for research in their mid 20s and early 30s that's not the first thing on her mind. As we do research and we've learned this in our Nutrimetics business, she wants color cosmetics, she wants fragrance. And as a matter of fact, we worked it down and she is looking for three categories, work, weekend, and wow, about her personal life. So I think we're getting it back on track at our BeautiControl business.

Now as mentioned we both have a significant presence in emerging and established markets. Each kinds of these markets has advantages and disadvantages. Clearly emerging markets, its population. 85% of the world's population lives in emerging markets. They have an exploding middle class. As a matter of fact the 1.3 billion is expected to be added. A 1.3 billion population to the middleclass of emerging markets in the next eight years. However, the negative is it's a low per capita income, but they really spend their sweet spot of money on food, clothing, shelter. So we're really dealing with the right areas.

Established markets, in other hand, don't have the population, size advantage, nor the growth in population. However, they've got a per capita income up more than 10 times the size. And we've learned here in Germany and in France, while 20 years ago we were selling 10 year old products, today we can sell a 100 year old product and sell a lot of that. So we've got a lot of runway ahead. Also, as you can see, we've learned in Germany, we have a lot of wide space because most of our business in the past was very, very rural.

Now, you heard on the third quarter I had Asha Gupta, the President of our India business, chime in. It's a large and significant business for us. And by the way, what I wanted that to show was that most significant if I put or whole four level or component model aside, product selling method, earning opportunity, and direct sales fundamentals, the single biggest source of competitive advantage, Michael Porter would say about Tupperware Brands is the quality of our management. Not only there in Orlando but the real dynamic quality market-by-market, not by as the only market heads, but the young people we're bringing along and boy, I saw that with George again here this morning going through this business.

By the way, this business here, we've been here 50 years, George is an example of it. George is not German. He is a Swiss Luxembourger and while I kid with him there is only five people in the world that speak Luxembourger today, but George has had assignment in his 20 plus years in our company, has came up through marketing, was Head of Marketing in Switzerland, then was Managing Director there, was Managing Director of our business in Austria. He was the one that turned around our French business there, and now we've turned over the biggest business to him here. He is not only growing the business but he is bringing along this next generation. Anyway, George, let me turn it over to you to make a couple of comments about Germany.

Georges Jaggy

Thank you, Rick. Actually the core of our strategy in Germany is not too different from the actions we have been developing in France when I was responsible in that market and what my colleagues did over there. Tupperware, as you just mentioned, has been in Germany for over 50 years. So just as in France, the brand is well known and highly respected. What is particularly respected in Germany is the quality of the product and the quality of the service. I'll be talking about the quality of the service a little bit later more in detail.

Randomly 74% of the German households have at least one piece of Tupperware. This shows about the penetration. There have been three primary levels in our business transformation here. First, the dramatic innovation of the product line, which you just highlighted, Rick; the contemporization of our selling methods; and thirdly, the enhancement in our sales force structure and the opportunity we offer to them.

I will give a brief comment on each of these three points. Let me start as to product innovation. Historically, the business was built here on the food storage category containers, bowls. While that still matters, the launch of new categories of products like food preparation, for Microwave or Ultraplus, which goes into the oven has provided us opportunity to sell more to the existing customers, as well as to attract new and younger working women whose lifestyle demands are quite different from the traditional stay-at-home mom.

Next the contemporization of our selling method has enabled us to shift our focus to showing what can be created with our products, not only simply show and demonstrate the product, but show the end result of it, show the recipe. What can you do with a product. Now she, out customer sees, she can taste and she buys. It's much more interactive, and it's an experience as well.

Our services, which I just highlighted before, is what we deliver on top of the party and now-a-days even movie recipes, which can be shown on our chef iPhone option on smartphone, which makes the service offer even less after the party has been held.

Finally, we have enhanced the sales force opportunity with iTouch, which is a brand new interactive online training Internet based. So our new demonstrator gets better training when she starts, and a new level of opportunity which enables more our hypertension sales manager to earn more income. But also enables distributorships to manage large sales force and increase our penetration in the areas they covered, that's extremely important.

I might add in closing that Germany has been experiencing the same urban spread that's happening in so many countries. Those three strategies are helping us to track more working women who live in the populated areas that surround most cities. We are actually following the people where they go.

Also with these strategies we believe that here in Germany we will remain a growth story. Rick?

Rick Goings

Thank you very much, George. Anyway I was saying to them this morning, not only are they helping us penetrate more of the wide space where we've missed in Germany, but a lot of the strategies that we develop here in this established market we translate those to these emerging markets of the world. So you don't have when people ask me the question, well what about when Wal-Mart gets to India. We've already been through that. We've already had now a new way of doing different products, products that they might be able to have somebody make. But they certainly couldn't, you don't sell €100 products on the shelf of Wal-Mart. People don't understand how they work. They can't do a party and this earning opportunity.

So we're really here's not only a great business, very profitable, but it's one of the research laboratories. We're creating new pillars for these four pillars for our model as we go forward. George, thank you very much, and you'll be available for some Q&A at the end.

Let me now turn it over to Mike. I want to say though that 1996 Germany is what used to keep me up at night because we were pretty much of a one-trick pony, but it's good to see us -- we harvested a lot of the German business. We let the ROS get almost to 40% here. I got to say I do it again though because we used those incremental profit dollars in Germany. That's what fueled our ability to establish all these beachheads in the emerging markets and now we can get back to investing a little bit more in Germany. So, I'm looking forward to that.

Mike, please take over.

Mike Poteshman

Thank you, Rick. First, as we've said on sales, we were at the midpoint of our external range with our 6% local currency growth in the fourth quarter. Top lining the main variations we had versus the 7% high end of our range, we did quite a bit better in Malaysia, Singapore, with the offsets coming most significantly at Tupperware South Africa and to a lesser extent at BeautiControl, and in China.

Rick talked about our businesses in South Africa and at BeautiControl. And in China while things didn't run as low as we had anticipated, particularly early in the quarter, we were also negatively impacted by ordering patterns, and that our sell through to end consumers was up over last year in the double-digits, even though our company sales were not.

On EPS, without items, our $1.71 in the quarter was in line with the high end of our external range. Here, in addition to overcoming the impact of the sales being 1 percentage point in growth below the high end of our range, we had more spending than originally anticipated at Fuller, Mexico.

Some of our newer programs paid off more than we had expected and we'll make some modifications here going forward. And the result of some under leveraging of our programs meaning they didn't generate the sales that we expected. Going forward, in 2013, we think we will start to see a positive contribution margin on higher sales, although likely not in the beginning of the year.

In terms of positive items in the EPS comparison versus the high end of our outlook, we had a better than foreseeing return on sales in the Tupperware North America segment, and our tax rate was 2 points lower than included in the forecast. The impact of changes in FX rates on the year-over-year comparison is negative $0.03, was $0.01 worse than we had included in our outlook.

Turning now to our go forward outlook, for the full year, we're reiterating today the local currency sales increase guidance of plus 5% to 7% that we gave in our previous earnings release. This includes small increases in Europe and Tupperware North America, up or low double-digit percentage in Asia-Pacific, about even with 2012 in Beauty North America, and up by a mid teen percentage in South America.

On EPS without items, you've seen in our release that we put out a range for the year of $5.62 to $5.77. This would be up 12% to 14% in local currency and 13% to 16% in dollars. There is a $0.05 positive impact in foreign exchange rates on the comparison with 2012 and the outlook.

Underneath this, on top of our 5% to 7% local currency sales increase, we're looking for a 50 basis point improvement in our return on sales at the operating margin line, but are taking a partial offset from higher interest expense due to higher borrowings and rates to execute our increased leverage strategy announced today. This is hitting us by bringing our forecast net interest expense for 2013 up over 2012 by $7 million to $8 million and, therefore, our outlook for pre-tax return on sales to be up 15 to 25 basis points over 2012 to 14.3% to 14.4%.

We've included in our outlook at tax rate excluding items of 24.5% or a bit less from the 25% we've talked about in our October call. We continue to see eventually getting to a tax rate excluding items a few points higher than what we're expecting for 2013.

Taking the 2013 forecast elements together brings our net income increase range excluding items in local currency to plus 4% to 7%, and to get to our 12% to 14% EPS increased range we've included an 8 point impact from less diluted shares outstanding.

In term of profitability at the segment level, we see small improvements coming from all of our segments.

I'll also add a short comment now on a larger than previous EPS range to say that this relates to our having our larger base of earnings than in the past. A $0.10 range is only about 2% of our earnings, which is equal to our sales outlook range. The $0.15 earnings range that we've given allows for some variability in our return on sales, tax rate, and number of shares.

Finally, I'll point out here that we've assumed -- we haven't assumed in our outlook any change versus 2012 in the Venezuelan bolivar U.S. Dollar exchange rate, but if the rate had gone to 17 bolivars to the dollar as of the beginning of 2013, a rate we've seen some quote, we estimate we would have had a full year pre-tax hit on our earnings of $28 million of which about $19 million would relate to amounts already on the balance sheet at the end of 2012, and the rest for the translation of 2013 activity at the lower rate. We will have to see what happens with this rate and when.

Looking at the first quarter similar to the year, we've included a local currency sales increase range of 5% to 7%. And our EPS range without items is a $1.09 to a $1.14, which would be up 13% at the high end in local currency and a 11% in dollars.

A couple of words on our balance sheet and cash flow. Our 2012 cash flow is good at $234 million of cash flow from operating activity, net of investing activities, which was above the $220 million high end of our outlook range, as we managed working capital well and ended up with $76 million in capital spending for the year.

Reiterating what we've said before, we expect 2013 capital spending to be in the $70 million to $80 million range. Looking at 2013 cash flow, our outlook range is for $240 million to $250 million.

I'll also mention here that in the fourth quarter we repurchased a $100 million worth of shares in the open market, which is what we said we would do in October. This brought in 1.6 million shares at close to 3% of our outstanding shares at an average cost of $63.60 per share.

In terms of unallocated expenses, we've included $64 million in our full year outlook for 2103, which is up 3% from 2012 actual and local currency, slower growth in our sale.

On resin expenses there hasn't been a lot of movement. We ended up including in cost of sales $161 million in 2012, which in local currency was up $1 million in cost over 2011. Both of these amounts were in line with what we said in October.

Looking out through 2013, we've included in our outlook and cost of sales for resin for products we produce about the same amount as we had in 2012 with an impact of cost changes of just $1 million favorable.

Before we turn it over for questions, I'm going to talk about the changes we announced today to increase our leverage profile and how we'll send available cash to our shareholders. You've seen that based on our confidence and how we'll perform going forward that we're increasing in our leverage target one quarter turn to 1.7 times EBITDA, as defined in our credit agreement. The EBITDA calculation is laid out in an attachment to our release. We expect to get to this target leverage level in 2013. And our full year outlook includes $400 million of share repurchases, about half of which relates to the one quarter turn increase in our leverage target. The other half reflects expected EBITDA growth in 2013. And we're also taking out much of the time lag we've had in the past between when our EBITDA increases and when we repurchase shares. We closed 2012 with an actual EBITDA leverage multiple of 1.34 times debt.

Of the $400 million of 2013 share repurchases in our outlook, a $100 million is included in the first quarter. For the rest of the year, the assumption is that the repurchases will be fairly even by quarter with a little bit more weighting to the fourth quarter.

You saw as well in our release that our Board rates, our authorization for open market share repurchases that has been running from 2007 by $800 million to $2 billion. Of the $2 billion authorization, $828 million had been used by the end of 2012. The authorizations timeframe was also extended today by two years till February 1st, 2017.

The other big change we made is to increase our payout ratio for dividends from about one-third of trailing diluted earnings per share without items to 50%. And this, along with our 2012 increase in EPS, led to $0.62 per share dividend declaration today, which was up 72% from the $0.36 per share we were paying on a quarterly basis.

On a full year run rate basis, our new dividend would be $2.48 per share and on the $70 share price that we closed at yesterday provides a yield of 3.5%. We expect to continue to ask our board to reset our quarterly dividend rate with our declaration in the first quarter of each year.

I mentioned when I was speaking to our outlook that we expect higher interest expense in 2013 than in 2012. And this reflects our assumptions as to how we'll change our short-term and long-term borrowings in order to implement the approach we've laid out.

And taking all this in, it is important for you to keep a few things in mind. First, we've said we don't expect to be acquisitive and we have major organic growth opportunities that we're going to continue to capitalize on, and as a result grow our local currency sales by 6% to 8% per year in the intermediate term in 2014 and beyond. Based on our business model, the investments that we need to do this is modest, and as captured in spending out the trends we've already had that include growing, considering to grow our pre-tax return on sales by 50 basis points per year in 2014 forward into the mid to high teens, and to spend $70 million to $80 million per year on capital that we've reconfirmed today.

So we have been a growth company and we can and will continue to be going forward while throwing out significant amounts of cash for the benefit of our shareholders. In considering whether to raise our dividend payout ratio in steps to the 50% ratio that we've announced today, our board concluded that going to 50% immediately was the right thing to do, including our belief that we've adequate coverage through our matrix to be able to continue to pay out our dividend that we've raised even if we have some unforeseen disruption in our business.

For example, while the share repurchase that we've included in our 2013 outlook includes some catch-up for us to go from the 1.34 times leverage with which we entered the year to a 1.75 times target, they include about $200 million of so called regular repurchases, but in the event of an operating stumble can be thought of a cushion on top of the approximate $150 million of dividend that we'll payout in 2013.

So I think that covers it, and we'll turn the call over to questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Olivia Tong with Bank of America-Merrill Lynch.

Olivia Tong - Bank of America-Merrill Lynch

First question I just wanted to ask, and I know you've asked this a couple of times in the past. But why is 6% to 8% still the right long-term target on the top line? You mentioned a couple of markets that are tough and that hasn't changed very much South Africa, Tupperware U.S., BeautiControl, Fuller, and those continue to be pretty tough for you. So, what are you seeing that will accelerate that growth after this year? Thank you.

Rick Goings

Yes. Good morning, Olivia. Firstly, the top end of that the 8% would really be a 10% if you looked at our emerging markets of the world, and what's driving that is historically that we've been a nice double-digit growth with some of these emerging markets Brazil, Indonesia, India, continuing to be high double-digit growth. This has, and by the way, as you heard our last earnings release call when asked about the runway ahead in India, we felt even as large as our business is getting there, only 10 to 15% of the population has access to our business.

So I would say the APs of this as far as strong double-digit emerging markets that's going to exist, I believe, till after I'm retired. There's a lot of wide space and we're going to have to grow, and you can only grow at a certain rate. Particularly let's keep in mind these are 85% of the world's population are in these markets.

Secondly, it's really caused more, Olivia, by the drag of some of the markets that have either been in a negative situation or have been flattish. What's going to change that is, as George was talking about, the kind of things we did in France. We had a better flat 10 years in France. These programs got implemented and the profit level of France it was with the level that this company has never seen. Now, he's done the same things in our German business getting it back and getting this back to a growth business again.

I'll tell you one of the things I see, we were looking at it this morning. Again, more of the distributors that we're bringing in, now remember distributors are -- there's only a 131 one of those, and that's the crest here you're assigned, you become a distributor when an -- and an area opens. It's almost like getting a McDonald's master franchisees. We have them coming in. Now, I saw -- it took me through one this morning was 27 years old. This was a business when I joined the company that the typical German distributor was 60 years old, and so now this is -- she recruits right kinds of people. So now we're seeing a cascading down to bringing younger and working women into the business and women who were looking for a career.

So, what we're going to have to do, Olivia, is we got to get this BeautiControl business back on track again, and by the way that's a problem of our own making. Yeah, the U.S. consumer environment has been tough, but we exacerbated that by dumb decisions and I'm included on those. Put the wrong management over a period of time in place at various levels a), b) took away the fueling program of that Mustang program and replaced it with something that had no traction ad impact. And then, c) we got too exotic in the product line, and kind of we were recruiting younger women by giving her products that a 50 plus year old women would like. Daisy has to got to get all. That wasn't a problem of her own making but it's been the challenge she has been assigned to fix. She's done it in multiple markets, she will. We get BeautiControl back on track. We get South Africa on track. You're already starting to see us get back on track in both our Australian businesses. Japan is a large direct selling market. That wasn't helped by all the natural disasters there.

Olivia, if we can get our established markets, before I leave I want to see them growing 3% to 5%. Now, I've committed to eight years. Will it take eight years or will it take five years, I don't know. But if we can get those growing at 3% to 5% and we can get these emerging markets to continue at a double-digit level then you've got even more exciting growth.

So we've decided Mike and I go and with the Group Presidents looking at the business right now and a couple of the problem children we have that the proper range near-term is this 5% to 7%, longer term 6% to 8%. Well, if you ask me what's the longer term I'd say three to five years. Beyond that I think we can go higher than that. Forgive the long answer, Olivia.

Olivia Tong - Bank of America-Merrill Lynch

No, understandable. I guess can I follow-up with just a question about Tupperware North America? Can you talk about some of the things that you're doing to get that market back on track? And then how do you get -- I understand that you restated some of the ways that you measure the sales force, but how do you get to 2% sales growth with that kind of decline in the active sales force?

Rick Goings

Well, firstly, what you have is more qualitative sales force there. You saw a classic example of the opposite in Fuller Mexico third quarter 2011 where you had a dramatic growth of the sales force, but then we have a sales decline the next quarter. Simply stated, that's a good signal to us that you're not just selling kits, that you're just not bringing warm bodies into business, that it's qualitative. But I will tell you one of the issues that this is going to be a hill for us to climb in the U.S. We are a high quality product and a brand.

Why do we do better in Europe than we do in the U.S.? Hey, take a look at the average brand of cab that you get in the New York cities, I mean, they're filthy, they're junk. Get in a cab over here; it's a Mercedes or an Audi. The USA is basically a Wal-Mart market. Our top tier products like the Microsteamer or the Ultraplus that are 100 year old products hard to sell them in the U.S. because that's a discount market over there. I found this out in my former time in the Beauty business you cannot staff the U.S. and the UK or boots markets, they buy price. Europe buys quality, Japan quality. And our issue is how do we find the right product mix for the U.S. to make it happen there. And I've got to tell you Olivia it is challenging.

Olivia Tong - Bank of America-Merrill Lynch

And then just lastly, on the leverage, how did you guys decide to go to 1.75, and is there a potential to even move higher from that target?

Rick Goings

Well, I would tell you in essence being a smart butt on it Mike won. I would have no leverage and no debt. So, Mike is the gunslinger on this. Everybody we do the models on the cost of equity and debt and you really -- Mike, why don't you add to that because I think it's the right decision too, but it took him about four years to pound on me? Mike?

Mike Poteshman

Yeah, Olivia, what we've looked at as we have in the past is the benefit of maintaining the investment grade rating that we have. And so, it's a balance, and we've looked closely at what the rating agencies have said and we feel comfortable that this posture is the right place to go. We do view it as our running rules now. It doesn't mean something couldn't change in the future, but it's not meant to be a step along some kind of a road. And we think also from our point of view, notwithstanding the rating agencies, that it's a good balance in terms of the deck side of the equation and what we should do as we manage the business going forward for flexibility.

Operator

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

Dara Mohsenian - Morgan Stanley

So, in both Q4 and your 2013 guidance, your incremental margins on organic sales growth are clearly slowing versus trends from the last few years, and it sounds like Fuller Mexico drove some of that in Q4 the spending there and you're happy with the payback. But I just want to get more detail on why the incremental margins are slowing particularly in a benign commodity environment and if we should expect that to continue longer-term beyond 2013?

Rick Goings

Michael?

Mike Poteshman

Yeah, Dara. As we've seen, we've had a real strong run going really all the way back to 2003 when we had about a 5% pre-tax ROS without items up to the 14% range that we're in now, and clearly there is some low hanging fruit there. And as we've said that going forward in order to balance the investments that we think it made sense to me, we expect ourselves to grow our pre-tax ROS 50 basis points a year up into this mid to high teen target level. We're really on that path including in 2013 other than for the bump in the interest expense that we have because of the change that we're -- the way that we're managing our leverage and our debt.

So, really we think we're on track with what we've said in the past, and it's a matter of balancing the picture between dropping things to the bottom line but really going for the growth. And we think with 50 basis points a year on ROS that we can do this 6% to 8% growth in sales in local currency in 2014 forward, and that's how we looked at it.

Dara Mohsenian - Morgan Stanley Research

And then on the active sales force number, it continues to be weak. How big a concern is that? I know there is some tougher standards and the disproportionate Beauty impact depressing the result but it still doesn't look great on an underlying basis. So, I just like to get your perspective on the underlying health of the active sales force number, ex some of those variances. And as you look out to 2013 what's driving your sales growth in terms of productivity versus pricing versus sales force growth, et cetera?

Mike Poteshman

Well, I think that in most places the comparisons on a market-by-market basis are pretty good. If you look at the picture overall we made a note on one of the attachments to our press release if you want to -- if anybody wants to have a closer look. But about three quarters of this discrepancy between being up 6% in local currency sales and down 7% in active has to do with the mix of where we're getting the sales. So if you look at the picture by segment we were up 4% in actives in Europe, which was actually a little bit of ahead of the sales increase; 3% in Asia of which did reflect some better productivity in places like Indonesia and Malaysia a bit where we've done very well, and we think that's a healthy kind of relationship.

Tupperware North America, yes, we were down 14. That had to do in a big way for the change in how we were measuring things in Tupperware U.S. and Canada. We should get more actives in Tupperware U.S. and Canada so that one is a concern we have a lower total sales force size there. And as Rick has already talked about that's one of the big things we're working on.

When we look at Beauty North America that that certainly is a one where we were down 16% in the active only "6%" in sales. Clearly that is a place as well where we need to get more active sellers. So we have a small sales force size deficit in both of the units there, BeautiControl and Fuller, Mexico, and clearly that's an area of focus in something that we need to improve if we want to see better results going forward.

And then in South America, we continue to see a shift there between we were down 8% in actives but up 26% in sales restated. We do continue to see a shift there away from Argentina primarily which is a more beauty focused market and has had too small of an order size. So we, on purpose, been changing standards and so on to get more structure into that business. And it's actually working; we were profitable in Argentina in the fourth quarter and we haven't been a lot of the time. So we're actually pleased with things there. So we don't see an issue in South America.

But really in the North American segments we that's where the concern is where our total sales force size is not where we want particularly and where we need to get more active sellers, and that's how we see the overall picture.

Rick Goings

Dara, Rick. I think that was an important question too and I want to just encourage you and whoever else wants to the danger of looking at a consolidated number on either total sales force or active sales force. These are individual business units and you will see that sometimes different things that are happening flushing the sales force, changing standards, or new laws in Brazil can have a distortion, and that's why we've added that texture to the bottom.

But if you guys if you need more than that seek it out because we talk about that stuff, Simon and Mike and the Group Presidents every single Monday morning when they have an Executive Committee Meeting. It's the first thing we look at and we're very happy to explain.

Dara Mohsenian - Morgan Stanley Research

And then, you and Mike touched on this in the earlier question and I applaud the cash to shareholders, we've certainly been advocating it. But it is a large boost to both dividends and repurchases at the same time. So what's really changed here versus your thought process historically or what's giving you greater confidence at this point to make a move?

Rick Goings

Firstly, the biggest piece of this is confidence moving forward that on these four pieces of our business model that we're going to get it more of the time right than wrong. Dara, and I think what I hope you all appreciate is, boy, we're not perfect. This business has many elements that are a science to it. But when you look at our sales force we have almost 2.8 million out there less than 20,000 employees. So it's largely a voluntary sales organization. That's why you got to know direct selling fundamentals. And so, what I'm getting at is some of these soft pieces of it are more art than they are science, and sometimes we get it wrong. And sometimes we get a promotion wrong. Sometime we put the wrong person in a market.

I've got to tell you what I feel good about is most of the time we get it right. And so that we have a business model that when we do make these mistakes where there is some internal force that comes at us, we more and more have the confidence that we know what to do. So, it's going to happen a) less, and b) when it does happen we know what to do about that.

So as I look forward, Dara, I'm sitting there saying well, I'm comfortable with that level of leverage. And at the same time when we look at to our allocation and what our businesses need to grow I see more and more times where we have excess cash, and we've said of the normal usual suspects we have no interest in acquisitions. We don't need to invest anymore money. If somebody said well if you invest $100 million more in your business right now will it grow faster, I would tell you no. It would be a waste of resources to do that. And so that leaves us the return to shareholders in the form of pure buyback or due to -- to raise the dividend.

And here is an interesting question itself. If you talk to some they say just do buyback. And let me tell you what, I -- and then we will end up having more people holding our stock who turnover the stock more frequently. I want big pension funds, who want to come park their money with us. I'd like a 15 shareholders that on our stock because then I wouldn't have to spend I've done a 1040 IR meetings since 1996. What if those that had been Tupperware meetings, how much better, I don’t know, maybe the company wouldn’t have been better off. But we don't -- the company has no value to our business when I'm doing an IR meeting out there. So, I want to get more shareholders out there that also want a dividend. So, we decided what to do. She got on the phone with 25, Teresa, 25 of our top shareholders and what we heard was enough of a balance that we said let's move on both of these.

So, excuse again the long answer Dara, but this was a lot of soul searching and a lot of discussion and a lot of evaluation, but the biggest takeaway was and we have confidence in our business. It's just a question; it’s a high class problem. What do we do with it?

Operator

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

Jason Gere - RBC Capital

So, just kind of following up on the last question so if we think about where you are in the leverage the 1.75 and the increase $800 million, as fundamentals stay as positive as you think going into 2014, we should see a similar type of buybacks there as well? That’s just the first kind of follow-up question.

Rick Goings

Michael?

Mike Poteshman

Yeah. I think, we structured similarly Jason, but we do this year in 2013 have this catch up to go from coming into the year with 1.34 times leverage and going up to that target which is about 1.75, which is about half of the $400 million. So, we wouldn’t have another catch up but based on where we are with EBIDTA and that 1.75 times target and what we are going to do with generated cash flow in 2014, we would be somewhere in between.

Jason Gere - RBC Capital

And then the second question. Just thinking about the Q1 guidance, and I think you said the return on sales would be a little bit lighter and extend further in the years. I guess two things there, one is that because of the FX or is that two because some markets maybe that you are looking to step up some of the investing, just dealing with some of the declines in active reps where you are trying to kind of get that back in place? So, I was wondering if you could provide a little color on the Q1 guidance?

Mike Poteshman

Sure, Jason. Yeah, the high end of our guidance, let's say that our pre-tax ROS without items does go up a little bit. And the comment and the prepared remarks about later in the year was relative specifically to Fuller Mexico, and so that is an element that we would see in the first quarter.

The other place where we're having a little bit of a drag is in really South America and in Venezuela, where there is these inflation effects to some extent are hitting us on the cost side as well, and so that’s a little bit of a drag. But again, if we look out over the full year -- so on the first quarter, we are seeing a little bit of an improvement in the pre-tax ROS. If we look at the full year, on the high end, we are going through this 50 basis point improvement on an operating margin basis with the 25 basis point offset from the higher interest.

Jason Gere - RBC Capital

And just speaking of Venezuela, so you have no change in the bolivar and your guidance a lot of your peers out there have kind of built in some sort of I guess risk with Venezuela this year. So, I guess, if we do see a change there do you believe that the EPS guidance is at risk or do you think there are other offsets along the way that could come in and kind of offset some of that pressure?

Mike Poteshman

Well, I mean clearly, we are always looking to improve everywhere. So, we would always look to do better everywhere than what we have guided to but we think the guidance is in the right place. To give you a frame of reference on Venezuela, the 17% bolivar to the dollar rate is one that’s out there quoted by some, which obviously is very extreme. It's about 70% devaluation versus the 5.3 rate that everybody uses.

And as we said in the prepared remarks, if we did take that hit as of the beginning of the year, it would be pretty dramatic $28 million on income was our estimate, which pre-tax income, which $19 million is just based on things already on the balance sheet and $9 million more on an operating basis. So, you would have to make some guess as to what the rate was really going to do with where its going to be somewhere in between the $5 million and the $17 million, and when during the year to see how much of that $9 million you might think could come through. It's just pretty hard to forecast that.

Jason Gere - RBC Capital

And hey, Rick, make sure you continue to do the conference calls outside of the U.S. you have a night streak going.

Rick Goings

Thank you very much, Jason. Mike, you might comment too on the, I mean from a GAAP standpoint we're doing what we have to do with the bolivar. We couldn’t do it any other way than we're doing it other than leave it at what that rate is and talk about what it would be if it went to this real punitive rate, am I correct?

Mike Poteshman

Yeah, that's right. The rules are clear on the rate that you need to use and when things will change.

Rick Goings

Thanks, Michael.

Operator

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

Michael Swartz - SunTrust

I just wanted to touch on the Fuller Mexico business and I think Rick you had mentioned that it will take some time for the new product strategy to really bear itself out. When we talk about it will take time and talking a couple of quarters, a couple of years, how should we look at that? And then just a second piece of that. I mean with some of the investments it sounds like you are making in training and in compensation in the near term. Can we look for that business to get back to kind of mid teens EBIT margin anytime soon?

Rick Goings

Right now, Michael, I think we are at a mid teen, aren't we? I am not sitting here with that in front of me. Mike?

Mike Poteshman

Yeah, we are.

Rick Goings

Yeah.

Mike Poteshman

When you look at the segment overall, what we are seeing is its BeautiControl is in a small loss and that is why it is blending to 8.5% or something like that for the whole segment.

Mike Poteshman

Well, let me then finish the answering that question. Michael, then I think its 14 and change or 15 where we are at Fuller. And again, I just been a day down there, with them we operated when right after we did the acquisition at a run rate there ROS north of 20%. And I just evaluating the plan there, I think it is going to take them two to three years to get back to that low 20s. Again, we could get there quicker but I want to see more top-line growth from them, so I do not want to turn it too quickly. And they're going to be moving, the shift they are going to be doing firstly starting from a product-line is more to this Armand Dupree, skincare, fragrance which are really high margin products and offer her a better earning opportunity. I will tell you a top-line, I think we are getting sales increase out of Fuller this year and we will start to claw our way back on this margin. But the other big pieces that are driving and it is not a one trick act, it is number one product piece.

Second piece is, we made a huge decision with regard to these 3000 field sales managers. We basically doubled their starting comp, which by the way in Mexico this is not very much of what she made her first 12 weeks in the business because what we noticed is that's where all the churn was on the business. So, to go in there, and then we enhanced it with more training for her.

Next, we went at this whole concept of training to Fuller reps better. So, I got to trade a final ingredient, we took one of our hard charging, young managers who is a Argentine, who we had there working in the business. We put him up to run our Tupperware business in Mexico and took our Tupperware presidents who used to we see above other Fuller business and who the sales organization and management team loved, who is 41, we moved him to the Fuller business. And I can already see the effects. So, we have got two MDs running our business there, both 41 years old, both MBAs, both 14, 13 years experience in multiple and dynamic people.

So, I think leadership, product and training give me a lot of confidence that I will be grossly disappointed if we do not get a sales increase in Fuller Mexico this year. Again, Michael, I do not known how to answer that in two minutes but it is an important business to us and I think we are on the right track.

Operator

Your next question comes from line of Sofya Tsinis with JP Morgan.

Sofya Tsinis - JP Morgan

I have two questions. The first one has to do with China. I mean, you have made some comments about what happened in Q4, can you talk about your outlook for next year and what kind of growth you think you could deliver going-forward?

Rick Goings

Mike, would you answer, you were on that entire call on Monday?

Mike Poteshman

Sure. Sofya, we certainly expect our sales to be in double-digit growth in China in 2013.

Sofya Tsinis - JP Morgan

And then, moving on in terms of Russia you had nice turnaround in that business. We have been hearing that the taxes on self-employed entrepreneurs could go up this year significantly which could cause a lot of people to kind of fall out of the system. Have you heard anything in that front and what do you think that could mean for your business in Russia? Thanks.

Mike Poteshman

We have heard about that, Sofya, and it is the way that it interacts with our business, is on a slides of our managers, it is kind of a social text. And so, we do not think that there is going to be any significant impact. They could decide these lower level managers to operate as regular consultants or we might lose a few but we do not expect to be disrupted.

Rick Goings

And by the way, Sofya, I think that is an important question too because in never ending country-by-country them looking for revenue generation sources there, we have been through this. I cannot count how many times country-by-country, but we have never had a country where we did not figure out how to do it. I mean, it even got to the point that in our French business more than a dozen years ago, George, what they made we had to make employees of which level the --

Georges Jaggy

At the unit mangers level.

Rick Goings

At the unit manger.

Georges Jaggy

In '96.

Rick Goings

At the unit mangers level.

Rick Goings

In '96, and we and every body said it would kill direct selling. What we figured out was a legitimate way to have it work. So, that cause as we talk about flexibility had it happen in Austria, modify the business there, had it happen -- now, it just happened recently in Brazil, they keep looking. So, we have become adept to how to do this. And we are not always going to get it right. But I can't think of a single market where it have more than about a two year tail on it that we didn't adjust.

Operator

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

Frank Camma - Sidoti

Most of my questions have been answered, but I do have one quick question and a follow-up to what you said Rick about your Beauty products. Specifically you said some of the problem was you moved too much into exotic products, and I think you said anti-aging. Can you just give us a little more color on that? Was that because of your customer base or do you think there is just too much crowding in that space?

Rick Goings

No, I think it was led from inside the company that we had it’s the fun thing to work on. What do you want to work on a Ferrari or a Ford? And I think we lost track of the meat and potatoes of our business that if you were the consultant my job is to provide you with an array of products that you can go sell on a regular basis to 30 clients, let’s say.

If I move only into the fringe exotic products, the exotic products isn’t the thing she first puts on every day. Firstly, you give up on hair care because it’s hard to make any margin on that but color cosmetics you do that. Why do you do color cosmetics? Well, firstly she is less dedicated to her color brands, lip and nail and she will trial those. She will try out new and different ones. Go into any almost any woman’s drawer of lip and nail and, even by the way, you’re seeing a return to even purchasing nail again because Vietnam salons basically took over that business. It’s starting to shift the other direction.

So, you start off with that, then -- and those are easy purchase decisions on it. Then, next you get into daily needs kind of items creams, lotions, things like that, spa kind of products. Then the more exotic, and the hardest one to change her on is her skincare regimen on it, and then you have the treatment skincare. We got too much into treatment skincare, and it’s a shame on us.

Operator

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

Linda Bolton Weiser - B. Riley Caris

I just had a like a follow-up question on the BeautiControl business. I guess I’m a little unclear what your thoughts are because I think the new management Daisy has been in there for a while and yet it did seem to worsen. I think the sales here were down 8% in the quarter and last quarter it was flat I think in BeautiControl, and now you say it’s loss making. So, are you going to give it another year or do you expect the loss making situation to improve or what is really the plan because it maybe not a management issue but it maybe just very difficult to compete in beauty and direct selling in the U.S.? So, Rick can you just give your longer term views on that?

Rick Goings

Yeah, firstly, Daisy's only been there but just a little less than two years. She had a lot of momentum to change and a lot of things to fix. And I would tell you BeautiControl was for sale today, we’d acquire it again. It is a very good business with a very good sales force, and it’s still double the size when we fit it. I think we can get back to this business profitability fast. And Linda, I think what happens is once you get this thing back to positive again, it really then starts to make some money. We’re at double digit ROS in BeautiControl.

What happened here is that Daisy stayed the course. We basically agreed we were not going to basically have cheap kids. We were going to return to building leadership teams to good incentives there. They had to attend training so the Beauty University training and we wouldn’t offer easy ways to get in which we get low quality people. So, what she didn’t -- what was off in the fourth quarter was the recruiting. It was the business that's used to having inexpensive kids to come into the business, and she stayed the course, and we told her. Daisy stayed the course on this.

We’re committed to this business for the future. And Linda, if we can get this back to a skin care business, this is a kind of business that ought to offer us 15%, 16%, 17% ROS. And it’s a great spawning ground for us to train new leaders, for us to have another markets out there. So, again if we didn’t have it, I’d get it again.

Linda Bolton Weiser - B. Riley Caris

And I like to hear some of the specific numbers if you are willing to give them. Can you give what Italy was in the fourth quarter and also Indonesia and India, and then I don’t know, if you gave the China number specifically for the fourth quarter sales growth?

Rick Goings

Michael, I don’t have that in front of me, I'm here in Frankfurt.

Mike Poteshman

Okay. Italy --

Rick Goings

By the way he said okay it meant he is going to but he doesn’t want to on that. So quarterly we’re not going to give you out every country in the world but big major markets from time to time we will be willing to go into that because we track it Linda every single week. Michael?

Mike Poteshman

Okay. So, Italy was about even. We were up in the mid 20s in Indonesia and in India. What was the fourth one you said Linda?

Linda Bolton Weiser - B. Riley Caris

Well, China, I don’t know if you gave the exact number?

Mike Poteshman

China was about even in company sales up double digit in sales through the consumers by the outlets.

Linda Bolton Weiser - B. Riley Caris

Okay, great. Thanks very much.

Rick Goings

Yeah. Linda, I will hear from Mike later on that, Rick, why don't you say that. And I do take guidance from him.

Operator

And your next question comes from the line of Bill Leach with Crest.

Bill Leach - Crest

As one of your borrowing pension shareholders, I would like to say, I really appreciate the dividend increase.

Rick Goings

Bill, do you remember the conversation we had?

Bill Leach - Crest

Yes I do.

Rick Goings

And the chart you showed me?

Bill Leach - Crest

Yeah.

Rick Goings

I am always a student.

Bill Leach - Crest

One thing I just want to get clear when -- your guidance for Beauty North America, are we thinking kind of flat profits this year or are we looking at another decline possibly?

Rick Goings

Michael?

Mike Poteshman

Beauty control you said?

Bill Leach - Crest

The Beauty North American segment overall.

Mike Poteshman

Beauty North America, we are expecting to do a little bit better in the ROS and we said that we would be flattish in profit for the -- in sales for the full year. So, it would be just up a little bit.

Bill Leach - Crest

Okay, and the tax rate you said 24.5% on a non-GAAP basis?

Mike Poteshman

Right.

Operator

And your next question comes from the line of Gregg Hillman with First Wilshire Securities.

Gregg Hillman - First Wilshire Securities

I had a couple of questions. The first thing was, a 10 years ago versus today what was the food storage as percentage of sales in Tupperware versus non-food storage products such as food prep, cooking for let's say the established markets, the emerging markets and Germany?

Rick Goings

Gregg, I don’t know what that number is here, but we can find. I will tell you what the storage set is the bigger, just you will just look at cultures out here, and you and I talked about Indian refrigerators and cultures. The faster what we were headed toward more in markets like Europe is all these other categories as you get to these younger working women who really don’t want to cook, and that you move away from food storage to food prep to this other kitchen tools and gadgets etcetera so it comes around there, okay.

The moment you go into in Indonesia or in India and you really expand in those markets and as well as (inaudible) needs food, clothing and shelters so which distorts it the other way. I believe we are south of 30% as a total company with regard to food storage, but I will tell you that may, again you have 85% of the people or the population in emerging markets of the world the faster we grow there the harder it’s going to be to get it any lower than that because that’s their entry point. That’s like in the Beauty business that’s the lip and nail, the color cosmetics for them.

Gregg Hillman - First Wilshire Securities

And then just two other follow ups. Is Pampered Chef growing in the United States?

Rick Goings

I didn’t hear that.

Gregg Hillman - First Wilshire Securities

Is Pampered Chef growing in the United States?

Rick Goings

I haven’t heard about Pampered Chef in two or three years, and we keep track of most every organization out there. I haven’t heard a thing about that, no knowledge.

Gregg Hillman - First Wilshire Securities

And finally that filter thing that you introduced in India what’s going on with that? You had a new innovative filter thing you did a press release on?

Rick Goings

What we do in India we have this is what I was speaking to earlier. We have an Ultima line in India, if I understand you correctly, so that if I am going to typical India, which has a very low per capita income throughout the country, I sell the basic Tupperware product line. But you go to upper class Delhi there is a very serious caste system. There they are well off. They want western brands and she is paying $300 for a Tupper chef stainless steel item. So, they are selling all the top end products that Germany has they are selling them there. So, we've learnt to segment the market.

Gregg Hillman - First Wilshire Securities

Rick, I asked about the water filter, that new water filter product that you introduced in India?

Rick Goings

Okay, that’s still early days on that product.

Gregg Hillman - First Wilshire Securities

Okay. Thank you.

Rick Goings

Georges, let me ask you what have you heard about Pampered Chef?

Georges Jaggy

No, I didn’t want to make a comment about Pampered Chef as Gregg asked about food storage. Actually, we also improved our containers in the last 10 years. Food storage 20 years ago was just a kind of container, and nowadays we have Ventsmart containers. This means according to the food you want to store you put a certain ventilation in there or you will have Cheesesmart, which is also storage of cheese, which has a filter actually, which maintains the smell of the cheese inside the container, not in the fridge. So, also here we have tremendous development in terms of product innovation, which also leads to the fact that we don’t sell less food storage products but they are new, they are technically new, and this is just new state-of-the art product where we have no competition so to say.

Rick Goings

Important point. Thanks, Georges.

Operator

Your next question comes from the line of Ian Gordon with S&P Capital.

Ian Gordon - S&P Capital

I just wanted to ask about the guidance for South America for the share it looks like a pretty meaningful deceleration for the local currency sales growth to, I think the mid teens, you said versus 29% in 2012 even higher before. Is that more of a function of kind of say the longer term development of a retail infrastructure, for example, in Brazil giving more competition or just more of a short-term cyclical little bit of a slowdown in some of the markets there?

Rick Goings

Michael, let me comment -- Ian, I will answer of the first part of that. Firstly, we have been lapping in Brazil, our biggest market down there, a CAGR that's probably 45% per year for the last I think its five years or so. Venezuela has been operating at that kind of a level. Nuvo much less, but it's also, its only Uruguay and not that many people. So, I know that's one of the elements. Mike, would you add a little bit more color?

Mike Poteshman

Well, I think that really basically sums it up. We were up in the mid 20s in Brazil in the fourth quarter -- sorry, a little over 30 in the fourth quarter. So, it's recognizing that that's a very large market for us, and looking at where we are with the sales force and looking at that more in the mid teen kind of area. Obviously, if we continue to exceed our expectations and that could be an area of upside. But we thought the right place to call it looking at all together was in the mid teens for that segment.

Ian Gordon - S&P Capital

Okay. That's helpful.

Rick Goings

Ian, I would add to though that for markets like Brazil and looking at our penetration level, it's still very, very early days for us, and I would have -- expect that very strong double digit growth to continue at least for the next five years of that market. It is -- its growing. It's extremely profitable. But as you know it's got a land mass a size of North America. So, we got a lot of runway left.

Ian Gordon - S&P Capital

And then can I just ask for a little clarification on Tupperware South Africa. You talked about the counterfeit issues there. I thought those were more related to Avroy Shlain or does that get lumped in or was there something else going on?

Rick Goings

It had nothing to do with Avroy Shlain. Avroy Shlain is cook and it's growing at very nicely double digit that business there. And by the way, going back to Linda's question earlier, the Avroy Shlain business is a very similar to our BeautiControl business. When you get it right it’s a great business to be in. These are much more high class product lines than the Fuller business, for example. So, they are nice crown jewels to have if you run them right. The whole problem at counterfeiting was the Tupperware line, they basically took about a dozen of our top selling products and a Chinese counterfeiter knocked off the products. They were sold at the equivalent of a little [modegas] and I'll tell you what it did is, we lost a lot of sales force initially. Not that they started selling that, they started having a very difficult time selling our products.

These, by the way, we had lab work done. These things were made out of such shoddy resin products that somebody would put in an oven one of these products or in a microwave and it would melt around the chicken. It was just; I mean these were dangerous products. The police were very aggressive in helping us that we not only raided those, I mean, these were almost guns blazing these warehouses, but then they watched as these products were destroyed, but that's South Africa. You get outside of Cape Town, Jo'burg, in Durban, it is the Wild West.

Ian Gordon - S&P Capital

Yeah. Was there an issue with the lipstick color at one point or am I thinking of something else?

Rick Goings

Yeah. We had no problem with that.

Operator

And at this time, I would like to hand the call back over to Mr. Goings for any further comments or closing remarks.

Rick Goings

Anyway, thank you everybody for all this time. Georges I want to thank you for being here. What I really like is, what I should hope you could see is I'm answering the question on food storage and Georges has a more comprehensive really understanding of it how we really move from food storage. We didn’t abandon food storage; we just went to high ground on food storage.

But what I would like to come across with that is the -- just the incredible knowledgeable, dynamic level of management that we have all over the world and we'll do this from an another market somewhere else, and I think what you'll see is another general manager that really knows his business. Last closing comments were my first opening comment. We're an and story. We have confidence in the future and our focus is going to be continuing to be a cash generation machine and keeping this growth growing. Thank you all for the interest and the time.

Operator

Thank you. This concludes the Tupperware Brands Corporation fourth quarter 2012 earnings conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!