Tupperware Brands Corporation (NYSE:TUP)
Q2 2011 Earnings Call
July 27, 2011 8:30 am ET
Rick Goings - Chairman and CEO
Mike Poteshman - EVP and CFO
Nicky Decker - our VP of IR and Strategy
Dara Mohsenian - Morgan Stanley
Olivia Tong - Bank of America
Mark Schwartz - SunTrust
Bolton Weiser - Caris
Jason Gere - RBC Capital Markets
Gregg Hillman - First Wilshire
At this time, I would like to welcome everyone to the Tupperware Brands Corporation second quarter 2011 earnings conference call. (Operator Instructions)
Thank you. I would now like to turn the call over to Rick Goings, Chairman and CEO of Tupperware Brands Corporation.
Thank you and good morning everyone. I'm in Europe, but I'm on the line with Mike Poteshman, our CFO; and Nicky Decker, our VP of Investor Relations and Strategy.
And by the way, we had maybe about 10 years ago an issue with one of our European lines. And so I would advise if I have problem on this end, Mike, you just pick it up on this end and finish the call.
As always, everybody, some of our discussions are going to involve the future outlook of our business. So you know the drill on this, forward-looking statements.
We had another very healthy quarter with a 9% local currency sales increase and adjusted EPS of $1.25. Before I get into the individual performance of our business units, a word about how we really manage this global portfolio, because it is I believe one of our sources of competitive advantage.
Because it's a global portfolio, there are many external and internal forces at play. So we've got to manage this dashboard. And as with all portfolios, you have a share of plusses and minuses performance-wise. I believe as a company, we are getting better each year at both keeping our momentum in our growing markets and also learning how to fix those markets where there are issues.
And we're very close, simply stated, to our business units. And let me highlight how we're working on this. Every country has a President or a Managing Director. Every region within a country has a Regional Vice President. And every Regional Vice President oversees a certain number of distributors, often 10 to 20 distributors. And typically, distributors, depending on the kinds of market, have 300 to 500 sales force, plus 30 to 50 managers. All these are independent agents.
Now, we manage every single week a measure of the key productivity indicators or KPIs. I don't care even if it's a U.S. holiday, we're a global company. Every Monday morning, 52 weeks a year, at 10:00 a.m. East Coast Time, there is an executive committee call, which lasts for about an hour, where we both report on the previous week's actual. We have a report called the Sunshine Report. And then we drill down. There we know as early as Monday of every week what the sales were the previous week by market, by region, by distributorship, what the recruits were like. And this also gives us an idea of what the upcoming party schedule looks like.
To add to this, we have a monthly performance review, and that monthly performance review lasts about a day-and-a-half. Simon Hemus, our President and COO, runs both of those meetings, by the way. But about a third of the time is spent talking through results of the previous month. Two-thirds of the time is spent on forward-looking discussions.
But anyway, I share this with you, because many of you have asked how do you keep your hand on the wheel on this. And that's the way we do it. That's our methodology.
I would also say that one of the things we've learned how to do is bifurcate the kinds of markets we have. There are two kinds of markets we have, established markets, and we have the emerging. We use the World Bank definition, and it's usually based on per capita GDP.
If you haven't read it, I would really recommend for many of you that follow global businesses, read Fareed Zakaria as the guy who does on the weekends GPS, The Post-American World. And the reason I would recommend reading that is that not that it slams the U.S., but it really is the discussion of the rise of the West. And it's interesting. At The World Economic Forum each year, we do previews into what the world is going to look like in the future. And simply stated, we have 6.3 billion in the world now. There will be 9.3 billion people by the year 2040. And those incremental 3 billion people will not be coming to Western Europe or the U.S.
But having said that, we are not just an emerging market story. The plusses of our established markets are very high per capita incomes, often north of $30,000 per year. So it's interesting in a market like France, our hottest selling product is $140. So there is a lot of growth left for us in our established markets of the world because of high per capita GDP. And we have many areas where it's white space for us.
Turning to the emerging markets, though, the big plusses there are obviously population, limited earning opportunities for women, not much of a retail infrastructure and a dynamic growing middle class. So it's the combination of a very good story. So whereas the hottest selling product in France is $140, the hottest selling product in India is a $4 lifetime guarantee (water bottle).
So anyway, we differentiate how we manage these markets. And if somebody says are we an emerging market-only play, no it's not an "or", it's an "and" for Tupperware. And we do very well in both kinds of markets.
Now, let me turn to local currency performance. And again, I'll do my best not to be redundant with what you already know, but drill down in some other areas. I want to start with our emerging markets where overall we grew 15% in the quarter, and they represent about 58%. That's kind of the run rate. Last quarter, it was 57% of our portfolio for the quarter.
First, our emerging markets in Europe, Turkey and South Africa led the pack with both having double-digit increases. However, this performance was partially offset by a decline in Russia, which I'll get into in a moment, resulting still growth and a 12% increase for the European piece.
Our Tupperware and Beauty businesses in South Africa, by the way, grew 15%. And it is worth commenting that in advance of a nation-wide manufacturing across the board for all industries, like that was in early July, our guys there just did a great job of taking action. The plant worked like (mad) to be able to shift Tupperware, and our distributors ordered so they were able to service their sales force during the strike. Good news is the strike has now ended, and we are pleased to report that we really had no service disruption to the sales force. So again, we're very proud. Our guys there navigated through this difficult situation.
In Turkey, what an impressive quarter, again up 65%. And there, we're getting increases from both improved productivity and a larger sales force, and we ended June with a 24% advantage in sales force. But when you put that again to 65% increase in sales, that says, wow, to our guys there, big productivity increases as well. And they're working very hard to get more of our sales from group selling parties, because it makes a better earning opportunity to the sales force. And I might add, Turkey has a population of about 80 million people. So we have a lot of runway left to continue to grow there.
In Russia, sales were down in the quarter 11%, and I want to adjust though for the impact of some outer periods last year. The real decrease then was 28%. While it was better than the first quarter on a comp basis, still we weren't happy with that. We are seeing some early signs of momentum increase there, I would say last month. Our Job one there is focusing on growing the sales force, because we've got a double-digit deficit there of 30%.
Suffice it to say, when somebody asked me what's wrong in Russia, I would put it s this way. There is a combination of things that happened. Firstly, if we really started to see it with the ruble devaluation two years ago, which first just depressed consumer spending. Then that was exacerbated by last year's fires and the heat wave. And plus, we've got to step up and say we had some of our own missteps in Russia, and that tripped up our 10 years of double-digit growth.
Going forward, we expect to see improvement perhaps even in the second half of this year. We've got a great management team there, strong distributors. And I think we're getting our eyes back on what the right strategy is.
Let me go to Asia-Pacific next with regard to emerging markets. Sales were there up and impressive 27%. I've got to mention some standouts there. Our business in Indonesia had a strong quarter. We had 41% increase in sales. And by the way, this was lapping a 39% increase in the same period last year.
Indonesia is the fourth largest country in the world, very stable government, and it's now become our largest market in Asia-Pacific, a 0.25 billion people in Indonesia and very limited earning opportunities for women and a very primitive retail infrastructure. So this is going to be a story of growth for the next decade or so.
Turning to even a larger market in Asia-Pacific, second largest population in the world with more than 1 billion people and the large market population growth in the world. Tupperware India's sales grew an incredible 75% in the quarter. That's on top of 50% for the second quarter last year. This is another country that has embraced and executed our key strategies. It's just done a great job, particularly of leveraging our mission to enlighten, educate and empower women and girls. They're just doing such an effective job.
We ended June with a 52% bigger sales force than last year, which sets it up nicely for continued growth. And again, if you do the comp between growing 75%, but only 52% in sales force, that says it's not only expanding sales force quantity, but productivity quality. And I might say we are very proud. No other direct seller in India is growing faster than we are.
Turning to Malaysia and Singapore, I was there this last week. They posted a 24% sales increase in the quarter. By the way, we've been in that market 46 years. It is one of the markets of the world we have a tiered compensation model and it's working very well. In the spring, worth mentioning, weekend being demeaning there in Kuala Lumpur of leaders of many of our markets to learn the Malaysia and Singapore way of running this kind of sales force structure and compensation model. We always continue to look at how do we refresh it and become even more competitive.
I'm pleased to say that with this business model we are using there, they've doubled the size of that company in the last four years. And it's sending some signals to some other markets. If you think of this, we're always trying to work on learning laboratories and then sheer best practices. A number of our other Asia-Pacific emerging markets also had strong double-digit sales growth. Philippines up double-digit, Korea up double-digit.
China grew 3%, but this included a 14% increase in the core business, but we didn't have B-to-B in the second quarter. And by the way, B-to-B sales are very irregular in markets, but we'll let you know when they are occurring, and we use them as a tool to bring and build in markets. But the core business again in China was up 14%. We continue to add outlets in China.
And as many of you know, the reason we use those old store fronts there is typically the average apartment isn't big enough to place a whole group selling or a Tupperware party. So these are more like local neighborhood places to meet and whole parties than they are retail shops. We don't make that investment. The sales force makes that investment. So now we're up to 3,200, which is up 7% from last year. It's working very well, and it's helping that signage all over China. It's helped us two years ago. We remained a mega brand, a super brand in China, and we've never spent a penny advertising.
Turning to our businesses in Mexico, our Tupperware business was down 2%. As I told you on the last call, we knew the comps would be impacted by a shift in the promotional timing that helped our first quarter grow 18%. It's all a comparison of where Easter lands in many of these markets. We grew our sales force there versus last year and we ended the quarter with 10% more sellers.
Turning to our Fuller business in Mexico, it was a tough quarter for us. We were down 9%. The good news is we saw it strengthening at the end of the quarter, but not enough to put us in plus territory, and most of it was driven by the size of our sales force where we had a sales force deficit most of the quarter. We picked it up by the end of the quarter. As a matter of fact, we brought in close to 50,000 new sellers in the last campaign. So we ended the quarter with a sales force equal to last year's number.
Also, looking forward, I'm pleased to report that as of last week we had a couple of recruiting weeks and now we have a sales force of 530,000 there. So that's getting close to 5%, 6% plus in our sales force. And the sales force is the largest we've ever had.
Other good news in our Fuller business there is we have a trendsetter program where about 5% of our sales force is selling a month ahead, a brochure a month ahead of the rest of the sales force. And we really used that to sit there and they helped us on estimating product quantities that we need and also do we need to make adjustments to the promotions. But the trendsetters are looking very good.
The key things we're are working on for Mexico are really four things. First, grow the sales organization. Two, really revamping of the top seller program by adding some new incentives such as international trips every week in those areas. Third, sales management team, they've done some reorganization there to really treat these top business leaders and give a little bit more independence to them. But we feel good about that. And also, we are updating the image of working. We're doing our brochures and streamlining the product line.
So I think we are back on the right track, although it's very, very difficult. I was in Mexico last month, and I will tell you I met with senior members of not only government, but the U.S. embassy. There were up to 41,000 people that have been killed in the last three years since the Calderón government has been there. And it's really exacerbated in the areas of one side of the country, the Chiapas area, but in the northern border areas, two things have happened.
Not only you see these narco wars that are going on, but that whole area which after NAFTA became so prosperous because of the maquiladoras where basically goods would be shipped to that area, it'll be finished in Mexico where the minimum wage was about $1 an hour. They had been losing jobs there. And where they'd been losing the jobs is to China where the factory wage rate is half of that. So it's going to be difficult going there, but we've got a strong management team and a good business in Mexico, and it's very profitable.
Turning to the rest of South America, we grew close to 50% in the quarter led by strong results in Brazil. And I was in Brazil about two weeks ago, and we were up in the quarter in Brazil 64%. I'll tell you most of our business there is the Tupperware business. Beauty is a crowded space there and particularly in direct sales, and about almost of 60% beauty products are sold via direct sales. But we owned a space for our product categories.
By the way, Brazil grew 40% second quarter last year, very strong dynamic management team. And what we're really taking advantage of is the growth of that middle-class in Brazil, and it's continuing to happen throughout most of the country. Anyway, we're trying to work on developing higher level managers to manage this incredible growth.
The key leverage points of our business really is that we've got lots of room to grow, very strong management team and lots of women looking for an earning opportunity. So I think this is another one of those markets where you can expect to see a decade of growth.
Other markets in the region that are worth mentioning, Venezuela, Argentina, Uruguay. They all had double-digit increases. And even in Venezuela, very strong double-digit increases even when you take out the effect of pricing with the border war. We feel it's important to point out that we dig under the inflation levels in these markets. So we think that about 70% our of sales increase in all of these markets is a result of higher volume. And that means it's real growth.
Now, let me turn to our established markets before I turn it over to Mike. We grew 2% percent in the quarter. France was a stand-out performer again. This year, we've been in France for 50 years. In France, we had a 14% increase in sales. And we're using that as a learning laboratory to teach many of our other established markets how there is always some white space to grow in a market.
Germany grew in the quarter 4%, closed the quarter with a sales force of 6%, which speaks of the relative potential for the rest of the year. Germany is executing the same kind of strategies that have worked well for us in France. Also, one of first times I really talked about it very much, Italy is one of the largest direct-selling markets in all of Europe, but we've never really tapped it and done as well as we should have been. It's been flattish for the last 10 years. We put in a new management team in Italy, and we saw therefore a very strong double-digit increase in the quarter. So I feel good about that.
Our mid-sized market in Greece by the way is continuing to be impacted by the external environment and had a decline in the quarter. Also, Austria had a very modest decline.
Our Asia-Pacific established markets really consist mostly of Japan and the Australian businesses. They were done 2% in the quarter. I might say though Japan was up slightly in the quarter. We started telling you several quarters ago about the changes we're making in our business there. We're starting to really see some traction. And even with the impact of the earthquake and tsunami, we're starting to move that business forward.
Business in Australia and New Zealand experienced another difficult quarter. This time it was a 7% decrease. It's an improvement in the trend, which had been running down double-digit. We're working very quickly there to strengthen our sales force leadership structure, very similar to what we've done on a number of other established markets, and we hope to see some improvement in the second half of the year, but we're staying close to it.
I'm pleased to report an 8%increase in Tupperware U.S. and Canada in the quarter, and we're really growing the sales force, and the development of new directors is going very well. The sales force growth programs were successful in both of those businesses, and the sales force now has a 7% advantage versus last year.
BeautiControl, two weeks ago, sales declined 11 % for the quarter. And while we're still not satisfied with our performance there, we did achieve improvement in our trend line as the quarter progressed. I can tell you we've just installed Daisy Chin-Lor as President of our business there. Daisy has worked with me in Asia-Pacific. She is an American and Chinese descent. We brought her aboard Tupperware some years ago and initially put her in to run our Korean business and dynamic double-digit results. Daisy has had 20 years of beauty experience with not only Elizabeth Arden, she had been many years in the beauty side at Avon as well.
We just also did a regression analysis of BeautiControl over the last five years, and let me give you the net-net of what I saw of that. Firstly, yes, the whole beauty is a top category in the U.S. We accept that. However, I think we really exacerbated how top it was with our own missteps, including some management changes we made in the past and some changes to the product line and packaging. I think we've put the right things in place, and I just felt a different tone. Nicky was there with me. I think we're back on the track again.
We're going to be focusing on growing the sales force by creating some major peaks in recruiting. That's what we used to do at BeautiControl, and we got away from that, and we're going to match that up with the kinds of product offers at that period of time. Also, we're going to be putting some special incentives then to grow sales force leadership through special kind of training.
And thirdly, they got away from international trips. It's interesting. Many of our BeautiControl women are A&B socioeconomic rebels. And why trips always mattered is she didn't' want to go brag to her friends on how much she makes at BeautiControl. She would rather brag that she had a new Mustang Convertible in there or she just got back from Maui on a trip she won with BeautiControl. And our guys got away from some of those incentives. So I think we're back on track.
Anyways, enough from me. Mike, let me turn it over to you, and then we will open it to questions.
Thanks, Rick. Turning first to our second quarter results versus our guidance in April. We said that we're looking for 5% to 7% sales increase in local currency for the quarter, and we came with a 9% increase. The upside was fairly widespread amongst several of the market that you've heard us talk about recently, including Brazil, France, India, Indonesia, Turkey and Venezuela.
One notable downside is banged already by Rich, which is Fuller Mexico. The $1.25 for diluted share without items that we made in the quarter also came in well ahead of our $1.13 to $1.18 guidance range. We did better than we probably would in South America, and there was also some upside in our unallocated corporate and interest expense. We also have a lower-than-expected tax rate versus our forecast by about $0.05.
Partially offsetting these upsides, we had lower-than-expected profit in our North America segments. On interest expense, while we operated under a new credit arrangement for the last month of the quarter, we also had a benefit of close to $1 million from the reversal of an accrual for some interest we'd thought we'd have to pay, but now know we won't. In light of our second quarter results, we're decreasing our full year net interest outlook from the $29 million we stated in May to $27 million to $28 million.
Related to the upside from a lower-than-expected tax rate this quarter, this will flow through to the year, and our new full year guidance for our tax rate excluding items is 25.1% versus the 26% we set in April and 24.6% for 2010 actual.
Looking at our results for this year's quarter versus last year, in local currency, we brought through 30% of our sales increase to profit. This is versus our model's approximate 40% contribution margin from incremental sales before investments and other spending. The comparison included the $10.4 million benefit from not having last year's Russia out-of-period amounts. Other larger impacts included an expected negative $4.3 million impact from higher resin cost and a significant decrease in the return on sales in the Tupperware U.S. and Canada business.
This reflected both a lower gross margin from higher unit product cost and mix along with higher selling, distribution and administrators and cost associated with our promotional programs. Some of this impact related to the timing of cost versus 2010. There were also some investments and costs in other units related to activities to build and activate our sales force in light of the product offers and take-up of those offers by the consumers.
Turning to the balance sheet and our cash flow, our results in the second quarter were pretty good, but we still lag 2010 on a year-to-date basis. This year in the first half, we generated $28 million of cash flow from operating activities net of investing activities, which was $40 million below last year. This largely reflected the timing of distribution for payables and accruals including for income taxes. Some of this has to do with our year-over-year starting point in our fiscal calendar in light of the extra week this year that pushed our second quarter close in 2011 after the end of calendar June. We do expect to see some of this come back as we move through the rest of the year.
Looking at the other key working capital line items, on trade receivables, we were up versus last June by $33 million, of which $21 million was from stronger foreign exchange rates. We closed the quarter in a good place with 27 days of current receivables, which is one day lower than last June.
On inventory, we closed this June with $40 million more than last year. Here two of the most significant factor in increase was stronger exchange rates, which in this case accounted for $25 million of the difference. Here we had a favorable number of days in comparison with last year of 134, we were 9 days lower than last June.
As planned, we made open market repurchases in the quarter of $90 million worth of shares, although $11 million of the purchases did not settle until July. Through the repurchases we acquired 1.4 million shares at an average cost of $64.44 per share. As we said in May, we plan to repurchase in each of the third and fourth quarters of 2011, $90 million worth of shares, plus repurchases with proceeds from auction exercises.
The guidance we gave in April for full year cash flow from operating activities, net of investing activities was $225 million to $235 million. With the update we're giving today, we need to take into account that we'll have $11 million to $12 million in cash costs in 2011 related to the interest rate swaps that we impaired in charged expense in the second quarter in connection with our refinancing.
As a result, our new full year guidance for cash flow is now $10 million lower, at $215 million to $225 million. This does conclude the same $75 million of CapEx that we gave as guidance in April.
Turning to our sales and profit outlook, for the third quarter we foresee a local currency sales increase in 7% to 9% range. Given the current rates, we would also see an 8% improvement versus last year from stronger foreign currency that brings our sales increase guidance range to 15% to 17% in dollars.
As many of you know, we use current exchange rates for future periods in determining our guidance. And of course rates have involved to unlikely will be better or worse when we get to the actual results. The rates we used for the guidance we're giving today were from Monday.
In terms of diluted earnings per share excluding items, our third quarter outlook range is $0.79 to $0.84, which at the high end includes a 17% increase in local currency; and including an $0.08 benefit from stronger foreign currencies versus 2010, a 32% increase in dollars. Also at the high end of the range, this would give us a pre-tax return on sales of 11.5% versus last year's pre-tax profit return on sales, excluding items at 10.4%.
For the full year we're raising our local currency sales increase range by 1 percentage point, up 7% to 9%, and up 6% to 8% in April. There is also a 7% benefit from stronger currencies, bringing the increased range in dollars to 14% to 16%. In local currency this includes a mid-single digit increase in Europe; a low-to-mid teen percentage increase in Asia-Pacific; a mid-to-high single digit increase in Tupperware North America; a mid-single digit decrease in Beauty North America; and a high 30% increase in South America. The segment averages are all higher than we were in April other than Beauty North America, which is lower.
We're also raising our full year diluted earnings per share range, excluding items by $0.05 to $4.50 to $4.60. This reflects improved results in our Asia-Pacific and South America segments. Although our income tax rate and the assumption of lower number of diluted shares outstanding. There's a partial offset from lower resumed profit in our Beauty North America segment.
At the high-end of our range, this would result in a 14% increase in local currency and a 24% increase in dollars, including a $0.32 benefit on the comparison from foreign exchange. The foreign exchange benefit included in our guidance is $0.01 less than what we included in April.
Our segment profit return on sales expectations are to be about even with last year's 18.6% in Europe for the full year; up 1 percentage point plus in Asia-Pacific versus 19.4% in 2010; even went up slightly versus last year's 15.9% in Tupperware North America; down close to 3 percentage points in Beauty North America versus 14.9% in 2010; and up by 4 percentage points plus in South America from 13.4% last year.
These return on sales outlooks represent versus April, a significant improvement in South America, slight improvements in Asia-Pacific and Tupperware North America; a slightly worse outlook for Europe and down more significantly for Beauty North America. In Beauty North America, as Rick mentioned, we recruited aggressively at Fuller Mexico at the end of the second quarter. And will spend heavily in the second half as well on sales force leadership development.
I will note here that in our outlook, we've assumed that the exchange rate in Venezuela will remain at the 5.3 bolivar to the dollar we've been using since June 2010. If as an example, as of the beginning of July that rate had gone back to the worse level we saw last year. We estimate that would hit our second half pre-tax profit by $7.5 million.
In terms of other elements of our outlook, I've already updated you on our net interest expense outlook going from $29 million in May to $27 million to $28 million now. And we now see our full year tax rate excluding items coming in at about 25.1% versus 26% we got during April.
On unallocated corporate expenses, we foresee coming in for the full year at about $58 million, which is $1 million higher than both last year and our April guidance. On resin cost, our outlook in April was that we'd have about $160 million flow-through cost of sales this year and that we'd be taking an approximate $15 million hit from higher prices versus last year. Our update is that we now expect to have $170 million flow-through cost of sales and for higher prices to cost us about $17 million versus last year.
The main source of the difference in the impact of our costs is the need by some resin for Venezuela outside of the country and that carries a higher cost. As well, it's worth noting that when we gave our overall resin cost guidance in April, we were anticipating that costs would come down going forward and we more or less think around the same track now .This is the reason why putting aside the Venezuela impact on the picture, we don't see a significant change from our previous guidance even though oil prices have fallen since then.
Putting all of this together then, at the high end of our range excluding items, we have a pre-tax profit return on sales of 14.4% this year, which would be up 70 basis points from the 13.7% last year other than 30 basis points from the high end of our range in April.
Finally, given our announced share repurchase plans for this year, we foresee having about 62 million diluted shares for the third quarter of 2011 and 62.4 million for the full year. This would be lower than last year by about 3% and 2.5% respectively. The April full year guidance included 63 million diluted shares and indicated a 1.5% decrease versus 2010 actual.
And so with that, we are going to turn the call over for questions.
(Operator Instructions) Your first question comes from the line of Dara Mohsenian of Morgan Stanley.
Dara Mohsenian - Morgan Stanley
Rick, the active sales force was down 2% year-over-year in the quarter despite the very strong organic sales growth. So can you run through what's driving that? And clearly you're expecting the sales growth to continue in Q3 given your guidance. So are you expecting a reacceleration in active sellers or just continued strong productivity going forward?
I don't have all those statements in front of me. But I'll tell you particularly areas like South Africa where we really don't have a big party business, it distorts a mixed shit there. But Mike, I would ask you to add to that on other areas of the world.
Yes, Dara, I think in some places we do expect to see a pickup in the activity. Rick mentioned Europe. In North America, we were down in actives in the second quarter, even though we had a higher total sales force. And that had a lot to do with the lower total number at Fuller Mexico during much of the quarter, which we talked about having fixed by the end of the quarter and have a strong start to the third quarter. So hopefully that would look better in the third quarter and going forward.
In South America, we were down 13 in actives for the quarter versus up 5 in total sellers. That one is heavily impacted by the situation in Argentina where that's a more beauty-focused business, not a party business. And still, the productivity is much lower and the share of the sellers in that market is high in that segment relatively.
So with the great improvement that we've had in Brazil, and that includes a larger total sales force and larger active sales force. Same thing in Venezuela. Those are much more productive in terms of the sales per order. And so while we're having good productivity and good activity in those markets, the overall number for South America is looking lower. And again that has to do a lot with Argentina.
So I think that we're hopeful that we can grow even the total sales force we had at the end of the second quarter. We'd like to be more than 5 and market-by-market basis continue to generate a good number of actives.
Dara Mohsenian - Morgan Stanley
And also, Mike, it looked like active seller number was actually up year-over-year versus last year's press release. So was there a re-class of what qualifies as an active sales force member this year? Do you know? Meaning the year-over-year change you highlighted in this year's press release looked like it was lower year-over-year, but we actually had higher year-over-year if you look at last year's press release.
No, we're going to have to take a look at that. I am not sure what would be driving that.
Dara Mohsenian - Morgan Stanley
Rick, then on Mexico, thanks for your detail there in the prepared comments. Do you expect to return to growth there going forward given the improvement in sellers by the quarter-end and also some of the spending in the back half of the year? And maybe you can just flush out some more detail there on your confidence in the business for the back half of the year?
Well, we might have lost Rick, but I guess maybe picking up on your question on the confidence going forward, at Fuller, we did spend heavily towards the end of the second quarter and we saw the success with getting our sales force back to even and then continued on to have positive going into the first part of the third quarter.
So we do think that with the team we have there, which has a very strong leadership on the sales side both at the top and at the top level leaders under him, then we should be able to convert those people into active sellers. So as you saw in our guidance, we're being thoughtful in what we assume for the back half of the year, but we do think with the sales force side advantage that we should be able to capitalize on that.
And your next question comes from (inaudible) of Jeffries.
Following maybe just quickly on the Dara's question, looking at the outlook, Beauty North America is negative, I guess if you will. Is BeautiControl basically tracking along where you'd have expected at this point or it really is just the recalibration of expectation that Fuller Mexico driving the reduction?
Firstly, with BeautiControl, no. We bought BeautiControl 10 years ago. We almost tripled the size of it over the first five years. And we've really done a poor job over the last four years, mostly internal missteps there. But I think we've got it back on track in BeautiControl. But we had a really significant deficit in the size of the sales force.
The Fuller business, it's been a temporary issue here with regard to recruiting. Since we did that acquisition, that business almost every year has grown double-digit. We felt some slowing this past year. And then this year, we had the impact particularly in recruiting the first half of the year. But I believe we've got those programs back in place. However, I must say it is a more difficult market in Mexico today than it was five years ago.
I think you're right. In terms of the question about what impacted the guidance versus April, it is much more Fuller than BeautiControl. So not the trend we wanted in BeautiControl for the last several quarters, but that hasn't really changed.
Maybe just sticking with that, I think BeautiControl comes up probably every call. Rick, I think on the last call, you might have suggested that you would be disappointed if BeautiControl didn't have possibly an up quarter in the third or fourth quarter this year. The trend coming out of second quarter, can we draw that same conclusion?
Yes, to the point that I am quite confident because of the person who is not only running the business and my great confidante, and the decisions that she is making and the things she is focusing on are the right kinds of things. Plus, the programs I saw that were launched, I would be very disappointed if the second half of the year doesn't really see sequential improvement in our trends.
Now, I'm not going to get ahead and say you're going to see it up, but I will be shocked if you didn't start to see this business recovering our sales force size deficit which will lead to then trying to get back to even the second half of the year.
I can tell you from what I saw in the program. We're just putting the profit plans to early stages of getting into profit planning for 2012, but I would predict BeautiControl will have in a year, next year, it may be modest up, but I think we've caught what the issues were.
Brazil is putting up great numbers on top of great numbers. I think you've alluded to some of the things that are going on there, maybe the Trojan horse mentality leading in where you dominate on the durable side. Is this really a combination of sales force driven? I think you maybe are doing this in the Philippines as well. But are there other markets where you can do this and that maybe can really jumpstart growth in other markets as well?
Firstly, with regard to the Trojan horse where we've had Beauty in the book and we lead with Tupperware, it does work there. It's the only way to compete given the size of the two 800-pound gorillas there. However, I would say Beauty is an insignificant mid-single digit percentage of our sales in Brazil. The real dominance of sale is our Tupperware business there. And I think why you're seeing this grow is we are firstly a product, a brand that people aspire to have. I think I mentioned at one point, one of my friends, President of Gucci, said the reason we're up 20% in China is that when somebody is buying a Gucci purse, she tells to her friend I'm not poor anymore.
If you look at these lower per capita income countries, a higher percentage of their income is spent on matching those higher needs, food, clothing and shelter. So we are the 10 ultimate most respected brand name there. And we are also looking at women who are looking for an earning opportunity, having a great brand. And they're looking for these kinds of learning opportunity. That's a great and powerful combination. I think that's what's really leading the way there.
And by the way, what we're seeing in Brazil is the story of what I was alluding to earlier on the post-American years. Again, think of Indonesia, think of women there, less than 20% employment. Think of the India, it's less than 30% employment for women there. And think of China, well, China, India and Indonesia, you put those together and then you throw Brazil on top of it, you're close to 50% of the world's population. And that speaks to these incredible double-digit numbers that these leaders are posting.
What's also interesting about it? In Brazil and Indonesia and in India, the Presidents of our companies there are also women. So it's a wonderful role model.
Your next question comes from Olivia Tong of Bank of America.
Olivia Tong - Bank of America
First, I want to talk about the organic sales growth outlook for the full year. It's up a point, but it does imply deceleration in the second half despite comps either staying about the same or getting easier, so you have a deceleration in Q3 and in Q4. Now, is there something specific to the second half or is there just some flexibility in margin given the number of markets that's you're in and all these moving pieces?
We have three markets right now. When you're managing a portfolio, there are different performance levels. I didn't have one year in my entire business career where everything hit on bright in a portfolio. But our problem watch list right now are BeautiControl, Russia, Australia, New Zeeland and to a lesser extent the Fuller business, because I think we have got the right things in place there.
It looks likes stoppage in some of these markets, pluses and minuses out there. Normally, we've had five to seven of our markets around the world at any given point who are having issues. And so that tends to make comps in certain quarters distorted. So that's why it's hard to put together.
We're taking into the account the extra week and what should be the Russia item in the first quarter. We set on a run rate. We were up 5% or 6% versus the prior year in local currency overall. And then of course we were up 9% in the second quarter. The guidance we gave for the third quarter at the high end is 9%. And if you back into it, that would be 9% also into the fourth quarter.
So I think the trend continues pretty well. The price from a segment of view and tying it with what Rick is saying where we are, forecast to be down in the second half is in the Beauty North America segment. So to the extent there is a drag in the portfolio on a segment basis, that's where it's coming from.
Olivia Tong - Bank of America
How are you thinking about promo and how it's evolved over time? You talked about gross margin realization in the two North American segments. How long do you think you are going to have to continue this incremental spending? Just a little bit more color on that would be great.
Firstly, the most important thing that we can do is retain and grow the sales force. And one of decisions we've made with regard to our U.S. business is we needed to invest there, and we said let's take some pressure off tying to target them for the ROS and said let's leverage the power of getting a bigger sales force out there and so tighten some of the promotions and hoping that we'll be through that by 2012 so we can get back to more normalized levels there and in the same expectation getting back to that 15% ROS is what targeted in those kinds of markets.
BeautiControl, right now what we need to get that sales force excited, motivated is to pull back expenses. So actually what we run in there and as we land in there and dropped in some international trips, some other kind of 'you do you get', we call them OMG "Oh My God" kind of programs. Now, what I hope is you get that sales force topline growing, and then all of a sudden you can cover that right kind of ROS without it being due to a pull back, because you can leverage the growth and the scale.
Your next question comes from Mark Schwartz of SunTrust.
Mark Schwartz - SunTrust
Just looking at the established markets, they're pretty impressive 2% in the quarter. And I think that kind of dovetails with your longer-term outlook of 1% to 2% growth. Just what are you looking at for the back half of the year with regards to the established markets? Given where that was this quarter and if you see any kind of improvement in BeautiControl and Australia and some of the other weaker markets, could that be in the mid-single digits?
I think the mid-single digits this year is premature, but it certainly is the level we're looking at. All we have to do is again take a look at our French business. Again, 50 years there, and when you get the formula right, the business grows. And what we find out, have often showed on one-on-one need, if you draw a picture of France, we really had a French business that was a country business there. And where we didn't have much sales, it was in the high-density Metropolitan areas. So you could draw a circle around Paris, Lyon, Bordeaux, Marseille, Nice, and you should hear and say firstly this is where all the people live, there is the bulk of population.
Young people, she moves away from Provence and wants to move where the jobs are, particularly if she is educated. We were missing all those consumers there. And how we've now approached them is, first of all, she is not the women that in rural France wants to take. I mean if she lives in Paris, she can go downstairs for a euro. She can buy two coutons.
So we had to change, modify the product line for her. (technical difficulty) a day of Tupperware party, these tend to be girls' night out. And then we had to modify the earning opportunity, because many of the women we were attracting there, she was a kind of Jerry Maguire, show me the money. So we introduced a higher level of earnings there by her not only selling, but you could build the sales force structure.
Forgive the long answer, but once you get that formula right, then you start to see, wait, these markets where we've been we should expand. One of the most untapped established markets for us in the world is the U.S. business. This U.S. business, we had a sales force of 300,000 to 350,000 people in the U.S. So they've got some big goals ahead. But to go ahead, you have to have the formula right before you can go forward with that.
So I think it's early stages. I'm not giving up on that. I would hope that in this next decade, you see when we're reporting our established markets that you are seeing active growing 3% to 5%. And what's exciting about them is you take an emerging market of the world, you take an Indonesia where the per capita income will be closer to $3,000 a year and a European market where it's over $30,000 a year, you can still have a very exciting and profitable business even though we've been there for a long time.
And the other final thing I'd add to that if you did have hub and spokes, the hub would have been plastic food storage. But what we've done now is redefined our product line and now gotten into many different product lines. 10 years ago, a product in France would be a $10 Tupperware product. Now that we've introduced this high-tech micro-gourmet steamer, which is US$140, that's a hot selling product, and it goes to a different consumer.
We just had a meeting last December. We have one this December. We brought in all of our market leaders and the theme of the meeting over three days is know how to grow always. And the market leader there is not supposed to be a weather person reporting on what's happened. They're supposed to be somebody ceding the cloud and figuring out the formula there. So we'll invest so that they can always grow in that market. Do we make mistakes on that? You bet. Look at BeautiControl.
Mark Schwartz - SunTrust
With one month under your belt into the third quarter, are there any areas and that you are seeing any kind of meaningful pickup or slowdown versus the second quarter?
Since I've been gone most of the time, Simon has our Monday morning meeting. I haven't heard anything where there is a delta. As a matter of fact, when I talked about BeautiControl, I said progress, I feel good there. Russia, I was there the last month. I know what we've got planned in the second half of the year. And I do know also in Russia we had easier comps. So I checkmark that.
Fuller, just looked at what they've done there and seen in the last couple of weeks results and looked at trendsetters. I checkmark that. And Japan, they finally scored progress even in the last quarter. The biggest question mark I have if I was picking on a market right now without sitting here and talking with Nicky and Mike, is still Australia and New Zealand. I'm still waiting to see some traction there. Mike, would you add please?
Of course, we reflected everything in our outlook. And I think what we talked about was Fuller is probably the biggest difference versus what we were seeing in the second quarter with that down. Sales force did led to lower actives for most of the quarter versus now a positive sales force. I think that's the biggest thing to highlight.
Your next question comes from Bolton Weiser of Caris.
Bolton Weiser - Caris
I just want to continue on with a question about Fuller Mexico. Clearly, it's probably a competitive issue. I expect Avon to be reporting really strong numbers there in Mexico. Can you just talk about what they're doing and how you're responding to it and how much a competitive dynamic has resulted in some of the issues you are having in Fuller Mexico?
Yes, one of the things that we see them doing is deep discounting. When I was down there, we laid out not only Avon, but (inaudible) and the others down there, a real deep discounting. And I can tell you we're not going to get into that, because they are short-term tricks. The story over the last 10 years down, if you want to look at one market is Brazil and the poor is eating their lunch. And the reason they're eating their lunch is more than 85% of their products are discounted.
So as you have a growing middle class, she wants to buy an image. Beauty is an aspirational category. So she will go get in (Natura) and she wants to be seen with (Natura) lipstick, not an Avon lipstick. And so you that gap. So they may short-term gain and get some topline growth, but it's not a sustainable strategy.
I was there. They say what's new and what's on sale. And the sales force and consumers that look to that, there are overall problems on sustainability in the future. We know they are throwing advertising money in Mexico. That's not sustainable either. So we'll see what happens. I don't think that's a big issue with our Fuller business in Mexico. I don't think it's competitive pressure that has been the issue. I think it's more internally missteps.
Bolton Weiser - Caris
Can I just ask you following on the earlier question about your established markets growing pretty good in the quarter? Germany has been turning mostly flattish. And I think was up in the quarter. Is that a sustainable type of growth trend, because that's a pretty big market for you? Do you think that is still going to be up and down quarter-by-quarter?
Well, I hope it's not up and down. What I would hope, Linda, that we can start seeing load of mid single-digit increases. And I must say Georges Jaggy who is Swiss-German who runs our business there, he was the President of France before. He is fluent in French, as most Swiss are. So he was, along with our current Managing Director Danny Gray, where the people had got that French business. So George is really a believer in that strategy.
When we have some opportunities or I think some architectural improvements for sales force in Germany, let me give you what I mean by that. We have a little less than 160 distributors there. But under those distributors, we have been as successful as we need to be at building the sub-management in the structure of unit managers and this new rebel called team leaders. And if you look at the overall businesses, a big circus tent, who does the recruiting is the unit manager and the team leader there. France is about three years ahead of Germany on building that infrastructure in place.
But we have implemented it already. I would tell you in Germany there is no country in the world where we have a more powerful group of regional VPs. These are the group of guys and gals mid-30s, MBA degrees, five to six years' Tupperware experience. I can put them almost anywhere in the world. There is some of them who will be Presidents of our markets elsewhere in the world.
So I see these things in that business that are the things that I think will lead to sustainable growth. But overall, the macroeconomic environment in Germany has been improving. You've seen because of their exports there, but I don't think it's going to be 10% grower, but I will be happy with that market to be a 4% to 5% topline grower, because these are big successful distributors. So I think we're on the right track.
Bolton Weiser - Caris
Can I ask one more about Tupperware North America's margin performance? The segment margin was really down a lot year-over-year, whereas I think it was up in the first year-over-year. So what is going on there? Is that investments are temporary or is that going to be a heavy investment level in the second half as well?
We've got to get that business and these people used to double-digit growth as the way we do it in that business. So we made that decision, told them to go ahead and do that. It will continue the same kind in the second half of the year. And while, Mike and I haven't sat through those early profit planning meetings, I don't see pulling back this next year. But what I do see is once you then start to get the topline really starting to grow strong double-digit, the fall-through, you start the get the benefit of that and you get your margins back to where you want them again.
Yes, just to give a little bit more color and looking at the second quarter. It was a low quarter. Some of that had to do with some hits on the gross margin line that we hadn't planned and that we think will come up better as we move forward. In the DS May line, that's where some of the investment spending really is. And that's planned.
But there is still some timing related to it through the year. So you're right. We were up in the first quarter. And of course, the segment also includes Tupperware Mexico. We actually slightly raised our expectations for the ROS versus the April guidance for the full year for the Tupperware North America segments. And we said we will be even to up a little bit. So we shouldn't see the same kind of a drag in the second half as we did in the second quarter.
We will make the investment by incentives, trips. How Estée Lauder does it is gift repurchase, purchase with purchase. The better brands, Louis Vinton, I think I mentioned at one point there was a line going into the Louis Vinton shop in Copenhagen and there was a sale going on, and he said, "Sir, we burn it before we put it on sale."
We really try to defend the power of our brand. So when we make the investment, the investment isn't in discounting. It's a trip we're running. It is a cash bonus if somebody reaches certain levels. And we try not to make these things permanent in the value chain. So with the U.S, business, my instincts are we'll keep running these through 2012, but those start to improve because we will be able to leverage greater sales across our expense base. So you won't see it, but that we wouldn't have pulled back on it.
The next question comes from (Sophia Phoenix) of JPMorgan.
Taking the midpoint of your guidance for 2011, it implies the outlook for the second half is coming down a little bit about $0.04. And I understand that the resin outlook you're guiding was fairly higher on allocated expenses. Is there anything else in the second half that we should be carrying relative to your previous expectations?
Well, the high end of the second quarter guidance was $0.07 as you know, and the full year by $0.05. There are lots of little pieces running to that. Like you said, interest versus the April guidance is a little bit higher. And in unallocated, the tax rate is lower. We have got less shares. So that's helping us. The FX is $0.01 worse than we were in April.
At the segment level, we're doing better in Asia and South America versus the April guidance, but we're down in the Beauty North America segment. So those are really the pieces.
And then on Russia, I know that you have a double-digit deficit now in the sales force. And when do you think that you will be able to get to where you want to be? Is that going to be by the end of this year or do you think it's going to be more of a 2012 event?
I think it's more of a 2012, because I'll tell you, back to this thing on architecture, one of those things we did wrong there and we benchmarked to a similar other business, particularly our Brazil business, we expanded to too many distributors too quickly there.
Over a 10-year period, we really grew that business wonderfully. But it's a large country and we grew to almost 200 distributors, which meant that some of the outlier distributors were kind of small distributors, and we probably would have been better served having them some sub-distributors under existing distributors.
What happens is they get a high expense, they have an expense base just for the breakeven. Then all of a sudden, you get the combination of the externals, the ruble devaluation, the heat wave that hit the whole country, the six weeks that Moscow was closed last summer because of fires. You have those things then happen to kind of a marginal sized distributor. All of a sudden you're left with an architecture problem. You've got dealerships that are below their breakeven.
We've learned from that. By the way, we've learned from that. We've apply what we've learned. As we're looking at Brazil, how we do it there; as we do it in Indonesia, India, et cetera, we say we want to learn these learning laboratories and it's okay to make mistake, though just don't keep making the same ones. But I think that was a problem of our own making in Russia. But we've got a plan in place and we are executing the plan. We have got a great President of our business there, and they're implanting that plan. But I do think that because the market is so expansive, I think it's a 2012 event.
Your next question is from Jason Gere of RBC Capital Markets.
Jason Gere - RBC Capital Markets
Just wanted to talk a little bit about the pricing. Obviously, pricing is part of an annual process. But when you talk about South America, and I think you said that pricing was about one third of the organic sales you saw in the region. So I was just wondering how is that compared to expectations, if you could talk about price elasticity? And is there additional pricing that you're taking whether it's your innovation in the back half of the year as well?
Every country has its own marketing department, and they do their own profit plans, and that is built into the plan at the beginning of the year. Pricing generally happens once a year, and it's usually is driven by great sensitivity to what the inflation is in a particular market.
We have elasticity because of raw material prices that when you are operating at 60% or high-60s gross margin to pass on raw material prices, but it isn't something that you sit there and do monthly in a market. It generally happens once a year in markets. Now, you have markets that are hyper-inflationary. We've only really got one in the world, and that's Venezuela. And Mike has already gone through the impact there to us is the resin. We can't source inside Venezuela. So we have to use real dollars, hard dollars to bring it into a market where it's hard to even to get out a dollar back out of it.
By the way, the great sensitivity on pricing is we want to keep up with pricing, because you'll ruin the sales force opportunity, dilute it, if you don't keep up with that pricing. It's very interesting how that plays out in product line. Hottest selling product in France is $140. Hottest selling product in India is $4. It's a water bottle.
I think that that's right.
Your next question comes from (Lee Forest of Wellington Shields).
I was wondering if you could give us some more examples of the products that are really moving, because you mentioned India water bottle for $4 a couple times, in France food steamer $140 at least three times. Can you give us some other examples so that we have a little color or flavor behind these really strong numbers that you've put on the table?
Yes, think of that, Lee, as hub and spokes. Food storage is clearly one of our key categories out there, but it plays out differently in different markets. Even though the Greek market is having a difficult time, cookware has become as much as 25% of our business in our Greek business there. It's a very substantial piece of our Japanese business, and these are $300 of really tougher chef gourmet items. So that has become very important to us.
The hottest selling we've gotten into a whole category of products that are basically time saver. We have a product called Quick Chef, sells between US$60 and US$70. And what's interesting is it will do the same thing as one of these electric food processors. However, it's inexpensive, it's easy to use. And bright young working women, she may not want to cook, but she likes simple quick things to prepare. She likes to entertain.
That has become a hot selling product in markets like France and in markets like Germany. As a matter of fact, during the depth of the economic downturn in 2009, they came up with a party in Germany, very much like the same as in the U.S. People throw away about 25% of their leftovers. We came over up with a leftover party that was using our Quick Chef. What you do is you put together this and this and this and you put it all together through our food processor and it was great for omelets, great for casseroles, et cetera, and we came out with a whole leftover book. So it matched what was going on in the market as well.
One of the hottest selling new products all over the world, Earth Chopper, and it's US$60 dollar, but it has been hot everywhere around the world. We are doing a great job with CribSmart, which is Americans and Europeans they like to throw away about 30% of their fruits and vegetables, we have come with the technique that doubles the shelf life of fruits and vegetables. It's a different way of storing. They never sit in their own condensation. And we got that new kind of an airflow there. Think you are up in an airplane and you are at 40,000 feet, you creative false environment in there, but it enables us to be at those heights. We have done the same thing to prolong the life, to really retard the decay process.
So in most of all different kind of categories, it depends on which market you go to, what's the hottest thing there, and that's usually driven by culture.
Your next question comes from Gregg Hillman of First Wilshire.
Gregg Hillman - First Wilshire
Tupperware University in India, what's the class size there or what kind of people you're getting there, and is there one there?
Those aren't always in a fix location. We use office buildings, hotels, et cetera, and it depends on at any given time what the class size is. I mean I just reviewed the one we did. Indonesia is made up of many islands, but the island that we used that was called Borneo was now called Kalimantan. And I just saw their recent class there was 35 students, and they have to go for 13 weeks. It's all day on Thursdays. Again, this is Borneo. She'll travel overnight sometimes on a bus to be there for their class. And it goes from 8 o'clock in the morning to 4 o'clock in the afternoon every Thursday.
At gradation, the family is invited in. I mean they have white gowns, motor boards, the whole thing. These women have never had that kind of opportunity. It's the same kind of thing in India. And by the way, who piloted this first? It was our Russian business where we first opened the first Tupperware University. So we teach starting with basic skills.
She starts to learn how to manage and guide other people, public speaking, skills, managing her money. We had 6,000 people in Beijing, and one of the senior government officials and ambassador who has been an old friend of mine, he just says it is just amazing how this company is training our women to become businesspeople and entrepreneurs. And that's why we have such a good relations with all of these governments out there. It really has been effective.
Gregg Hillman - First Wilshire
Rick, how long do you think it will take India to eclipse Indonesia in terms of sales?
Well, you have just north of 200 million people in Indonesia and more than 1 billon in India. I am thinking of this out loud. It was about four years ago when the run rate of Indonesia doubled, and now what they've done is they keep growing at 40% to 50% per year. Well, just starting now at those kinds of levels last year in India, so I would think we're probably two years away from that, incredible management team that we have in each of those markets.
By the way, final thing, Gregg, on the Tupperware University. We've done that in our Tupperware business in Mexico, because so many of the women, particularly C&D socioeconomic have never had that kind of opportunity. But we just launched that over the last 90 days in our Fuller businesses there, and Fuller has never had a Fuller University program. And I saw the reaction to the sales force there. They are very excited about that.
Gregg Hillman - First Wilshire
Mike, a couple of quarters ago, you brought down the long-term revenue guidance for the emerging markets down to the low teens. And I was just wondering, given the fact that particularly India and China are not anywhere near capacity, you don't think that you could exceed, at least for the next three to four years, your long-term guidance for emerging markets?
Obviously we'll see how it goes. We were up 15% this quarter, and I think 16% last or something like that and 15% for all of last year. So clearly, we've been running about the low double-digit that we'd mentioned that even with not getting exactly where we wanted out of Fuller Mexico in the most recent quarters.
So we'll see how we can do. Certainly we do have a lot of white space in many of those markets. I mean really Mexico between Tupperware and Fuller with those large businesses there is the one where we're closer to penetration than most of the others. So you're right. There is opportunity there. We'll see how it goes.
There are no further questions at this time. I would now like to turn the call back to Mr. Rick Goings for any closing remarks.
Thank you very much. Thanks everybody for your time. One thing I would reiterate again is just like you all who have portfolios, what we try to do is mitigate the negatives, and we're doing business in almost 100 markets out there. And I guess we've got the lowest amount of markets we've ever had on our watch list here.
I think we'll see improvements in these. But we'll have some new ones too, because this business is somewhere between an art and a science. But I think we're getting much better at really understanding these formulas and understanding the signals in markets early on, on what could be leading to problems in the future. And one thing I have noticed every time I travel, analysts help us also understand our business even better through some of the questions. And your interest is really appreciated. Thank you very much.
And this concludes today's conference call. You may now disconnect.