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Tupperware Brands Corporation (NYSE:TUP)

Q4 2011 Earnings Conference Call

February 1, 2012 8:30 AM EST

Executives

Rick Goings – Chairman and CEO

Mike Poteshman – EVP and CFO

Analysts

Dara Mohsenian – Morgan Stanley

Olivia Tong – Bank of America Merrill Lynch

Mark Schwartz – SunTrust

Sofya Tsinis – JPMorgan

Linda Bolton Weiser – Caris

Gregg Hillman – First Wilshire Securities

Operator

Good morning and welcome to Tupperware Corporation Fourth Quarter 2011 Earnings Conference Call.

I would now like to turn the call over to Rick Goings, Chairman and CEO of Tupperware Brands. Mr. Goings, please go ahead.

Rick Goings

Thank you very much and good morning, everyone. I’m with Mike Poteshman and Teresa Burchfield. As all of you know some of our discussions will involve future outlook of the business, you know the drill. So I refer you to our position on forward-looking statements.

By the way, we know every earnings season puts significant time pressures on many of you, so we’re working to try to simplify how we do ours, and key to doing this is we believe, don’t be repetitious. So we’re going to eliminate everything we put in the release, we’re not going to talk about now. Therefore, what we’re going to try to do is give you brief comments from me, Mike, and then open it up to Q&A at that time. If this works, let us know. And at the same, if it doesn’t, let us know what’s more satisfying for you.

We were generally pleased with the overall business performance for this past year as the top line growth and our pre-tax ROS excluding items, it did meet our objectives and showed nice improvement over the previous year in a difficult global environment. We saw in this situation a number of pluses and a number of minuses for the fourth quarter. We were in our revenue range with the sales up 7% local currency and our $1.50 of diluted EPS without items was just under the high end of our $1.49 to $1.50 for a range. And after considering the FX, rates got 3% worse on us after we gave our guidance. This came by the way and was driven by impressive performance in many of our markets. These gains, importantly, more than offset the weakness in a handful of other markets.

Let me go through some of the pluses, the notables with strong gains. First, I’ve got to say Tupperware India with an incredible 66% sales increase in the quarter. And worth noting, that’s the pace they’ve been on for the full year. Tupperware Indonesia was up 47%, and China was up 24% in the quarter. So really in the pack room, these three markets set the tone. And let’s not forget the relative populations of these three countries. China is number one population wise, India is number two, and Indonesia is number four.

I think it’s interesting Archimedes said in the 2nd Century BC, “Give me a lever long enough and a fulcrum on which to place it and I'll move the world.” Well, for us in the Pacific Rim, the fulcrum for us is the business opportunity that our company offers and the power of our brand. The lever is really the size of the population, and more importantly, the growing middle class in China, India, and Indonesia. These three countries account for more than 40% of the world’s 7 billion population. So we’ve got a lot of runway left there. Also worth noting, we had double-digit increases in Malaysia, Singapore and in Korea. So Asia Pacific was terrific.

Couple of other markets with notable increases in the quarter were Tupperware Brazil. This country, by the way, is the fifth largest population in the world. Here we came in with a 61% sales increase. And very much like India, that’s been kind of our run rate in that area for the entire year. Tupperware Venezuela, up 41%, some of it pricing, but some of it real growth. And even Tupperware Mexico had strong results coming in, up 16%. Germany’s 10% growth – and I’ve got it, it’s notable, because it’s been years since we had a double-digit increase in our Germany. And it really showed that they’re applying and being very effective with the same kind of contemporization techniques that we utilized in France. So they’re on the grow. Strong gains also in Turkey, where we were up 33% and Italy where we grew 30%, very encouraging. And there were a number of our smaller markets also in this portfolio that recorded nice gains, including our Central Mediterranean countries which is really the Balkans, the Arab markets were amazingly up strong double digit, and we’re having the best year we have ever had in the history of average lien in South Africa.

Now, the overall performance – positive performance in these countries with solid growth was the growth of the sales force, packed by heightened focus on training. In light of this, I’m pointing out now that we’ve included in the first attachment to our release some details behind some unusual fluctuation in sales force performance indicators versus 2010, really to give you better understanding. And, by the way, we have a rather solid formulas in most of the established markets of the world for how we qualify total sales force and active sales force, as well as standards for how we purge the in-actives. However, a number of our businesses, particularly in emerging markets utilize a different kind of rhythm, and we’re prepared in Q&A to talk about that, but we gave you the notes.

The notables in the sales gains that I talked about of all those markets were partially offset by a handful of markets, and let me cover those, namely Tupperware South Africa, Tupperware Australia, Russia, the CIS, and Japan, also a couple of our Beauty businesses. And, by the way, just as the top performer countries of the world were driven by sales force size largely the absence of a sales force size advantage was the primary cause, but behind those that were laggards in the quarter, and let me comment on each of these.

Tupperware South Africa, which has just been a wonderful star performer for half a decade had a tough quarter that started at the beginning of the year. And, by the way, you know that’s the Christmas season is summer holiday season, there were many disruptions in that market starting with strikes, counterfeit products, and a number of promotions that really failed to deliver. So we came out of the gate with not a lot of momentum. However, we’ve got a strong management there. And I believe in the year ahead, we’ll be back to growth, however probably a bit more modest that we’ve seen over the past couple of years.

In Tupperware Australia, there we’ve been dealing with some difficult externals as well as some issues internally, and if simply stated, it’s been two years now that we’ve been unable to get a sales force size advantage. Now, we’ve made some changes to get this recruiting machine moving, but it’s taking longer than we expected. But we’ve got a solid management team and distribution organization in place. And frankly while it’s still 11 more months to go, I’m hoping we will see some positive gains this year.

In Tupperware Russia, CIS, while still down 7%, we continue to make improvements in this market and also to recognize sequential improvement. Again, a wonderful combination of a terrific management team, a solid distributor organization – and, yes, we are still dealing with some difficult externals, most of this started by the way with devaluation of the Ruble more than two years ago, but hope to get the traction back again.

And, finally, on these markets – let me turn to Tupperware Japan. You all know what happened this year. In spite of tsunamis and earthquakes, we did well sequentially throughout the year. However, fourth quarter was a disappointment and was a combination of not only productivity, but also sales activity.

Now, let me also comment on two of our Beauty businesses that didn’t have a very good quarter, BeautiControl and Fuller. There was weakness in each, but each was for a different reason. In BeautiControl, we were down 16% in sales. We have a strong focus there on really training. And moving forward, this should help us with our productivity and activity. We were pleased to see the sales force size deficit move and improve to only down 5%. But as all of you know we can’t get a sales increase until we close the gap. Just over the last two weeks, we had 200 of their senior leaders here in headquarters and we’re seeing dynamic people with a Daisy Chin-Lor, a wonderful management team who are committed to getting BeautiControl back on the grow again. Promotions look good, new product line looks good, so early days, but I hope we see an improvement there.

Now, Fuller Mexico, it was down 7% in the quarter. And let me comment on why. Firstly, there were externals and internals. Externally, one of our key competitors out there – I don’t know how else to say this, we say crazy promotions going on in discounting. And I must say that about five years ago the same thing happened and we responded with the same kind of promotions and we learned it basically dumb down our business. So this time, we didn’t respond to some of these promotions. And because we know we probably share about half the sales force with another direct sales company in any given time [Technical Difficulty] brochures, that probably impacted us.

However, you’ll also remember us talking about at the end of third quarter, we launched an expensive recruiting promotion and we flooded the business with actually 90,000 new people, and I commented in the third quarter call that I thought it was unlikely we can convert them to productive sellers. We said, we were going to do our best. We did purge them during the quarter and now we’ve got a better group to work with. And I hope we can see a modest top-line sales growth in the quarter. In fact, we are two campaigns into January and that’s the whole – and these are two-week campaigns and so that’s most of January. And it appears our momentum is going in the right direction. Now, I’ll be down there in two weeks and no more. So anyway that’s a quick thumbnail of the pluses, minuses.

The portfolio has changed dramatically in the last decade. Back in 2000, we were pretty much a one-trick pony with Europe and Germany defining performance. Europe is still very important to us in doing well and it offers many opportunities. Yet, the fruits of our incremental investments in these emerging markets are really paying off, as well as the re-launches in Brazil and South Africa. So these were solid incremental strategic investments that we’re seeing benefit today. Also, our global portfolio includes a mix of many markets, which mitigates quite effectively the affects of earthquakes, tsunamis, as well as political and economic disruptions. It’s also a natural market basket hedge for shifts in foreign exchange rates. Matter of fact, we just did a regression analysis over the last five years and it’s close to flat.

Now, let me briefly comment on how we’re ensuring our approach going forward, we’ll continue to drive growth. There are as many of you know four basic components to our business model that are adaptable to the various markets and cultural conditions. And these four components exist, whether we’re talking about Boston, Brazil, or Borneo, we’re essentially a multi-local business just like Starbucks or McDonalds with repeater stations across the globe, and we simply adapt our business to the culture. For example, McDonalds doesn’t sell beef in India, and yet they are the biggest fast food franchise. Same concept for us.

Now, the four components are the product, the selling method, the sales force opportunity, and four our direct selling fundamentals. Think of these as diodes on a control panel you can adjust. Now, let me comment on each. Regarding product, we always drive no matter what market to have new products represent 25% of our sales. New products do this. They ensure we always have something to bring to existing customers and a reason to call on that. And then there is the new flanker categories like the $140 MicroGourmet that helps us get to new consumer groups like busy working women in Paris. It’s this combination that really drives growth from a product standpoint.

The selling method is our selling piece and it’s really used in every market based on what works best there. Every 1.5 seconds now, a party or a spa is starting somewhere in the world, and it is the ultimate social network, because it’s our friends. Here we strive to keep it entertaining, informative, and up-to-date with current trends, which will come back again and again, and even host the party.

Component three, our sales force opportunity. Very interesting, because there is no retail store rent or advertising expense in our value chain nor should there be with a direct sales company. We’re able to deploy about 50% of every retail sales dollar to the sales force in the form of earnings and promotional awards. And when you consider that in many markets, they’re a limited career opportunities for women. This truly is a sweet spot and back to that Archimedes lever, a huge lever.

Final component and a key component of our model is ever improving set of direct selling fundamentals. It’s training, it’s recognition, it’s motivation. All of these are delivered through a weekly meeting that occurs in every single market. These sessions ensure our 2.7 sales force members have leadership guidance and direction. And it enables us next Monday if we need to make a promotional shift, we get to do it everywhere, we don’t have to wait for catalogs, advertising for changes.

Now, let me turn it over to Mike, and then he’ll cover some numbers, and I’ll come back. Mike, please.

Mike Poteshman

Thank you, Rick. Looking first at our fourth quarter results versus our guidance in October. On the sales line, we did significantly better than we had thought we would in Brazil. There we had included a 40% increase in the outlook we gave in October, but ended up coming in a plus 61% that Rick highlighted. Going the other way, we had included in our forecast that Fuller Mexico would grow by the same 6% that we achieved in the third quarter, but we ended up coming in with minus 7%. Taking these two more significant factors together with what went on in the rest of our markets, we landed at the low-end of our plus 7% to 9% local currency range for the quarter.

In terms of profitability, we were $0.08 worse at the segment level, as the benefit of the upside in sales in Brazil and the management of expenses in Asia that we were able to get were more than offset by higher than expected spending by Fuller Mexico and Italy. We did pickup $0.07 from lower than anticipated unallocated corporate expenses, interest expense and a lower tax rate, and we did take a $0.03 hit from FX rates that Rick also talked about. All of this netted out to minus $0.04 versus the $1.54 high-end of the range as actual diluted EPS without items was a record $1.50 in the fourth quarter.

We laid out our first quarter and full year overall and segment level forecast in our release. Here, I’ll note that our outlook for a full-year local currency sales increase of 5% to 7% reflects a 1 percentage point negative impact from having one less week in fiscal year 2012 than in 2011. It otherwise equals our longer-term guidance for annual local currency growth of 6% to 8%. The 30-basis point increase forecast for full-year pre-tax return on sales of 14.2% includes a 20-basis point negative impact from foreign exchange and our value chain and otherwise is in line with our longer-term guidance for 50-basis point annual improvements and the return on sales up to the mid-to-high teens. As it has indicated for sometime, our outlook assumes no change in the foreign rate for Venezuela.

Now, just a couple of more details on our outlook that are not included in our release. We have included in unallocated corporate expense for 2012 being at a slightly below the 2011 level and interest expense of about $33 million. On resin, we currently see, including in cost of sales in 2012, approximately a $155 million, which is forecasted to cost $5 million less than it would have in 2011. The effective income tax rate is expected to be about 25%. Further, cash flow from operating activities, net of investing activities is forecasted to be $220 million to $230 million for the full year and that includes $90 million of capital spending.

And, with that, I’m going to turn the call back over to Rick.

Rick Goings

Okay, just a couple of comments – thanks Mike very much. Before we turn to Q&A, let me just make a couple additional points on how we’re ensuring our performance that we’re now achieving that it continues. I’ve got to say personally, the biggest internal component which is at the core of the success of Tupperware brand is our ability to attract, develop, and retain the best leaders in direct selling. After all, the institutional skills in this industry are what separate us from our competitors in the industry. And I’ve got to say, as such, senior management and my most important responsibility is the leadership and development, and succession planning of these people, it’s the reason I’m out there. I’m just back from Davos this weekend, but I’m out to Europe again.

And, why I’m about 70% of the time – next week I’ll be with our Group President in Europe, Glenn Drake, and all of his managing directors. And for four days we’ll sit there and take apart the business and ensure how we’re going to make the numbers quarter-by-quarter this year and how we’re going to develop the best leaders in the future. So that’s why we don’t – rarely have you’ve ever seen recruit anybody senior person from outside the industry, because the industry specifics are just too difficult to learn later in life. Even our CFO, and I’m kidding, Mike here knows how to do a Tupperware party, it’s what drives our business, leadership and understanding our business.

Finally, a word about externals. I just returned from Davos. It’s interesting; two takeaways. I don’t go over there to do business, I go over there really to be involved in the business of the world. From talking to another – a number of heads of state in Europe in sessions I was in, it is clear to me, Europe is committed to everything they can do to keep Euro land together. Will it work? I don’t know. But I have never seen such a commitment there by countries and cultures that are so different. And here is simply what they understand. Without scale, they can’t be a trading force against China. They’ve got to have – they’ve got to work together. They also believe that economic interdependence contributes to peace. It’s going to take some time, and I think it’s going to be chaotic in the process, but they’re committed.

Next, very interesting, the other major thing that came out of Davos this year is the need in this world to evolve to some new kind of an economic model as this gap in wealth distribution is growing, it is believed by some that unrest with the disinfected could turn into more of the Arab spring type events, this time directed at the economic diversity here. The problem as many of us discussed is what model do you go to. We know the pure communist model in Cuba results in nobody having anything, the European socialist model is not an option, because one-by-one the governments have been going broke, finally it’s been really agreed there that kind of a new form of capitalism must emerge, one that is a bit more socially responsible and compassionate and yet still rewards merit and achievement. By the way, that puts Tupperware brands in a very good place, because even in these markets like China, India, Indonesia, if you can start with a kit there is no sealing on how far you can go in the organization.

At any rate, now we’ll turn it over to your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Dara Mohsenian of Morgan Stanley.

Dara Mohsenian – Morgan Stanley

Good morning. So Rick, Beauty North America was weak in the quarter both from the top line and profit perspective, but it looks like in your guidance you’re assuming an improvement in trends in 2012 relative to what we’ve seen recently. What gives you the confidence that the trends will improve and what’s your level of visibility for 2012? And then specifically has the competitive environment improved at all in terms of the promotion you’re seeing in Mexico?

Rick Goings

Hi Dara. Firstly, I don’t know what’s going to – I don’t know more about what the competitors are doing when I’m doing there in two weeks in Mexico, but it was – these were crazy kind of investments, and I was so proud of our management team down there, when we asked her, “Are you going to respond?” They said, “Absolutely not. We’re not going to make these kinds of discounts.”

So frankly, I – we’ll see what happens and we’ll let you know and update you there. What I do believe is, our guys have gotten back to stop looking out there and know what your own game is and play your game. The thing with our Fuller business there is they have got a sales force size advantage, there has been a very strong focus on productivity improvement, that stuff was all launched early in the year, and I think the only misstep we had was this over-the-top recruiting in Q3 that actually was a distraction for us.

Now turning to the Beauty – and by the way, we’ve got – January has done for us pretty much at Fuller, and I said these were two solid campaigns in January, so it was an absolute momentum shift in – we sometime say “As the morning goes, so goes the day.” So it really set the tone for what will happen, because the more – the better campaigns you have that usually leads to a better morale and better recruiting out there. So I’ll put that aside. Do I think we can get gains in Fuller this year? Yes. But I’d signup right now for low-to-mid single-digit top line. We’ve got a very good value chain, it’s a very profitable business.

Second piece of that is our BeautiControl business. And I’m very comfortable. It’s been the long and windy road getting back, but I feel good about our business there going forward. We got to get some expense out of it, because it’s still – it’s double the size of when we bought the business. But with business like that, you ought to be able to make 10% to 15% ROS on it and still scale.

Dara Mohsenian – Morgan Stanley

Okay. So it sounds like it’s more the improvement in January than much clarity on the competitive environment to sum it up quickly.

Rick Goings

Yes.

Dara Mohsenian – Morgan Stanley

Okay. And then, obviously the large dividend increase here and the payout ratio is going up, do you think you’re now at the right payout ratio, or is it reasonable to expect the dividend increases at a greater rate than EPS growth over time as you look forward over the next few years?

Rick Goings

Firstly, obviously the combination of things that go into that error is our confidence with regard to the performance of the business and what cash it throws off. But the other piece is our evaluation of what we think our needs are going to be in investment wise. I think we’ve got a good handle on both of those and so I don’t see any incremental need for any big bump in our capital that would inhibit us from keeping along the same path. Mike, why don’t you go comment?

Mike Poteshman

Exactly, and that’s how we set the payout ratio target, the targets that we’ve talked about before. We’ve said that we think we’re likely to be in this 30% to 35% range. That’s a trailing EPS without items. We were at 32% when we set the dividend increase last year; we’re also at 32% now. Our earnings per share without items went up in 2011 by 20%, which is the same increase in the quarterly dividend that the Board declared today. So it’s really executing on what we said last year.

Dara Mohsenian – Morgan Stanley

Okay, that’s helpful. And then did you give a resin impact on – in the quarter, Mike?

Mike Poteshman

The resin impact for the quarter was about $4 million negative, which is what we had guided to in October.

Dara Mohsenian – Morgan Stanley

Okay. And just given gross margins were up nicely year-over-year, can you give me a sense of what drove that, because – and more importantly a forecast as you look out to 2012 with the resin impact being more benign, should we expect significant gross margin expansion to continue, or were there some individual items in the quarter that the strong gross margin performance won’t continue?

Mike Poteshman

Right. Well, there were several things that were benefits for us in the quarter. We didn’t do a lot of B2B in the quarter, but we did have a better margins in the past on what we did do. We saw some benefit from shifting production to some of our lower-cost plants. One example of that is in Japan, our products for Japan is being made now more in Korea. We had some lower input cost as we resolved some VAT issues, some less obsolescence. So there was a combination of factors that did offset like you said, the higher resin cost of $4 million. We also were able to improve our mix in some of our areas. So some of those things will continue, some of them were more one time.

As we start to look out next year, we said that we thought the resin year-over-year benefit would be $5 million that starts to really come through in the second and third quarters of 2012. When we look at the first quarter, we balanced what’s underneath that outlook. We’re expecting the GP to be a little bit better and probably the DS&A to be a little bit worse for that ratio to probably rise a little bit as well.

Dara Mohsenian – Morgan Stanley

Okay. And DS&A was up a lot year-over-year in the quarter and a lot worse than we expected. Is that mainly Mexico or are you guys seeing the competitive environment for talent increase around the world?

Mike Poteshman

Well, it was really – mainly the two factors or the two places that we also saw in the third quarter, so not only Fuller Mexico, but Tupperware Italy, we invested significantly mostly on the DS&A line. In the third quarter that investment incremental spending was probably in the $10 million or $11 million range. If you look at both of those units together it was lower than that in the fourth quarter maybe $8 million or $9 million, still higher than we had planned for it, because we said we were going to still spend, but at reduced level. We did reduce it, but not quite as much as we thought we would. That probably net-net it had accounted for the 170 basis points or so that we were worse quarter-over-quarter that were all out of other things pluses and minuses. But if you like that, it really was the name of the game.

Dara Mohsenian – Morgan Stanley

Okay, thank you.

Rick Goings

Dara, a sidebar thing on that with regard to these investments, and particularly countries like Italy, we have never had a double-digit increases in Italy, and it’s a great direct selling market. So we have made – Glenn and his management team over there – a real consorted effort starting this last year, we’re really going to attack these markets where we have underpenetrated and that includes not only Italy, but – I was just over there this whole Eastern corridor of Eastern European countries starting with Poland, where we’ve put new management in and even down through Romania, Bulgaria and throughout the Balkans, the brand is highly respected there, more than a 100 million people in that Eastern corridor, and we’re – it’s like new business for us there. So there will be a little investment over there, but gross margins are very strong there. And I think we’re passed it in Italy right now. Mike, we’ve got a 30% increase?

Mike Poteshman

Yes, that’s right. We definitely benefited on the top line and we think that we have ourselves better organized as we go into 2012 to be able to continue to drive those KPIs on the frontend as the total sales force – the active sales force. And we’ve also gotten a very nice lift in productivity in that market. But we think we can do it at a more moderated – on a cost structure that makes more sense that we can get a – the right kind of contribution margin as we continue to grow.

Dara Mohsenian – Morgan Stanley

Thanks guys.

Operator

The next question is from Olivia Tong of Bank of America Merrill Lynch.

Olivia Tong – Bank of America Merrill Lynch

Good morning, thanks. Why don’t you talk a little bit more on DS&A? And just if you could talk about your expectations going into next year and following on then perhaps maybe the profit expectations by region so that we can understand sort of where you’re thinking the spending is going and are there any areas of investment or other regions/countries that perhaps need a little bit of a boost to accelerate the growth or stem declines? Thanks.

Mike Poteshman

Sure Olivia. You saw in our release, I’m sure that we said that we saw we would improve our ROS in each of the segments slightly next year, and that is what we think. As we look at the investment side, clearly the bigger impact of those investments was in the second half of 2011 as opposed to the first half. So as we moderate what we’re doing in our – and are able to grow our business at a – even with the level of investment that we want to have, we’ll see that start to flow through.

So we weren’t looking as we started the year for any major bump one way or the other on a segment-by-segment basis, because yes we’re investing in some markets, and others we’re getting a very nice contribution margin as we grow the sales as we’re really able to lever our fixed cost. So we think we’re going to see a normal kind of growth in ROS for next year overall. We really called it at 50 basis points in local currency, although we are taking somewhat of a hit from FX on the value chain, and that’s why it comes out to 30 basis points on a net basis in our outlook.

Olivia Tong – Bank of America Merrill Lynch

Got it, thank you. And then just – are there other markets where you think that they potentially need a boost? And following on that, how long do you go in Mexico, in Fuller, Beauty, not responding to some of the competitive dynamics that are going on there? And then, within Beauty, on BeautiControl, for quite a while now you’ve talked about how you expect things to get better, and despite that things have continued to look pretty sluggish there. So is there a need to do something a little bit more drastic within BeautiControl in order to get that business to turnaround? Thank you.

Rick Goings

Hi Olivia, Rick. Firstly, with regard to – there is three parts to that question, are there other markets out there that were weak. We’ve got enough in our value – our value chain that we can invest in. We don’t see the need right now. We have seen markets like Italy where Tupperware has had a presence over 50 years and we just never got that momentum going, it’s been very effective.

And it wasn’t just resources; we’ve put a dynamic new leader to the business one that has led a number of other markets well, then we said, “Okay, dial this up a bit.” I think we dialed it up a little too much with regard to some of the investment. But boy, Michael got that thing moving again. And now there is a whole different attitude in Italy, and we’ve got enough – we’ve got 18% normally in our value chain for promotions, so there is enough there already. And I would say that’s pretty much the same in all of our markets of the world. So you never say never, but I can’t see any right now.

Second piece, Mexico; frankly, we’re going to play our own game in Mexico. We dominate in the whole fragrance business there with regard to our Fuller business there. We’re now taking some of our sub brands average lien which is our upper tier sub brand, it is our kind of Lancome of the Fuller brand down there, and we’re building this brand up. What that’s leading us to is riding the wave of growing middle class. That’s some of the same kind of thing you really see that that’s what’s happened to Natura in Brazil, they’re getting more upscale brands, so we’re not going to follow that and do more dramatic discounts such, we make a north of 20% ROS in Mexico.

And so I would even tell you we’d be willing to lose a little on the sales growth to keep a solid business in place and not dumb down our brand, because you end up paying for it, you may have a year or two good, but then you – it’s a – in an aspirational product category like a Beauty brand, you can see the problem that’s going on in the wars in Brazil right now – in Beauty, you dumb down your brand, growing middle class doesn’t want it. So I think we’re going to stay with our game in Brazil – excuse me in Mexico. We’ll know as we continue to move forward. I’m staying close to it and Simon is as well.

Thirdly, BeautiControl taking way longer than it should have. Why I feel different going into this year is we have a leader there who I worked with at kind of former life, who we brought onboard here. She ran – Daisy ran our Korean business, but she came out of beauty, she has been so well thought off there and she is a pistol. The mood has changed at BeautiControl, and I think she has begun to attack the problems. And by the way, many of the problems in BeautiControl were self imposed there. So I’m going to be very disappointed if we don’t have an increase this year.

Olivia Tong – Bank of America Merrill Lynch

Thanks very much.

Operator

Your next question is from Mark Schwartz of SunTrust.

Mark Schwartz – SunTrust

Hi, good morning. I guess, my first question is touching on the Asia Pacific business and more notably the established side of that. I mean, it looks like the sales trends really deteriorated there in the fourth quarter. Was there anything that happened kind of one time in nature and then could you maybe point out some of the weaker countries, I’m guessing it’s the Australia and Japan, but any color would be appreciated.

Rick Goings

Yes, let me comment on one piece, and then Mike will pickup on it. Firstly, put in perspective, only 21 million people in that Australia-New Zealand, okay? And so we are a big direct seller. That market there what was – four out of six year it was our country of the year, so we have a big and profitable business there.

And very interesting, the economic crisis in the world that most of the world saw in 2008 didn’t – it was a delayed by about a year there, and particularly in the minerals that’s so much of the economy is based on that in Western Australia where truck drivers were making a $150,000 a year, that fell apart in 2009 and 2010. And so that’s been a wind in our face there. So Australia-New Zealand is, we’re all over it and we’ve made the changes.

But the other own piece of that is the Japanese business, and you know what happened in Japan this past year. But before that we had issues. But they were problems, I believe, of our own making. Mike would you pickup on that?

Mike Poteshman

Absolutely. So we made a strategic choice in Japan over the last couple of years really to emphasize housewares products, it still includes some third-party source products as we have in the past. But instead of being in a more diverse category mix, it’s more closer to home. We’re also working on and being successful at building more of a selling culture and we did that through how we set the standards for our sales force, what you needed to do to qualify in their promotional plans and trip awards, things like that. And so we’re starting to see some benefits of that, but that’s a slow build kind of a thing. So I wouldn’t say that there is a one-off there as much as we’re executing on a transformation that’s still on the fairly early stages.

Australia, I think is yet to – as Rick mentioned, it was a tough quarter there, both because of the externals and waiting for some of the things that we’re doing to really kick in, various things like lowering the barriers for the sales force to come. We’ve got a very highly trained sales force and leadership sales force, leadership group in that market, and we’re used to asking for several parties being up and people come into the business and the introductory kit price reflect that as a high-cost kit. So we’re looking at all of those things to make the barriers for entry lower and at the same time finding ways to build more of these first-line sale leaders, the people who recruit other people, because that’s really the key driver for our business. So again not one-time items, but things that are multi-quarter build to them.

Mark Schwartz – SunTrust

Okay, great. And, I mean, I guess touching on that subject, should we start to see that APAC establish business turn as we move through 2012 or is that more of a 2013, 2014 story?

Mike Poteshman

Well, I don’t know that we’d expect to see this kind of a high – high teen double-digit decrease in sales. Certainly, we would hope to see some moderation in that, but we’ll have to see exactly when we’re reporting positives again.

Rick Goings

I will tell you from an inside standpoint, their profit plans are for sales increases in Japan and Australia-New Zealand, we’ll see if they can deliver.

Mark Schwartz – SunTrust

Okay, great. Thanks for the color.

Operator

Your next question is from Sofya Tsinis of JPMorgan.

Sofya Tsinis – JPMorgan

Hi, good morning. Can you guys update us on the efforts that you’re taking to improve the business in Russia and whether you expected to be up at some point this year? Thanks.

Rick Goings

Yes. What the first thing I would tell you is, Sofya, that as I mentioned earlier, we really started to see that slow – it will be two years this March when you saw the devaluation of the Ruble against the Euro. And what that shook out for us is we had grown over 10 years from six distributors to a 196, and what it put at risk was those fringed distributors, about 50 of them who were smaller and had an expense base that required sales increase for them to keep it at that level, and it just took the wind out of their sales. And so what we made the steps of doing is, reconfiguring that distributor organization, now we’re down to about a 160 traditional distributors who are bigger and better distributors than they were, but you lose some sales force in the process. We had almost a 100,000 sales force. Mike, I think we’re in the 70s now?

Mike Poteshman

Right.

Rick Goings

But I would say, Sofya, also it’s the track we went down in Germany too. We had a 167 at one point distributors in Germany. And, Mike, I think we’re down, what 150 now?

Mike Poteshman

Yes.

Rick Goings

But they’re bigger, profitable ones, and following the same kind of a track we did and able to manage a bigger, more productive sales force. So I think that management team in Russia is, we’ve got a terrific leader in Russia, the management team is strong, the core distributor organization have been through a lot, and they’re powerful, and I think the worst is over there. So sequentially we’ve had improvement quarter by quarter by quarter. The first thing to look for is when we have an incremental sales force size advantage that ought to be the cursor of the next quarter of sales increase.

Sofya Tsinis – JPMorgan

Okay, thanks Rick. And just a final question, in terms of share repurchases, you provided the guidance for Q1, but can you talk about your outlook for the full year in terms of purchases and how the pace of that will shake out for the year? Thanks.

Mike Poteshman

Sure. Here is kind of like the dividend picture and the overall uses of cash approach. We’re executing on what we said. We said, we target this 1.5 times EBITDA leverage over time. We were at one point 4 for full-year 2011. We talked about the specifics for the first quarter at the 50 million repurchased rate because we’ve been at 90 million as you know in the second, third, and fourth quarter last year, but that was also using the cash that we had on hand at the beginning of ’11. So this is the, I guess, a more normal pace.

If you look at what we included in our outlook for the number of shares, for the full year, it’s got 56 million full-year 2012 and that’s the diluted shares, and that’s versus 61.4 million for 2011, so it’s a 9% decrease. That builds in the benefit of the repurchases in 2011 it hadn’t fully gotten into that number. So we’re basically assuming that the 50 million is the starting point and we really just wanted to be specific in this case because of the change from what we were doing in 2011.

Sofya Tsinis – JPMorgan

Thank you.

Operator

(Operator Instructions). Your next question is from Linda Bolton Weiser of Caris.

Linda Bolton Weiser – Caris

Hi. I just had a question about – kind of a general question about Beauty direct selling in the US market. It seems that Avon has having so many problems and you’re having difficulties getting BeautiControl to grow. Is there something about the market or the structure of the market, or the competitive nature of the non-direct selling beauty companies that makes it just more difficult in the US? And Mary Kay being a private company, it’s hard to know, but how is Mary Kay doing? Do you have any idea if they’re growing well in the US or not?

Rick Goings

I don’t know what Mary Kay is doing, again, because they are a private limited – Linda, good morning. But I will tell you this, from friends of mine in the Beauty business and the retail side of the Beauty, it is a very tough environment even I would compare it. One of the issues with regard to the Beauty business in the US from my former life is the US and the UK tend to be price value markets, whereas Continental Europe is a high-quality market. In my former beauty life, we could never sell the same kind of skincare packaging that was required in France or Switzerland or Germany or even Italy, you could never sell that in the US or the UK, because Americans wouldn’t – this is a Wal-Mart country here and CVS country, and it’s – so it’s very, very challenging. It’s even very challenging with regard to prestige fragrance.

And then what’s happened in the retail environment is color cosmetics was driven always in the past by lip and nail, and you’ve seen what’s happened, the nail business has collapsed with the introduction of its so cheap to get, to go one of the Vietnamese spas that have come up all over the country. So there you’re left with lipstick – do you see the point I’m getting at – it’s – in a price value market you have absolutely all kinds of competition and you have the lowest margins, and particularly in color. So what you have to do is pick where you can win.

And our BeautiControl business, skincare is – that’s why we shifted to skincare. I’ve got to tell you something really positive anecdotally, but actual we launched the most expensive product BeautiControl has ever sold over the past few months, which was $95, and we couldn’t keep it in stock. So what we’ve basically said is we got to differentiate it. The battle ground you don’t want to sit there and do it with color cosmetics, so there we’ve got half representation, we’re going to do it with fragrance to the Hispanic market in the US, and with skincare this whole baby boom group who is reaching the point of never wanting to grow older, the whole thing of being able to slow the aging process. So you got to pick where you win in there. I will tell you, we’re seeing in – we took the Fuller business and we couldn’t use that brand name in the US, but our prestige sub brand was called Armand Dupree and we launched that what, Mike five – four years ago?

Mike Poteshman

Four years, yes.

Rick Goings

Four years ago starting with Hispanics, and actually with immigrant Mexican-Americans, they maybe immigrant or not but they’re living here, and starting in Southern California. And Mike where are we – because this is better products now. And what’s happening with that this year, because we don’t really report on it.

Mike Poteshman

We’ve had good growth there. It’s close to a $10 million business.

Rick Goings

Yes, but – I mean it’s double digit. It’s really starting to cook. So difficult battlefield over here.

Linda Bolton Weiser – Caris

Okay. Can I also ask about – if the Euro were to continue to devalue further in 2012, can you give us some idea as to some levers you might be able to use to offset, to what extent you might be able to offset like maybe additional share repurchase or do you think the resin would be an offset if that continue to go down as an offset. Can you just give a little color on that?

Mike Poteshman

Well, Linda, we see some impact from FX on our value chain itself, but mainly the impact is translation. So – because we do manufacturing source in Europe – in Euro land countries, we don’t tend to see an impact in that sense. Of course, it does impact the value of what we earn and the cash flow we generate. We actually right now is starting towards – right at towards the end of 2011 have – close to $200 million of our debt is denominated in Euros right now, so that would also provide somewhat of a hedge in that sense.

Linda Bolton Weiser – Caris

Okay, thanks a lot.

Rick Goings

By the way, I’d say on that too, Linda, one of the Presidents – Country Presidents I spent some time with and gotten to know over the years – well, I can’t comment the name, but we had discussion on Euro land, and there were a lot of discussions this last week. This – as he said to me so accurately, he said, “Rick, when we created Euro land, we built a room with no doors in it, so you couldn’t leave.” Because I was asking the question, “How is it going to unravel once Greece, if they don’t take the fiscal responsibility and discipline?” He said, “We built no doors leaving, and therefore you saw the dramatic steps this last week.”

Has it been implemented? No, but dramatic steps that they’re prepared to setup a separate commission to take over and basically take the checkbook away from the Greek Government. So they’re trying to – and I’ve got to say this individual said to me, “I want you to think about how long it took for you, United States, to get your act together over here.” We’ve been doing this less than 20 years. And he said, “What are you guys going to do about California? Are you going to through them out?” So, I mean, it’s really helpful to have these discussions, because they do understand – Spain can’t compete against China unless they’re a part of Euro land. So they’re really committed to this. We’ll see what happens.

Operator

Your next question is from Gregg Hillman of First Wilshire Securities.

Gregg Hillman – First Wilshire Securities

Yes, good morning. First of all, I believe in the fourth quarter that the percentage of sales in the emerging markets went down. I think it was like 62% in the prior quarter. I was wondering why was that and whether there is like Christmas seasonality in the established markets that would cause that to bump up?

Michael Poteshman

Yes, Gregg, there is a little seasonality in the sense of a mix between established and emerging markets. If you think about Europe, it’s – yes we have a strong fourth quarter that's because of big promotional pushes early in the quarter. And in contrast in the third quarter in a lot of those markets in Europe or probably all of them, the vacation period is much more of a thing than it is in the US, and in a lot of emerging markets.

So the year-over-year increase, I don't have it in front of me, but we picked up I think 4 points, maybe 3 in share between emerging and established markets in the fourth quarter versus last year. You're right sequentially we always see a bump in the third quarter towards even more from the emerging markets and that has more to do with the timing of our promotional planning programs every year and vacation.

Gregg Hillman – First Wilshire Securities

That should reverse in subsequent quarters, so that should go back – emerging markets should go back up as a percentage of overall sales?

Rick Goings

We were 58% in Q4. We were up in Q4.

Gregg Hillman – First Wilshire Securities

Yes, but it was 62% in Q3, I mean emerging markets I believe.

Rick Goings

Yes. But that – I mean Mike answered that, Europe goes on vacation.

Gregg Hillman – First Wilshire Securities

Okay. And then the other question I wanted to ask you Rick was about India. Number one – I mean you have kind of really fast growth. Number one, are you able to better manage really rapid growth, today as an organization than you were maybe, I don’t know, 20 years ago? And then also, are there any things happening in India either with the social media or mass meetings or whatever that could cause sales to accelerate from where they are at right now?

Rick Goings

Firstly, we are kind of tongue-in-cheek Gregg, because I know you. 20 years ago, we didn't have rapid growth to deal with, so we’re dealing – we have more meetings right now on capacity. Back then it was capacity utilization, now we’re talking about expanding capacity without making incremental or much of an incremental investment, and that's why you see today more than 40% of our sales coming from not Tupperware facilities. So we've really learned the Apple and the Nike modeling.

And by the way, I will call your attention to kind of this smile curve we talk about, that high-value added is up at what, top of the smile, and that's product creation and perfection. Then you try to manufacture or convert it from raw material with as lower cost as possible and often you try to put that in low-cost countries and then you then go back to high-value added, as the sales, marketing, branding components out there.

In those countries of the world where, like for example Belgium and France, were high manufacturing personnel costs, you go in our facilities there and you don't see a few people, so we've tried to kept that really, so it works more effectively there. We’re really learning how to utilize and expand capacity and that's where we’re making the investments.

Gregg Hillman – First Wilshire Securities

And on the distributor level, I know that you have a new category distributor, is it like a super manager that's below a distributor? I forget what the terminology you used on Investor Day.

Rick Goings

Team leader.

Gregg Hillman – First Wilshire Securities

But how's that unfolding and what's the number of those people in India now versus a year ago, and why does that allow you to grow to better?

Rick Goings

Why it works? – it’s called team leader. And why it works is, distributors in most of those markets, she not only has to be a sales leader, but she has to be have administrative skills as well. Team leaders don't have to have a fixed location. She basically is a sales leader, almost like satellite off that bigger distributor, and we’re learning particularly the great model of that is in Brazil, so you didn't have to have that fixed cost base in there, and you also didn't have to teach her the other side of the management skills. All she needed to do was learn how to recruit, train, motivate people. So it's a wonderful combination and a terrific model that we've evolved to.

Gregg, the part of your question is social media. I'll tell you what's happening there so effectively in these – the governments in markets like China, India, Indonesia, South Africa, why they feel so strong about what we are doing is we are teaching women – our people on the ground there, we are teaching them really a lot of skills she never had and it gets down to the whole point that therefore she is confident, and then she has influence. When I was in Indonesia, we sponsored weekly program called She Can, which is really about teaching women and showing women confidence, and we use women from all walks of life. And then, there is a huge – even though it's a Muslim country and the largest Muslim country, a one-hour TV special with all of their – it's like the Oscars here, with their top performers, and then they bring forward women in all walks of life that have really overcome situations and are great role models, and it's all sponsored by us.

So when I'm there for meetings, we get 5,000 people. I don't speak Bahasa, but we use a simultaneous translation and we are doing it all across Indonesia, and particularly across India there. I am in Chennai in about, I think three or four months, but we've hit every major city in India. It really does work. Women are thirsty for this kind of opportunity.

Final thing I'll say, four out of the five largest populations in the world where – and all of them, the President of our businesses there is a woman. And she's not there – and we didn't appoint her because she was a woman, we appointed her because she was terrific, she grew with us, and she just happens to be a woman which sure works well.

Gregg Hillman – First Wilshire Securities

Okay. And then finally, for the distributor, you said that they will have administrative duties and sales duties. I mean, do you support them on the administrative sides with additional funds or help or something like that to help to keep up, like in country like India?

Michael Poteshman

Gregg, that's really built into their value chain. So they’re making a margin on the sales, and then we certainly support them with training and models for the systems and so on, so that it's kind of a plug-and-play, but we're not per se doing it for them.

Rick Goings

But we had and everyone of our company headquarters out there a service call DAS, Distributor Account Services, where we would go into your distributorship and just make sure give you kind of the consulting guidance that you're doing the right things, because if all of a sudden – we have some people out there that from very many, from very humble circumstances that are now running $5 million, $10 million businesses and to make sure they don't blow it.

Gregg Hillman – First Wilshire Securities

So who pays for their warehouse – if they had like a mini warehouse, who pays for it?

Rick Goings

They do.

Gregg Hillman – First Wilshire Securities

They go out and buy a facility. You don't do it for them, they have to buy it.

Rick Goings

We show them how to do this.

Gregg Hillman – First Wilshire Securities

Okay, fine, thanks.

Operator

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

Rick Goings

Well, it didn't look like we saved you guys much time, but we've made an effort though, and I appreciate really though the color of the questions and the direction that went in. Please if you would give Teresa, Mike or me any feedback on how you'd like to do these to be more efficient in the future. Thank you very much.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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