Q1 2020 Earnings Call
[music].
Welcome to self help her brand Corporation first quarter 2019, probably increase call.
Kurt on todays call will be reached greedy executive Vice Chairman said, Gerhard Executive Vice President and CFO, Jean GVR, Vice President Investor Relations, there will not be acuity today, weve called Jane Guerard cuts for setting.
<unk> to 6.47 fine weren't any follow up questions I will now turn the call over Digi and good luck.
Please go ahead.
Welcome to Tupperware brands first quarter 2020, <unk> earnings conference call.
With me on today's call, our rich, Google, Our executive Vice Chairman and founder Harris, Our executive Vice President and Chief Financial Officer.
Earlier. This morning, we issued a press release announcing our financial results for the first quarter ended March 28 2020.
The press release is available on our company website on our Investor Relations page.
We will begin with our safe Harbor statement.
During the course of today's call. We will make forward looking statements that are subject to risks and uncertainties as described in our press release and in our FCC filings.
You should listen to today's call in the context of that information.
We will also discuss some of our results for the quarter on a non-GAAP basis.
Reconciliations between GAAP and adjusted measures can also be found in our press release.
You can access the release and our forward looking statement language to the Investor Relations section of the company website, where you can also access a webcast replay of this coal later today.
I will now turn the call over to rich for his remarks.
Thank you Jane and good morning, everybody.
Let me begin by extending my gratitude to our employees and our independent sales force around the world.
We are operating in unprecedented times filled with many unknowns and continuously impressed by the sense of community work ethic and entrepreneurial resolved.
On the Tupperware family.
The week business trends from 2019, coupled with the impact from Coogan 19 pandemic. This is truly pivotal time for organization.
Beginning last November the board of directors conducted a search for new company leadership and given the state of and trends in the business.
For decided to team approach was necessary to turn around the company. We go president and CEO focusing on fixing the core business motivating the Salesforce and me as executive Vice Chairman addressing the capital structure in markets and developing the growth strategy no along with the entire board I'd be up most confidence in this new leadership teams.
Ability to guide us through this period developing realistic growth plans and execute on the necessary actions to turn around the company repositioning and strengthening the company for the future.
Before I turn the call over to standard for an update on our financial performance I'd like to cover three important topics with you first our operating response to cope with 19.
And what we're doing to fix the core business answered a few highlights of our growth strategy.
We continue to take Swift actions to manage the uncertainties that cobot 19 poses to a global business our top priorities have been to protect our employees and their families. While we continue to run our ongoing operations. So we can provide the necessary support to our salesforce.
Prior to the disruption caused by the pandemic, which began to broadly affect our performance in March the consolidated business was performing in line with our expectations.
I know, we're not alone and dealing with the uncertainties related to cool. The 19, yet I am confident we are doing everything we can to whether this period, while making the necessary structural changes to build a stronger more nimble and consumer facing company for the future.
[noise] around the world, we have quickly modified our marketing message to become quarterly <unk> part of the solution.
To real consumer issues, they're facing in the current environment.
We recently launched and marketing campaign called problem solved that highlights the problems facing our customers today in week of Copel 19, and the solutions, we offer from helping food last longer.
Nothing store food safely and helping to reduce waste and save money.
Helping prepared healthy foods, and creating enjoy able to be only experiences around neoprep and family meals.
All from the comfort and safety of their homes.
Well, it's not possible for us at this time to estimate the full impact over 19 could have on our business and that's the reason we lived through our full year financial guidance.
We believe we've taken Swift action to whether this unprecedented time period, while positioning ourselves for life after the pandemic.
Later in the calls onto will be reviewing these specific adverse impacts from cobot 19.
As you may have read our world will likely not returned to normal.
Rather be new norm.
We believe our company is well positioned to succeed in the new normal with products that help consumers keep the food safer and longer lasting products that make cooking at home more enjoyable and products that provide every usable solution at a time when more and more people realize the devastating impact single use plastics cause to our environment along the defense has.
Caustic entrepreneurial economic opportunity people can operate from home.
The second topic, what do we do in fixed the core business, let me take a few minutes to share with you with the company has been doing to rightsize, the business and positioning itself for turnaround.
The company had had started late 2019 by identifying areas that needed improvement and developing plans to rightsize the company.
On the cost structure and liquidity front, we engage the leading advisory firm.
And to redesign our org structure and developed realistic growth plans, we engage with Boston consulting group.
Together these advisory companies along with our leadership team.
Contributed a critical role in introducing rigorous improvement initiatives in advance of the impact from Covidien team.
To rightsize our business given the business trends, we experienced in 2019. The company initially developed at 2020 cost savings plan of $50 million now due to the cobot impact.
On our revenue we've taken more aggressive position, increasing our cost savings plan in 2020 by 50% to 75 million and taking quick actions to improve our liquidity position in the midst of the evolving realities.
We believe that the change the company's made in just the past few weeks with office, whether the Coca 19 effect and will help to rightsize our core business.
In early April we made changes to our leadership team, bringing improving executives who is experience we know and trust. Additionally, we realigned organization structure splitting the front end from the back into the business to allow the commercial leadership team the time to acutely focused on growth, while creating service excellence groups to improve financial rig.
Okay, and increase efficiency and effectiveness of the company.
Additionally, led by Miguel be are assessing the key drivers of the business and working country by country to develop growth initiatives that can create both quick wins and usher in long term sustainable growth.
Over the remainder of 2020, we will begin to using more data driven approach to segment, our salesforce and improve our marketing communications embracing more analytical approach to making business decisions introduced new digital tools and training to help our salesforce the more productive inefficient.
And reach more customers than ever before and along with our Salesforce increase the number of access points, where our products can be demonstrated and purchased.
We believe in a unique competitive advantages of an entrepreneurial salesforce and are committed to making the right decisions and investments to grow our core business. While also looking ahead to explore new opportunities for consumers access our products and accelerate our long term growth rates.
Let me conclude with sharing some initial insights into our future growth strategy.
Back in November the board and management recognize its transformation plan needed to be modified in order to be successful.
While it's upwards recent challenges had been executional the nature, the increasingly high fixed costs in a business that should have low fixed costs further handed financial returns.
When we go on I joined the company, we agreed with the need to quickly become a leaner and were essentially organized company.
We also recognized the need to develop a realistic growth plan incorporating the unique opportunity to increase consumer access to the iconic tupperware brands, along with proven growth initiatives from our past experiences.
Together, we're calling this the turnaround plan.
Additionally, we fully support the company's recent change and its capital allocation policy to focus on making long term investments in our core business with proven initiatives versus returning capital in the form the dividends or share repurchases.
From a guillemot bring with us a very disciplined improvement approach to capital allocation that we believe will provide sustainable long term returns to all stakeholders.
The decision by the board to create two strong leadership positions, a CEO and exec Vice Chairman is proven himself to be just with the company needed to respond to this current challenge.
While we expect to reveal our strategic thinking more completely later this year, let me share some highlights with you now.
We developing a growth strategy that will result in a significant strategic shift in the company.
From looking backwards exclusively through the eyes of our Salesforce with the consumer push model.
To a net to now pivot and look through the eyes of the consumer and create a consumer pull model that can coexist with the strength and uniqueness of our independent Salesforce.
This is a dramatic change a little tupperware well gives us confidence in that success is the underlying consumer permission of our iconic brand that consumers of trusted in their homes over seven decades as.
As we develop this new strategy, we must remember is always been consumer trends and consumer demand that created success for our salesforce.
As you know this is a new management team to just the past few weeks and therefore, our thinking continues to evolve as we learn more about the business.
Share some of our excitement around our growth strategy. Let me highlight a few key elements that you'll hear us build upon in the coming quarters.
First we will end to more product categories with tupperware brands as consumer permission.
We will create a good better best product and pricing strategy to reach and address the needs of all consumer socio economic levels.
Bcm due.
Together with our independent Salesforce, we will create more access points for customers in person and online.
We will explore alternative revenue streams of b to B and licensing.
And most importantly, we will align our brand work closely with meaningful Mega trends such as we usable products that are environmentally friendly products that help you save time with food prep.
To help you save money, but keeping food safer and fresher longer and of course, the growing dig economy and people working from home.
The board and management team are keenly focused on our near term priorities to rightsize the business.
Manage our liquidity position and meet our debt obligations, while strengthening our balance sheet.
We are committed to making prudent investment decisions that support a turnaround and unleashing aggressive growth strategy will also strictly adhering to balance sheet disciplined and our long term capital allocation strategy.
Let me now turn the call over to our Chief Financial Officer, Sondra Harris to provide more details on the first quarter cylinder.
Thanks, Rich I will talk today about the first quarter financial results. The actions, we're taking relative to the turnaround plan and Kovac 19, and our response to address the impact of that having on our business.
As rich stated the underlying performance and trends in our business. During the early part of the first quarter four inline with our expectations.
For example, China opened 176, new outlet in January exceeding plan and higher than the entire fourth quarter at 2019.
However, as the quarter progress Kevin Knight team did negatively impact our global businesses and this impacted than most pronounced in Europe, and Asia Pacific, where we experienced partial our country wide lockdown of operation in various markets.
Including but not limited to China, France, Italy, and the Philippines.
Our top priority is protecting our employees their families to sell for instance, gamers and our operations.
Looking at the first quarter sales were down 23% versus last year and 17% in local currency.
15 million of B to B cells, and 2019 first quarter contributed 200 basis points of the decline, while we estimate the cobot 19 impact to be approximately 500 basis points.
[noise] asset sale force of down, 15% and sales declines for across all segments.
Asia was down 20% and net sales on a local currency basis for Q1.
We began to see the impact of Cobot 19 in China, beginning in late January our India, Malaysia, and the Philippines, We're under walk down beginning in March.
In China, we took quick action to support our retail studio on our by offering went subsidy for February and March and launching a tupperware equal help marketing and product campaign targeting eating healthy by even kepware products to Cook at home and the store fated to last longer.
Our self fourth also quickly shifted to the use of our online platform.
And we chat.
Performing product demonstrations and holding cooking classes that helps them the sales declined during the lockdown.
As the quarter progress and China began to emerge from covet 19.
We continue to open New studios.
299, new figures in the quarter.
We did experience closures and lower productivity due to lower foot traffic and consumer spending.
Q1 ended with approximately 6300, Didier essentially flat with the fourth quarter.
Turning now to Europe.
While net sales were down 19% on a local currency basis, the core was only down 9%.
15 million B to B program in 2019 accounted for 10 percentage points of the decline.
And as the impact on Cobot 19 increased numerous countries wind lockdown beginning in March and were unable to ship.
Now, let me try to North America, which was down 11% and net sales on a local currency basis.
In response to multiple state stay at home orders in the U.S. in Canada in March.
Digital and social media training with watched by our self force leaders and the filled to train other salesforce numbers on how to use tools, such as Dan Facebook live and touch special to continue to connect with our consumers and demonstrate and sell product.
We also continued to use our ecommerce platform recently updated in October.
Continue to enable online self.
These actions combined with a responsive sales promotion using excess inventory are showing favorable trends in April.
In Mexico under New leadership, our Fuller, Mexico business, but improved sequentially, but was still down low single digits as lower rep, and rep activity or partially offset by increased productivity and a new merchandising strategy that is showing initial signs of success.
Or also increase production of hand, sanitizers to offer to our self force in response to Kevin 19, and is currently evaluating 80 opportunities for growth.
As I discussed the Kevin lighting pandemic largely effective March results during the first quarter.
While the duration and severity of this pandemic is uncertain, we expect that the second quarter 2020, well have the most severe impact.
Subsequent periods may also be negatively affected.
As I move to discussing earnings I'll talk about the actions, we're taking in response to rightsizing the fixed cost structure of our business.
Let's see expected effect from the pandemic.
Diluted earnings per share, where the 16th that loss compared to earnings of 76 cents and the first quarter of last year.
Current your earnings per share includes a 25 cents impact due to reengineering.
Faulting and leadership transaction transition costs associated with the turnaround plan.
We also estimate the cobot 19 impact to be approximately 24 cents.
The remaining decline was primarily driven by lower so I high fixed cost base, including the SNA expenses at 64.6% itself versus 53.9% in the prior year.
The high fixed cost combined with Cobot 19 impact has led us to accelerate and increase our turnaround plan cost savings program by 50% to 75 million for 2020.
I will talk about specific actions affray update you on taxes and cash flow.
The first quarter tax rate is reflective of losses in the quarter. The majority of which are from countries that had a full valuation allowance and therefore no benefit as recorded.
The tax rate is also impacted by lower profitability year every year from lower cells and data be profit.
One time costs associated with the turnaround plan and the negative covert 19 impact.
The associated tax rate is not indicative of the remainder of the year, which is expected to be similar to 2019 with some improvement.
Cash flow from operations net of investing activity was an outflow of approximately 55 million, which was consistent with last year and inline with the traditional seasonality of our business.
We continue to identify opportunities to improve our working capital.
And for inventory, we're now utilizing excess inventory globally.
Versus regionally to provide fresh products to each market to increase cells and lower our inventory balances.
We're also accelerating opportunity to sell real estate in Orlando and across the globe to focus our attention on our core business and improve our liquidity position.
In February we received the support of our bank rate to amend our credit agreement.
To modify the consolidated leverage ratio in exchange for additional guarantees and collateral.
When you consolidated leverage ratios are less than or equal to 5.75 times and the first and second quarter of 2020.
Less than or equal to 5.25 times and the third quarter.
And less than or equal to 4.5 times in the fourth quarter.
We ended the first quarter with in our revised covenant, if the debt to EBITDA at 5.36.
Further to enhance our liquidity and provide additional financial flexibility at the beginning of the second quarter on March Thirtyth, We drew down 225 million under the credit agreement 175 million of which was drawn as a proactive measure given the uncertain environment, resulting from the cobot Nike.
Good luck.
The remaining amount of 50 million was drawn for customary working capital needs during the second quarter at 2020.
Now more detail on the turnaround plan.
Specifically cost reductions and organizational design.
And our 2019 10-K, we communicated that we had reassessed our transformation program I would now spent 50 million to drive a 100 million and savings by 2022.
About half of the savings that come from streamlining the organization with the other half from globally, leveraging forcing procurement and manufacturing.
We anticipated that 15 million of the gross savings of 100 million would be in 2020.
We take our first organizational actions in January reducing head count contributing 15 million toward the target.
At the direction of our new leadership team and due in part to the impact of Kevin Knight team, we have to further enhance the program and now referring to it as the turnaround plan.
And had accelerated and increase the expected savings in 2020 by 50% to 75 million.
We are committed to executing the necessary cost reduction and organizational realignment in order to stabilize our core business and reduce fix cost.
On April night, we announced the execution of the first steps the planned realigned that at the company separating the commercial functions for the back office functions, allowing our commercial organization to focus exclusively on driving self.
The top four markets, Brazil, China, Mexico, and the U.S. in Canada market now report directly to our CEO Miguel Fernandez.
While the remaining markets will be led by our new worldwide commercial president.
Patricio Cuesta.
We will also ever see the sales and marketing activity for all of our countries.
In addition, operation function, including manufacturing distribution procurement research and development and customer care had been a line under our new C O Bill right.
To improve operational efficiency and customer service experience.
And lastly, the department of Finance human resources in legal are now centrally reporting versus reporting to individual markets to ensure standardization.
Improves controls and improved efficiencies.
We expect the full impact of these changes to be implemented and the second half of 2020.
Now to covert my team.
As I just mentioned we've increased our 2020 savings plan by 50% partially attributable to the impact of ourself from Cobot 19.
The incremental actions we've taken in response.
Or the elimination of non essential operating expenses and capital expenditures.
Including the continuation of a discretionary spending and travel free that began in Q4 2019.
We've also suspended the corporate and unit merit increases globally.
A salary reduction of 20% for the company's CEO Executive Vice Chairman commercial President and COO for the second quarter.
Additionally, a 20% reduction in our board of directors cash retainers for the second quarter and waivers of certain other board fees.
And we've taken temporary furloughs leave without pay a reduction in wages across corporate factory and market level associates globally.
Turning now to our upcoming debt maturity.
We have approximately 600 million of senior notes outstanding, but the maturity date of June 2021.
We are proactively working with various financial forces and advisors to evaluate our options to address our liquidity and cash flow needs relative to this maturity.
I'll now turn the call back to rich the close our call rich.
Thank you Sondra. This is a pivotal time for tupperware brands and together with our board and our CEO. We believe we are quickly addressing the company's most pressing needs improving the cost structure, improving liquidity and implementing initiatives that will result in growth.
This company is special it has an iconic brand we loved by consumers around the world and we believe is poised for a dramatic turnaround.
Our goal is to reposition the company we've been realistic growth strategy that will enable our beautifully designed easy to use and environmentally responsible products to be more consumers' hands than ever before.
We're excited that we are already underway in this need to turnaround. Thank you.
Thank you back inclusive these conference. Thank all for joining you may now disconnect.
Oh.
[music].
Oh.
[music].
Yeah.
[noise].
[music].
[music].
[music] [noise].