Q3 2021 Tupperware Brands Corp Earnings Call
Good day and thank you for standing by welcome to the Tupperware Brands Corporation third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. Just a question during the session you will need to press star one on your telephone if you require any Florida assistance. Please press star zero.
I'd now like turn the conference over to your Speaker today Alexis Callahan. Please go ahead.
Thank you operator, good morning, and welcome to Tupperware brands third quarter 2021 earnings Conference call.
Joining me today, I'm, a gal Fernandez, President and CEO, and Sandra Harris, CFO and C. O M. We will all be available for Q&A following our prepared remarks earlier.
Earlier. This morning, we issued a press release announcing our financial results for the third quarter of 2021, which is available on our Investor Relations website.
Let me remind you that the following discussion and our responses to your questions reflect management's views as of today November 3rd 2021 and May include forward looking statements actual results may differ materially from such statements.
Additional information about factors that could potentially impact our financial results is included in our Form 10-Q for the second quarter of 2021 subsequent filings with the SEC and in our press release filed this morning.
Please review the forward looking statements disclosure on page three of today's press release.
Please note that any references to net sales today is being made on a constant currency basis, which reflects the application of current period foreign exchange rates any prior period results, enabling comparisons excluding the impact of foreign exchange rate fluctuation.
During this call, we'll discuss certain non-GAAP financial measures. Our press release issued this morning, and our filings with the SEC each posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.
Finally, a replay of this call will be available on our Investor Relations website later today.
And with that let me turn the call over to you Miguel <unk>.
Thank you Alex and good morning, everyone.
Our six quarter of consistent successful execution against our three year turnaround plan. We're now at the Midway point and are building a solid foundation for sustained growth and expansion.
Let me summarize our strategy for those of you who are new to the top of word turnaround story.
Our strategy includes fixing our core direct selling business, while building an omnichannel consumer product companies.
We're doing that by creating sub brands that will enable us to strategically merchandise and price our products minimised.
These two critical for.
Our iconic products wherever they choose to buy.
2020 was a year of stabilization. This year 2021, as the foundation years, where we continue to fix our core business.
The foundation to invest in the Omnichannel opportunity.
We will talk more about this opportunity to me next year 2022 will be the Europe expansion, where we really begin to enter new channels and product categories and in 2023 and beyond we will accelerate those efforts for long term sustained growth.
During the quarter, we executed on several high priority strategic initiatives that will improve our capital structure and position us well for the future.
We will get into more detail on each of these later in the call, but it's a high level and fluid.
Progressing on divesting of noncore assets, including our beauty businesses in excess property holdings, enabling us to focus more time and resources on growing our core tupperware brands.
And utilizing our recently authorized share repurchase facility to buy back 1 million shares during the third quarter accelerated returns to shareholders.
This action will support our turnaround plan.
And our important components that will enable us to grow expand and ultimately achieve our long term strategic goals.
As you can see in our press release, our results have been adjusted to reflect the discontinued operations of our beauty business.
Our results our net sales of $377 million reflects our core tupperware business, which declined 13%, primarily reflecting difficult comparisons from 2020, along with coffee related market closures in 2021 and disruption in our U S and Canada business due to the implementation of a new technology.
Platform.
From an earnings standpoint, our adjusted EPS of $1.19 reflects our improved cost structure, our new tax strategy that Sandra will describe later on the call.
And during the quarter, we knew we were up against tough year over year comps remember we grew 21% in Q3 of 2020.
Yet our team executed well the prior year period benefited from an increase in demand from shifts in consumer behavior as multiples were under lockdown and adjusting to working learning and eating from home.
Now that several markets have begun to open up mostly the U S and Europe, we've seen a reversal of that trend as consumers are excited to get out and go places again on shopping in more traditional retail channels and we believe this trend will continue.
While some of the markets have begun to open up others have gone into strict or mandatory lockdown in response to covert a resurgence in many regions, especially in Asia Pacific and Latin America.
This was kind of significant impact on recruiting efforts and overall productivity given the restrictions of personal gatherings on opportunities to directly connect with the brand.
That said, we believe this headwinds are transitory in nature.
We'll begin to normalize in the near to medium term.
So I will talk about later, we are working to reconnect with our salesforce and give them tools and support they need to be successful in any market environment and because these headwinds had the most impact on our direct selling business into three reporting we believe the hours charted to diversity.
It into multiple channels, because we have all of our business is being directly validated.
We believe that our turnaround will not produce linear results as evidenced by the third quarter, but that over time, both top and bottom line will improve as we implement our growth plans.
Not that we are six quarters into our three year turnaround plan. This midway point feels like an appropriate time to summarize the progress we've made over the last 18 months in short.
The company was in a very different place in April of 2020.
Quite frankly, the business was not doing well and we needed to make major changes to keep this iconic brand to float the solution was to execute a full turnaround over the entire business.
We did this by right sizing our cost structure delivering $192 million savings in 2020, we've created a global business services group to generate operational efficiencies centralizing on optimizing menu of our back office functions with a mandate to improve service and reduce cost refinancing our debt and improve liquidity.
In fact, our leverage ratio so a third of previous levels and capital structure, we made significant progress after selling our sleeping beauty business earlier. This year, we're working due diligently to sell our remaining beauty business and excess land Holdings lastly, we repurchased shares of our common stock.
And I should mention that this was the first time, we bought back shares since 2018, reflecting our belief and our positive outlook of our share appreciation as we execute our turnaround plan.
And restructuring the company from systems, some processes to strategy and personnel.
We've made detailed investments to improve salesforce productivity, we implemented a new salesforce system in the U S. You were in the second quarter given that the legacy system was customized to the needs of our Salesforce for the last 20 years that new technology solution called disruptions from Salesforce in the past few months, we've begun working closer with our salesforce over the past.
Past several weeks and believe it wants to fix the technology will be enabler for our salesforce to grow their business. We've increased our use of data to make better smarter business decisions. We've begun using more data driven approach designed to identify best practices improve our marketing communication upgrade our business intelligence tool.
Better decisions.
Competitive service and costs.
We're also using data driven approach to segment, how we look out over salesforce and customers to personalize the experience they have with tupperware.
That means providing differentiated support service and incentives to all of our Salesforce our customers, ensuring we are adding value as a result of improving retention.
To that end, we've introduced preferred customer loyalty programs in some of our biggest markets such as Mexico and plan to rollout additional markets, including the U S. Soon.
We've continued to innovate and expand product lines.
B sub brands and product categories beyond the kitchen.
Strategy will enable us.
Not only to compete on price more effectively but also to segregate, which products are sold through <unk> channels, helping those many mice channel conflict one of our first sub brands is called Tupperware essentials.
We've recently begun testing consumer's response in Europe through selected retailers. We're also continuing the work of expanding our product line beyond the kitchen.
Finally, we recently received a recognition from fast company for our product innovation.
Specifically for our eco plus to go Coffee Cup, which is made of a revolutionary Copel has materially and our solutions. We're eliminating single use coffee cups. We're also working to improve our service levels.
Servicemen's, serving both our Salesforce and then consumer better given our salesforce the tools they need to be successful in ensuring the end customer has a good experience so services much more than just delivery.
Customer service it is entire customer and Salesforce journey. This effort is a true cultural shift for our company.
One that is necessary to compete in an omni channel business.
In hindsight, that's a lot.
Not even close to the same company that we were 18 months ago and we're proud of the progress we've made.
We acknowledge we still have plenty of work to do but our confidence in our strategy and execution of our strategy has never been higher.
Lastly, we have to recognize that the pandemic.
The ability to gather people and connecting person has been less than ideal.
Four six quarters, the entire time that new leadership team has been in place we have not been able to meet face to face with our sales leaders around the world.
We think that that has a cumulative effect.
Now with vaccination rates, increasing in many regions. The executive team finally has the opportunity to get back to meeting too.
<unk> sales leaders in person.
We're also intend to resume incentive trips and events that were put on hold in the past most of the travel restrictions. This was a portion of our total cost savings. We said, we anticipate coming back when returned to more normal activity.
<unk> business expansion, which is essentially channel expansion and it could be to be loyalty programs selling to retailers and studios and sell them through an important moat.
We continue to make good progress for the year to date period through September.
Business expansion represented 21% of total sale, which is adding critical compared to where we were in quarter two.
Also last quarter, we mentioned that we were looking to entering into the UK.
So I am excited to announce that we just signed an agreement with a large UK distributor, who distribute products of international brands in many of the major retailers in the U K.
That you can market is sizable and we present a larger opportunity for us.
We think this approach will enable us to gain faster traction in this key market.
Expanding to new channels is a key component of our strategic plan will enable us to meaningfully increase the consumer access of Tupperware product. It also reduces the reliance of single channel and therefore is expected to minimize the volatility of our performance during any given period.
Next on our ESG efforts during the fourth quarter, we launched a pilot project with Terracycle slippage in Canada, where we will be providing centers keepers for 515 Cortez locations.
Customer count up to pay a small premium basically a deposit for the centers keeper and if they're returning to Tim Cortes when they're done they will receive their deposit back look then.
Then cleans and returns into the restaurant for future use.
We were recognized in the fast company's first and always still brands that matter, which unresponsive to do more than just selling products or provide services.
Brands achieving of relevance to the cultural impact of social engagement on our authentic communication of their mission and ideal.
It is especially gratifying to be recognized for our purpose and it is indicative of the progress we're making to chart a new path for this iconic brand.
Lastly, we will be publishing our new sustainability report, which include clear ESG goals and targets intended to further demonstrate our unrealized our commitment to our purpose looking.
Looking ahead. It is our goal to be a very different and even stronger company 18 months from now.
Our near term priorities continue to be strengthening our direct selling business through structural service improvement detail on property investment use of data to optimize practices and expanding into new channels and product categories.
We're running a long term strategy strategic plan, our paths will necessarily be linear and therefore investors should naturally expect near term ebbs and flows but longer term. We are confident we will achieve our goals given the power of our brand coupled with our improved liquidity and capital structure.
I am proud of the hard work and dedication of each and every one of our employees and Salesforce members and thank them and thank them for helping us to evolve and achieve a long term sustained growth.
I will now turn the time over to Sandra our CFO and COO to provide a full report on the quarter.
Thank you Miguel.
It is indeed, a significant quarter for the company and continuing to establish the foundation, while investing in the business to prepare for the next six quarters of our turnaround plan.
Before I begin the detailed financial discussion for the quarter I want to address a reporting change that will be evident in the release of our 10-Q.
Because we've either sold or actively working to sell several of our beauty brand the necessary criteria have been met to classify these businesses as held for sale asset and discontinued operations as of the third quarter 2021, and have also been restated as such in the prior year period.
Therefore for purposes of this call our comments will reflect results from continuing operations only.
We believe this is also very aligned with our strategy to focus on the performance of our core business.
Details of the results from discontinued operations will be presented separately in our financial statement footnotes found in our Form 10-Q.
I will note that we did record an approximate 148 million non cash loss within discontinued operations, primarily driven by accumulated currency translations, which is standard GAAP accounting practice.
Now I will discuss the results of continuing operations in the quarter.
Net sales of 377 million in the quarter represents a decrease of 13% compared to last year.
The year over year decline was driven by Lockdowns caused by the persisting pandemic.
Disruptions caused by the implementation of a new independent Salesforce solution in the U S.
And lower productivity caused by higher levels of vacationing, especially in Europe.
We believe many of these headwinds are transitory in nature, but nevertheless, we have re prioritized certain initiatives.
<unk> full support to our salesforce across the globe.
We've previously acknowledged by the third quarter would have tougher comps as compared to Q3 of 2020 that was up 21%.
In the quarter total business expansion or non direct selling business, which includes BTB importers PJM market and other business expansion efforts represented 24% of total sales.
For the year to date period total business expansion was 21% of total sales up 100 basis points compared to the same year to date period through June.
ETB partnership sales in the quarter was 16 four.
Percent total sales.
Historically, our annual B to B cells have been between 30% to $35 million and for this fiscal year. Our goal is to reach $50 million year.
Year to date through September we've already achieved $35 million.
Our BD relationship the portfolio the programs at major retailers, while at the same time, increasing our brand awareness.
I reiterate that expanding into new channels represent a significant growth opportunity for tupperware.
Turning now to self report by region.
In Asia Pacific sales decreased by 15%.
So down in China was driven by Covid lockdowns related to resurgence challenges ineffective and low vaccination rates as well as by studio clothing that of slower pace of new openings.
I should note that we recently made an important leadership change in this market.
We believe China continues to hold significant potential for the temporary brands long term.
Other areas within the region were down 12% in the quarter severely impacted by Covid.
Including by mandatory or strict lockdowns in Malaysia, Indonesia, and the Philippines.
Significantly impacted sales efforts, particularly as digital adoption is low and many of these regions.
We think there is a significant opportunity to improve performance within the region as we focus on increasing digital adoption.
In Europe sales decreased by 20% exclude.
Excluding b to B cells decreased by 17%, mainly due to the timing of the B to B deal in Italy in the prior year that was not repeated this year.
European developed markets were significantly impacted by elevated levels of summer vacationing, which is customary in Europe and likely exasperated. This year, given a full year of travel restrictions.
We also eliminated certain unprofitable promotions this year to continue to improve the profitability of the region.
European and emerging market were impacted by Covid lockdowns in civil unrest, resulting in lower productivity and recruitment, which are natural side effect of such challenging conditions.
In North America sales decreased by 15% in the quarter, while U S and Canada decreased by 20%.
The decrease in the U S and Canada were driven primarily by disruption caused by the implementation of our new Salesforce solution.
We're taking actions to address change management challenges related to the salesforce system, including talking with the vendor and working to migrate personal salesforce ordering sites to a more consumer friendly solution.
As Miguel previously mentioned, we've also begun to take action to reconnect with our sales leaders face to face to understand how to serve them and our end customers better.
Those efforts are healing valuable insight that will help us to improve.
Sales in Mexico decreased by 6% driven by a significant salesforce reductions stemming from service issues during the second quarter as well as lower than expected recruitment data primarily because of restrictions.
We already had a campaign underway to recruit and Reengage yourself force in this region.
And South America sales increased by 9%.
Sales in Brazil were flat, which we view as positive given its cumulative recruitment issues due to COVID-19.
We attribute the relative strength to significant recruiting efforts and the simplification of our Onboarding and training processes.
Argentina was a bright spot this quarter, which we attribute to the rollout of digital training platforms and expansion of e-commerce on a national level.
Overall, we are pleased with our sales performance, despite challenging market conditions, and our ability to continue executing against our strategic initiatives and delivering tangible results.
Moving now to profit.
Gross profit in the third quarter was $248 million or 65, 8% of net sales a decrease of approximately 300 basis points compared to last year.
This was driven primarily by 240 basis points related to higher resin and manufacturing costs and 60 basis points related to country mix.
As we mentioned last quarter, we had anticipated higher resin cost, but we're optimistic that the favorability in manufacturing would continue to help offset it.
However, this was not the case and in third quarter due to lower volumes and higher inventory.
As we look forward to 2022, we will look for opportunities to reduce cost increase efficiencies and opportunistically raise prices where appropriate.
I should also note that we intentionally built up inventory levels. During the first half of 2021 in order to improve service and meet increasing demand.
However, with the higher inventory levels and lower demand in the quarter.
We focused on sell through of inventory and taking downtime where needed in the future.
We do believe that our ability to manufacture locally continues to be an advantage during the pandemic.
SG&A as a percentage of sales in the third quarter was 56% versus 48, 5% last year, an increase of 210 basis points, primarily reflecting higher logistics costs and the investments we plan to make in the second half of the year.
In regard to logistics costs, we have been working to minimize the impact through efforts to improve contract pricing and sourcing opt.
Optimize container utilization and strategically planned shipments.
I'll note that carrier costs remained elevated that extra charges are still in effect and we're seeing a shift in our business model in the U S, where we're increasingly shipping direct to the end consumer versus using the salesforce for fulfillment and distribution.
We do recoup a majority of this cost as we charge for shipping which is reflected in revenue.
As we continue to shift to a more omnichannel approach. We expect this trend to continue therefore, we're working to improve efficiencies in fulfillment packaging and shipping.
Adjusted operating profit in the third quarter was $52 million and as a percentage of sales it was 14%.
Softer than expect itself, our operating margin remained in the mid teens, reflecting the renewed focus on tighter cost controls and a more disciplined approach to investments.
Now to adjusted EBITDA.
It is an important metric and an indicator of progress toward right sizing our cost structure and evolving our capital structure.
Adjusted EBITDA for the third quarter was 69 million versus $100 million in the prior year.
Trailing 12 month adjusted EBITDA through September was $328 million.
Our operating tax rate was a negative 24% versus the same quarter in 2020 of 28, 3%.
This quarter's tax rate benefited from an election, we made my following the 2020 tax return in October to change our capitalization policy, which allows us to utilize previously valued tax credits in the third quarter.
Would have otherwise expired and which resulted in the release of valuation allowances.
While nonrecurring in nature. This valuation allowance release as part of our strategic tax initiatives that we were executing as part of our turnaround plan to help us effectively utilized our existing tax assets and achieve our overall tax rate below 30%.
Now to earnings per share.
Adjusted earnings per share of $1 19 for Q3 versus $1 12 last year is better by seven cents per share.
A favorable tax item just discussed contributed 52 cents of the variance and was offset by 41 cents due to lower volumes higher resin costs and incremental investments and five cents of higher inventory reserves.
We also bought back shares in the quarter, which Miguel mentioned and I will discuss more in a minute that contributed <unk> <unk> per share.
Year to date operating cash flow net of investing with a negative $7 million compared to $108 million last year.
As we've mentioned before higher cash flow last year was driven by aggressive cost saving actions, including Covid specific actions like furloughs and significant lower spending on inventory and higher payables in order to preserve cash.
This year, we've invested in inventory in order to improve service levels given the current landscape of the global supply chain issues.
I'll also reverting to a more normalized level of capital spending.
As I mentioned earlier the investment in inventory with improved service, while mitigating global supply chain conditions.
I should note that our full year free cash flow target, maybe less than $200 million and is largely dependent on the timing of cash proceeds from the sale of our noncore assets.
Moving on to the balance sheet.
We ended the quarter with a healthy cash balance of $124 million, which compares to $134 million last year.
And we ended the quarter with a total debt balance of $678 million.
Our debt to adjusted EBITDA ratio for debt covenant purposes with $2 two eight.
First is $3 70 last year and well below the required covenant of 375.
We will look to favorable market conditions to present opportunities to further improve our capital structure.
As Miguel and I also mentioned, we utilize our newly approved share repurchase facility.
The 250 million that was recently authorized by our board, we repurchased 1 million shares of common stock during the third quarter at an acquisition cost of $25 million.
This was the maximum we can do within our credit facility covenants.
With each quarter of the turnaround behind us our optimism increases regarding our future growth trajectory and going forward. We will continue to be opportunistic regarding repurchasing shares seeking to deploy capital as effectively and efficiently as possible.
Although we focus on the continuing operations for the third quarter net sales from discontinued operations were $45 million or 11% of total net sales and adjusted earnings per share excluding the cumulative translation adjustments from there.
Discontinued operations was three cents or 3% of our total adjusted earnings per share.
For the year to date period through September net sales from discontinued operations were $140 million or 10% of total net sales and adjusted earnings per share excluding the Cta from discontinued operations was 11 <unk>.
Or 4% of total adjusted earnings per share as.
As we continue to make progress and get farther along in our turnaround plan, we want to be sure to share some of our strategies and early successes that are driving our long term plan.
That and we're planning to host an investor day during the first half of 2022 during which we will provide a more comprehensive view into the business strategy and tangible examples of the progress against our strategic initiatives and turnaround efforts as well as provide a longer term framework and outlook look for more details in the coming.
Mark.
We continue to make progress on stabilizing our core business.
While increasing investments in our business expansion efforts and executing on several strategic initiatives that strengthened our capital structure and position us well for future growth.
All components of our turnaround plan and indicative of progress.
Looking ahead to the remainder of 2021, we'll continue to build out our foundation and invest in initiatives that will improve the business and drive penetration into new channels.
We believe our consistent execution will result in a stronger more resilient competitive and durable company long term.
With that let's take some questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we compile the Q&A voluntary.
Yeah.
Our first question comes from the line of Wendy Nicholson from Citi. Your line is open.
Yes.
Hi, good morning.
My first question has to do with the disruption you saw in the U S. In the third quarter and the new platform can you talk a little bit more about that and specifically I'm wondering how long you expect that disruption to last do we still think that your activity is going to be impacted in the fourth quarter into 2022 and sort of what's the goal.
For when that is resolved what what's going to be the fundamental change for the distributor.
Hi, Wendy this may go good morning, So basically there is.
A number of little bugs here and there that prevent.
Our salesforce to get data really passed or to operate the spa.
Beat on them.
And the way they're used to it. So so this system is making them less productive on it just to.
Sometimes it just breaks down and so on but we're fixing every pretty much every day little Bucks here and there, but we expect that during this quarter everything is going to be up and running.
Actually at the end of the quarter as I said in my in my comments, we're going to end up with a much better system that he's gonna enable salesforce to grow in.
There's a lot of positive sides of the system is just the implementation.
Forget for sales for 2022 from business expansion and and also are you going to at some point disclose it I know Thunder Youre doing a great job of telling us a percentage of sales and all that kind of stuff, but are you going to disclose sort of quarter to quarter I'm not only the revenues from business expansion.
Sort of on a global basis, but maybe also some profit dynamics for that business. Thanks.
I'll start with the last part and then I'll, let me get him to come back in on the business expansion. So yes, we.
Reported for quite some time the revenue impact in relation to our business expansion and then you know just to remind everybody too we have the BW programs, which is the $50 million, we're talking about which is a loyalty program that we also now have the importers. We also are putting our studio markets, which are China Vietnam.
And India, and Korea, and and so as we get into next year and start to really formalize. This process. Yeah. We will we will be reporting more on the business expansion and can talk more about profitability in those channels and I'll just reiterate that what we're looking at in regard to business expansion on an overall return on sales basis, it's always accretive or at best equal to what we have today.
Hey, and that's our goal. So we will continue to report the differential between our direct selling business in this new business expansion as we get further along next year, yes.
So coming back to the first part of your question around the $50 million that we're going to we're going to hit this year you should know that most of it is in Europe, which is where we started.
Couple of years ago with this afterwards.
Right now in the last quarter.
The b to B business represented 10% of that.
The sales to Europe, and we didn't see any any conflict with the direct selling channel, which is great news for us in terms of.
New markets. We started this year with opening up these efforts in tea in 10, new markets. So you might take a little bit of time to start getting into interesting numbers, but if you were to ask me. Obviously, we don't we don't you know obviously offer any any kind of guidance, but you should expect.
Same same amount of total dollars of increase year over year at least so if we grew 20 $25 million this year.
Safe to assume that you know another $20 million to $25 million for next series.
It's pretty much in our plan.
Terrific. Thank you so much I appreciate the color.
Our next question comes from the line of Doug Lane.
Lean research your line is open.
Yes, hi, good morning, everybody.
Staying on the B to B business in Europe.
I get the channel you want to pursue because its sales and profits, but historically, it's been such a lumpy effort that it really impacts year over year comparisons in any given quarter. So I'm wondering if you've given any thought to how you could possibly smooth the contribution to your business from the B to B efforts.
So so hydro how are you this may go.
So the Lumpiness that you saw in previous years is because.
We as a company consciously stopped a diaper one years. So we decided one year to have it the next year.
Stop it and so on in an effort to.
Minimise channel conflict, but we didn't see that.
Our sales leaders around Europe understand that this is something that is going to keep them going and let's face it the theirs.
There's I guess market conditions on in a few countries in Europe. This is this is sustainable and is it going to continue to grow.
Okay Fair enough and then on the go.
The project would loop, which is very interesting how does that work is there going to be some sort of a one time sell in here, that's going to impact any given quarter and then how does how does that then translate into recurring sales with Tim Hortons for instance.
Yeah, so Doug poorly, but we do as we sell into them and then they have the relationships with various people like 10 important which actually its launch and the way. The program works is that if you're important you put down a deposit for our sandwich keeper and after you finish your either eating into the store you can get your deposit back or once you come back to the store and you return it.
They actually have some vending machines I've seen where you can also have to return it and get your deposit back and then what happens is that product those back to live he was sterilizes it cleans it and send it back to the Tim Hortons stores. So that's how the process works. There is a continual for punishment, if our product into analytics by US and then they work with the the different and restaurants and other.
Vendors of choice and so that's how that process would work is currently in the pilot stage and in Canada, and we do have a few pilots going on in other parts of the world at this point too.
Yeah. It doesn't turn will there be oak sale.
Go ahead.
No I think youre about to answer my question.
Yeah, so in terms of sales.
To US is this is this is very important because it's part of our brand and our brand activation on what what is relevant for the world to me.
We want to be obviously irrelevant on the consumers around the world conscious about sustainability.
And so on.
So this is going to put us in the heart of you know the new generations.
We're looking for and what they are aspired to get on and relate to our brand. So so even if the sales are not as big there. It's gonna have bring a lot of halo effects and to the other channels and that's something that it's obviously, it's hard to quantify but we're gonna do as Sundar said, we're gonna do as many of these partnerships as possible.
Around the world.
Oh, no I get that I think what I'm looking for is for.
For a new account like loop or get the new account on their end and Tim Hortons is there going to be a one time sell in that'll be meaningfully impactful to any particular quarter or how does that work.
Yeah. So Doug again, that's part of our business expansion efforts to start to bring that more to light I mean at this point. It is a pilot and so you know again, it's more around our purpose and our brand awareness with it with a different generation. It will be part of the business expansion numbers that we will produce going forward.
Yeah.
Okay, and then looking at the.
Judy businesses, where hum.
In the discontinued operations and you mentioned that we.
We added 11 cents to earnings so far this year and then we know from today's release they were they had.
At eight <unk> last year in the third quarter. So just a.
Couple of questions. One what was the EPS contribution from the beauty businesses discontinued operations in 2020 and are you going to provide detailed pro forma was for us to be.
We build our models.
Yeah. So the discontinued operations in our Form 10-Q, so you'll be able to see all of the information related to the beauty businesses you know it.
It ultimately.
Also had a loss that was generated by that but to answer your question on ECS and the prior year. The total discontinued ops compensation was nine cents on a overall basis and just to remind you that the actual EPS hit for this this quarter with $2 and 77% negative that has a a loss that we have on a C. T a that carry for them.
I will emphasize Doug the intent here on the BT businesses, we've been very purposeful that and we're going to focus on our core business in our core businesses Tupperware and yeah. We clearly have had that as part of our strategy and the non core assets were part of our ability to turn our focus back to growing and improving our core business.
And that's why we have moved forward with the divestitures of these assets.
No. It's all it all sounds right on strategy. It's just I'm trying to get you can get access to that the new numbers here are from continuing operations. That's all and just lastly for perspective again I don't know how much.
I don't want to get too too much in the weeds, but but if you look at two years ago.
A lot of our direct salaries, you're growing your jobs going up against very tough comparisons in the third quarter of 2020, so we'd like to look at where we are versus the third quarter of 2019, just to make sure. We're still ahead of the game. So.
The continuing operations number of $376 9 million in sales higher than it would've been in the third quarter of 2019 I assume it is.
Yeah.
We looked at the two year stack and on a two year stack basis, the third quarter and others may have beauty and it the beauty is that going to move the meter very much we're actually up 1% on a two year stack.
Okay. Thank you.
Again, if you would like to ask a question press the star one on your telephone. Our next question comes from the line of Linda Bolton Weiser from D. D. A Davidson your line is open.
Hi.
So saundra you had talked about kind of hoping that EBITDA could grow on an adjusted basis in 2020, one, but I haven't done all the math with the fourth quarter and everything but are you still thinking that EBITDA could be up slightly in 'twenty, 'twenty, one or or not.
Really.
Well, our current 12 months EBITDA at that 301 to.
We're making a lot of progress R. R.
It off for this quarter with a 69 million. So yeah, we're still confident with what we've been saying in regards to EBITDA.
Okay, and then and let US sorry, I can give you that number compared to last year or two on the full year basis 2020 the.
12 month, EBITDA was 234, but pretty I want you know we're already ahead of that.
Okay.
And.
You had you had mentioned something about cash flow being less than 200 million, but I think you were including the proceeds from sales and things like that can you give some commentary about your expectations for free cash flow, meaning operating cash flow minus capex for 'twenty two.
Anyone.
Yeah, So our operating net of investing.
Yeah. We originally came out with 200 million Q3 did prove to be a challenge. It was it was $100 million lesson largely that is related to inventory and timing of payables and accruals.
We intentionally built up our inventory as we saw the higher demand and also the supply chain challenges that existed across the world, even though we were able to share a little bit better with their own internal production. We purposely built up the inventory for service as well, we really needed to improve our service. So you know what at this juncture. It looks like we may not make the 200 million.
And unless we can make significant impact on the inventory reductions we're doing that in two ways. One the commercial teams are actively focused on inventory opportunities in the fourth quarter to sell through some of that which would improve cash flow and then we also are taking selective downtime in our factories to try to also mitigate the inventory that's where the challenge comes in on helping to offset that.
And caustic has obviously they take downtime, there's a cost of doing that but it's a good tradeoff in relation to where we are on inventory.
So with that if it's a sale of the noncore assets come in yeah. We do feel there will be more in the range of what we originally said with the proceeds from the sale of the noncore assets, which includes both Atlanta and the beat.
However, the timing of the beauty business is much more that they will slip into the first quarter, just due to timing related to regulation.
Clearance.
Okay.
Yeah.
Okay and then.
You have you mentioned something about Mexico, something I didn't quite catch something that impacted the business in Mexico can you give a little bit more color on that and when you think things will be more normalized there.
So so basically Mexico, and Brazil have similar stories and it's it's coffee covered related it's impacting our recruiting efforts. Obviously is temporary on on when we see you know our sales coming from different tenures of distributors, we see that the that the soft softness is coming from.
The newer ones, who are the recruiting on people.
Just joined the business.
But we feel comfort about the future because the people that have been with us for over six eight months.
Still the same number or better numbers and with the same productivity. So it's a so it's covered related on recruiting.
So you think it'll be a little bit better in the fourth quarter or is it still going to be impacted.
So so it's it is guidance.
And we're not giving guidance, but are you can you I mean you can.
You can I guess throw the draw the picture because.
You know, obviously, you suffer a little bit in one quarter and recruiting and then you know it takes you know a.
A few weeks or a few months to recover but overall you know, it's a small percentage of the overall business.
Okay.
And then I'm sorry.
Well you have talked about these incremental costs in 2021.
And some of that had to do with supporting the business and the growth, but now that you've had these COVID-19 shutdowns I would think that some of that funding has not come back.
So can you talk about for 2022 are we looking at more costs coming back and these trip costs that are going to resume is that starting in the fourth quarter or is that going to impact mostly 2022 in terms of the incentive trip return.
Yeah, So Linda let me clarify two different types of costs right. We said that we had a roughly 25% of the turnaround savings, which was about 48 million that number is absolutely not affect your weighting. This year because of the continued COVID-19 restrictions, especially in places like APAC and the Americas were you know continued travel is restricted so yeah. We've stayed home.
A lot lower number on that we are seeing now more and more requests there's a huge desire to start to assemble in person and have physical connection again in our business and so we're seeing a lot of our businesses ask for that support going into 2022, so that that number will shift more into 'twenty 'twenty. Two there's been a you know a small percentage of that that we have done in locations that where we can.
Can have and some travel or meetings and and so some of that's come into the third quarter and a little into the fourth quarter, but most of it will shift into next year.
Also mentioned that we were adding an incremental 35 to 40 million of investments. This is largely around our tax initiative, our infrastructure cost and then some of the investments, we're making in product and business expansion and we are on target and we all talked about that being back half loaded them. You know we are on target and have been spending to those levels.
And so we do anticipate that that that 40 million will flow through this year, but just to remind you on the tax piece of it you know that's largely a one time cost that was there to help us to achieve that 28% tax rate that we're looking to be able to accomplish by the end of next year.
Okay and then.
In terms of your gross margin being impacted by inflationary costs et cetera.
Are you considering price increases I've always thought the direct sellers have maximum flexibility on implementing price because you control your channel. So how about taking some price to be able to up that some of these pressures.
Yes, absolutely. So we will be looking to take price and that is part of our plan. We have taken some pricing as you know we talk about it in our Q. So we've had some opportunistic pricing this year, especially in more of the inflationary markets that with the you know higher cost of resin and now with yeah.
So less of an ability to help offset that manufacturing or would be looking to take further price increases as we go into next year.
Okay, and then I'm just just a quick question about the U K I mean, you did mention that these alternative channels are probably equal or even higher in operating margin.
But the U K.
Using a distributor and you're giving away some margin. There so is that going to be kind of lower margin than the rest of your European business.
I can start with that and again I think I meant yeah again again, you know as geography right. So yeah on the gross margin of it it could be different but we don't have all of the conditions and promotions and things that we're doing a direct selling business. So once again I keep pointing everybody to the overall profitability of the business expansion and in the cases, we're looking at them.
We're looking to do it it should always be accretive for us to move forward and so right now I'm on the operating income we talked about being in the teens is kind of a great place to be even on the lower revenue. We are confident of the R. O S.
Remaining in that that mid teen area and the initiatives that we're talking about with the U K or any other business expansion is either equal to that are accretive at an overall basis.
Okay and then my final one has to do with your share repurchase.
So when does that really low like when can you spend another 25 million can you do some repurchase in the fourth quarter or like how does that work with the timing of being able to do more.
Yeah, so under our current lending agreements yeah, we were able to do the 25 million and then the next tranche comes in once we paid down an additional $50 million, which would be available with the noncore asset sells a part of it we've already paid down based upon the prior pay downs related to the noncore assets instead of the way that it workspaces.
It's a combination of one how much we pay down into our leverage ratio, so where we sit right now is at our current leverage ratio with a you know the potential pay down that could come from the sale of the Orlando land, we would have it up to an additional roughly 30 million that we could do under the current agreement at the current leverage ratio.
Okay.
Okay. Thank you very much.
Hey, thanks.
Okay.
There are no further questions at this time now I'll turn the call back over to Miguel Fernandez for closing remarks.
Thank you I'm proud of how our ability to post solid results in the quarter, while we continue to invest in our ongoing three year turnaround plan.
Executed on a number of high priority strategic initiatives, including progress towards divesting noncore assets and implementing new tax strategies.
Well as in many other areas of the business. We're now at the Midway point of our turnaround plan.
Building, a strong foundation that we believe will strengthen our business and make us more efficient and resilient for the long term.
We acknowledge we still have plenty of work to do but our confidence in our business outlook, our strategy and our ability to execute on that strategy has never been higher.
Thank you for your interest in Tupperware today, and see you next time.
Yeah.
Yeah.
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Okay.
Yeah.