TUP (2020 - Q3)

Ladies and gentlemen, thank you for standing by and welcome to the Tupperware Brands Corporation fourth quarter 2020 earnings conference call. At this time, all participants are in listen only mode. After the speakers’ presentations, there will be a question-and-answer session to ask the question you will need to press forward on your cell phone. Jane Gar

Welcome to Tupperware Brands Fourth Quarter 2020 earnings conference call. With me on today's call, our Miguel Fernanda's, our president and CEO, and Sandra Harris, our chief financial and operations officer. Earlier this morning, we issued a press release announcing our financial results for the fourth quarter in the December 26, 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 SEC 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 Gap and adjusted measures can also be found in our press release. Any reference to sales in this discussion today is referring to local currency sales, which compares results between periods as if current period foreign exchange rates had been the exchange rates in the prior period. You can access the release and our forward-looking statement language through the investor relations section of the company website, where you can also access a webcast replay of this call later today. I will now turn the call over to Miguel for his remarks.

Thank you. Good morning, everyone. In 2020, we started down a path to modernize the company. Let me summarize key points for us. In 2020 we write for our business with gross cost savings in excess of one hundred and ninety million. We revamp our leadership team and reorganized the company. We strengthened our balance sheet, improved cash flow and restructured and refinanced our debt. We initiated a new growth strategy to unlock the power and consumer acceptance of our brand. And we start executing on our new defined purpose to nurture a better future. Every day put in our environmentally friendly with usable message front and center. As a result of this performance, we have now achieved two quarters of improving performance on our way to turn around the company. With sales growth of 20 percent in the last two quarters, we will if we change the negative trends of prior years. covid-19 Mussulman expected discussion that we'll have to deal with in 2020 on the negative side, we estimate a negative topline impact of about 62 million due to force closures and other restrictions. But on the positive front for us, we see a new consumer trend emerge around the world in 2020. More people having staying home due to a pandemic which led to more cooking at home, more time in the kitchen, more of an awareness and awareness to prepare food, minimize food waste and decrease their use of products made with single use materials to promote products where a solution to this consumer needs to overcome the restrictions related to the global pandemic. Or Salesforce accelerated their adoption of these.

Thanks again to our turnaround plan, accelerated as we move through 2020 and is now well underway in 2020. We established a firm financial foundation by rightsizing the cost structure, refinancing the 20 21 debt obligations, improving liquidity, centralizing the finance and accounting organization, and strengthening our control environment. Our fourth quarter sales improved 20 percent compared with last year. The majority of our markets posted improved sales in the quarter. North America increased 50 percent, South America increased 55 percent, and Europe increased eight percent. Asia declined in the quarter, down five percent. China was a major contributor. In the last three months, we have established new leadership in strategically important markets in Asia that we believe will drive future growth. The year started with weak sales trends from 2019 carrying into the first quarter, coupled with the most significant impacts of covid-19 resulting in sales declines in the high teens for the first quarter and a second quarter. With high single digit sales declines in the second half, the pivot in the business was evident with growth of 20 percent in both the third and fourth quarters, finishing the year three percent higher than 2019. If you exclude the net, negative impact of covid-19 revenues would have exceeded the prior year by seven percent. We believe this performance is evidence that the actions of our turnaround plan are beginning to take hold.

Thanks, Sandra. Today, we also know, is the appointment of three new board member’s effective March 15. We're excited to get these new three members whose experiences we believe will improve our ability to successfully execute our three-year growth strategy. I will now turn the call back over to.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please, press star, then the number one on your telephone keypad again to ask a question, please, press star, then the number one on your telephone keypad. Your first question comes from the line of Linda Bolton Weiser from D.A. Davidson, who asks her question.

Hi, how are you? Congratulations on a strong quarter. I guess my first question has to do with top line growth, which was very strong in the quarter, and it did exceed our expectations. However, it did slow a bit from the third quarter and it looks like mainly Europe was the area where the growth actually slowed. Can you talk about whether that was pandemic closures or any particular market in Europe? And also, Asia was a little was kind of person in the third quarter as well. So, was that something other than China in Asia? Thank you.

I want to thank the Sandra so for Europe and the difference between Q3 and Q4 was predominantly related to B2B business in Q3 we had almost 11 million dollars of B2B. That did not happen in Q4. And so that's the largest difference in Europe. If you actually looked at the core business, the growth was relatively the same and the profitability also improved in Europe. And then, you know, for APAC and maybe I'll let Miguel expand upon what we're doing there. Yes, China had an impact, but we still do have some continued challenges and other parts of Asia specifically, you know, in Indonesia and in both locations, you know, we've made strategic choices on leadership. So I'll turn that over to Miguel to talk about what we're doing in Asia or how India.

So as a center was saying, you know, we're facing challenges in various markets in Asia-Pac. We recently announced leadership changes pretty much in the biggest markets in Asia-Pac. I think there were four of them were five of them. The other big market got impacted by covid was the Philippines because, you know, we have a major a retail type of model. And those are the ones that got hit greatly by my covid. But other than that, were consistent with our strategy of under one that we've been talking about, on the one that we have in other countries that we know that are working, which is we have the right players so we can execute appropriately in those countries.

Okay, thank you. And then can you just talk about I mean, you've talked about kind of going a little bit more to a good, better, best pricing strategy to capture more consumers. Are you implementing that kind of starting out in 2021? And if so, you know, would that be expected to impact gross margin in 2021? You had very good gross margin performance, you know, here in the fourth quarter. So, kind of what can we expect along the, you know, in that line in 2021?

So we already we already started with some pilots around the world, and we've seen a lot of positive momentum and positive response. Obviously, in some cases, the gross margin gets a little bit lower, but we've been able to offset it even more with a higher volume. So one important factor is that the sales force ends up making, you know, a lot more money than, you know, with the same amount of evidence, which is which was key for us. And with achieving, you know, this new price points were actually becoming more relevant because our products are getting to more consumers in in every single experiment or pilot that we did around the world. So this is something that got us very excited and we're going to continue to do and obviously we're learning through the past, but very excited with that, with a pilot that we've run so far.

Okay, thank you, and then you've done really great on the cost reduction in 2020 and your margins have come around very nicely, really across the board. Are there additional actions that you're looking at? I mean, you've talked about being able to maintain margins kind of going forward, but are there additional actions that you're kind of looking at longer term? And are you looking at more like ongoing productivity or maybe another cost reduction program or what's kind of the thought there? Thank you.

And so, Linda, you know, when we talk about is that 75 percent of the cost savings would carry in to 2021 and annualize, the other 25 percent were largely related to the furlough programs and other, you know, reductions in travel and incentive trips and things of that nature that will start to come back on as we start to see some relief from covid. So we did assume that 25 percent of that would come back into the business as costs for 2021. The other thing that I think we've reiterated is that we do need to invest in the business. And so, you know, our intentions are that we're carrying forward that cost savings and that future investments that we're making in the business. And we do need to make investments in our continued digital strategy. That's really what contributed to the growth in the quarter. And for, you know, quite frankly, the last half of this year know we have investments that we want to make to continue offering great products that excite consumers. And, you know, we'll also be working through other investments that are, you know, focused on this new business expansion that we're working on. With that said, we are very committed to continuing our efforts. We realize that the percent is still very high. And so, you know, we're continuing to focus on leveraging throughout the business where we can. We have a global business services initiative that we've been working on as we started to separate the back and functions from the front end function. And we're starting to stand those up in three different geographies around the world. And we do expect that we'll be able to, you know, scale the organization at a more efficient and effective cost and leverage costs across the board. We also know that we had challenges this year in supply chains. So we're committed to, you know, to the extent we can, the whole world is being impacted by the FedEx surcharges. And so, you know, those types of things we can't necessarily affect. But what we can do is become more efficient and effective within our distribution footprint, within our manufacturing footprint. And we'll continue to look for opportunities to optimize in that way. The other thing and, you know, I'll see if they want to expand on it further. But, you know, we're also looking at segmenting our customer set. Right. And offering different promotional cadence between a preferred buyer is versus a business builder. And that will also have an impact on our margins as we offer different promotions to the different segments of our business. Miguel, do you want to expand on that?

Yeah, everything is based on of our segmentation strategy with the use of data. We're, you know, understanding who's here for the business and who's here for the product. And with that knowledge, we've been able to segment the promotions, which obviously the return of those two businesses we hire. So you can argue that a good way to lower as you age is by increasing the top line and being more of a lot more sophisticated in the promotional strategy that we're carrying around the company. And that's again, that's one of the things that I've been getting a lot of traction and we see a lot of promising results in the initial efforts that we've done around the market.

And then, Linda. One final comment. You know, historically, we've noted that our B2B businesses are more profitable. And, you know, as we move toward more business expansion in our business, you know, we do anticipate that in general, both would deliver a higher margin.

Great, thank you. And then finally, do you have an outlook for your plastic resin costs in 2021?

Yeah, we are seeing some slight increases and rising costs and we anticipate that we can offset those through other cost savings throughout the supply chain and or through pricing in specific markets, the relatively small single digit increases that we are seeing some increases in.

Your next question comes from the line of Steve O' Hara with Sidoti & Company. Your line is open.

Good morning, thanks to questions. I was hoping just in terms of the free cash flow outlook for next year, is that just to make sure I understand what you're including in that it's kind of operating cash flow and then, you know, any disposal's on property and so forth, less capex with the calculation is.

Yes, the free cash flow is our operating cash flow net of investing, so it would include all the cash flows coming from operations. And then, as I noted in the commentary, we do expect to return to a more normal capital expenditure level. So, you know, we spent roughly 28 million this year and we intend to go back to somewhere around 60 to 70 million in 2021. But yet we still do believe that through our continued work on working capital and also through the growth of the company and the operating cash flow improvement that we can deliver in roughly around where we ended this year, you know, that 200 million range.

Okay, and then just on the you know, the outlook for divestures things like that, I mean, what are you baking in next year for that or for this year, I guess, for on that line?

Yes, I'll reaffirm our commitment, I mean, we want to focus on our core business, so, you know, we made the announcement that we successfully invested in 2021 of aversely. We continue to look at all of our non-core assets, even our real estate, which will continue to make efforts on you know, we have learned that obviously it's unpredictable as to when transactions can close, especially in a covid world. There's a lot of, you know, administrative work that delayed timelines around those. And so, you know, at this juncture, it's still part of our strategy and our goal that we that we haven't necessarily predicted the timing around the remaining sale of the land here in Orlando, nor future divestitures.

Okay, OK, that's fair. And they want to jump back to the unallocated expenses. I think you laid out what was in there, but can you just remind me, just on the cost that it looks like, you know, thirty point three million and that's up, you know, obviously, but almost 3x from last year. And I'm just kind of curious what what's in there exactly. And I mean, is that what's going to think about unmelted going forward?

Yeah, so one of the largest components here every year of that is that, you know, obviously based on the performance this year, we are able to pay out our annual incentive program, which is something that hasn't been done in over two years for Tupperware. So know, the performance became evident during the second half and we had to modify quickly our reserves, which is why there was a 13 cent impact on EPS in the fourth quarter of this year versus last year for that annual incentive plan. So that's probably the biggest increase. We have made investments in more in the unallocated area as we separated the back end from the front end. So you heard the announcement of a commercial like Patricio and Hector. And so we are building, you know, centers of excellence around digital and other items that would fall in that allocated. But over time, that cost would come back out of the markets as we work on a more standardized approach for that. So those are really the two biggest components, I think, in an allocated and, you know, we hope and anticipate that our annual incentive plan continues. And obviously, on a go forward basis, that would be built into our 2021 year numbers as we develop that. It was just something that was not expected as we entered into this year. And so it was a delta.

Okay. OK, and OK, so, yeah, I mean, I guess he does it makes sense to think about that line as a. Percent of settlor segment profit. You know, I mean, EBITDA, two million in nineteen sixty four. I mean, is something kind put in the difference? You know, maybe the better way to think about it in terms of, you know, if results improve in twenty, twenty one, you get more performance based comp and things like that and growth initiatives is that, you know, maybe not as high as this year because of the sixty-four step up or the accrual was behind.

Yeah, I mean, I can tell you that traditionally, you know, obviously we recorded the unallocated as a Tupperware method, I would tell you that my focus is more on the DNA since the majority of that unallocated sits in our DNA. No. So the fact that, you know, this year we continue to improve our DNA, you know, for the quarter last year, was it fifty nine point three percent, we dropped to fifty four point one percent. And then, you know, and for the full year, we've also had improvement from fifty-five point six to fifty-four point five. So again, we've acknowledged before that being in that 50 percent range is not where we'd like to be. So we'll continue to make efforts on that and allocate it is a part of that. And so we're balancing this now on a global basis versus where in the past year that an allocated was largely what was considered worldwide. But we're looking at it from a holistic global perspective of continuing to optimize our cost.

Okay, and I mean, you know, you know, you said, you know, 50 per cent range isn't where you want to be. Mazher, what's kind of the long-term thinking around where that would get to? You know, of everything being, you know, you hope and the you know, I don't know if, you know, peers or your range peers are in, but I mean, is there a way to think about that longer term? What level that I could get to?

Yeah, and I think I may have said in the past, but I mean, over, you know, three-to-five-year period, we anticipate that we get into the 40s. That's where we would like to be and not hanging out in the 50s. But we are going to reinvest in the business. And so we're trying to balance that as we reinvest and make those digital investments, the investments we're making in the segmentation work. And so, you know, we would like to be in the 40s over our strategic long term plan period. But we're going to balance that so that we can continue to grow this business on the top line.

Okay, great. And then maybe just found the I think last quarter, you guys noted some supply chain issues, but I didn't hear I mean, it sounded like, you know, you guys fulfilled the backlog in North America and that was a boost. So did something happen kind of intra quarter that relieve those issues or there's still supply chain issues going forward, but maybe they're less acute?

Yeah, no, we're excited that were able to make significant progress in our backlog again, know the backlog was created by basically three reasons. I mean, one, the increase in demand was outside of what we had been able to forecast, and that's really positive. The other thing is that just within our distribution network, you know, the change in the business model and also, you know, to need the backlog and this is what caused the increase in distribution expense is that were shipping whenever it became available. So since the demand created product shortages, were shipping more packages as soon as we could get them to ensure that we continue to divide ourselves hoarse. And so, you know, that that's something that that added to it. And then, you know, the other piece of the backlog is just investing in new leadership and new talent in the supply chain that understand, you know, what consumers want and how we need to, you know, improve every day and our distribution centers on the efficiencies of how we pick, pack and ship. And so, you know, that new leadership came on board early in the fourth quarter. And, you know, you saw the results at 21 million of the backlog got shipped in the fourth quarter. And so we continue to see those efficiencies and improvements happening as we invested in that new leadership.

Okay. All right, great, thanks for the time.

Thanks to your next question comes from the line of Wendy Nicholson with Citibank to ask your question.

Hi, good morning. First, two questions, just housekeeping santita to offer a sort of a target tax rate for 2021.

Yes, I did. It was we're going to be in the mid 30s, is what we're predicting for 20 21.

Got it. Perfect. Sorry about that. And then just regarding the dividend, I know you suspended that, which made sense, but obviously you've made huge progress on debt. Pay down any plans to reinstate the dividend.

Yeah, our priority right now, Wendy, you know, we have obviously we're excited about the turnaround plan as part of the turnaround plan, you know, our goal was to rightsize this business and also start to grow the top line. So our first priority is reinvesting in the business. And so we'll do that, you know, with the sale of the nonpoor assets, we're committed to paying down our debt even further. So we've made tremendous progress on our overall debt load, you know, obviously improving our leverage ratio every day. But we'd like to become a much healthier company from that perspective. And so we've committed and also the term loans obviously have a higher interest burden on them. So, you know, as we sell the non-core assets, our focus there is to start to pay down the debt. And then hopefully we'll, you know, renegotiate that to a healthier level at the right point in time. Once we do those two, then we're absolutely open to looking at, you know, the share buybacks or dividends that, you know, would be in that order.

Fair enough. OK, thanks. And then look out for you may be sort of bigger picture, strategic question, just thinking about, you know, the benefit the business clearly saw during covid and some of the things that you're working on in terms of new products and all of that good stuff, just as we think kind of high level about a revenue outlook for twenty, twenty one. I know you don't want to give too much in the way of guidance at this point, but is there any reason we shouldn't think of kind of close to two billion dollars as a reasonable topline forecast for 2021? Just taking the puts and takes of some tough times in some markets, all that kind of good stuff. But high level, are we still running at that kind of for 84, 90 and sales per quarter in your in your mind.

So, Wendy, you're not going to like my answer, because you know that we don't we're not giving guidance, but what I can tell you is that the things that we implemented, the ones that, you know, invest in in detail and making sure that there's adoption there, we're a Sandra said we're investing in that. We're investing in new products. We're investing in the brand. We're investing in the data. And all those things are getting traction. So we're very confident, feel really good about all the things that we're input into the system. Obviously, obviously, for the last part of the year, we have a difficult comps. But overall, for a big strategic point of view, we're on course. We're you know, we're exactly where we want to be, probably even a little bit ahead of where we expect it to be at the very beginning. So we're very excited about the future and I guess.

Yeah. And Wendy, just to reiterate what I said is that, you know, for the first two months, we are seeing the low to mid teens and the first quarter, but that is our easiest comp of the year. And so as we go throughout the year, we would expect that this constant, much more difficult, that that's what we're tracking at this juncture.

And can you -- and again, I, I don't mean to push, but just in terms of maybe in the US where there are some parts of the country that are really kind of back to normal, for the most part, people have gone back to where people are back in school, et cetera, et cetera. Can you talk about or do you have any visibility into those areas or those regions? Are your sales still running up that strongly? I'm just I think bottom line, what we're all worried about or thinking about is as people go back to their normal day job, you know, is so, are they going to leave their part time job selling Tupperware? So that's kind of what we're all thinking about.

So let me just let me tell you something. Hopefully, you know, it helps one of the key reasons why we experienced this great growth in that year and last year was obviously the difference, difference in consumer behavior, but also the adoption of digital tools for from our sales force. And as you've heard me saying before, this is like the horse and the car. Once people start driving the car and they saw that it was safer, it went further, faster. They never went back to the horse. So it's the same with a lot of other segments of our sales force. They are using their new tools. They're falling in love with the new tools and they realize that they're more productive and efficient. So, there's no there's no reason why they would go back to the old way of doing business. And that's why we keep on investing and saying about, you know, the data world, because that's that actually improves the whole Tupperware proposition into any market, not only the U.S., because with less effort, you can actually earn more from the sales point of view.

Fair enough. That's hugely helpful, thank you so much.

And we have a follow up question from Steve O'Hara with Sidoti Co. Your line is open.

Yeah, I'll come back to free cash flow forecast for twenty one. I'm just curious, I'm not sure did your guidance include, you know, some level of just fossils or does that guidance for free cash flow only include the CapEx?

Yes, I'll just say it again and on the divestiture side of any of our businesses, you know, at this point, we have not predicted the timeline associated with that. We're still focused on it. But we're not necessarily including, you know, any type of proceeds from continued divestitures other than other than the ones that we talked about. I mean, obviously, Faslane fell into twenty, twenty one. So we provided that number at around 34 million of proceeds. And then we did have the sale of a French manufacturing site in February and it was roughly around nine million. But that cash proceeds will come, you know, over the course of three quarters, which is what we agreed to with the potential acquirer. So we close the deal. It's just that I'm going to come over three quarters.

Okay, great, thank you very much.

All right, that concludes the session with today's call. I'll hand the call back over to Miguel Fernandez for his final remarks.

Thank you. I'm pleased that we've finished 20-20 stronger than initial expected. I feel confident that we're now entering to the foundational phase of our turnaround plan where we can begin executing our vision for the company. We expect to build a consumer centric company, one that is stronger, more resilient, with the right processes, technologies and mindsets in place to expand our iconic brand into the future. Thank you very much for your time today.

Thank you for and thank you, ladies and gentlemen, for joining us on today's call, you may now disconnect.