3Q Earnings Release Transcript

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EDITED TRANSCRIPT

TUP.N - Q3 2021 Tupperware Brands Corp Earnings Call

EVENT DATE/TIME: NOVEMBER 03, 2021 / 12:30PM GMT

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NOVEMBER 03, 2021 / 12:30PM, TUP.N - Q3 2021 Tupperware Brands Corp Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Alexis Callahan Tupperware Brands Corporation - VP of IR

Cassandra E. Harris Tupperware Brands Corporation - CFO & COO

Miguel Angel Fernandez Tupperware Brands Corporation - President, CEO & Director

C O N F E R E N C E C A L L P A R T I C I P A N T S

Douglas Matthai Lane Lane Research - Principal & Director of Research

Linda Ann Bolton-Weiser D.A. Davidson & Co., Research Division - Senior Research Analyst

Wendy Caroline Nicholson Citigroup Inc., Research Division - MD & Head of Global Consumer Staples Research

P R E S E N T A T I O N

Operator

Good day, and thank you for standing by. Welcome to the Tupperware Brands Corporation Third Quarter 2021 Earnings Conference Call. (Operator Instructions) After the speaker's presentation, there will be a question-and-answer session. (Operator Instructions). I would now like to hand the conference over to your speaker today, Alexis Callahan. Please go ahead.

Alexis Callahan - Tupperware Brands Corporation - VP of IR

Thank you, operator. Good morning, and welcome to Tupperware Brands Third Quarter 2021 Earnings Conference Call. Joining me today are Miguel Fernandez, President and CEO; and Sandra Harris, CFO and COO. We will all be available for Q&A following our prepared remarks.

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 reflects management's views as of today, November 3, 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 3 of today's press release.

Please note that any reference to net sales today is being made on a constant currency basis, which reflects the application of the current period foreign exchange rates to any prior period results, enabling comparisons excluding the impact of foreign exchange rate fluctuations.

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.

Miguel Angel Fernandez - Tupperware Brands Corporation - President, CEO & Director

Thank you, Alexis, and good morning, everyone.

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NOVEMBER 03, 2021 / 12:30PM, TUP.N - Q3 2021 Tupperware Brands Corp Earnings Call

This is our sixth quarter of consistent successful execution against our 3-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 Tupperware turnaround story. Our strategy includes fixing our core direct selling business while building an omnichannel consumer products company. We're doing that by creating sub-brands that will enable us to strategically merchandise and price our products to minimize channel conflict. The idea is to increase consumer access to our iconic products wherever they choose to buy.

2020 was a year of stabilization. This year, 2021, is the foundation year where we continue to fix our core business and build the foundation to invest in the omnichannel opportunity. We'll talk more about this opportunity today. Next year, 2022, will be the year of 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 at a high level include: progressing on divesting our non-core assets, including our beauty businesses and excess property holdings, enabling us to focus more time and resources on growing our core Tupperware brands; and utilizing the recently authorized share repurchase facility to buy back one million shares during the third quarter, accelerating returns to shareholders. These actions support our turnaround plan and are 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 businesses. As a result, our net sales of $377 million reflects our core Tupperware business, which declined 13%, primarily reflecting difficult comparisons from 2020, along with COVID-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 and new tax strategy that Sandra will describe later on the call.

Entering 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 a shift in consumer behavior as most of us 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 and shop 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 COVID resurgence in many regions, especially in Asia Pacific and Latin America. This has had a significant impact on recruiting efforts and overall productivity given the restrictions on personal gatherings and opportunities to directly connect with the brand.

That said, we believe these headwinds are transitory in nature and will begin to normalize in the near to medium term. As I will talk about later, we are working to reconnect with our sales force and give them the 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 in the third quarter, we believe that our strategy to diversify into multiple channels as we evolve 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 the top and bottom line will improve as we implement our growth plans.

Now that we are 6 quarters into our three year turnaround plan, this midway point feels like an appropriate time to summarize the progress we have made over the last eighteen 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 afloat. The solution was to execute a full turnaround of the entire

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NOVEMBER 03, 2021 / 12:30PM, TUP.N - Q3 2021 Tupperware Brands Corp Earnings Call

business. We did this by rightsizing our cost structure, delivering $192 million in savings in 2020. We've created a global business services group to generate operational efficiencies, centralizing and optimizing many of our back-office functions with a mandate to improve service and reduce costs. Refinancing our debt and improving liquidity. In fact, our leverage ratio is a third of previous levels. On capital structure, we made significant progress. After selling our Avroy Shlain beauty business earlier this year, we're working diligently to sell our remaining beauty businesses 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 in a positive outlook of our share appreciation as we execute our turnaround plan. And restructuring the company - from systems and processes to strategy and personnel.

We've made digital investments to improve sales force productivity. We implemented a new sales force system in the U.S. during the second quarter. Given that the legacy system was customized to the needs of our sales force for the last twenty years, the new technology solution caused disruption to our sales force in the past few months. We've begun working closely with our sales force over the past several weeks and believe, once fixed, the technology will be an enabler for our sales force to grow their business.

We've increased our use of data to make better and smarter business decisions. We've begun using a more data-driven approach designed to identify best practices, improve our marketing communications, upgrade our business intelligence to make better decisions, and ensure competitive service and costs.

We're also using a data-driven approach to segment how we look at our sales force and customers to personalize the experience they have with Tupperware. That means providing differentiated support, service and incentives to all of our sales force and customers, ensuring we are adding value and as a result, improving retention. To that end, we've introduced preferred customer loyalty programs in some of our biggest markets such as Mexico and plan to roll out additional markets including in the U.S. soon.

We've continued to innovate and expand product lines, soon with sub-brands and product categories beyond the kitchen. This strategy will enable us not only to compete on price more effectively, but also to segregate which products are sold through which channels, helping us minimize channel conflict. One of our first sub brands is called Tupperware Essentials. And we've recently begun testing consumers' response in Europe through selected retailers. We're also continuing the work of expanding our product line beyond the kitchen. Finally, we recently received recognition from Fast Company for our product innovation, and specifically for our Eco Plus to-go coffee cup, which is made of our revolutionary Eco Plus material, and our solution for eliminating single-use coffee cups.

We're also working to improve our service level. Service means serving both our sales force and the end consumer better, giving our sales force the tools they need to be successful and ensuring the end customer has a good experience. So service is much more than just delivery or customer service. It is the entire customer and sales force journey. This effort is a true cultural shift for our company, but one that is necessary to compete in an omnichannel business.

In hindsight, that's a lot. We're not even close to the same company that we were eighteen 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 in execution of that strategy has never been higher.

Lastly, we have recognized that the pandemic induced inability to gather people and connect in person has been less than ideal. For six quarters, the entire time the new leadership team has been in place, we have not been able to meet face-to-face with our sales leaders around the world. And we think that that has had a cumulative effect. Now with vaccination rates increasing in many regions, the executive team finally has the opportunity to get back to meeting sales leaders in person. We also intend to resume incentive trips and events that were put on hold in the past eighteen months due to travel restrictions. This was a portion of our total cost savings we said we anticipated coming back when we return to more normal activity.

Next on business expansion, which is essentially channel expansion, and includes B2B loyalty programs, selling to retailers and studios, and selling through an importer model: we continue to make good progress. For the year-to-date period through September, business expansion represented

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NOVEMBER 03, 2021 / 12:30PM, TUP.N - Q3 2021 Tupperware Brands Corp Earnings Call

21% of total sales, which is an increase compared to where we were in quarter two. Also, last quarter, we mentioned that we were looking to enter into the U.K. So I'm excited to announce that we just signed an agreement with a large U.K. distributor who distributes products of international brands into many of the major retailers in the U.K. The U.K. market is sizable and represents a large opportunity for us. And we think this approach will enable us to gain faster traction in this key market.

Expanding into new channels is a key component of our strategic plan that will enable us to meaningfully increase consumer access to Tupperware product. It also reduces the reliance on a 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's Loop in Canada where we will be providing sandwich keepers for five Tim Hortons locations. A customer can opt to pay a small premium - basically a deposit for the sandwich keeper - and if they return it to Tim Hortons when they're done, they will receive their deposit back. Loop then cleans and returns it to the restaurant for future use.

We were recognized in Fast Company's first annual list of brands that matter, which honors brands that do more than just sell products or provide services. Brands achieving relevance through cultural impact, social engagement and authentic communication of their mission and ideals. 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 soon be publishing our new sustainability report, which includes clear ESG goals and targets intended to further demonstrate and realize our commitment to our purpose.

Looking ahead, it is our goal to be a very different and even stronger company eighteen months from now. Our near-term priorities continue to be strengthening our direct selling business through structural and service improvements, digital and product investment, use of data to optimize practices, and expanding into new channels and product categories.

We are running a long-term strategic plan. Our path won't necessarily be linear. And therefore, investors should naturally expect near-term ebbs and flows. But longer term, we're 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 sales force members and thank them for helping us to evolve and achieve 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.

Cassandra E. Harris - Tupperware Brands Corporation - CFO & COO

Thanks, Miguel. It was indeed a significant quarter for the company in 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 are actively working to sell several of our beauty brands, the necessary criteria have been met to classify these businesses as held-for-sale assets and discontinued operations as of the third quarter of 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.

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