Operator:

Good morning. Welcome to today’s Colgate-Palmolive second quarter 2024 earnings conference call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I’d like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

Noel Wallace:

Thanks John, and thanks for joining us this morning. I look forward to taking your questions in regards to our strong Q2 results. As part of our ambition to deliver consistent compounded earnings growth, we have talked about the importance of driving balanced organic sales growth - all six divisions, all four categories, and with a combination of volume and pricing growth. We have re-vamped our innovation model, leveraged our global strength across price tiers, invested in marketing spend, and scaled new exciting capabilities across the organization, all of which is driving brand health and household penetration. This is particularly important given the pricing we have taken over the past few years. Our return to mid single-digit volume growth this quarter, including growth at both Hill’s and Hawley & Hazel highlights some early success from this strategy, and this is well timed. We are returning to strong volume growth as gross margins are expanding, which will drive the incremental gross profit that funds the investment in brands and capabilities while still delivering compelling bottom line growth. We’re also using data and analytics tools, including AI, to track the effectiveness of these activities as we look to further optimize the return on our increased spending. This is a topic we’ll be discussing more over time. With this combination of increased penetration and the continued success of our revenue growth management strategy, we have the plans in place to drive consistent, balanced top line growth. We combine that with the benefits of operating leverage, productivity and cost discipline to turn that into consistent compounded earnings per share growth. Along with strong cash flow to fund investment, dividends and share repurchases, we believe this leaves us well positioned to drive top tier TSR. Our recent results show the strength and effectiveness as we continue to execute against this strategy, and with that, I’ll open it up to questions.

Peter Grom:

Thank you Operator, and good morning everyone. Noel, I was hoping you could give us a deeper understanding of the levels of investment and what drives the confidence that the changes you’ve made over the past several years can sustain this improvement we’ve seen. Obviously from an outsider perspective, it seems to be working given the market share is in the mid single digit volume growth today, but just as you look ahead, how do you sustain this momentum and continue to build household penetration from here? Thanks.

Stan Sutula:

Happy birthday!

Peter Grom:

Thanks guys.

Operator:

The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Noel Wallace:

Hey Dara.

Noel Wallace:

Thanks Dara. You know, clearly a great quarter for Hill’s, a strong performance across the board, quite frankly, and we’re particularly pleased with the strong volume in light of the significant pricing we’ve taken historically. I’ll come back and talk about pricing in a moment. But obviously ex-private label, to see the strength of the volume and the pricing move through the P&L is extremely encouraging, particularly given the advertising investment that we’ve put into the business, which continues to strengthen the brand. I think what’s important to call out in the quarter is the real inflection on the margin line, strong gross margin, strong operating margin, and this is a reflection, I think of getting more volume running through the business and obviously seeing the leverage move through the P&L. But if I take a step back again and characterize the marketplace, clearly as we’ve talked about before, low household awareness and low brand penetration overall of the Hill’s business clearly supporting the strong advertising investment, and we’re seeing that delivered in the quarter - penetration up, market share’s up. We’re were one of the fastest growing global brands in some of the pet specialty stores this quarter, so again I think a reflection of the upside potential we still have. When you look at segment opportunities, we’ve talked about that in the past, obviously wet an area that we’re under-indexed in, clearly seeing the ramped up capacity we have in wet delivering better penetration, better growth, better execution in stores as we’re getting more wet SKUs on the shelf. That’s obviously translating into more upside potential as we consumers obviously shifting into those categories. Overall, we think the balance of the business is where we want it, and we’re continuing to invest aggressively to drive that household penetration. You couple that with a really strong innovation pipeline, we see that in the first half of this year and we see that moving into ’25 as well, so we think quite frankly the flywheel of the business is working very effectively for us right now. Low penetration, low awareness, we’re working on that and getting more effectiveness in our advertising spend, which we’re increasing, and importantly getting the gross margins and operating margins back to where we’d like them is allowing for the increased gross margin dollars to invest behind the business. International, likewise - we’ve talked about the opportunities that we still see globally in the long term to take this brand around the world. We’re very focused on the big core markets right now, but long term we see opportunities to expand into new markets. The last I’d say is obviously the mix between Science Diet and Prescription Diet, we saw a good inflection on Prescription Diet this quarter - that’s been deliberate, that’s been a function of partly due to the capacity expansion that we’ve had has allowed us to get more diets on the shelf, allowed us to provide more sustained, consistent deliver to the vet professionals on the Prescription Diet business, and we saw a good mix benefit of that in the quarter as well, so overall we’re pleased with it. The category is a little soft right now, as you mentioned, as household starts come down, but as we see hopefully the U.S. economy starting to show some vibrancy, or at least for a softer landing, we think that will bode well for us. Pricing is an opportunity, given the strength of the brand. We’ll continue to take pricing where we have necessity to do that. The good news is we’ve seen a little bit of flattening on commodity pricing in the Hill’s business, which is excellent for us as we get that pricing we’ve had historically. We’ve seen the benefit of a more moderate inflationary environment on input costs, and we get more leverage through the P&L as we see the volume come back. So overall, we feel like we’re in a good position to sustain that moving forward.

Filippo Falorni:

Hi, good morning everyone. I wanted to ask about the North America business - great to see the volume return to solid growth, but you also called out a more promotional environment, so maybe one, you can talk about the general promotional environment in your categories from your competitors and private label? Also from a cycling standpoint, I know last year you were cycling lower promotional levels. Is it fair to think that’s going to continue in Q3 and then by Q4, you’re going to have a more normal comparison from a promotional level? Any color on the balance between pricing and volume in the back half for North America would be helpful, thank you.

Operator:

The next question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Noel Wallace:

Yes, good morning Andrea. Much around the latter, obviously. I think we have seen some shift in the retail environments there, but again we’re through the negotiations and I think what’s particularly pleasing in Europe is the breadth of the innovation across price tiers and the breadth of innovation across various channels. That’s allowed us, in our view, the deliver that sustained very strong growth. What’s particularly pleasing is obviously the balance between pricing and volume there. We’ll see pricing obviously come down as we lap some of the strong pricing we took last year, but the volume coming back into the P&L at such healthy levels was particularly encouraging for the business, and that’s reflected in market share and in household penetration, as I said. The market share on toothpaste is at record high levels. I think the balance and effectiveness we have between the Colgate and the Elmex and Meridol brands is really taking stride now in the sense of getting that promotional mix right between the three brands, and we’re seeing likewise on the home care and the personal care brands, some of the innovation coming to the market and drive good sustained growth. Overall, a great performance for Europe. We’ll watch it in the back half, but right now we think the sustained market share growth that we’ve had across all of our categories is going to bode well for the back half, and the volume coming back in across multiple price tiers is a good indication that we’re in a good place to set us up for a strong back half as well.

Robert Moskow:

Hi, thanks for the question. Noel, you mentioned sequentially higher commodity costs as the year progresses, and I was wondering if you could help us quantify it or tell us, is it material enough that you would have to make any kind of pricing actions, and if so, where would the hot spots be?

Stan Sutula:

Thanks Noel. What we saw in the first quarter, we talked about coming out was that we had general easing on commodities, but as we’re looking into the back half of the year, we do see some raw material inflation in commodity costs, as well as an impact from transactional FX. As we think about the components of that, there are some pieces here that are going through, but we do feel confident in our ability to offset those with funding the growth and productivity. I don’t see the need, unless they move more dramatically, to take large incremental pricing. In addition on our margin as we look, even anticipating these, we expect that our second half gross margin should be up year on year at levels probably more similar to Q2, so overall I think the teams keep a good eye on this. We look at it on a forward basis, we’ve already locked in a significant proportion of Q3 and we’ll look at that obviously in Q4 as we go ahead, so while we’re aware of it, we feel pretty well positioned.

Operator:

The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead. Excuse me, Mr. Gajrawala, your line is open. Okay, we’ll go to the next questioner. The next questioner is Bonnie Herzog with Goldman Sachs. Please go ahead.

Noel Wallace:

Hey, good morning Bonnie.

Noel Wallace:

Yes, thanks. I think overall, quite constructive around the world, and that’s obviously reflected in the strong volume growth, and likewise the penetration and market share growth; but overall, constructive. I think a lot of the strategy that we’ve put in place over the last couple years, and that’s innovating against some of our big core businesses and making sure that we’re deliberate about the innovation by retail environment, has played out well relative to ensuring that those consumers looking for more value-oriented offerings, that we have that disposable opportunity in our portfolio, and we’ve seen that. I think outside of the U.S, the consumer has been quite constructive. We’ve seen a little bit more price value shopping in North America, but nothing too unusual right now, but we’ll have to watch that carefully as we move through the back half of the year. As I mentioned earlier, we’ve seen a little bit more volume on deal coming through North America, but nothing that’s not in line with historical numbers, quite frankly. Overall, U.S., watchful; Europe seems to be okay; Latin America, again you’ve seen the really strong volume growth over the last three or four quarters despite significant pricing, and so we’re seeing a good consumer environment there. Africa, Asia, Eurasia, strong, again good volume growth, and pleasingly starting to see some good volume growth coming back out of Asia and India specifically, which is encouraging.

Chris Carey:

Hi, good morning.

Chris Carey:

I just wanted to go back to the North America business, specifically around volume and investment posture, so just two parts to this. I guess first, the negative pricing in the quarter, is there a way to dimensionalize how much of that you think is the year-ago compare versus, say, actions that you’re taking in market a bit more offensively? Then just from a volume perspective, when does this volume number feel sustainable going into the back half? I know you have some compare dynamics in Fabuloso and in hand soap, but at the same time, I think in your prepared remarks you called out double-digit volume growth in toothpaste, which was quite a bit ahead of what we can see in the consumption data, so I’m just wondering if they’re both timing and also durable dynamics that you see in Q2 as we go into the back half. Thanks for those two.

Operator:

The next question comes from Olivia Tong with Raymond James. Please go ahead.

Noel Wallace:

Yes, great. Thank you Olivia. We’re encouraged in our two largest businesses, LatAm and Hill’s, both delivering really strong quarters, particularly at the EBIT line - LatAm up 50% on EBIT, Hill’s up 20%, so getting the big businesses growing at that level is encouraging for us. LatAm obviously continues to be such a consistently strong performer for us. Organic sales growth was strong, we saw good volume growth across all of our businesses. Every country was positive in volume with the exception of Argentina. This was led by Brazil, which was high single digits, which is really, really strong, and four quarters of mid-single digit volume growth in LatAm, so overall a pretty good consumer environment. I would say Brazil seems to be quite strong. Mexico slowed a little bit in the quarter, we’ll have to watch that carefully, but the rest of the region performed quite strongly. Oral care, as you mentioned, really strong performance, our market shares were up 90 basis points across the division, volume shares were up likewise across the division, so encouraged by that. The strong marketing and innovation that we put in, in the first half seems to be taking hold, so we think we’re well set up for continued, consistent growth as we move through the back half. I would characterize the consumer environment as pretty good, and the innovation that we have, particularly at the premium side, seems to be taking hold on whitening and some of the core re-launches seem to be driving some good success in terms of household penetration. So overall, we’re encouraged by LatAm and continue to believe it will be a great growth driver for us moving forward.

Steve Powers:

Hi guys, good morning. Thank you. Noel, I was hoping we could talk about pricing more broadly. It’s been a topic already, but it’s been the number one focus that I’ve heard from investors today, and really not just for Colgate, not just for North America, but for the industry at large, given what we’ve seen and heard from others, where arguably pricing is coming down faster than might have previously been expected, at least in significant pockets. It’s not hurting your performance today - you know, volumes and gross margins are great, strong reinvestment in the middle of the P&L, as you discussed. But I guess the question is, if the direction of travel is lower on pricing, again not just for Colgate but for the competitive set, is that volume and full P&L performance sustainable, and how do you think about that?

Operator:

The next question comes from Bryan Spillane with Bank of America. Please go ahead.

Noel Wallace:

Morning Bryan.

Noel Wallace:

Yes, thanks Bryan. Again, very consistent with what we’ve spoken about in the past, and that is getting the flexibility in the middle of the P&L to give us the opportunities to really direct advertising in areas where we’re going to get the best return on that investment. With the continued growth in gross margin dollars with the strong top line growth, that affords us that flexibility around the world, and at the same time, as I’ve mentioned, we are all over trying to improve the ROI of that spend in terms of getting more bang for the buck and being very deliberate in terms of how we approach the advertising, not increased advertising for the sake of increased advertising. The ROI culture that we’re implementing across the organization is very, very strong. Our intention is to continue to invest where we see a return on investment, and we see real opportunities for continued volume growth opportunities, particularly around household penetration and to build brand awareness, and we’ll continue to invest opportunistically where we see those opportunities. I don’t think there will be anything changing in the back half of this year. Our intention is to continue to invest behind the business and drive that top line consistently to drive the bottom compounding growth that we’ve talked about over the last three or four quarters.

Operator:

The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead.

Noel Wallace:

Yes, good morning Robert, thank you. Again, I think the overall promotional environment is constructive. As I mentioned, we may have pulled back a little bit too far last year as we pulled promotions out to get some pricing in the categories, and we’ve simply re-balanced that to, more importantly, probably match promotional pricing than certainly to lead it. Our intention is not to lead the category on a promotional cadence that can’t be sustained. Overall, we feel like it’s more or less consistent with where we are. We’ll continue to be very prudent and mindful on where we invest those dollars, and making sure that we see the volume and the gross margin where we need it to be to continue to sustain what we want to focus on, which is strong advertising building the brands and leveraging the strong innovation pipeline that we have. Now if I extend onto innovation, clearly we will continue to operate with a real focus on the premium side of the business, and we’re seeing great results from that across most of our divisions, where some of our premium innovation, particularly in whitening, now with the re-launch of Total going into Latin America, obviously Elmex and Meridol at the premium side with some of their innovations, we’re seeing great inflection on the premium side of the business. If you couple that with the strong core business innovation that we’ve had - Max Fresh in India, a great example of that, we’re seeing great core innovation that’s driving real value oriented points of difference versus our competitors, and that’s what we’ll focus on, making sure that consumers are willing to trade up based on the real strong proposition and the big selling idea behind that. We’ve talked about the science and the superiority of our brands, and we’re really trying to incorporate that much more into our messaging, to your point, to get the messaging stronger and the content delivery stronger. Overall, it’s a combination of all of what you discussed, making us be focused on ensuring that we have the innovation pipeline and the pricing in place to continue to sustain that strong top line growth.

Lauren Lieberman:

Great, thanks. Good morning. I know you just mentioned Elmex and Meridol on the last question, but I wanted to ask a bit about that three-brand strategy in Europe and get just maybe a bit of an update on how you’re managing channel reach, if you’ve taken those more premium brands beyond the pharmacy channel in Europe, more countries that have been added maybe in the last few years that we’ve kind of lost sight of, and how applicable that strategy in particular may be to other markets, because I think I recall that you were launching one of the premium brands in Latin America a few years ago. I’m just curious if that’s progressed at all. Thanks.

Operator:

The last question will come from Mark Astrachan with Stifel. Please go ahead.

Noel Wallace:

Yes, thanks Mark. Let me take the retail channel. This has been, I think, nothing new here, quite frankly. I wouldn’t say it’s been a huge inflection in terms of shift. You’ve seen the non-tracked Nielsen channels consistently growing faster than the tracked Nielsen channels, and there is a value play there obviously with some of the club offerings. But overall, I think all the channels are looking very, very carefully at their value proposition and the price pack architectures and finding ways to ensure that there’s a value orientation back to the consumer without losing, obviously, the great pricing that’s come through the P&Ls or the categories over the last couple years. I don’t anticipate those shifts will be anything different moving forward. We’ll continue to see, I think, more consistent with where we’ve been in the past, and we’re well prepared to continue to capitalize on those shifts. But the encouraging aspect is growing the Nielsen tracked channels as you’ve seen, as I mentioned earlier, the strong volume share growth that we’ve had in the Nielsen tracked channels. We’re encouraged by that -it suggests that obviously the innovation and the value proposition that we’re offering to our trade customers to grow their categories continues to be quite solid. On Prescription Diet, again a great opportunity for us to continue to grow the Prescription Diet business. We’ve talked about it in the past, where the Prescription Diet opportunity with only--less than 5% of pets are using a therapeutic nutrition today, and while our studies show, as you’ve heard me saying--talk about in the past, that 80% of pets can benefit from the therapeutic nutrition, so we’re very focused on making sure pet specialty, our vet partners, etc. have the plethora of offerings that we bring to the market, and the increased capacity that we have with Tonganoxie coming online and allowing us to optimize our network and provide more of our offerings to the retail environment on a consistent basis is playing out quite nicely for the brand, getting more of those recipes into pet specialty and neighborhood pet stores, as well as making sure we have consistent supply to our veterinary professions, where they recommend and provide that recommendation to their pet owners has been terrific for it, so we will continue to make sure that offering expands and making sure that we continue to look for ways to increase the mix towards Prescription Diet, which is a real benefit for the pet owner.

Noel Wallace:

Well, thank you all for joining us today, and I just want to applaud all the Colgate-Palmolive team around the world for the exceptional efforts to deliver strong top and bottom line growth. Importantly, we’re doing that while we’re building capabilities we need to stay strong moving forward, so that’s terrific work by all the team. But I remind us, as always, that we’re only halfway through the year and we still have a lot of work to be done, so thanks to everyone and appreciate the great discussion this morning.

Operator:

Good morning, and welcome to today's Colgate-Palmolive's First Quarter 2024 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com.

John Faucher:

Thanks, Betty. Good morning, and welcome to our first quarter 2024 earnings release conference call. This is John Faucher. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the first quarter 2024 earnings press release and related prepared materials and our most recent filings with the SEC, including our first quarter 2024 quarterly report on Form 10-Q and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements.

Operator:

[Operator Instructions] The first question today comes from Steve Powers with Deutsche Bank.

Robert Ottenstein:

Robert Ottenstein here. Noel, let's kind of maybe do a deep dive on Oral Care. Can you talk a little bit about the market share trends by region? And more -- a little bit more specifically, are you gaining share more from other international players that may have more similar type of products or local players that are maybe more idiosyncratic? And what are the key drivers to the share growth. Is it more the fact that you're increasing share of voice? Or are there particular product areas like whitening that are really engaging consumers now more than they did in the past.

Peter Grom:

I had a question on the gross margin performance. And just kind of how to think about the path from here. We've kind of seen the sequential margin progression over the last 6 quarters or so. But in the prepared remarks, you touched on certain costs will increase as you move through the year. So just any thoughts on how we should think about the gross margin progression from here would be helpful. And then just within that cost savings, any commentary you can share in terms of how we should be thinking about funding the growth is in the context of a very solid start to the year.

Operator:

The next question comes from Filippo Falorni with Citi.

Noel Wallace:

So as we said in the prepared remarks, really pleased with the performance at Hill's in the quarter in what's a pretty tough operating environment. Volume was closer to flat ex the impact of private label and that was sequentially up, which is good. And we had very good pricing, as we discussed, coming out of the year in 2023 and our need to continue to offset some of the agricultural inflation that we saw in the back half of '23 moving into '24.

Stanley Sutula:

The only thing I'd add there is that the investment in capacity has also enabled us to bring in some product that was being co-manufactured before, which improves reliability and delivery and also will improve our margins over time.

Operator:

The next question comes from Andrea Teixeira with JPMorgan.

Bonnie Herzog:

I had a question on your ad spend, which is one of the highest as a percentage of sales among your peers. Noel, you touched on this, but hoping you could talk a little further about your strategy to continue to increase spend. And then ultimately, what you believe is the right level of marketing spend moving forward as well as maybe opportunities to improve ROI.

Operator:

The next question comes from Olivia Tong with Raymond James.

Noel Wallace:

Sure. Thanks, Olivia. So clearly, some of the comps get more difficult as we go through the year to go. We took obviously a lot of pricing. We'll see that pricing become more benign or slow in the back half of the year that will -- to be determined how much of that comes back into volume. The good news is the first quarter and some of the success that we saw in the fourth quarter, give us confidence that the volume is returning as we expected. The elasticities are in line with as we expected.

Christopher Carey:

One quick follow-up on gross margin and then a question on North America. So on gross margin, I think there was an expectation that Q1 would be down quarter-over-quarter relative to Q4, clearly, very strong delivery in the quarter. Stan, you mentioned a bit of benefit from Argentina. Or are you seeing better developments elsewhere, whether that's in commodities, perhaps some of the new pricing on Hill's or maybe you're over-delivering on productivity. So just maybe contextualize what seems to have come in a bit better there?

Noel Wallace:

Sure. Thanks for the question. Let me take the North America and then I'll let Stan jump into some of your questions around gross profit. Overall, the strategy in North America that we're executing, we feel good about it. We've been very focused, as we've talked about before on improving the middle of the P&L, getting gross margins back to where they needed to get to, getting operating margins where they need to get back to and reinvesting that into the business in order to drive market shares.

Stanley Sutula:

And Chris, your question on the sequential margin improvement, first of all, I'm pleased with that sequential margin improvement. Argentina was a little bit less of a headwind. And as you watch that FX, it's been very volatile. We've taken actions to address it, including sourcing changes, pricing changes et cetera. And then the team candidly executed really well.

Operator:

The next question comes from Lauren Lieberman with Barclays.

Noel Wallace:

Yes. Thanks, Lauren. A great quarter for Europe. And again, a terrific execution from the team on the ground. Overall, really, really strong with growth across the vast majority of our business, and it wasn't just Oral Care, it was pretty broad-based. And obviously, as you saw, volumes inflected positively given that we're still getting pricing in the category.

Operator:

The next question comes from Bryan Spillane with Bank of America.

Noel Wallace:

Yes, Bryan, the only thing I would add is, again, picking up on the theme of flexibility, it's not only flexibility throughout the P&L, but it's having a really strong balance sheet that gives us the flexibility to deploy capital as we see the best return on that investment. And I give Stan and the finance organization huge credit and the discipline that they're bringing around the world to ensure that the cash generation continues to be robust.

Mark Astrachan:

I wanted to go back to North America and the outperformance of these untracked channels. We can now start to see in some of the data, the distinction between the new and the legacy channels, and it's pretty stark in your business, in particular, Hill's specifically, but overall, there's just a lot more growth in those channels, I guess that they're smaller.

Noel Wallace:

Yes. Thanks. So again, we've been talking about that for quite some time, and that has been, I think, a reflection of the strategy that we've talked about for 3 years, which is core adjacencies and channels and getting back to real focus and understanding the consumer journey across all of the markets in which we compete has been fundamental to making sure that we have strategies to capture and deploy our investments in areas where we think we're going to get the best return for that.

Operator:

Next question comes from Brett Cooper with Consumer Edge Research.

Noel Wallace:

Yes. Thanks, Brett. What's interesting is you're seeing -- I think you're hearing that a lot of the competitive set has focused on building healthy category growth, and that's two ways

Operator:

The next question comes from Alejandro Zamacona with HSBC.

Noel Wallace:

Yes. Again, let me contextualize Latin America. Obviously, a really strong organic sales growth quarter, with and without Argentina, there was good volume growth across every single hub led by Brazil, which was up double digits. If I take the last 4 quarters of Latin America in terms of volume, 0.5, 5.4, 8, and 6.2. So again, very consistent with what we talked about.

Noel Wallace:

Great. Well, thanks, everyone, for joining the call today. Obviously, we're really pleased with the quarter and how we've gotten off to a strong start that we believe sets us up for continued sustainable growth moving forward and generating that long-term algorithm that we've been talking about for quite some time for our shareholders.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good morning. Welcome to today's Colgate-Palmolive Fourth Quarter and Full Year 2023 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now, for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

Noel Wallace:

Thanks, John, and good morning, everyone, and thanks for joining us to discuss our strong finish to a very good year in 2023 and our positive outlook for 2024. Over the past two years, we've been particularly focused on sustaining our strong organic sales growth while rebuilding our margins and improving our cash flow performance. We delivered on all three of those goals this year while still investing behind advertising to strengthen our brands and building and scaling capabilities to deliver future growth. 2023 marked our fifth consecutive year of organic sales growth either in line or ahead of our 3% to 5% long-term target range. We delivered balanced organic sales growth, growth in all six divisions, all four of our categories, and with improved balance between pricing and volume as we exited the year. Volume rounded to flat in the fourth quarter and was up for the quarter, excluding the impact of lower private label volumes at Hill’s. Our market share momentum is improving behind strong innovation, higher levels of brand investment with a focus on improving the effectiveness of each dollar spent. We're also seeing the benefits of our digital transformation as our efforts with data analytics continue to proceed. Our commitment to revenue growth management and the strength of our funding the growth efforts combined with our global productivity initiative drove gross margin expansion, double-digit-based business operating profit growth, and high single-digit based business EPS growth. We delivered these results while increasing the investment in marketing and strategic capabilities and absorbing the headwinds from higher interest expense, pension and tax. We drove greater than 60% free cash flow growth, allowing us to invest behind our brands, increase capacity and buy back stock. We also increased our dividend for the 61st consecutive year. I am deeply proud of the results Colgate people have delivered in a challenging operating environment. 2024 will offer many of the same challenges as 2023, geopolitical unrest, foreign exchange headwinds and a challenged consumer, continued softness in China, and a large number of political elections around the world. We enter 2024 with strong momentum and the plans in place to deliver in this environment, as well as greater flexibility in both our income statement and our balance sheet. As we have mentioned over the past few quarters, we're focused on returning to consistent, compounded EPS growth, and our 2024 guidance reflects this ambition. We will continue to invest to drive high-quality, balanced organic sales growth and with both volume and pricing growing. We plan to deliver our productivity to fund this incremental investment while growing earnings per share. This should enable us to deliver strong cashflow growth to invest back in the business and return cash to shareholders. I look forward to discussing our 2024 plans in further detail at CAGNY next month, so you can share the confidence the Colgate-Palmolive team has in our continued growth. And with that, I'll take your questions.

Dara Mohsenian:

Hey guys. So just wanted to focus on market share results in Q4 and as you look ahead, oral care share was obviously strong again and you delivered healthy expansion for the full year. Can you just talk about your forward positioning on the share front in oral care? You've got a tougher comparison here. So how do you think about the sustainability of those share gains as you look out to 2024? And then a similar question on pet. Obviously some industry pressure points, can you sort of juxtapose your market share relative to those industry pressure points and if the unlocked capacity is a significant driver of market share opportunity in the longer term in that business? Thanks.

Operator:

The next question comes from Bryan Spillane with Bank of America. Please go ahead.

Noel Wallace:

Okay, great. Bryan, good morning and thank you. Let me talk again a little bit of history in Argentina. And I apologize to go down with an extended answer, but I think it's important for the audience to understand how we operate in these hyperinflationary environments. We've been in Argentina close to 100 years. We have an extraordinarily capable management team that understands hyperinflationary counting, understands how to manage the income statement and the balance sheet, understands how to prevent further devaluations on the balance sheet as we move forward. And that's a reflection of just years and years of experience dealing with this level of volatility. We can go back to 2001, 2002, which I think was the last major devaluation in the country. 2014 had one as well. So we're very accustomed to ensuring we're doing everything to manage the potential volatility in a market like Argentina, and that experience has certainly played out. We have always, always continued to invest for the long term in Argentina. We have manufacturing on the ground. We have good relationships in terms of our ability to access dollars. But importantly, given some of the limitations that we've seen over the years on the ability to access dollars, we now have flexibility in the business to import product into the country as well. So we're very attuned to the volatility. I would say on the flip side, good news that price controls seem to have been settled a bit, and we're not going to see as much of those moving forward. So we continue to operate in an environment where we can bring value to the consumer and take pricing in order to offset some of the significant transaction. Now, we're not immune to the devaluation. We'll see that ultimately unfold as we go through the next couple quarters, more on the margin line than the profit line, but ultimately we will make sure we get pricing in the market and that will take some time to flow through into the P&L. But overall, experienced team which I want to thank for their incredible diligence in how they do --they deal with the economic environment there and feel pretty good that we've got real control of what's going on in Argentina notwithstanding there will be continued volatility. So with that, let me give Stan a chance to talk a little bit about how we're managing more closely the income statement.

Operator:

The next question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Noel Wallace:

Great. Thanks and good morning, Andrea. So let me take the advertising and promotional piece, and I'll come back and add a little bit of context on some of the great work that Luciano has done as he's come into the new role. The strategy has been quite consistent for the last three to four years about our ability to build brands through great communication and great innovation. And you've seen that obviously flow through the P&L. And despite the fact that we have obviously grown and accelerated advertising meaningfully over the last couple of years. We've continued to deliver against our guidance and exceed our operating profit objectives, which is terrific. Well, that just gives you a sense for the health of the P&L today and our ability to continue to fund investment going forward, and that will clearly be our strategy. Now, likewise, it gives us flexibility to be very focused on the efficiency of that spend. And I can assure you there's not a discussion that goes by where we don't talk about reach and frequency, and the ROI associated with our spend, both at the digital level and the linear TV level. So we're very, very, very focused on the ability to drive more efficiency through the P&L as we accelerate our advertising. And as we said in the prepared comments, we anticipate to continue to accelerate the advertising into 2024. Promotional environment is very constructive right now. I would say it's about 75% to 80% of the pre-COVID levels. So it's come down. It's more moderated. We -- as I've mentioned, in second and third quarter calls, that we will be very selective on increasing the cadence of our promotions in some of the geographies where we may have taken a little bit too much pricing as we led in some of those markets. That will be prudent and thoughtful and focused in certain select markets. But overall, the promotional environment seems very constructive. And our objective is to drive category and healthy volume growth through obviously the accelerated advertising line. On the supply chain, Luciano has come in and really thinking about the continued transformation of that, bringing a lot of good ideas on automation and data analytics and driving network optimization. A lot of our focus over the last couple of years, particularly at Hill's, was increasing capacity, and you saw that through our capital expenditure line. That will moderate as we move forward with more spending being allocated towards efficiency and savings and optimizing the network and very much digitizing the supply chain and getting very aggressive on using data analytics to optimize our efficiency and our case field level. So overall, pleased with where he's taking the group and that team has done just an extraordinary job getting us ready for further optimization moving forward.

Operator:

The next question comes from Filippo Falorni with Citi. Please go ahead.

Noel Wallace:

Yeah. Good morning, Filippo. Thank you. We see more balanced volume and price as we move into 2024. Obviously, we've had roughly six quarters of aggressive pricing, seven quarters where we've had to take pricing to offset a lot of the inflation that we've seen in agricultural products. To get to your second part of your question, we do see ag prices beginning to moderate, which is good, which over time, as we see the pricing settle out in the markets, we anticipate that volume will come back. But remember, this is the one category we compete in where we've seen prolonged inflation as we move through the back half of 2023. But we anticipate that will definitely moderate as we move into 2024, and pricing likewise will moderate, and we'll see a return to really continuing to drive that successful household penetration number that I shared with you earlier, which is obviously our ability to continue to support strong advertising. So overall, we'll see that more balanced growth as we move through 2024. And on the margin line, as I mentioned again, a more moderating cost. We're still lapping some of the strong inflationary environments that we had in the first half of last year. So that pricing that we've taken in the back half of this year and early in the quarter will stay, but we'll see the volumes start to come back as we move through the back half of the year more meaningfully.

Callum Elliott:

Hi, good morning. Thanks for the question. Really good to see the big uptick in brand spending this year and the success it’s having on competitive performance and growth. My question is, can you talk about some of the other investment buckets outside of advertising and brand spend? I'm thinking R&D, CapEx, some of the more infrastructure capability investments that sit in the P&L. Where are you guys today now versus where you think you need to be? And what's the relative importance of these non-brand spend buckets in your view? Thank you.

Stan Sutula:

Callum, the only thing I'd say is when you look at the face of the income statement or balance sheet, the absolute numbers, it doesn't reflect the one of our key jobs here is to allocate resources and we reallocate to those high-growth areas or the areas with the most potential. While that may not show on the absolute line, underneath the covers, that reallocation of resources, whether it's dollars or human capacity is what supports us in analytics and digital and data and S/4 HANA and to enhance all those capabilities. So lots of work under the covers to drive resource to those key areas.

Operator:

The next question comes from Steve Powers with Deutsche Bank. Please go ahead.

Noel Wallace:

Yeah. Let me top line, and I'll let Stan answer a couple of questions. Obviously, I think that pricing, I think cost, I think foreign exchange is obviously the big drivers in the cost line for us. So we've done a terrific job in delivering strong funding to growth. I think a lot of opportunities as we had the supply chain settling down, our ability to start ramping up a lot of the projects that were in many respects on the back burner during COVID. That has allowed us to drive strong funding to growth. We anticipate that that will continue as we move forward into 2024. The pricing has been a big part of the gross margin expansion that we've been very aggressive with over the last six quarters. Yes, pricing will be more balanced as we move forward. So you would anticipate that will be a lesser impact as we move through the gross profit and raw materials will continue to, I think, be inflationary, but far more benign than we've seen in the past and there's clearly a moderation there. So ultimately, hopefully, an opportunity for us. With that, let me turn it over to Stan to give you a little bit more construct to that.

Noel Wallace:

Yeah. I would just simply underscore that there will be a sequential impact at the margin line on Argentina as we will take pricing in the quarter, but that will take a while to flow through to recover the transaction impact of the de-val.

Peter Grom:

Thanks, operator and good morning, everyone. So I wanted to ask specifically about Latin America volume performance, up 8% this quarter, three straight quarters of growth. And I recognize that the comps are somewhat easy, but the growth is still really impressive. Can you maybe just unpack how much of that is a function of category growth versus share performance? And really, how does that inform your view on volume growth looking out to '24 in Latin America specifically? Thanks.

Operator:

The next question comes from Nik Modi with RBC Capital Markets. Please go ahead.

Noel Wallace:

Sure. Let me throw that one to Stan and he can give you a little bit more context there.

Nik Modi:

Great. And Stan, if I could just follow up on Filippo's question. I think he was asking on proteins as it relates to Hill’s. So you cited ag costs, but maybe just comment on protein? What you are seeing…

Operator:

The next question comes from Chris Carey with Wells Fargo. Please go ahead.

Noel Wallace:

Yeah. Thanks, Chris, and good morning. Yeah, a little bit of all of that, quite frankly. Obviously, with the incredible inflation that we've seen over the last 1.5 years across the bulk of our commodity basket, we've had to obviously accelerate the funding the growth and the higher cost obviously have allowed us to generate higher funding the growth. As I mentioned earlier, a lot more efficiency in the plants and our ability to utilize our manufacturing facilities to drive more of the funding the growth projects has likewise allowed us to step up a little bit of that funding the growth in 2023 that we historically had not had the time to do. So a bit of it will be symptomatic of the year and the opportunity. But I think the discipline that we've ingrained and the culture that we have ingrained at Colgate around funding the growth in parallel, likewise with the global productivity initiative that we put in place, has allowed us to generate obviously strong contraction in our costs overall. I wouldn't say use it as a benchmark for going forward. There will be a lot of moving parts to that, but we feel like structurally, we're in a better place on funding the growth. Structurally, we've managed to execute the GPI in line and slightly towards the high end of the guidance range that we provided earlier on that initiative. So we feel like we're in a good place. Pricing will moderate, so it's important that we continue to generate the strong funding the growth and through the P&L in order to generate the margin growth that Stan talked about.

Olivia Tong:

Great. Thank you, good morning. First, I wanted to ask you a little bit about the top line, obviously, coming off a very impressive 7% top line growth in Q4. The guide for the fiscal year at sort of 3% to 5%. Can you just provide some perspective thinking about first half versus second half, perhaps the cadence of volume growth as the pricing contribution sort of begins to lap? And then similarly on EPS, obviously, a very strong '23 and Q4, talking about the mid- to high single digits. That, of course -- that range implies potential for growth deceleration in 2024. So just talk about what has to happen to get to the high and what you incorporate in terms of the low end and perhaps an incremental conservatism built into the guide? Thank you.

Operator:

The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead.

Noel Wallace:

Sure. Thank you, Kaumil, and good morning. In China, you've heard it, I think, consistently throughout the earnings season so far that there's a real slowdown in China, and we're not immune to that slowdown. I will say with respect to some of the numbers out there, we feel we've performed very, very well across Greater China. Our business roughly down low to mid-single digits and that was very much commensurate with the category declines that we saw in those markets. Clearly, on the skin health side, we've seen a more acute decline in the categories and therefore, a bigger decline in our business as well. Long term, the market fundamentals remain intact. And I think it will take some time as we move through 2024 for those markets to come back. Obviously, a lot of stimulus money, as you've read, going back into the market, but we shall see the impact that has on consumers and consumption. But we think we're well positioned. The business continues to build share on the Colgate side. We talked about the Holly & Hazel. We think we're now shipping more closely to consumption as we move through the price increase and some of the inventory allocations that we've seen across the trade and we've got a strong innovation pipeline for next year, but we will be thoughtful and prudent on our investment structure in China until we see the categories come back to levels that invite us to invest more. But we feel long term, a good market and the dynamics are there, but we want to be thoughtful in the short term.

Lauren Lieberman:

Great. Thanks, good morning. On North America, it was great to see volumes inflect a positive this quarter, and you called out growth not just in oral care, but also in bar soap, liquid hand soap and cleaners. So I know there's a lot of things that kind of contribute to that better performance. You mentioned more balanced promotions. But I was wondering if could you spend a little bit of time talking about innovation across the business and any plans for '24? And maybe also if you could talk a little bit about any plans you may have around hand dish and plans to kind of stabilize and regain share in that business? Thanks.

Operator:

The next question comes from Mark Astrachan with Stifel. Please go ahead.

Noel Wallace:

Yeah. Good morning, Mark. Thanks. So North America first. Clearly, we're trying to get much more balanced investment across North America. We needed to get the P&L, particularly the middle P&L in the right shape, and that was a strategic choice that we made. A strategic choice enabled by, I think, the broadness of health of our business around the world that has allowed us to obviously accelerate the investment in North America as we took more pricing in the market. So we have a strong innovation pipeline. We anticipate that we'll continue to increase our investment levels. This is not for the short term, this is for the long-term health of that business, which we believe to be a very, very vital market for our success in the future. And we've seen the benefits coming through across our overall consumption. See some -- a little softness in the Nielsen tracked channels, I'll say that our non-tracked channels are growing at 3 to 4 multiple of the tracked channels. So we feel the overall investment in its entirety is proving to grow the consumption and the sales that we need in that marketplace. So long story short, we think we're in a good position for that. On your Hill's comment, our focus is in the channels where we compete. And we believe we're a differentiated unique product that drives the premium nutrition side. Science clearly is the segment that continues to grow, particularly amongst pet specialty. We have no plans to expand distribution in the food drug mass. We believe that would deteriorate the brand and we have very unique distribution policies that require us to be in the channels that we're in. And we continue, as I've mentioned earlier, to feel we have significant upside in those channels and the brand penetration that I mentioned earlier continues to grow. So in a good place, no intentions on expanding distribution. That being said, as you know, the bulk of our business is done in the US. We will be very selective about market expansion on the Hill's business, making sure we get the business model right, making sure the vet becomes a core part of that expansion strategy because that would drive long-term sustainable profitability for the business. And so we'll continue to look for opportunities as we increase the health of that business and the expansion needed in markets around the world.

Robert Ottenstein:

Great. Thank you very much. Noel, I was wondering if you can talk about India for a little bit. A lot of the companies that we talk to are very excited about the market and see it increasingly vibrant. So perhaps maybe review your position there, market share trends, if you're seeing more opportunities and what your plans are? And then just a kind of a housecleaning item for Stan. It looked like there was a $0.07 impact on the other income item under -- on other income, but there were some offsets there and some asset sales and a value-added tax refund. If you could kind of just let us better understand exactly what's going on there. Thank you.

Stan Sutula:

Hey, Rob, let me pick up on your second questionnaire and other income, other expense. As we talked earlier, that is made up of a number of items, both from this year and last year. And Argentina devaluation is certainly an impact, but not the majority of it. We also have some start-up costs in there, some onetime items from this year and last year. What I would say is that's not a new run rate. That's not going to continue into next [year at] (ph) that level. And you should think about these as kind of onetime events in nature. So these change as you go through the year.

Edward Lewis:

Yes, thanks very much. Just wanted to talk on Europe. Another quarter of strong pricing this quarter. And looking back, I think it's 9.5% for 2023 or 4.5% in 2022. So just be really interested to hear how you're thinking about pricing over here because consistently, I guess, in the past, pricing hasn't been a big part of the story in Europe. Is this kind of a new kind of attitude we should expect to continue doing sort of more pricing in general coming out of Europe?

Operator:

This concludes the Q&A portion of our call. I would now like to return the call to Noel Wallace, Colgate's Chairman, President and CEO, for any closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's call. You may now disconnect.

Operator:

Good morning. Welcome to today's Colgate-Palmolive Third Quarter 2023 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now, for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

Noel Wallace:

Good morning, everyone. I want to give you my thoughts this morning on a very strong quarter of top and bottom-line growth, along with our raised 2023 outlook. As you can see in the materials we published this morning, our strategy is working, and the continued execution of the strategy leaves us well positioned as we look out to the future. We believe this will enable us to deliver balanced organic sales growth going forward, growing in all six divisions, all four of our categories, and with both volume and pricing growth. Organic volume performance improved in the quarter, which we believe puts us on our way towards a return to volume growth. And with the leverage from this balanced growth, along with the global productivity initiative, focused cost containment, and our funding the growth initiatives, we now have multiple points of leverage in our P&L. This should enable us to deliver consistent operating profit and earnings growth going forward. You can see this in our Q3 results as our gross margin was up both sequentially and year-on-year, driven by sales growth, and overheads were down, driven by logistics. This leverage allowed us to deliver another quarter of double-digit operating profit growth, along with a 23% increase in advertising. Some of our markets remain choppy and the headwinds like foreign exchange and higher interest rates will continue to impact us, but we are leveraging the strength and the global reach of our brands while driving scale advantages through our science-based innovation, digital marketing, revenue growth management, and best-in-class on-the-ground execution. Our momentum leaves us very well positioned to deliver strong results with compounding top and bottom-line growth as we look to generate consistent long-term value creation for all of our stakeholders. And with that, I'll turn it over to the questions.

Peter Grom:

Thanks, operator, and good morning, everyone. I hope you're doing well. So, Noel, I wanted to ask specifically on just kind of the return to balance topline growth and kind of how you see that evolving over the next couple of quarters. I mean, excluding H&H, you probably already would've been there this quarter, as you highlighted in the prepared remarks. So, is this something that you kind of expect to achieve call it in the near term as you kind of exit 2023? Or is it going to be a dynamic that you would expect to kind of play out over the next several quarters? Thanks.

Operator:

The next question is from Andrea Teixeira of J.P. Morgan. Please go ahead.

Noel Wallace:

Sure. Good morning, Andrea. Let me take the North America piece of that question first, and then I'll highlight more strategically across the enterprise. So, North America is on pace with exactly what we talked about in the Q2 call, continued sequential improvement across the board, and we anticipate that they will see sequential improvement in their business as we move through the fourth quarter. A lot of that was getting the promotional cadence right, and we started to implement some of that promotional opportunity in the backend of the third quarter. Most of that will come through in the fourth quarter, and we're pleased with it. Obviously, the important part about North America is the oral care business, that inflected positive with high single-digit growth in oral care and positive volume growth on that business in the quarter as well, and we anticipate that will continue as we move through the balance of the year. So, North America overall trending as we expected. We're still not pleased with some of the scanner shares, but as we said, we'll get the promotional opportunity right as we move through the balance of the year. And importantly, our non-promoted volume, which reflects, I think, the strong advertising that we're putting into the North America business, continues to inflect positive. Strategically, around the world, we’re seeing volume improve across the world. Now, that is based on a lot of the geographies we've seen the pricing start to subside a bit as we're not taking more pricing in some of the markets. Really pleased seeing in markets where we took pricing early, like Latin America, where we've seen a very positive inflection in volume. Volume was up 5%. And if you look at Mexico and Brazil, specifically, Mexico was up mid-single digits. Brazil was up high single digits in volume. So, again, I think a reflection of the strong advertising innovation and the fact that over time, as pricing settles out in the market, you see the volumes come back and that's pretty consistent. Europe, likewise, a little improvement in volume. So, we're seeing exactly as we expected to see volumes start to sequentially improve, but it's not necessarily linear. And I want to leave that point that we'll watch that carefully as we move forward and we'll continue to implement our strategies of strong innovation across the core adjacencies and channels, and we'll see that play out as we move forward.

DaraMohsenian:

Good morning. Can you guys discuss market share performance in your key geographies and product categories in Q3, how you're performing on the share front? And given you've taken robust pricing, what are you seeing competitively in terms of the pricing and promotional environment and how might that play into your shares performance? Thanks.

Operator:

Our next question will come from Filippo Falorni of Citi. Please go ahead.

Noel Wallace:

Yes, thanks, Filippo, and good morning. So, again, a great quarter for Hill’s, obviously with strong balanced pricing and volume growth in the quarter. That growth was quite pervasive across the world as we saw a good growth in the US, as well as in some of our emerging markets, and likewise in Canada. Category has slowed a bit, as you've heard from others. That's, as you mentioned, a combination of sustained pricing in the category over the last four or five quarters and agg prices still remaining high. And so, it's not to be unexpected that the volume would slow a little bit. As you rightfully point out, you've seen some conversion from wet into dry. That lowers the volume. You've seen, obviously treats, which is more discretionary. And you'll recall, as we said in the Q2 call, we don't have a significant business at all in the treats segment. And likewise, I would say the non-science brands continue to perform quite well, but are not immune to the continued challenges that that you highlighted in the category. But as I mentioned just a moment ago, we continue to grow share, and for us, this is a share gain. We only have 5% to 6% penetration in our largest market in the US. So, we have a lot of upside still, hence the reason why we continue to bring strong innovation in the market. Hence the reason why we continue to advertise very aggressively to drive household penetration. Likewise, we see opportunities continued in the prescription diet. Our studies show that only about 5% of pet owners are using a prescription product, whereas potentially up to 80% could be using it. So, that affords us an upside. We've talked about wet, obviously some conversion from wet into dry, but we have very low shares in the wet segment, which has been one of the historically growing segments. And we have plans, as we've ta talked about in the past, to continue to grow that. So, overall, we feel we're positioned well, but not immune to some of the softness that we've seen. But likewise, as I mentioned, we're very focused on driving share and ultimately expanding this business internationally. We'll watch the category carefully. We know our retailers are very focused on nutrition, and the science segment continues to perform well, and that's where we're putting our strategies in order to continue to drive penetration.

Jason English:

Hey, morning folks. Thanks for slotting me in, and let's stay there. Let's stay on pet nutrition for a minute, but let's pivot to maybe the bottom line. Looks like gross margins for that segment down 360 bps this quarter, kind of bringing two-year to down 900, very consistent with what we saw last quarter. And I get the mixed benefits of the acquisitions. I get the plant startup expense. I get the inflation, like these are all, obviously factors that have been contributing to the pressure, but I'm expecting all of them to sort of subside as you start to rotate the product out of the Red Collar assets, as you start to pivot some of your resources from starting up plants to attacking some of the efficiency, and hopefully as some of the input cost pressure subsides and price catches up. But we haven't yet seen progress yet. What is a reasonable expectation for us as we try to level set our own expectations? When should we start to see the benefits of all those dynamics come to fruition? And how much recovery should we be expecting?

Operator:

Next question will come from Olivia Tong of Raymond James. Please go ahead.

Noel Wallace:

Yes, thanks and good morning, Olivia. Again, as I mentioned earlier, we're pleased with the progress. Again, this is a very deliberate and strategic execution of how we're trying to get the health of our brands and the health of our P&L in a better place. And as I mentioned in the second quarter call, we may have pulled back a little bit too far on some of the promotional cadence, but we're adjusting that, but adjusting it very prudently where we see the ROI and where we believe we can drive sustained volume and share opportunity moving forward. The 25% increase was not the highest. As I just mentioned, Hill’s continues to receive the disproportionate amount of the advertising increase. But North America, again, given the vibrancy of that market and the long-term strategic importance of that market, we will continue to invest for the long term. Great progress on the operating margins, as you saw move through that P&L. That is a reflection, again, I think of a much more prudent approach to pricing in the market and our promotional cadence. And we feel good about the sequential growth that we saw in the quarter and the sequential growth that we'll continue to see in the fourth quarter.

Bryan Spillane:

Thanks, operator. Good morning, everyone. Had a question on ad spend. I think year-to-date now we're over 12 - we’re running at a rate that's about a little over 12% as a percentage of sales. And so, given the increase that will end the year at, is this a good base to think of in terms of ad spend going forward, or would you consider taking up further? So, just trying to get a sense now if we've kind of rebased or if this is a new base in terms of ad spend.

Operator:

Our next question will come from Steve Powers of Deutsche Bank. Please go ahead.

Noel Wallace:

Yes, good morning, Steve. Thanks. So, let me talk again a little bit on volumes. Globally, as you've heard from others, volumes in the categories tend to be down around 2% to 3%. This is a function, obviously, of the aggressive pricing that you've seen sequentially over the last three or four quarters. So, that continues to improve, and in my view, that will continue to improve as pricing moderates over the next couple of quarters and we lapse some of the aggressive pricing that we've had, certainly within our P&L. But from a category standpoint, there's going to be obviously a shift from more pricing-driven organic growth to more volume-driven organic growth. And it's very difficult to actually predict exactly at the pace that's going to happen by geography, because we've taken pricing, competitors taking pricing at different points in the year. So, over time, sequentially though, we see volume returning to a more normalized level, and we see pricing returning to a more normalized level. And that's more or less how it's playing out. Difficult to predict from geography to geography, from quarter to quarter. On the margin, obviously, a lot of focus, as you know, across the business. We've got a lot of levers in the P&L now to drive operating margins and gross margins. Why don't I let Stan talk to a little bit about that. He's been very focused on driving that across most of our regions.

Operator:

Our next question today will come from Lauren Lieberman of Barclays. Please go ahead.

Noel Wallace:

Sure. Hey, Lauren, good morning. So, overall, the bulk of our North America business is oral care and it receives the bulk of that advertising increase. But pleasingly, we are supporting our home care and our personal care businesses, which is important. And clearly, as we get the promotional cadence back on those businesses, particularly here in the fourth quarter, we anticipate we'll see an improvement in shares. Now, again, we had a lot of unprofitable share historically where we were chasing share and buying share. And we have deliberately, as we see great health across our P&L and the geographies across the world, we have the opportunity to right-size that in the US and get the shares much more profitable and get much more sustainable share growth moving forward. And the intention is to continue to support all those businesses in the US as we move forward. The other one is our skin health business in the US is getting good levels of advertising. That continues to perform well. If you take our skin health business outside of China, that grew double digits in the quarter for us. So, we continue to see a nice growth on that business, and we'll continue to support that in the US market as well.

Chris Carey:

Hi, good morning, everyone. I couldn't help but notice the commentary around the currency impact carrying into 2024. At the same time, Noel, you were quite clear in your remarks today that Colgate has multiple levers to continue profit growth. This year, you're going to be doing high single-digit earnings. It would appear on low single-digit currency impact. You, I think, put up the best productivity number on a basis point impact that we've seen in almost 10 years despite raw materials which remain stubbornly high. Well, I know there's conversion and other costs in there as well. But just as you think about next year, and I know you're not giving guidance today, but does your ability to still deliver high single-digit earnings this year despite the currency headwind, give you confidence on next year, especially because some of these drivers, like pricing, perhaps strong productivity and other levers at your disposal, remain available to you going into next year? So, thanks for any perspective on that.

Operator:

Next question today is from Mark Astrachan of Stifel. Please go ahead.

Noel Wallace:

Yes, thanks, Mark. Let me come back to the core of our strategy, which was innovating across our core in adjacencies and channels. And all of it is underpinned by science-based innovation, and that has always distinguished our portfolio historically, and we have absolutely dialed that up in terms of how we focus our R&D efforts across the organization. Good examples of that is obviously the growth that we've had in the whitening segment. We have, in our view, some of the best efficacy-based products in the category. We're very pleased with the growth that we've seen in whitening at the premium side with our peroxide-based. We've obviously moved into pens, which is incremental consumption opportunity and the opportunity to drive regiment and a premiumization. We've moved into our chair distinct strategy, which is anchoring science-based whitening through the profession as well. So, science continues to play very importantly into our growth strategy. And you've seen that play out in oral care, certainly seen it play out in in our pediatrician business, as well as very recently in skin health. And likewise, as we look at some of the innovations coming on in our home care business, we've seen some great innovation on concentrate, some great innovation on tablets in Europe. So, we continue to use science as a way to drive differentiation and certainly drive our premiumization. Specifically on the Hawley & Hazel business, as I mentioned in the second quarter, we took pricing. That has taken longer to actually get executed in the market, given the multiple levels of our go-to-market strategy on the Hawley and Hazel business. And obviously, you've seen a slowdown in the category in China, which has also come on top of that. But the good news, as we exited the third quarter, we saw the Hawley & Hazel business start to inflect positively, and we continue to see that as we speak. So, we’re not completely out of where we want it to be, but everything is moving in the right direction. Conversely, the innovation behind Hawley & Hazel is very strong. Once we have that pricing executed, we'll come in with a good first half plan of innovation, and that will be science-based innovation, as I mentioned. The parallel to that is obviously the great success we've had in China with the Colgate business. The Colgate business continues to perform very, very well, growing share in e-commerce, the fastest growing channels, and that is driven behind premium innovation with real science-based structures to that.

Rob Ottenstein:

Great, thank you very much. I'm wondering if we can drill in on the US and maybe talk a little bit about what's going on in the non-track channels, kind of which channels are leading the growth and why do you continue - do you expect that to continue in the future, having a pretty big gap between the scanner results and the non-track? And then if you could put that also in the context of how you see the US consumer and the health of the US consumer developing over the next couple of quarters and any pivots that you may do or adjustments to potentially a weakening consumer outlook. Thank you.

Operator:

Our last question today is a follow-up from Bryan Spillane of Bank of America. Please go ahead.

Stan Sutula:

Yes, sure, Bryan. So, as we said, our view on raw materials in total remains consistent with prior quarters. And we still do see several hundred million of gross cost inflation raw materials for 2023. But while the overall totals in line, there have been some shifts underneath that. First, agriculture has not eased. In some cases, it’s actually gone up. That affects primarily our Hill’s business. Offsetting that, some commodities such as resins and oils have actually softened a bit. But when we look in total, that basket is roughly still in line. And while it hasn't gotten worse, it hasn't gotten a lot better. The one we continue to watch carefully is obviously energy with all the volatility in that market. And then also just keep in mind, some of our raw materials are not pure commodities, but specialty, flavors, fragrances. Those tend to have less volatility. But I think if you pull back, our teams have done a great job driving productivity to mitigate some of that inflation. And you saw in our funding the growth, this has really helped us balance the margin. You combine that with RGM, and it's resulted in that margin expansion. So, if I got to pull that back, while that's been relatively steady in total, the pieces moving around underneath, that has - our gross profit in total for the company has gone up 140 basis points year-to-year. And that's a combination of that pricing in RGM has been able to more than compensate for the raw materials going through. So, as we look at that heading into the last quarter, we haven't actually seen a lot of change in the commodity basket, so we expect that to continue through the end of the year.

Noel Wallace:

So, thanks everyone for joining the call today. Let me just close up by saying we really appreciate your interest in the company. We hope you agree that we have the strategies and the plans in place to deliver consistent, compounded profitable growth to drive value for all of our shareholders. And I would be remiss not to thank all the Colgate from all folks around the world who have delivered a very strong quarter for us in the third quarter of 2023. So, thanks everyone. We'll talk to you in January.

Operator:

Good morning. Welcome to today's Colgate-Palmolive 2023 Second Quarter Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

Noel Wallace:

Well, thanks, John, and good morning, everyone. So a few quick thoughts this morning on our strong quarter of top and bottom line growth and clearly along with the improved 2023 outlook we provided. On the first quarter call, you'll recall, I highlighted three priorities for the year, driving organic sales growth as we face tougher comparisons, executing on productivity and revenue growth management to fund brand investment, while also delivering on our earnings targets, and improving our cash flow performance. While not without its challenges, in Q2, we made strong progress on all three of these. On organic sales growth, Q2 showed the strength of our global portfolio as we delivered our strongest quarterly growth on a two-year stack basis since Q3 2008, with both organic volume and pricing growth accelerating on a two-year stack basis. We delivered organic sales growth in all six divisions and in each of our categories grew in the mid-single digits or higher. We are laser-focused on returning to balanced organic sales growth and we believe the investments we are making, combined with easier comparisons, give us a path to improved volume growth going forward as we leverage increased brand support and innovation while still delivering profit growth. The strength of our revenue growth management efforts, combined with our progress on funding the growth, drove improvement in our gross margin both sequentially and year-over-year. Our Base Business SG&A was down 30 basis points in the quarter. A strong sales growth, lower logistics costs and the benefits of our 2022 global productivity initiative drove operating leverage even as we increased advertising spending by 20%. Combined with our gross margin expansion, we delivered 60 basis points of operating margin expansion in the quarter. This enabled us to deliver upside versus expectations in the quarter despite continued pressure from below the line items, including the impact of higher interest rates and tax. As you've heard me say, it's just virtuous combination of growth driven leverage, revenue growth management, cost containment and productivity to drive investments in capabilities and brand building which drove the strong quality of this quarter's results. We believe it also lays the groundwork for our performance across the balance of the year and into the future. And finally, our strong cash flow performance continued in the quarter, which is helping us offset some of these below the line headwinds. Free cash flow was up more than 50% in the quarter and is more than up -- up more than 80% year-to-date through net income growth and improved working capital performance and pleasingly, particularly in inventories and payables. So I'm pleased with how we started the year, but I'm also well aware of the challenges and uncertainty ahead of us. Our goal is to deliver consistent, high quality compounded top and bottom line growth to drive shareholder value. And I believe Colgate-Palmolive has the brands, the global footprint and the people to deliver. So with that, I'll turn it over to the Q&A.

Dara Mohsenian:

Hey. Good morning, guys.

Dara Mohsenian:

So another impressive quarter of organic sales growth. And as you mentioned, the CAGR is accelerated on a multiyear basis, but it was driven by pricing more than entirely. And obviously, from here, we're going into a period where we're cycling higher pricing. So can you just talk about, conceptually at a high level, how you think about the balance of organic sales growth going forward, level of visibilities that volume can come back as pricing drops off? And maybe within that question also, if you could just touch on the global Oral Care share and the performance in the quarter and prospects going forward, that would be helpful also. Thanks.

Operator:

Our next question will come from Filippo Falorni of Citi. Please go ahead.

Noel Wallace:

Sure. Let me just come back to a quick finish on Dara's point. He asked about market shares. Dara, so our market share -- global market shares are up on toothpaste around the world. Strong growth obviously in Europe, a little softness in North America, as you've seen in the scanner data. And we're obviously addressing that as we go into the back half. Latin America shares look good. Asia shares look good. Africa shares look really, really strong. We're up or flat in all the 11 markets where we read shares there. So overall, oral toothpaste shares are pretty good. Filippo, on your question with regarding the pricing, certainly in some of the higher inflationary markets, we will probably still see pricing in the back half of the year. Take Turkey, take Argentina, take Pakistan and some of the other higher inflationary areas around the world. We took pricing in the second quarter in North America. Obviously, that had some impact on volume in the quarter. But we'll see deliberate and very focused pricing where we have margin pressure. On the Hill's business, clearly, we've seen ag prices accelerate through 2022 and into '23. So we're taking pricing commensurate with that as we move into the back half. But it will be more isolated and targeted the bigger price increases are in the P&L. And as you heard us talk about, we took a lot of pricing in 2022. About 58% of the pricing in the P&L this year is flow through from last year. So we still have a little bit to go, but most of it is in the P&L already.

Bryan Spillane:

Hey. Thanks, operator. Good morning, everyone. Hey, Noel. Maybe just kind of tying it back to -- maybe this ties back to Dara's question. But in the prepared remarks, you talked about -- on a percentage of sales basis, SG&A would be up in North America, Europe and Hill's to support volume acceleration. And I guess, as we look through the results, it looks like it's been pretty good in Europe, like, you've gained share. So maybe if you can, for some context, in terms of that investment, how much of it is – like, where has each of those geographies progressed relative to the investment? Is it right to read that you're having an impact in Europe and you still have some catch-up to do in North America? Just want to get some color on that.

Operator:

Our next question comes from Andrea Teixeira of JPMorgan. Please go ahead.

Noel Wallace:

Sure. Thanks, Andrea and good morning. So on above the line expenses, obviously, when you're in an environment of inflation and recovering cost and taking pricing either through list prices or revenue growth management, it involves a reallocation of your promotional dollars for two reasons. One, you want to ensure that when you're taking list price increases, you see that pricing in the market and you get consistency of implementation around the retail environment. So that was an important part of the second quarter pricing we took in North America. To do that, you need to pull back on some of your promotional volumes. That was done, one, because some of those promotional volumes are unprofitable. So as I mentioned earlier, we are very focused in North America on building brand health and getting back to consistent delivery of share growth with advertising and innovation through simply -- and simply taking some of the reliance on promotions away. Did we pull back a little bit too much perhaps? But we're going to be very thoughtful moving forward on how we put grocery net back into the North America business to ensure that we continue to grow margins and obviously grow share at the same time. But we will ensure that, that happens in the back half. But I can tell you that we're going to be very thoughtful on how we approach all the categories relative to promotions to ensure we maintain the margins in the P&L. And around the world, I think we were quite consistent with the above the line where we had list price increases. We were managing promotions. We'll have a little bit easier comps as we've talked about on pricing -- harder comps on pricing in the back half, but easier on volume. So I think we'll see a better balance between our organic growth as we move through the back half of the year, but we'll still see a little bit of pricing moving through, as I mentioned, upfront. On the margin line, clearly, very pleased with the progress that we're making both at the gross profit level and the operating margin level. And I remind everyone that our gross profit does not include logistics and cost of goods. So if you take logistics, obviously, we had a very strong quarter relative to gross profit acceleration. And our SG&A was down despite the fact that we took a 20% -- we implemented a 20% increase in advertising. Let me turn it over to Stan. He can give you a little bit of color on how we're thinking about raw materials phasing out through the balance of the second half.

Operator:

Our next question is from Olivia Tong of Raymond James. Please go ahead.

Noel Wallace:

Sure. Thanks, Olivia and good morning. I'd ask you to reference the Q on details on logistics. There's a lot more detail in there. And if you're not finding what you need, obviously follow up with John and Stan afterwards. On the volume cadence, certainly, as you look at the back half, as I mentioned, the comps get much easier. But despite that, we're going to be very deliberate in how we think about volume creation in the back half. We’re going to be thoughtful, as I mentioned, continuing to focus on the structure of the P&L, which we believe is absolutely imperative for the long-term sustainability of the company. We think that we can keep the gross margin accelerating, we’ll keep the advertising in the P&L and not simply chasing unprofitable volume. So we’re going to be very focused on that. That being said, we do expect a slightly heightened promotional environment in the back half. As cost tend to level out, we’ll see probably a little bit more promotions. I will say that around the world today, we have not seen an elevated promotional environment. We are recently starting to see more volume being sold on promotions but not the frequency of promotions there or the depth of promotions in the market. So that’s an important aspect. But we’re going to be very deliberate in how we think about the promotional cadence in the back half, probably a little bit more in the U.S. But the rest of the world will be very targeted where we see competitive needs to put more money there. But so far, it’s been quite constructive. And we continue to believe pushing our brands through innovation and top – and advertising is the healthiest way to grow the business longer term.

Jason English:

Hey. Good morning, folks. Thanks for swapping me in. Stan mentioned earlier the elevated degree of inflation that's continuing to impact, but also the new price increases. How should we expect them to translate into margins? I mean, it's good to see the moderation in gross margin expansion this quarter. But we're still down a lot from where we were. What is the right level of profitability for that business on a normalized basis and what is the pathway to getting there?

Operator:

Our next question will come from Steve Powers of Deutsche Bank. Please go ahead.

Noel Wallace:

Yeah. Thanks, Steve and good morning. I'll take you back to CAGNY, when Eve (ph) presented a lot of our digital advancement and the digital transformation and ultimately how our focus on digital advertising is yielding a much higher ROI, we have the ability to analytically measure that much more effectively than we have in the past. Our copy effectiveness is getting much better. So we're seeing the efficacy delivered there through the brand health measures that I talked about earlier. We're obviously spending more money on generating first-party data. That allows us to obviously look more holistically across the market and get more targeted media that's more personalized and effective, which has been terrific. And as I mentioned upfront, the non-promoted volume share in the U.S. is a big metric for us because that clearly indicates that our advertising is driving more non-promoted share. So we were up about 100 basis points in non-promoted share and that's excellent. That's exactly what we want. Now we may have pulled back, as I mentioned, a little too much on the promotion, but we'll get the balance right as we move forward. So the efficacy overall, we're very pleased. And that's clearly demonstrated in some of the market share performances as we have around the world, where we've had elevated advertising to support that, particularly across some of the brands -- non-Colgate brands. I mentioned Sanex in Europe. We talked about the Suavitel business and the Axion business in Mexico, which is obviously well supported. So overall, we see a more healthy balance of advertising across our categories. And over time, this is going to lead to more sustainable growth.

Robert Ottenstein:

Great. A quick follow-up and then my other question. Where your volumes are down, particularly in the U.S.? Has that gone to competitors or is it more of a function of consumers postponing purchase or orders being postponed? So that's just kind of the follow-up. And then my main question is, where you see yourself in digital and e-commerce. Arguably, a few years ago, you were unsatisfied and have made a lot of investments and they're certainly panning out particularly in China. Do you believe that you're kind of where you need to be, to be fully competitive globally in digital and e-commerce now? Thank you.

Operator:

Next question is from Lauren Lieberman of Barclays. Please go ahead.

Noel Wallace:

Yeah. Thanks, Lauren and good morning. So you saw the results, another really strong organic sales growth for Latin America. And pleasingly, after five quarters of double-digit pricing, we saw volume improve in Latin America. And I think this is a good proxy for as we think about pricing in other markets and coupling that with strong advertising, ultimately the volume will come back. It's a quite resilient consumer. They're accustomed to inflationary pricing. But as long as you’re bringing a collection of strong innovation and continuing their brand support, which is vitally important to come out of these tougher times with stronger brands, you see the volume return to category. So both Mexico and Brazil delivered volume growth in the quarter and both had very strong growth organically given the fact that they also took pricing. So overall, really pleased with what we’re seeing in Latin America. And likewise, we’re seeing the velocity and the turns improve more than we anticipated given some of the inflationary pressures in those markets. Now we shall watch it very carefully as the inflation continues to mount. But overall, structurally the P&Ls are in good shape, and the consumer seems to be quite responsive to the innovation and the pricing that we’re putting in the market. So overall, we feel we’re in a very good place.

Mark Astrachan:

Yeah. Thanks and good morning. Wanted to ask a question on the Hill's business. Again, just maybe thinking about category than your business. So how are you thinking -- or what are you observing from the category standpoint? We can obviously see somewhat U.S. data, but curious how you think about it around the world that volumes overall are a little bit weaker. How much of that is a reflection of just all the pricing that you and your competitors are taking? Is there some of just sort of pause within the category over the -- after the last couple of years of really strong growth and adoption levels? And then longer term, how do you think about -- and maybe this goes to Jason's question a little bit, but how do you think about the contribution to price and mix and volumes for that business over time? And how does that contribute to improving margins relative to where we are? Thanks.

Operator:

Our next question is from Chris Carey of Wells Fargo Securities. Please go ahead.

Noel Wallace:

Let me -- Stan answer the logistics question, then I'll get back to your North American question.

Noel Wallace:

Chris, on North America, so I think you said it well. I mean, we're looking very deliberately to improve the structure of that P&L as we move forward. Again, it's -- the inherent objective there is to improve brand health. So we will clearly continue to fund advertising. We will be very choiceful on where we start to look at elevating promotions to recover some of that promotional share. Our focus is driving non-promoted share moving forward. But we need to be careful that we're not pulling back too much there. So we'll monitor that moving forward. And we'll see, I think from quarter-to-quarter, there will be a little bit of volatility in the gross margin line as we move forward as we see costs ultimately level out and where the pricing and the mix ends up. But we feel good about the back half relative to our ability to continue to drive operating margin expansion. I remind everyone that North America -- the North America HPC business is about 20% of our total business. And what is so nice about the Colgate business is that we have such diversity of our business around the world that as we need to fund opportunities in North America or Asia, we will have the ability to pull from certain regions around the world. So we’re well balanced in that regard. And I think North America has a good plan for the back half and we’ll be very deliberate on their spending and their focus on recovering some of the share loss that we’ve had in the quarter.

Peter Grom:

Thanks, operator and good morning, everyone. So I wanted to just circle back to the top line growth, which the second half organic sales guidance is still relatively wide and implies a decent slowdown, which makes sense as you start to cycle pricing. Can you maybe just talk about the moving pieces that would put organic revenue growth at the higher end or the lower end of that range as we move forward here? And maybe specifically, you mentioned several times throughout this call the sequential improvement on a two-year stack for volume. And just given the step up in investment innovation, should we expect that trend to continue as we move into the back half of the year? Thanks.

Peter Grom:

No. It was just the sequential improvement on a two-year stack basis. Just recognizing that the comps get easier, if the two-year stack improves, what does that actually imply? Because it would seem to imply it does improve that there could be some nice improvement in return to volume growth in the back half of the year?

Operator:

That concludes the Q&A portion of the call.

Operator:

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Operator:

Good morning. Welcome to today's Colgate-Palmolive 2023 First Quarter Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Faucher.

Noel Wallace:

Thanks, John, and good morning, everyone. As you can tell from our press release and the earnings materials, we had a strong start to 2023, and the momentum on our business gives us confidence to raise our net and organic sales growth guidance and to raise the lower end of our base business earnings per share growth guidance for the year. We did this because with the quarter of the year gone, we see less risk from some of the macroeconomic and geopolitical issues that we were concerned about earlier in the year. That said, there is still notable uncertainty surrounding the balance of the year, particularly in the second half. Since the commentary focuses on the results, I want to focus my remarks on three of our priorities that Colgate people are focused on. Priority one is driving organic sales growth as we face tougher comparisons. We will utilize our enterprise-wide capabilities in innovation and revenue growth management, along with a firm commitment to marketing spending to return to a balanced algorithm of pricing and volume growth. The pricing we have taken over the past two years helps provide us with the flexibility to fund increased brand investment to support our pricing, build brand health, and drive volume and household penetration. We know that the competitive environment is going to be difficult, but we have a brand portfolio that is built for times like these, and we look forward to driving growth and market share performance moving now. Priority two is delivering our productivity to fund the brand investment while we're also delivering on our earnings targets. We had a strong start to the year for both Funding the Growth and our 2022 global productivity initiative and we are laser-focused on delivering against or exceeding our goals for the year. We still foresee year-over-year headwinds to earnings per share growth from raw and packaging materials, foreign exchange and below-the-line items, so driving productivity in the middle of our P&L is vital. And finally, we are focused on improving our cash flow performance. Again, we had a strong start to the year with both operating cash flow and free cash flow up and we know there is still opportunity for further improvement. We will utilize this cash flow to fund the growth in capital expenditures to return cash to shareholders through dividends and to drive earnings leverage through paying down debt and repurchasing shares. So I'm pleased with how we started the year, but I'm also well aware of the challenges and uncertainty ahead for us. Colgate-Palmolive, however, has the brands, the capabilities and the people to deliver in this environment. So with that, I'll take your questions.

Dara Mohsenian:

Hey, guys, good morning. So clearly, strong top line results in Q1, but we're also obviously in a period of outsized pricing. And the question is sort of where do we land as the pricing trails off? So just A, just can you discuss your confidence that volume will recover going forward as pricing drops off? I know it's a bit of an unanswerable question at this point, but how do you think about that dynamic ahead of time and manage your business to drive sustained volume growth as you look out longer term? And B, maybe as a bit of a window into that performance when category pricing drops off, can you just talk about your market share performance in Q1 in some of your key regions and product categories and if the strategies are working in terms of driving improved market share trends?

Operator:

Our next question today will come from Filippo Falorni of Citi.

Noel Wallace :

Yes. Emerging was strong. You saw obviously double-digit organic in the quarter. Sequentially, again, volumes performing better than they did in the first quarter. And if you look at the pricing that we've taken in emerging markets, over the last three quarters, quite frankly, we're pretty pleased with the fact that the volume sequentially continues to improve. Now that being said, we've got strong innovation in emerging markets and you've seen the level of advertising that we're putting back into the business. That gives us, again, confidence that we're able to sustain that advertising as we move into the back half of the year, and we intend to continue to do everything we can to increase that advertising support in the back half, particularly in emerging markets in order to

Peter Grom :

Thanks, operator, and good morning, everyone. So I appreciate all the commentary on inflation in the prepared remarks. But maybe as a point of reference, Stan, is the $300 million to $400 million headwind that we discussed on the last call, is that still a reasonable range? And I guess what I'm trying to get at is the dollar impact from the 770 basis point headwind in the bridge, this morning you’re you pretty close to that range from a dollar perspective. So -- and I realize there's more than just inflation in that line. But is there just any way to frame either what inflation was within that number? Or how to think about that component of the bridge more broadly as we move through the balance of the year?

Operator:

The next question will come from Kevin Grundy of Jefferies.

Noel Wallace :

Sure. Thanks, Kevin. Yes, we're really pleased with the level of advertising we're getting in the P&L, and that is obviously driven by the circular nature of how we're driving the business, obviously, more advertising is driving the top line, and we're able to get more leverage to the P&L to continue to support that. And we feel as we move out getting the pricing in the P&L was critically important to sustaining and increasing our levels of advertising. We've obviously moved more money into digital. We're seeing great ROIs on digital and our programmatic and the personalized content that we're delivering in the market. We're seeing growth in market shares relative to where we're spending the money, particularly around the Hill's business, and our Oral Care and Skin Health businesses. So we're really pleased with the fact that the advertising levels continue to deliver against the expectations that we have. And we balance that off with obviously a broad portfolio of offerings that we think are attracting and building the brands that we speak. We have high household penetration, with many of the brands around the world, our ability to drive reach and continue to sustain that reach is very, very important to the growth that we're seeing in the business. As we look forward, we would anticipate to continue to spend behind those businesses. We still have some businesses, in my view, need more support, particularly businesses in parts of Europe and some of the categories in the U.S., and we would expect to continue to fund those as we get more gross margin accretion through the back half of the year because we're seeing the results. And ultimately, the brand equity, which is obviously the big testament to the brand support and how are we getting what we want out of it continues to show a strengthening of our brands, and that bodes well for continuity and sustainability of the growth moving forward, and that's how we're kind of running that flywheel right now, continue to invest, drive leverage in the middle of the P&L, accelerate the top line and ultimately deliver better margins, better earnings per share for our shareholders.

Olivia Tong :

I wanted to talk a little bit about gross margin. Clearly, Funding the Growth start of the year materially better than expected. I imagine it's a function of supply chains improving a bit, if you could expand on that a bit. And then usually, your savings contribution build as the year progresses. So should we assume sort of a regular quarterly cadence from here? Or is there something onetime-ish that happened this quarter to result in the strong Funding the Growth contribution?

Stan Sutula:

Yes. Thanks, Noel. And just a quick comment on the FTG. Noel highlighted that we had a very strong start here. That SKU, I think, is going to be a little bit different than prior years. In prior years, you saw build through the year. This was very deliberate. Supply chain has moderated in terms of the volatility around that. In particular, the Hill's team has actually had time to work on some of these as we've had a little bit better improvement in capacity utilization. So the strong start we have to the year, I think you should think that this will be more equal as you go through the year versus growing through the year, so from a SKU point of view. And this is important because as we look at the material cost, there's still going to be a headwind as we go through the year. So we need that to help offset that impact. And then we have our GPI program, we continue to get benefit from that. You saw a small charge in the quarter, but the team is driving productivity throughout the P&L, not just in the GP line, but also in the MBO line as we look for things to offset that material headwind.

Chris Carey :

Good morning. So Stan, I just wanted to confirm one comment about commodities. I think it was somewhat clear. But to Peter's question, just around the $300 million to $400 million range, is that what you're expecting for the full year from an inflation standpoint? And then just a little bit related on the North American operating margin that has been stepping up kind of sequentially and then slowed a little bit this quarter, obviously. I would have thought maybe with the transportation and logistics relief and building productivity and a little bit of easing inflation, maybe that can keep going, but I know there was obviously some noise with the North America business this quarter with recall and otherwise. So is there any way you can maybe just unpack that North America margin performance and where you see things going? So thanks for that clarification on commodities and the comment on North America.

Noel Wallace :

Yes. Maybe a couple of things. So as Stan said, obviously, operating profit was up nicely, which has been the big focus for our North America business. We were up roughly 300 basis points on operating profit in the first quarter. So we feel we're making the right step, taking the right decisions and making the right progress against the middle of the P&L, particularly around gross profit and controlling our overheads and managing logistics. So that was an important element, and we're making sure that, that progress has been reinvested in the business. So a couple of other highlights on North America. Obviously, ex-Fabuloso, volume would have been up on the quarter, great quarter for toothpaste. Toothpaste was up double digit in the quarter for North America with growth, including volume growth on that business. Toothbrush is a little softer. You remember, we were lapping a resupply of our product last year and some out of stock from some of our competitors. So volumes were a bit down there. Personal Care, up high single digits. Home Care was soft, as we mentioned, due to the Fabuloso recall. But overall, really good progress. The other aspect to North America that I would call out is the significant progress we're making in non-measured channels. And again, this is part of our strategy of growing in faster-growth channels, where we saw significant growth in non-Nielsen channels, which was terrific for North America and has obviously helped to drive some of that top line growth. So overall, a good quarter for North America, very focused on the middle of the P&L moving forward, and we see opportunities, but the good news is we're seeing good progress on the top line, and that's translating to the P&L.

Stan Sutula :

Yes, on the operating margin, it's up year-to-year versus fourth quarter, you see it's down about 100 basis points or so. And that's really driven by the Fabuloso impact, combined with the increased investment in advertising as we're bringing both innovation to market and supporting the pricing that we've taken in the market.

Nik Modi:

If I could just ask a quick clarification on the raw material, the ag stuff. Stan, can you just give us any more detail on exactly what ags are causing the pressure and what's driving that? And then my broader question is Noel on the whitening innovation and just the whitening strategy. I'm just curious if you've done any halo work on the impact it has on the core Oral Care franchising or toothpaste. Any perspective around that would be helpful.

Stan Sutula :

Yes. And Nik, on the commodities, it's kind of across the board with most of the ag. So corn, wheat, soybean, the risk of the drought in the U.S. and the effect on crops, even though some other areas of the world are a little bit better, the risk of Ukraine, all has been pushing pressure on that. Don't forget as well that the protein side of this, things like chicken livers, et cetera, with some of the impacts that have been out there has all put pressure on Hill's. That remains the real driver of that $300 million to $400 million range.

Jason English :

Hey. Good morning, folks, and that's a great segue because I wanted to talk about Hill's actually on it. Good quarter, obviously, enough for Hill's with the profitability and the margins. We've lost over 1,000 basis points in margin in the last few years. I was hoping you could unpack the components of it, and the cadence at which you can recover, if you were to recover them. So how much are we looking at from the mix effects of recent acquisitions? And what's the cadence of bringing your capacity on there and improving that? How much is related to like the slack capacity, the underutilization of the assets that you're standing up and maybe some of the stress in the supply chain as a result of past utilization? And then I think the third bucket and tell me if there's other buckets, I think the third bucket is the pricing at the cost. How large is that bucket of the roughly 1,000, and is it reasonable to think that could come back? And if so, when? Sorry for the multipart.

Stan Sutula :

Yes. Let me pick up here. So first, if you take a look, these investments in the business and if you look at the net sales, keep in mind, you go back just a couple of years ago, we're up well over $200 million quarter versus first quarter of 2021. So the investment in the brand is paying off. If we look at margin, the private label has -- what we said as a 90 basis point impact to the total company has slightly over 400 basis points impact to Hill's. So as you take a look at that margin impact, that is a material impact to Hill's on a GP basis. Now through time, that private label will wind down, and that will be over the next couple of years as we slowly wind down that contract and then backfill it with Hill's volume at Hill's margin. Now as we've already talked about, all of the raw material impact inflation has predominantly been against Hill's also impacting their margins. But keep in mind, they've taken significant pricing here over the last several quarters, and that is helping to mitigate this. And the fact that we're now, as the Red Collar facilities have come on, that's helping us manage utilization, not just a Red Collar but of the entire manufacturing footprint. That's enabled Hill's to contribute materially to the funding of the growth savings. So I think where Hill's is right now is well positioned. I think we'll see sequential improvement in margin as we go through the year. We're going to manage that carefully so we can continue to supply our clients and we saw material improvement in case fill rates coming out of first quarter.

Bryan Spillane :

I just -- I've got a quick clarification first for Stan. I think in the guidance, we talk about net interest expense maybe going higher than your original plan. So could you put some -- maybe if you can just put some color, put a number on that. And I'm assuming -- is this related to the refinancing? I think you refinanced some debt in March. So is it just related to the refinancing of the debt? Or is it exposure to like short-term financing variable rates? And then I have a follow-up.

Bryan Spillane :

Okay. Great. And then a question for Noel. Just you talked about, I guess, risks in the second half. And maybe if we just kind of think about that at a higher level, it sounded to me from listening to the Q&A and reading the prepared remarks that a lot of that risk is what the consumer may or not do, less so than concerns about volatility in input costs or supply chains? And risk has got a lot of definitions, right? So if you could just maybe talk a little bit about like what the specific risks are and maybe how Colgate is in a position to manage that risk maybe a little bit more -- with a little bit more agility than maybe was the case two years ago?

Operator:

Our next question will come from Lauren Lieberman of Barclays.

Noel Wallace :

Sure. Thanks, and good morning, Lauren. Let me take the second question first. The competitive environment will likely intensify particularly as you see costs come down, and that will be a function of both local brands and private label getting more aggressive. The good news is our categories. If you take North America and private label, we're benign, no progress in private label shares. So to speak, with the exception of a little bit in liquid hand soap and a little bit cleaner, a little bit more acute of private label growth in Europe. As you saw price discrepancies or the gap between private label and global brands increase, we'll see how that translates in the back half as we expect them to have to take pricing in the first quarter as we did as well. So we think local brands in private label likely to elevate in terms of their competitive nature in the back half. And as costs to stay flat in the back half, which is what I think we're hearing from most, we expect the competitive environment to increase in that regard. Obviously, you'll see more promotional volumes probably come into the category, but it's been quite constructive so far. I will say that, but we need to anticipate that things could worsen based on where the costs are, and we're well prepared for that. On your first question, volumes. So category volumes, if I take just the market volumes in general, flat to slightly negative across most of the world on the volume side, obviously, driven by the fact that there's so much pricing that's gone into both Oral Care, Personal Care and Home Care. If you look at us specifically, really strong growth on the Oral Care side, as I talked about, double-digit growth across most markets in Toothpaste, good volume progress in most markets on Toothpaste. So we're really pleased with what we're seeing there. Personal Care up mid- to high single digits depending on the marketplace. Both from a pricing standpoint, a little bit more challenged on the volume side given the strong pricing we've taken there, particularly in categories like liquid hand soap and bar soap. And on Home Care, mid-single digits to low single digits in terms of growth, depending on the marketplace. And that one has experienced a little more elasticity, particularly around the cleaner side of the business where we've seen more price competitiveness in that side of the business and a little bit more trade down. But overall, again, sequentially up and really pleased with sequentially up, given the fact that we had a lot more pricing in this quarter than we had in the fourth quarter. So good progress overall. We'll have to watch the volumes carefully, and we're all over that.

Mark Astrachan :

I wanted to ask about EBIT margin in North America and Europe. If you take a look at where you are today versus where you were a few years ago, it seems like it's outside of Hill's, one of the biggest drop-offs relative to historical levels. I appreciate inflation, FX, et cetera, but it also seems like maybe those markets are a little bit more competitive than some of the others. Is it levels of spend that is potentially impacted that? And kind of how do you think about progression of margins? Is it realistic to think that you could eventually know sort of timeline around that to get back to those levels? Why or why not would be helpful.

Operator:

Our next question will come from Stephen Powers of Deutsche Bank.

Noel Wallace :

Great. Thanks, Stephen. Let me take the Fabuloso and the Hill's question, and I'll have Stan come back to you on logistics. So the Fabuloso impact was Q1. It was a material impact to the North America volume line. We're not going to quantify that, but it was quite significant to the volume performance in North America. That is behind us as we move through into the second quarter. So we'll see the benefits of the Fabuloso business coming back into the P&L as we move forward. Again, if you take the Fabuloso business out of the North America number, they were up sequentially versus the fourth quarter of 2022 in volume. So it was a very time-driven event in the first quarter. And the good news is that's behind us. Tonganoxie progressing, as you know, strategically, that's a very important plant for us given the strong demand we have on the wet side of the business at Hill's and our inability to supply the current demand for wet products all around the world. So getting that plant up and running will be strategic for the continued growth of that business. That will happen towards the tail end of the third quarter. And we anticipate, obviously, we'll have some start-up costs associated with that as we move through the transition of that facility. But overall, we should see that benefit us moving into 2024, particularly at the margin line as our wet business is margin accretive to us and will certainly benefit the Hill's business longer term.

Operator:

Our next question will come from Robert Ottenstein of Evercore ISI.

Noel Wallace :

Sure, yes. Good morning, Rob. Let me take both those questions. First, on the non-measured channels. Again, this plays back to the strategy that we've been talking about for quite a few years now. And certainly, I highlighted again at CAGNY that we are very focused on growing channels that particularly are not measured by Nielsen, which are the faster growth channels, as you mentioned, e-commerce, club stores, discount stores, value discount stores. Some of the big box stores that we're seeing emerge in Latin America. So overall, in some of the new obviously platforms that we're seeing coming out of China, so this has been strategic and deliberate for us. And if you take the North America number, we've seen significant growth in non-measured channels to the tune of 4x to 5x what we're getting in measured channels. So obviously, good growth there. The key is to sustain that growth. Our e-commerce business was up double digit in the quarter, now roughly 14% of our total sales. So overall, and we're seeing good share growth in those businesses. In fact, if you take some of the progress we're seeing in China, very much driven by the strong e-commerce shares that we had. I demonstrated that at CAGNY. And in fact, since CAGNY, we've continued to increase our e-commerce shares in China, and likewise, in the brick-and-mortar business. So overall, we feel the strategy is working for us. Again, largely driven by the fact that we're supporting our businesses. We're using a wide spread of different mediums to grow brand awareness and brand penetration. Obviously, TV for a lot of reach and frequency given the scale and scope of our brands in many markets, but really fine-tuning behind our digital transformation, our ability to drive higher ROI spending in the digital space. And clearly, as we see more ROI coming, we see continued growth in terms of penetration, in terms of consumption, and in terms of ultimately delivering share growth and category growth for our retailers, we'll continue to elevate our spending. We're measuring it very quickly. This is not just for the sake of increasing spending. We want to be sure and absolutely deliberate and making sure that the spending is returning back to the brands, driving category growth. So there's not a specific number we're aimed at, Rob. We're looking to obviously continue to accelerate and sustain the top line and grow the health of our brands and we're seeing good results from the strategy we've put in the marketplace.

Fulvio Cazzol :

Mine is on the medium-term outlook for the Pet Nutrition category. How should we think about the medium-term growth prospects as the tailwinds ease from increased pet ownership during COVID, et cetera. And I was also interested in your view on the competitive standpoint, like if you're making some investments on capacity. And I think some of your peers are making significant investments. I think Nestle is doing quite a bit on manufacturing. Is there a risk that the supply-demand balance turns less favorable in the coming years and result in softening industry pricing power? So that's my question.

Operator:

Our last question today will come from Andrea Teixeira of JPMorgan.

Noel Wallace:

Yes. Thanks for the question. Clearly, as we've seen in prior challenging the markets with a lot of inflation, you kind of have the tale of two cities, which is the premium segment continues to grow and that's the area where we're under-indexed in. So clearly, that's fueling a lot of our advertising investment and our channel strategies, particularly in Oral Care and in the Skin Health business. So we see that segment continuing to grow. The middle getting squeezed a bit and the lower end with the point you made, a little bit more trade down into the lower end. Now remember that some of our lower end businesses, while the absolute margin dollars might be lower, the margin percent might be as good or better than some of our premium segments. So overall, we feel pretty good about the mix of our business, and that continues to be, in our view, a real advantage for our portfolio relative to the breadth of our portfolio. Relative to volume shares, particularly in the emerging markets, we have taken significant pricing in emerging markets. And we clearly done that to ensure we get the flexibility in the P&L as quickly as we possibly can, that we sustain the advertising numbers or increase them to drive the innovation and deliver the pricing, particularly for the premium side of the market. We've seen a little trade down, particularly more in the Home Care businesses. The cleaners segment, I would point out in the dish segment, a little bit of trade down, particularly in Latin America. Personal Care, holding up okay. Bar soap tends to be more price elastic than many of our categories. But we've seen a lot of constructive pricing from our competition. So there hasn't been a significant amount of trade down to private label as of yet, but we'll watch that very carefully. So Home Care a little bit more challenged, particularly around the Cleaner segment worldwide and Personal Care in the Bar Soap segment. Oral Care looks okay, as I mentioned, were up by double digit in Toothpaste with both positive pricing and positive volume.

Noel Wallace :

Yes. Thanks, everyone, for your interest in our company. And let me just extend a personal thanks to the 34,000 Colgate people who have worked tirelessly to deliver a stronger momentum in the first quarter, getting us off to a strong start for the year. We greatly appreciate their steadfast resolve and the innovation that they're bringing to the market and the strong execution. So I look forward to talking to everyone in the second quarter. Thank you.

Operator:

Good morning. Welcome to today’s Colgate-Palmolive 2022 Fourth Quarter and Year End Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I’d like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Faucher.

Noel Wallace:

Thanks, John, and thank you all for joining us this morning and I wish all of you a very Happy New Year. So I mostly wanted to focus on the year ahead today, as I think we are well positioned to deliver strong results in 2023, even as we plan for a difficult macroeconomic environment and continued uncertainty. That said, as we mentioned in the prepared remarks, we are pleased with the progress we made in 2022. We delivered organic sales growth in all four of our categories, including double-digit organic sales growth in Pet Nutrition and high single-digit organic growth in Oral Care. 2022 was our fourth straight year of delivering organic sales growth either in line or ahead of our 3% to 5% long-term target range and we delivered within or ahead of that range in every quarter over that time period, 16 consecutive quarters in all. And is the continuing strengthening of our strategy that has allowed us to grow consistently through different operating environments, as each year has presented its own challenges and its opportunities. But if we stay focused on driving the core, leveraging our capabilities across our portfolio, innovating in faster growth adjacencies and tapping into faster growth channels and markets, we will continue to grow. And in 2023, as we continue to execute on our strategy, we expect to accelerate earnings growth and generate incremental cash flow to drive shareholder value. Why are we well positioned for this year despite all of the uncertainty in the world today? It starts with our portfolio. We operate in four highly focused categories. Growing categories that consumers use every day and where they look to trusted brands to help themselves and their pets lead healthier lives. The focus on healthier lives means these consumers are motivated by science-driven innovation with professional endorsement, which is an area of particular strength for us. And the importance of trust in our categories helps keep private label penetration relatively low and allows for premiumization behind differentiated benefits. And within these categories, we have strong market shares. With most of our revenues coming from brands that have a number one or number two market shares on a global basis. The second reason is our focus on building, sharing and scaling capabilities to drive growth. I will continue to talk about our digital transformation as it impacts everything we do. This year we benefited from continued efficiencies in our digital media spending through data-driven modeling. Our efforts on innovation need to deliver over the long-term, not just the launch year, and we have shifted our resources to deliver more breakthrough and transformational innovation. In our prepared commentary, we talked about the share gains we are seeing in the whitening segment of the toothpaste category. It’s a long-term strategy of launching Optic White Renewal and then Optic White Pro Series in the U.S. or our new MPS whitening technology where we are launching around the world, which leverages our superior R&D capabilities to drive long-term share growth. And on top of that, we continue to launch at-home whitening and professional whitening products to enhance our credibility and expand our presence in the premium segment. And our focus on building revenue growth management capabilities, particularly through increased use of data and analytics is driving our pricing growth in ways beyond just list price increases. And the third reason is our strong balance sheet. Our combined financial resources provide us the flexibility to reinvest in our portfolio or pursue value-enhancing acquisitions like our pet food acquisitions, which enables us to drive faster growth. The final reason we are well positioned is the efforts we have put into offsetting the extraordinary cost increases we have seen over the past several years. We have driven consistent pricing and we look to take additional pricing in the first half of this year. Our Funding the Growth program delivered another strong year in 2022 and we expect even higher levels of savings in 2023. We announced our global productivity initiative one year ago and we began to see the benefits in our numbers in the second half of 2022. We expect even greater savings in 2023 to help fund investment and drive operating margin expansion. So we believe we are well prepared for 2023, but there’s still a lot of uncertainty in the world. The macroeconomic environment outlook remains volatile, which can impact consumer spending. China remains a question mark as the country emerges from COVID lockdowns. While raw materials and foreign exchange remain headwinds, they look less onerous now. But as we learned last year, that can change quickly. So we head into 2023 with topline momentum and a proven strategy, with the right brands, the right capabilities and the right efficiency drivers to deliver topline growth and improve our bottomline performance. And with that, I will turn it over to the questions.

Dara Mohsenian:

Hey, guys. I just wanted to touch on the organic sales growth guidance for next year coming off a strong Q4 result and the strong pricing we are seeing. I am assuming more than all of that perhaps is driven by pricing and volumes will be down slightly, A, maybe is that correct, and then B, it just be helpful to get a bit of commentary on each of those areas. What are you seeing from a competitive standpoint on the pricing front, and then B, as you think about volume and the demand elasticity you are seeing from a consumer standpoint to pricing, any changes sequentially at all and how are you feeling about that front heading into 2023 here? Thanks.

Operator:

Our next question today will come from Andrea Teixeira from JPMorgan. Please go ahead.

Noel Wallace:

Sure. Thanks, Andrea. Good morning. So let me talk a little bit about volume performance around the world and more sequentially as we went through the quarter. Volume improved in the fourth quarter versus third quarter and that volume improvement came despite obviously an incremental point of advertising, excuse me, of pricing, which you saw at 12.5%. So, overall, we are pretty pleased. Some of the drawbacks on volume, as we discussed in the prepared remarks, obviously, skin health had a challenging quarter from inventory reductions, particularly in the online world. We saw those inventory reductions, particularly here in the North America business, and obviously, a significant inventory and volume softness in China due to COVID on the Filorga business. So that really pulled down quite a bit of the volume. You obviously have the Russia impact, which we would quantify to roughly around 30 basis points. Elasticity, as I mentioned early on, were very much in line and consistent around the world, slightly higher elasticities in Europe, but that should be expected and consistent with history, but very much in line with where we expected. A little bit more inventory reduction in India than we expected, particularly in the rural as the rural business has not come back nearly as quickly as we anticipated in the fourth quarter. We expect that, though, to come back in 2023. So, overall, that was very much driven by some inventory reductions we saw on skin, a little bit in the drug classic [ph] trade in the U.S. Likewise, the softness that we saw -- a continued softness we saw in the China skincare business. But, overall, volumes improved versus the third quarter and to a certain extent, more or less where we expected. We did not expect a further deceleration of inventory pullback in the U.S. on the skin business. So in terms of exit rates for Europe, if I characterize Europe in general, a strong share growth across the Board and mid-to-high single-digit organic sales growth in Oral Care and in Home Care, which as you rightfully pointed out, was offset by the weakness in Personal Care, which was principally Filorga, China. But, overall, shares are strong in Europe. We seem to be getting our pricing through. Negotiations continue to go quite well. However, categories have been rather soft in Europe given the amount of pricing that, that market has experienced and the sheer inflation that the European economies are incurring today. So, overall, I feel pretty good about Europe. The good news is the shares are strong and we are getting the pricing through and we feel we are set up for a good year in 2023.

Kaumil Gajrawala:

Hi. Good morning. On your commentary on shares…

Kaumil Gajrawala:

Hi. On your commentary on share, you seem quite pleased with share trends. Can you maybe just dig into that a little bit volume versus value, are your shares -- do your shares look -- are you equally as happy with your share in volume terms as opposed to in value?

Operator:

The next question is from Chris Carey of Wells Fargo Securities. Please go ahead.

Noel Wallace:

Good morning.

Noel Wallace:

Yeah. Let me take the kind of strategically how we position the P&L particularly around growth and investment and then I will let Stan take you through some of the constructs on how we built internally gross margin and operating margins. As you rightly said, we are really pleased with the operating margin improvement that we are seeing moving through the P&L and that will continue allowing us to fund more advertisers. So as the prepared remarks indicated, we intend to continue to invest behind the business and we have seen great response to the strategy that we have executed over the last couple of years. Obviously, the core adjacencies and channels behind increased investment is driving very strong organic growth in the category and up 5% dollar in the quarter despite significant foreign exchange headwinds. We talked obviously through the back half of this year, the need to continue to invest in Hill’s business once we had more capacity coming online, and that has obviously started to happen in the fourth quarter, and we expect that to obviously continue as we move into 2023. So we will continue to accelerate our investments in the Hill’s business in order to reap the benefits of the incremental capacity that we have. Good momentum on Oral Care and strong innovation and a lot of pricing that we have taken across a broad section of categories and we want to ensure that we have the investment there to generate to get the pricing seated in the marketplace and continue to drive consumption growth for our retailers. So, overall, it will be another year of good investment, a good share growth we expected, and obviously, good topline growth coming through the P&L. Let me turn it over to Stan to kind of take you through how we bridged some of the aspects around gross margin and operating margin.

Operator:

Our next question today will come from Peter Grom of UBS. Please go ahead.

Noel Wallace:

Sure. As you saw in the fourth quarter, obviously, a continued difficult environment in terms of raw material inflation, another 900 basis points on top of what we had in the third quarter in terms of a headwind on gross profit. A good percentage of that continues to be ag prices, which obviously, have continued to move south on us. And in fact, if you look at the first half versus second half, Peter, ag prices were up 25%. So, obviously, that continued to impact the Hill’s business. On top of that, as we integrated the three Red Collar facilities and began transitioning some of the high capacity volume business that we had in our own plants. We obviously incurred some startup costs and some variances moving through the P&L that obviously impacted margin in the quarter as well. And then I’d also characterize, as I mentioned, that obviously, the inventory reductions we saw in skin health and the drag from China on the skin health business likewise had a mix impact in the quarter. With that, let me turn it over to Stan to see if he has any more information in terms of how he wants -- we want to characterize how we are thinking about raw materials for next year.

Operator:

Our next question today is from Kevin Grundy of Jefferies. Please go ahead.

Noel Wallace:

Sure and good morning, Kevin. I think you characterized that well. So let me just recap quickly a couple aspects of skin health and I will turn it over to Stan and John for the second part of your question. The impairment was obviously based on three issues. The biggest change is our outlook on growth in China. You have seen, I think, external numbers that the Beauty segment has taken a significant hit in the last three months to six months, in fact, imports were down 20%. And given the prolonged impact of COVID in China, particularly as it impacts travel retail, which were a significant portion of our businesses, we obviously then decided to rebase the outlook in years going forward and particularly 2023 in a much more conservative position to ensure that we can deliver on the growth aspects moving forward. Secondly, the situation in China regarding tourism around the world, as you followed our business on Filorga, it really went with Chinese travel, and as Chinese travel opens up potentially in the back half, we will see an improvement. But we assumed in the impairment that, that will continue to be a headwind for us as we move through at least the first six months of the year, slightly improving as we move through the back half of the year. And then as you well can understand the significant rise in interest rates has lowered the value in our discounted cash flow. But let me step back for a moment. Again, we continue to be very confident in our strategy around skin health. Obviously, the short-term impacts that we have had related to China, we believe ultimately, we will get behind us, but we have obviously been conservative in our assumptions on Filorga. We went into 2022, assuming China would open up and it didn’t. But we feel good about where we are. We have seen some early signs, certainly in the early part of the year, particularly across our European business on Filorga to give us quite a bit of encouragement. Our U.S. business continues to be very, very strong, despite the inventory pullback that we saw in the fourth quarter. If I take our online business specifically, our share growth was up 300 basis points online in the back half of last year and on the year, which is terrific. Obviously, we incurred that share growth despite, obviously, inventories getting reduced. We do expect some of those inventories to come back slightly, but we are obviously assuming a considerable amount of conservatism there because we can’t be sure that particularly the online retailers will take inventory up as quickly as they took it down. Our business overall continues to grow very, very nicely, particularly in the professional channel, which is the core part of our PCA and Elta business, and we have a good innovation plan coming on stream for 2023. So, overall, we still feel very good about the strategy behind skin health. Need China to turn and you have heard a lot of discussions about the uncertainty in China, but we think we have positioned the brand. So, obviously, as China comes back, we will be in a position to reap the benefits of that.

Noel Wallace:

Kevin, the only thing I would say relative to M&A strategy and capital deployment is our preference is still to deploy capital internally to our projects, because we are a big believer in return on invested capital and that generates the highest incremental returns. And so if you look at the investment we are making at Hill’s and capacity, if you look at the investment we are making on some of our sustainability projects, Red Collar honestly is a little bit of both, right? It’s M&A, but it also is an investment in internal growth, because we think that Hill’s is one of the best growth engines we have. So I don’t think there’s any change in our capital allocation strategy, invest internally, we would like to pay a healthy dividend and the Board helps us develop the dividend strategy longer term. Then we will look at projects when the valuations are appropriate and we will see what happens with valuations in the market right now. I think the market is still somewhat influx from that standpoint.

Operator:

Our next question today will come from Olivia Tong of Raymond James. Please go ahead.

Noel Wallace:

Good morning, Olivia.

Noel Wallace:

Sure. Good morning, Olivia. Again, as I mentioned earlier, Oral Care had a really, really strong year, high single-digit growth across the year and the quarter and we were high single-digit in Oral Care on three of the last four quarters and toothbrushes specifically up double-digit three of the last four quarters. Some of that was some easier comps as we were lapping some of the supply chain challenges that we had last year. But the important aspect there is share growth up on the year for both Oral -- toothpaste and toothbrushes. Specifically around elasticity, I think, it comes back to the strategy that we talked about for a couple of years now, which is the flexibility in our portfolio. We continue to innovate across all price points and we cover a wide gamut of price points, from opening to now, obviously pushing a lot more of the super premium segment, which you saw some of the examples of the success we are having in the whitening segment in that regard. So, overall, our categories -- our portfolio is well positioned for this environment. We spend a lot of time as we work through the operations around the world to ensure that we have value-added benefits to every price point within our portfolio and we are flexing our portfolio in different ways over the last couple of years and we are seeing that certainly translate into improved performance. Elmex would be a great example. Taking Elmex very selectively in the pharmy channel -- pharmacy channel around the world has allowed us to grow incremental share in those businesses. The other aspect I’d say is our core re-launches. We will have a significant core re-launch coming on the India business next year. We have re-launched our core business in some of our bigger markets around the world and that has helped some of the premium innovations come on incrementally to the franchise moving forward. So we feel pretty good about where we are with Oral Care. Elasticity is exactly where we expected and I think driven by a combination of the flexibility we have in our portfolio in addition to the innovation that we are bringing to the marketplace.

Nik Modi:

Thank you. Good morning, everyone. Noel, I was hoping…

Nik Modi:

… maybe you could provide some -- a little bit more context on what you are seeing on the ground in China right now. It’s interesting you mentioned you think the recovery will happen in the back half, so I think there has been projections by other companies and just by looking at some of the mobility data that things might start improving around March to April and we are already starting to see kind of we track the metro activity in China and starting to see some real improvements there. So just curious on your thoughts there given how important that business is for the -- on the margin side given the skin care mix?

Operator:

Our next question will come from Jason English of Goldman Sachs. Please go ahead.

Noel Wallace:

Hey, Jason.

Noel Wallace:

Yeah. Thanks, Jason. As you said, we have coming off of some of the challenging capacity issues that we had in the third quarter, we feel like we have certainly turned the corner on that business. Again, a double-digit growth in the quarter, that’s 27% growth on a two-year stack basis and we have delivered double-digit growth on the Hill’s business 10 to 12 quarters and we feel with the capacity improvements that we have and obviously the continued increased investments that we feel we are in a very good position to deliver sustained profitable growth moving forward. Now, as I mentioned, ag prices were just up 25% half-to-half. Now you take that on the year versus last year, that’s significantly more. I will let Stan talk in a moment to our hedging strategy, which is very minimal around ag prices. So we don’t get a lot of -- we don’t do a lot of hedging there. But, overall, it’s taking pricing. It’s making sure that we continue to move through the transition aspects of incorp -- integrating three plants and moving capacity from our existing plants into those plants. So there’s startup costs associated with that, obviously, we are building a new web plant, which should open up towards the back half of the year. We have the startup costs associated with that running through the P&L. But all of it is around building investment ability for the future for us and our ability to continue to sustain the strong topline and the strong investment structure that we have by investing in capacity and allowing us to do the things that we do so well in the marketplace. So we feel good about where the business is. Obviously, the ag prices will be where they are and we are taking pricing, as you have seen both in the fourth quarter and plan to take more pricing in the first half of this year. But, again, if ag prices come back, things will get better, but we at this point don’t expect any short-term benefits for ag coming back.

Noel Wallace:

Jason, I’d throw one other point, which I think is relevant to not only Hills, but to other aspects or other questions that have come up this morning. And that is the foreign exchange impact in Europe in the quarter, obviously, the second largest business outside the U.S. for Hill’s is Europe and Europe had 11% headwind in foreign exchange and that obviously moved through the Colgate side of the business as well. Now you have seen the significant pricing that we are taking, but obviously, the transactional impact as well as the translational impact of that foreign exchange moved through in the fourth quarter, and certainly, dampened a little bit of the penny profit that we would have expected.

Steve Powers:

Hey. Thank you. So picking up a little bit on what you were just talking about in terms of startup costs, but also the manufacturing variances and the negative mix that Noel you alluded to earlier with respect to the fourth quarter. I guess, a couple of questions related to that. One is, I assume that’s lumped into the raw materials, the 920-basis-point negative impact of raw materials, I don’t know where else it would go. So if that’s the case, I guess, is there a way to quantify what those sort of to me, non-raw materials costs would have been or were in the quarter as a headwind, number one. Number two, how we think about those carrying over and phasing at least into the -- I presume the first half of 2023. And then just to clarify and round it out is, are those are those impacts embedded in the several hundred million dollar raw and packaging materials inflation outlook for next year, just because I think it’s a little bit different than raw and packaging materials as sort of narrowly defined. That’s really my -- those are my main questions. If you could also talk a little bit about how you are thinking about Red Collar phasing through the year, and just operationally, what that entails, if there are costs, whether cash costs or costs that are notable going to the P&L as you do transition the private label product over to Hill’s, just that would be helpful to understand? Thank you.

Stan Sutula:

Yeah. So let’s start with Red Collar first. So as Red Collar comes in and we cut over production over time and this will be over an elongated period of time. There are a few things that have to happen. One, and of course, I should start, all of this is baked into our guidance. So as we planned this out, this is all incorporated within our guidance. So first, as we take the Red Collar facilities and migrate those over to produce Hill’s formulas, there is investment that has to go into that. We have incorporated that into our capital and we have incorporated any income statement impact into the numbers. And that really centers around what Red Collar was producing was much simpler formulas for us and for others, and our diets, our formulas are much more complex, in particular, in the prescription diet area, which is why I think they are such valuable to consumers. So that involves additional mixing, additional ability and testing, quality testing as we go in, and that will require capital investment into those facilities, all planned all on track. The variances that we have in total, so let me step back to there, the variances that we have in total go into gross profit so that as they are going through, we expect that those will get better. We expect that those will get better as we get some relief on the overall manufacturing as those Red Collar facilities come fully on board and produce more of Hill’s formulas. That allows us to go in and do more efficiency planning within the existing facilities. So as we think about Tonganoxie, that’s, again, the new wet food plant that will come online in the second half of 2023. In the beginning, we do have some startup costs there and those startup costs, again, are around things like bubble staffing as we bring the staff on board and get them trained and so we expect that, that will contribute in the second half, but it becomes a headwind in the first half around Hill’s. So thinking about Red Collar, keep in mind that this was acquired and was in for the full quarter of Q4 of 2022. So we will wrap around from an impact here in Q4 of 2023. But as we go forward, you should think that the impact to margin is roughly in line with what we saw in fourth quarter. So it would be a benefit to the topline and given that the private label activity is at a much lower margin that will impact margin through the year but at a slightly decreasing rate.

Rob Ottenstein:

Great. Thank you very much. A couple of follow-up questions. One, you mentioned in the press release or the comments that there was an e-commerce inventory drawdown on skin health. Can you just clarify exactly what brands that was and why that would be happening? And then I’d like to just kind of talk a little bit more about Hill’s. One question that we are getting is, what was the effect of private label on the organic number. So if you took private label out, was the volume growth actually down 100 basis points, so a clarification on that. And then bigger picture, if we could kind of scope out and look at the whole pet food area in general, you guys are obviously premium and have been gaining share a long time. Can you talk about historically potential trade-down impact given a tougher consumer environment and how you may be adapting to that and what your volume assumptions are for pet in 2023? Thank you.

Stan Sutula:

So, thanks, Noel. Rob, let me just pick up on the on the Hill’s organic and private label and how we are showing that. If you look at the press release, you stated, you saw net sales were up 20%, organic sales were up 14%. There is no private label in the organic sales. So we include in the net sales, but in organic, it will only be inorganic when it wraps around for the year, which will be in the fourth quarter. So when you see organic sales that represents true year-on-year with no private label benefit in that number. Similar to volume, you will see the volume in a press release at plus 10% and then organic volume at plus 0.5%. So volume expanded even outside of private label, you get a feel for the size of private label in the as reported volume number. So, again, that will be that way Q1 through Q3, and then in Q4, it will wrap around, because it will be in both years and be in the organic numbers. .

Mark Astrachan:

Yeah. Thanks, and good morning, everyone. I want to go back to gross margin kind of looking backwards and then trying to think about it going forward. So I guess I am curious what happened to gross margin in 4Q, I mean, I hear all of what you talked about some things unexpected. But if you go back and look at what you said at the last call, you were locked in at least that’s what I thought you said on, I assume a bunch of these raw materials, ag pieces. So was just the manufacturing variance of startup costs, et cetera, just much greater. And I guess the question going forward then is I hear you in modeling the question on this call is about, improving gross margin expectations and all these things that are potential tailwinds. But how much visibility do you have as you sit here today and what potentially is based in that could go wrong? And then kind of pushing it forward longer term, how do you think about -- how does the company think about the necessity to grow gross margins over so that you can hit the earnings algorithm for the business given where the topline expectations are and just how important that is and what line of sight you have to get back to a number, not that I am expecting you to comment on, you can get to 60% again, but if you can talk directionally to that that would be helpful as well? Thanks.

Stan Sutula:

Yeah. So on gross profit and we look at raw and pack, we do lock in a majority of our commodities here at least 90 days out for the next quarter. But there is still conversion costs, there’s still the manufacturing variances that we have to go through, labor cost that goes into that, et cetera. So when we look at this and for fourth quarter, the 250 basis point as reported decline in margin, again, private label drove about 90 points of that, so you are at 160 basis points. And as we look at prices here, again, it was 920 basis points, relatively consistent with Q3 and our conversion costs and some of the variances that we talked about had an impact overall on margin versus our original expectation. As we look going ahead, we are guiding for expansion of gross profit margin heading into 2023 and we think as we look at that, the components of that are going to be moderating commodities are on pack, improved pricing in RGM and then the productivity work that we have been doing across the Board will have a benefit here to margin. So the margin expansion again fuels that investment into advertising. So we do believe that margin expansion is a core component of foundation of our overall model and so that expansion into next year will fuel that model, which will allow us to deliver low-to-mid single-digit earnings growth.

Lauren Lieberman:

Hey. Thanks. Good morning. I know you have covered a lot of ground, but I just was curious, knowing that 4Q gross margins came in below what you had anticipated. You have obviously detailed the reasons a couple of times. I was just curious, the bottomline still delivered, frankly, so that means there were some choices made, perhaps, a little bit short term on lines within OpEx. So I was just curious kind of what are the areas that you may be pulled back on in the shorter term than how you kind of make those decisions and how we should think about the reinvestment in 2023? Thanks.

Stan Sutula:

The only thing I’d add, Lauren, on that one is, look, we took actions early in the year, particularly around the global productivity initiative that started to pay off in the back half of the year. So we saw some of that flow through here hit in the back half of the year. And we manage the overhead lines carefully and because we are running the entire P&L up and down and those overhead lines, we prioritize within that. We want to make sure we support advertising, digital, analytics and then we make trade-offs within that, as you would expect us to do go forward. We think that’s just a prudent way to run the business and we will continue to do that heading into 2023.

Operator:

Our next question will come from Bryan Spillane of Bank of America. Please go ahead.

Noel Wallace:

All right. Let me hit the topline, and Bryan, good morning, by the way, and I will let Stan take you through some of the puts and takes. But, overall, cash flow -- our cash was down due to lower cash income, right? Obviously, that was the higher -- that was some choices that we made, particularly around working capital investments, a little bit increase in inventories as we were dealing with some of the supply chain disruptions we saw from suppliers and our need to sustain the consumption growth that we had in the marketplace, particularly some of the stronger consumption growth, but obviously, inventory days came up as a consequence of that. But we improved a bit a bit of that in the fourth quarter versus where we were in the third quarter. But clearly, it was driven by the lower cash profits driven by, obviously, the sustained foreign exchange hit as well as the challenges that we saw moving through gross margin on the year. CapEx was the other one, a deliberate choice for us, obviously, the growth that we have made -- the growth that we put into Hill’s, and the investment and the significant increase in capital expenditures there and some of the increases that John mentioned earlier around sustainability, which we think are extremely important to position us for where the markets are moving forward. And overall, I would say that we expect a very nice improvement in operating cash flow in 2023.

Noel Wallace:

Yeah. The only thing I would add is strategically these investments are all around positioning us for long-term growth and success. A lot of discussion goes into the choices we make around our capital investments. And the supply chain, and certainly, the IT team are very focused on ensuring that the money is being put into areas that are going to give us improved capabilities moving forward and allow us to weather some of the storms that you have seen over the last three years where we have recognized the challenges and generated real opportunities coming out of those and that certainly has driven the topline of the company.

Operator:

The conference has now concluded. We thank you for attending today’s call and you may now disconnect your lines.

Operator:

Good morning. Welcome to today’s Colgate-Palmolive Third Quarter 2022 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I’d like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Faucher.

Noel Wallace:

Thanks, John and thanks to all of you for joining us this morning. We continue to execute our growth strategy as we deal with an operating environment that remains very volatile. In the third quarter, we delivered high single-digit organic sales growth with growth across every division. We also delivered growth in all four of our categories, including high single-digit growth in Oral Care, Pet Nutrition and Personal Care. I know elasticities are a big topic of conversation this quarter. While our volumes were negatively impacted by retailer inventory reductions and Hill’s supply chain constraints in the quarter, underlying elasticity remained in line with our expectations and we would expect volume performance to improve sequentially in the fourth quarter as these headwinds abate. We delivered strong pricing growth through revenue growth management and healthy productivity through Funding the Growth and the initial benefits of our 2022 Global Productivity Initiative. This helped us drive a sequential improvement in gross margin in the third quarter despite further increases in raw material prices. The headwinds we face, whether from foreign exchange, raw and packaging materials and logistics costs or macroeconomic uncertainty are significant, but we believe we are well positioned to deal with these issues. We have taken the difficult steps necessary to meet these challenges head on through pricing, productivity, capital deployment and other actions. These actions leave us well positioned to benefit when our markets stabilize. The first reason is our portfolio. We have focused – we have a focused portfolio of leading brands in growing categories competing across multiple price tiers. Consumers use the vast majority of our products everyday

Peter Grom:

Hey, good morning everyone. I hope you are doing well. So I wanted to ask specifically on Hill’s. Maybe first, is there a way you could potentially quantify the impact of the supply chain constraints and reductions in retail inventory had on organic sales in the quarter? And then maybe more importantly, I know you mentioned a return to double-digit organic sales growth in September, but can you maybe discuss why you remain confident in the acceleration in the business looking out to the fourth quarter and potentially longer term? Thanks.

Operator:

Our next question today will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

Noel Wallace:

Yes, good morning Eric. Thanks. Let’s go back to, again, what we have been discussing all year. We took pricing obviously as we articulated in the second quarter, particularly across North America and other divisions. That pricing continued obviously in the third quarter. We have led pricing in many of our markets and that has been fundamental to the growth of the business right now. We believe it’s critical to get the pricing into the P&L. We have now seen competitors begin to follow. So that should alleviate some of the volume pressure that we saw early in the quarter, but we feel very good about where we are with pricing. We obviously feel that the market will continue to hold that pricing as we see a very constructive market, as I have discussed in the past, with competition. Now competition was a little slow to follow, but we have seen that in the later end of the quarter that most of our competitors have followed in our core categories. So we feel pretty good. We talked about elasticities upfront. They are more or less in line with where we articulated at Barclays. We have seen a little bit more elasticity given the pricing that we took in some of the Home Care businesses. But again, we took Home Care pricing ahead of competition and competition is now following. So, we expect that to alleviate as we move forward. But overall, we feel pretty good about where we are. Obviously, foreign exchange is the new dynamic we are dealing with and having lots of discussions with the team on how to manage price volume moving forward, but we feel very good about where we are right now.

Andrea Teixeira:

Thank you. Good morning. So can you comment a bit on the pace of volumes exiting the quarter? I think you alluded to the fact that Hill’s got better with the acquisition. I know it takes, you mentioned, 3 to 6 months. I just want to reconcile, Noel, your comment also on pricing that your competitors are following now and then you hope to alleviate. Should we expect like the way the quarter unfolded that volumes were not as bad as you exit the quarter? Thank you.

Operator:

Our next question is going to come from Chris Carey of Wells Fargo Securities. Please go ahead.

Noel Wallace:

Sure. Let me just – I will take it conceptually and strategically the top and then let me turn it over to Stan to give you a little bit more color. Overall, strategically, as we talked about coming into the second quarter, we felt it was very important to get ahead of the inflationary environment and take as much pricing as we could. We watch that very carefully obviously with consumption. You combine that with the initiatives that we set out for 2022 with our Global Productivity Index. We felt it was very important to get ahead of this, which we announced back in 2021. And we are seeing that coming through on the gross profit line, obviously, gross profit up sequentially in the quarter despite 920 points of headwind in the gross margin reconciliation. So we feel that was important to get that in and we will continue to take pricing as necessary. Raw materials, I will turn it over to Stan to give you a flavor of where those are right now. We have seen a little bit of pullback, but more or less, we are still seeing significant increases versus where we were last year. Stan?

Operator:

Our next question today will come from Bryan Spillane from Bank of America. Please go ahead.

Stan Sutula:

Yes. Thanks for the question, Bryan. So as we look, we’ve seen the volatility. While we’ve had movement up and down, the $1.3 billion is exactly the same number we highlighted out of last quarter. So while we’ve seen components move up and down, we’ve only seen modest movement on a net basis. We typically lock in the next quarter, and then we do, do some longer-term pricing into that, mock that in out quarters. But it’s relatively modest. As you’d expect, the near quarter gets the most, and then it kind of scales down. But today, we’re not going to give 2023 guidance. What we are looking at is the movement that we see. We’re trying to make sure we’re very prudent on not locking in areas that we think are going to moderate over time. And then we don’t do a lot of hedging. So we do some in the ag space, but we don’t do a lot of hedging among the others. We think price is the ultimate hedge.

Jason English:

Hey, good morning, folks. Thanks for slotting me in. A couple of quick questions I’ll try to squeeze in. So back to the $1.3 billion inflation, our quick math suggests that implies a reasonable amount of moderation in the fourth quarter. Still inflation, but certainly less than what we’ve been seeing in the last two quarters. A, is that right? And secondly, in your Q, you give round numbers on percentage of sales by category. And I know they are round numbers. So there can be a lot of variability there. But it does suggest that you’re seeing year-on-year declines in your Personal Care and Home Care categories. Can you just maybe elaborate a little bit on what you’re seeing within those individual categories? Thank you.

Stan Sutula:

And on the raw materials, Jason, we said in our last call that we thought this is going to peak in Q3. We continue to believe that. So while the full year still holds at $1.3 billion, we do expect some slight moderation in Q4. And again, we’re largely locked in for that.

Operator:

Our next question today will come from Kevin Grundy of Jefferies. Please go ahead.

Noel Wallace:

Yes. Thanks for the question. In a world of significant volatility, we are really pleased with the diversity of the categories we compete in. They are carefully curated categories. We’re highly focused on four. As you all know, we’ve been focused on four for a long, long time. We have deep understanding in those four categories. We believe they are well constructed and well positioned for future growth whether you’re looking at consumption opportunities, whether you’re looking at price-driven opportunities in terms of premiumization. And obviously, they are all not going to run in tandem. And we’ve obviously done some great things in the Pet Nutrition categories. We’ve pivoted a lot of that strategy over the last 4 years, and you’ve seen the success of that. You’ve seen the success in this year as we’re driving broad-based growth across all of our categories, which I talked about initially. Very happy with skin health. Obviously, the professional skin business in the U.S. continues to perform very well. Yes, the Filorga business in China continues to be a challenge, given the lockdowns we’ve seen in China and the lack of travel of Chinese consumers around the world. But overall, we feel the ebb and flow of our categories is exactly where we want to be right now. And we feel very fortunate that we’re very focused on four, and all those categories are growing today.

Olivia Tong:

Great. Great, thank you. My question was more around expenses. First on commodities and raw mat, is it possible to kind of parse out how much currency played a part versus inflation on a constant currency basis? And then on advertising, if you could just give a little bit more color. It sounded like most of that was related to the disruption in Hill’s. Just a little bit more color in terms of your ongoing expectations, particularly in sort of the digital aspect, given what we’ve heard from some of the digital advertisers. Thank you.

Stan Sutula:

On advertising, Olivia, you heard us say that on a dollar basis, we were down about 3%, but on a local currency basis, we were up 2%. So overall, we still feel good with the impact we’re having in the markets. We’ve done a lot of work, as others have done, to really optimize our spending with obviously a move of 50-plus of our spending now, 50% plus of our spend in digital. We’re able to get much more deep into the analytics and the ROI metrics. We’re doing a much better job at personalizing our content. As I’ve talked about before, over 40,000 people around the world on our digital transformation, media being an important part of that. So we feel we’re getting much better. We pulled back a little in Europe as we saw a pretty significant drop off in the categories. And so we wanted to be prudent as we thought about investment moving forward. And as I mentioned earlier, we pulled back a little bit in the third quarter at Hill’s, but transferred that money into the fourth quarter to continue to drive consumption as we bring on more capacity.

Callum Elliott:

Hi, thanks for the question. Another portfolio question, if that’s okay. I just wanted to ask you, can you talk please about the operational integration of the Oral Care business with the Personal Care and Home Care businesses, and specifically with a view to how difficult would it be to separate parts of or all of Personal Care, Home Care, if you were to change about the value of those Personal Care, Home Care businesses to the overall company?

Stan Sutula:

One thing I’d add there, I think, is that integration extends to our supply chain. One of our key attributes here is the production that we do across the world. And we integrate that particularly across Personal Care, Home Care and Oral Care, and that gives us a lot of leverage.

Lauren Lieberman:

Great, thanks. Good morning, everyone. I guess two things. First off is you’ve commented quite a bit on elasticity and feeling – saying it’s very much in line. And I think you’ve done a nice job calling out Hill’s and then the inventory destocking in North America. But one thing that jumped out to me was just the volume performance in Latin America. So if you could just give – from other companies, I think we’ve kind of seen what looks like a bit better resiliency in the face of pricing. So just curious if you could offer some more detail on Latin America? And secondly, I was just curious on your view broadly on inflation in grocery into 2023. How much more space do you think there is for incremental pricing across your portfolio? Is it terribly different domestically versus internationally? I’d just be curious for some perspective on that as well. Thanks.

Operator:

Our next question will come from Kaumil Gajrawala of Credit Suisse. Please go ahead.

Noel Wallace:

Yes. You are right. I mean Europe is certainly under the most pressure, particularly around energy pricing. We have taken significant pricing in Europe as others have. It’s – as you go back and look at that in history, it’s the most pricing that’s gone into the business in quite some time. Importantly, we have a good mix of price points covered in Europe. The strength of our Elmex and our Meridol brands, obviously, at the premium side, and Colgate, obviously more in the mainstream, you have seen the combination of those two businesses grow share in the quarter and in the year. So, we feel good about where we are. As I mentioned earlier, I think consistently across the world, a little bit more elasticity in the home care businesses. But we have got some pretty significant re-launches coming in early 2023 on our home care businesses. So, we feel good about the plans in place we have in order to continue to drive consumption there. So, overall, it’s going to be a tough winter. We are going to watch that very closely. We feel we have got a good mix of brands at different price points to deal with the significant inflation that consumer is going to have to deal with. But obviously, a tough six months ahead of the Europeans.

Robert Ottenstein:

Great. Thank you very much. Just a couple of sort of follow-up questions. On the inventory side, the retail adjustments, is that – are you confident that’s done at this point? And is there anything on the e-commerce side where there could be adjustments in terms of e-commerce-related inventories? And then second, can you give us any more details on China? We talked about that a lot in the past. How are you doing there? How are the market share trends? And how is that market starting to reopen? Thank you.

Operator:

Our next question will come from Jonathan Feeney of Consumer Edge. Please go ahead.

Noel Wallace:

Yes. Jonathan, thanks for the question. Clearly, I think as the consumer becomes more strapped relative to inflation, they will be more astute in looking at promotions. I can characterize at least where promotional volumes are, particularly for North America. And it would be somewhat a generalized consensus for the rest of the world. Our promotional volumes are slightly down year-to-date. That was deliberately – deliberate. We have pulled back on some aggressive couponing that can drive volume, but doesn’t do much for your P&L. We have seen some of our competitors follow that strategy, not all of them. I would say our two key competitors have taken their promotions up a little bit in the U.S. But you saw the U.S. numbers, at least our consumption continues to be very strong. In North America, we were up or flat in 8 of our 12 categories. Our toothpaste business and toothbrush business continue to perform quite well with share growth. And we have done that with good innovation and pulling back a little bit on promotion. Now, where does it go moving forward, I think promotions will be sharply managed by the categories and by our competitors. And we will have to watch that very carefully. But clearly, I think you would expect to see a little bit more volume sold on promotion moving forward, returning to much more normalized levels given the fact that the trade and our competitors will be looking to drive a little bit more volume in the categories. But we are going to watch that very carefully. Again, I think it comes down to your ability to leverage your portfolio effectively. A lot of the work that we have done in revenue growth management really gets to the heart of that on how to balance entry price point, mid-price point and premium price points in order to drive value to the category and to our customers and ultimately giving the consumer a good proposition to take home.

Nik Modi:

Yes. Thank you. Good morning everyone. Noel, I was just hoping you can reconcile the inventory destocking dynamic. I am just thinking about fill rates are recovering. At the same time, the categories in which you play are high frequency. So, is this just a broader retailer decision based on dollar-based inventory that they are holding across the store, or is purchase frequency, let’s say, within oral care, people are squeezing a little extra out of their tube, and the purchase cycles are getting a little wider. Any perspective around that would be helpful.

Operator:

Our next question will come from Mark Astrachan of Stifel. Please go ahead.

Noel Wallace:

Sure. Yes. Global categories, we are tracking today around 3% to 4%, maybe a little shy of that in volumes, but value more or less 3% to 4%. And obviously, as pricing goes into the market, you see the ebbs and flows there. But overall, we expect volumes to recover. We do think purchase cycles, as I mentioned earlier, will get a little bit more elongated. Consumers will watch their consumption and their pantries quite carefully. We have seen – we watch the pantry inventories. We have seen a little bit of that come down, but that’s to be expected. But overall, I mean we are looking at global category growth in the 3% to 4% range. And obviously, we are growing above that generally around the world. And so that obviously leads to better consumption on our categories or at least better shares. In terms of pricing in the categories, our ability to retain that, that depends largely, quite frankly, on our innovation and the value proposition we are bringing to consumers. And we have spent a lot of time. It’s not just taking pricing. There is a lot of re-launches into that RGM strategy that we have been talking about to ensure that across all price points, we are adding value to the consumer, something new and different for them to continue to use our brands and see longevity in terms of the interest they have in our equities. And so we have been very careful to ensure that it’s not just straight pricing that we are bringing value, whether it’s through price pack architecture, through better innovation in terms of science-driven claims, etcetera, etcetera. Specifically on Hill’s, I think it’s very much about the innovation strategy that we have, the Derm Complete launch, significant innovation. The obesity diets that we have, significant innovation in the market. So, that drives real value with the consumer that we can communicate and justify the price increases that we have. So, we will continue to execute against that strategy, and we will watch the categories carefully as we balance volume and price moving forward.

Steve Powers:

Well. Great. Thanks. I actually want to go back to Europe, and you spoke about this a bit, but I guess I was getting a question just like a little more perspective on your outlook on European profitability and whether or not you thought it is going to get worse before it gets better or whether or not you saw improvement on the horizon. And maybe as part of that, I guess I was also curious what you are seeing from some of your European-based competitors, which are obviously on the other side of the FX wall here and how that may be playing into pricing considerations and competitive considerations perhaps in Europe as a headwind to profitability or maybe it’s – or maybe more globally?

Operator:

This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate’s Chairman, President and CEO, for any closing remarks.

Noel Wallace:

Yes. Well, thanks everyone and good questions. I want to come back to just a couple of concluding remarks. As you have seen, I think our strategy continues to pay off. The broad-based growth is encouraging, all four categories, all six divisions, the innovation stream that we are putting in the market, that’s a testament to a lot of the changes we have made in innovation over the last couple of years, that’s driving premiumization and making sure we sustain our strong core businesses, particularly at the entry level. The digital transformation is having a profound impact on how we operate around the world, how we drive RGM, how we drive content. So, we think we have a well positioned portfolio moving forward. The most important and I am really proud of how our team has executed the strategy to deliver the continued organic sales growth. There has been a tremendous amount of headwinds against the business, but we have now delivered 15 straight quarters of either in line or above our 3% to 5% target. And this quarter was 7% organic, is a terrific quarter. And we are very proud of the work that the teams on the ground are doing. So, with that, I wish all of you a healthy and safe end of the year. And I look forward to speaking to you in January.

Operator:

Good day. And welcome to today’s Colgate-Palmolive Company’s Second Quarter 2022 Earnings Conference Call. This call is being recorded and it’s being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to the Chief Investor Relations Officer and Senior Vice President, M&Q, John Faucher. Please go ahead, John. Thank you.

Noel Wallace:

Thanks, John, and thanks to all of you for joining us this morning. I am delighted to share with you our second quarter results. On the first quarter call, I talked about my confidence that our organic sales growth would accelerate from our first quarter results. Some of this was due to the improvement in trends in February, March and April that we discussed on the call. But what really gives me confidence is the fundamental changes Colgate people have made to drive growth, which is why we are raising our organic sales growth guidance to 5% to 7% for 2022. Our second quarter results including double-digit organic sales growth in Oral Care and Pet Nutrition, show that the growth strategies we put in place three years ago are delivering on our objectives and how the power of our global portfolio is working. We are delivering growth across all of our divisions and all of our categories. We are showing the ability to take pricing because we have built healthier brands. We have built up our innovation capabilities so we can deliver more breakthrough and transformational innovation that can drive both category growth and market share. We have accelerated our digital transformation across the company by leveraging the capabilities we have built at Hill’s and in China, and other developed markets to lead ecommerce in our markets where this important growth channel is underdeveloped. And crucially in this operating environment, our revenue growth management tools are driving positive pricing and mixes our efforts to offset the significant raw material and logistics inflation we are seeing, although, the -- along with the productivity and our ability to improve our price mix, which has enabled us to rebuild our gross margin moving forward. And looking at the quarter, the second quarter marked our 14th consecutive quarter with organic sales growth either in or above our long-term target range of 3% to 5% and that growth is broad based. We delivered organic sales growth in all six of our divisions. We delivered organic sales growth in all four of our categories, Oral Care, Pet Nutrition, Personal Care and Home Care, with all four categories either in line with or above our long-term target range of 3% to 5%. As we discussed on the first quarter call, our execution on revenue growth management and premiumization allowed us to deliver a 500 basis points sequential acceleration in pricing growth. Encouragingly, despite this pricing, our volume performance also improved sequentially in the quarter on both a one year and a two-year basis, behind strong marketing plans, innovation and improved supply chain performance. Our market share performance continues to improve with our global toothpaste and manual toothbrushes are now up on a year-to-date basis. We continue to deliver on productivity with another strong quarter of funding to growth, which is vital to our plans to regain lost gross margin. As we enter the back half, we are just beginning to see early benefits from my 2022 global productivity initiative. Over the next 18 months, this program will help drive operating leverage. But we are still dealing with a very difficult cost environment. We now expect $1.3 billion in raw material and packaging inflation, with higher logistics costs as well. Foreign Exchange has become a bigger headwind since our first quarter earnings release. The euro has moved to parity with the dollar and most other currencies have weakened as well. But we will continue to invest in our brands, advertising spending was up on $1 basis, with continued shift to working from non-working and higher focus on digital spending. We are investing our capital to drive future growth as well. We are building capacity to meet strong consumer demand, particularly for Hill’s, but also for other projects like our recyclable tube, which we continue to roll out across the globe. As we look to the balance of 2022 and into next year, we are focused on executing our strategies with the right innovation, brand support revenue growth management and capital plans to deliver on our long-term growth targets, while working to rebuild our gross margins and deliver sustainable profitable growth in all four of our categories. And with that, I am happy to take your questions. Caroline, can we move to the Q&A. Caroline?

Noel Wallace:

Are we in? Yeah.

Operator:

[Operator Instructions] And we will take our first question from Dara Mohsenian with Morgan Stanley. Apologies, that question will actually come from Peter Grom with UBS.

Noel Wallace:

Hey, Peter.

Noel Wallace:

Yeah. Sure. Thanks for the question. If you scan at least the numbers we are looking around the world, you continue to see great pretty good vitality at the consumer level, emerging markets growing mid-single digits, obviously some slowdown in the developed world, particularly out of Europe where you saw some sluggishness in the categories. But specifically to your question on emerging, it looks pretty good now. A lot of pricing as you can imagine going through, but if we come back to our overarching strategy and as we really laid out in the first quarter that we would be continuing to take pricing coupled with strong revenue growth management, but more importantly, accelerating our innovation cycle into those markets. Strong innovation on the premium and the value orientation side has allowed us obviously to continue to deliver strong topline growth, both in price and in volume. We will watch the consumer really closely, Peter. We obviously have a lot of teams on the ground, looking at exactly where the elasticities are. But so far, elasticities are in line with what we expected or slightly better. But that will change over time as you see more and more pricing going into the market and other economic factors impact categories. But, overall, so far we have seen the categories behave as we expected. Not a lot of trade down, but its early days. We will see how that evolves over time.

Dara Mohsenian:

Hey, guys.

Dara Mohsenian:

So, you just mentioned the elasticity looks pretty good so far. Can you just talk a little bit about the competitive environment, given the strong pricing you are able to realize in the quarter? Are you seeing competitors move at similar levels? And then specifically, maybe talk a little bit about the Americas in terms of the sustainability of this growth turnaround we have seen in the U.S.? And if you could just touch on the consumer in Latin America, that would be helpful also? Thanks.

Dara Mohsenian:

Okay.

Chris Carey:

Hi. Good morning. So pretty good progress on North American margins sequentially as pricing has built, you noted in the prepared remarks that, your supply chain headwinds are starting to abate and with pretty good traction with the consumer on this pricing, I just wonder if you have any updated thoughts on where we stand today on just the potential to rebuild margins in that segment even amidst the inflation, which is going to be a little bit higher than your prior expectations?

Operator:

And our next question will come from Andrea Teixeira with JP Morgan.

Noel Wallace:

Yeah. Thanks. A lot packed in that one. So let me talk a little bit about the overarching thoughts around organic growth in the topline. Obviously, strong pricing is 8.5. But I call out the positive volume growth where we saw across North America, Asia and Hill’s, and if you take obviously the impact of Russia, that volume moved up nearly 100 basis points. So, overall, we are very pleased with the broadness of the pricing that we took across all divisions and the positive volume growth that we saw across some of the markets that I just mentioned. When you look at, specifically calling out some of the other markets, Europe obviously was impacted by a couple of things, the negotiations on pricing certainly impacted categories. We tend to see some elasticity in Europe happen early on as the market adjusted to the new pricing, but ultimately, that tends to become -- that is mitigated over time as you see everyone take pricing. Asia, you asked about, obviously strong growth in Asia, both in pricing and in volume. We had an easier comp on Hawley & Hazel, but I would call out the CP China business, which grew significantly in the quarter as well on a more difficult comp. So overall really pleased with China, despite the lockdowns that we saw in the marketplace there. So we were able to overcome that and deliver strong consumption growth across most of our business. So, overall, we are pleased with the balance of pricing and volume. We are pleased with how we are getting pricing executed, and more importantly, we are pleased with the innovation that’s going into the market across multiple price points in order to sustain that moving forward. Moving forward, I would say that, we will continue to be pushing pricing and my expectation is we will see some pressure on volume in the year to go, but that’s to be expected as we get more pricing in the market. The important part is the balance of innovation across all price points to mitigate that.

Kaumil Gajrawala:

Hey guys. Good morning.

Kaumil Gajrawala:

Can you talk maybe or compare and contrast what your market shares look like from a volume perspective versus revenue perspective. Obviously, elasticities are better than planned, but curious on how it looks like versus the market. And then on your assumptions for commodity costs, are they linked to just assuming spot stays where it is or do you have some assumptions in there for things, particularly like palm oil and such? Thanks.

Operator:

And our next question will come from Kevin Grundy with Jefferies.

Noel Wallace:

Hi, Kevin.

Noel Wallace:

Yeah. So, obviously, we have taken our guidance up based on the consumption we are seeing in the market based on the fact that we have been able to get strong pricing and early on, obviously, see some good volume moving through the P&L. FX continues to be the biggest incremental issue that we see based on where we were in the first quarter. But, overall, we see the categories behaving as we expected. Now given the incredible unpredictability of what’s happening in the global world right now, we are watching those category performance very, very carefully. Our estimations are based on the fact the elasticity will be consistent with what we expected it to be or slightly better and we will adjust accordingly as we move down the road, but it’s very difficult to predict exactly what’s going to happen at this stage. So we based our macros on what we can see today and what we can control. So let’s come back to what we can control. We control the execution of our strategy and we are executing against all the things that we have talked about, driving the core, looking at adjacencies, new channels and some of the faster growth channels particularly ecommerce, and you see that delivering in the results that we have had over the last 14 quarters. So we are pleased with the strategies taking hold. I think the competencies we are building around digital across the entire enterprise, the competencies that we are building on innovation are all starting to track well in terms of how we evaluate them and we are seeing that play out in the performance.

Bryan Spillane:

Good morning, everyone.

Bryan Spillane:

I wanted to ask a question about just -- more broadly about just the rebuilding of gross margins and so like forgetting about the constructs of fiscal years and timeframes. Just is it -- can you rebuild gross margins if inflation were to or your cost of goods basket today were to stay at its current level so the inflation doesn’t proceed? Would it be possible to rebuild gross margins with cost at this level or does it somewhat depend upon some sort of disinflation, if you will, in the cost basket?

Bryan Spillane:

Thank you.

Rob Ottenstein:

Great. Thank you very much and congratulations on terrific results. Also kind of stepping back, Noel, over the last two years or three years, and what appears to us to be a very disciplined and systematic manner, you have kind of addressed various issues, whether it’s channel in the drug stores and in digital, whether it’s premiumization, whether it’s competition against local brands and really you have done a fantastic job executing and improving the momentum of the business on a commercial basis. Apart from the macro factors that are going on today and not to diminish those, but in terms of the general commercial strategy, where is the focus now in terms of improving your actual business momentum and what are you doing to address that? Thank you.

Operator:

Our next question will come from Steve Powers with Deutsche Bank.

Noel Wallace:

Yeah. Thanks, Steve, and good morning. So let me address the supply chain first. Clearly, a lot of headwinds over the last six months to nine months, COVID related, obviously, at the heart of that, which has been somewhat consistent with the space and you are seeing others obviously talk about that more now. A lot of the supply chain North America issues are behind us, you have seen that obviously translate into much better on shelf availability, and obviously, that translates into good consumption for our brands and the market share performance that we had over the last 13 weeks. It is still a very, very unpredictable environment in terms of what we are seeing there. The team is all over it. But I think the tougher part is behind us certainly across North America. I would say, given the strong demand that we are seeing on Hill’s, obviously, that team is doing an extraordinary job, continuing to deliver on what we need to have to meet the demand we are seeing in the marketplace. Obviously, 18% organic, comping 15% from last year is a really strong performance and I give the supply chain -- our global supply chain who is pulling on resources from all of our businesses around the world to bring in thoughts and ideas on how to continue to meet that capacity. We made some good strategic decisions on our balance sheet. Obviously, the Nutriamo facility that we have opening up in Europe will alleviate some of that, but we need to watch Hill’s carefully, because obviously, the consumption is high, which I don’t anticipate we will see that level of consumption quarter-to-quarter. We will see some strengths and some slowdown. But, overall, the underlying fundamentals of that business are strong. We need to ensure we continue to execute from a supply chain standpoint. So, overall, we feel much better about where we are globally from a supply chain. On funding the growth and GPI. GPI as we mentioned will be more back half loaded and into 2023. We had a marginal amount of savings come through in the second quarter. The bulk of the savings will come through in the third quarter and fourth quarter and into 2023, and you will see obviously that likewise in funding the growth. It’s pretty evenly spaced. But, historically, we get a little bit more funding the growth in the back half and the teams are obviously very focused. We talked about that in the first quarter call that we had a lot more focus against funding the growth given the unprecedented environment, and fortunately, the global productivity initiative that we put in place last year in anticipation of a more difficult marketplace, we are starting to see the benefits of that unfold this year.

Olivia Tong:

I want to talk about how in your view the competitive environment might change given all the global sort of macro slowdown concerns? Does it --how do you think about this? Does it perhaps puts you in a better competitive positioning, particularly in emerging markets versus some smaller local players? And then just following up, you mentioned a couple of times that you do expect trade down. You haven’t seen it yet, but you are expecting it to come. But you are still planning to price, and obviously, the Hill’s results speak for themselves. So if you could just kind of triangulate those different pieces of expecting trade down, but obviously, not seeing it yet, that would be helpful? Thank you so much.

Operator:

We will now take a question from Mark Astrachan with Stifel.

Noel Wallace:

Yeah. Back on Hill’s. Clearly, strong performance. The strategies that we have deployed on Hill’s are the same strategies we have deployed across all of our categories. And the learning that we have had from Hill’s, it certainly is they have been much more at the forefront on digital and online, as I mentioned earlier. That knowledge transfer has been terrific and shared the cross the world relative to how we are thinking about the business. And if you go back to the essence of our strategy, it’s faster growth channels, and obviously, they are looking at ecommerce as an opportunity for growth. The expansion into new markets, our global supply chain, as well as our global footprint allows them to think about more expansion. Clearly, they are seeing a pickup from pet ownership in the U.S. that works in perpetuity in many respects, because consumers are going to -- pet owners are going to continue to feed their pets. We have benefited, I think, from getting back to what we stand for which is science. Science is inherent to all of our core categories, whether it’s Oral Care, Skin Health and we use that platform to really drive innovation, drive superior consumer benefits and health benefits across the value chain and you are seeing that obviously translate into strong growth for that business. So, again, core adjacencies, channels, get back to what we stand for, which is science and superiority, leveraging our professional model across the enterprise. They have done a terrific job obviously with their vet partnerships, which again is akin to what we do in oral care and what we do in skincare. The digital work that Hill’s is doing is the best-in-class for us as a company. As you know, they built that business with a digital-first mindset. Obviously, now we are taking digital into thematic advertising as we expand penetration for the brand and expand brand awareness, which candidly are quite low still. So, all in all, we feel very good about where we are. Strong growth, we have got tough comps moving forward, as I mentioned earlier, but we feel pretty good about where we are and where the consumer is. If you go back to 2007, 2008, during the last recession, we did not see a lot of trade down out of the Hill’s business during that time. So we feel pretty good. The brand is stronger. We are innovating and we are spending behind the brand moving forward. Obviously, the supply chain is an opportunity to move this forward and we are using our balance sheet accordingly to address that.

Lauren Lieberman:

Hi. Thanks. Good morning.

Lauren Lieberman:

I just had two questions. First of all, just to clarify, you would mentioned earlier, plans on second half pricing and I was just curious and if you can tell us geographically, I think, it was in regard to North America, specifically, but I just was -- if you are looking for a little bit more detail on that? And then the second thing was on advertising spending. In the release, you had mentioned a plan now for it to be flat as a percentage of sales, still up in dollar terms and you did raise the sales outlook, but I just wanted to get a sense for how you might describe advertising spending plans today versus where they maybe were at the start of the year? That would just be helpful. Thanks.

Operator:

And our final question will come from Jason English with Goldman Sachs.

Jason English:

Hey, there. Thanks for spotting me in. If -- sorry, if my question is redone into maybe your prepared remarks, your 10-Q, but we got a lot of information dumped on us today. I must confess, I have not been able to get through all of it. But a couple of things that stood out to me. North America, the sequential improvement in margins was certainly impressive and better than I was expecting. I haven’t been able to get to the drivers in your Q yet, but can you give us any more color on what contributed to, I guess, the statement of year-on-year decline and the sequential uptick and whether or not just anything transitory aiding that?

Jason English:

Good stuff, Thanks a lot.

Noel Wallace:

Well, thanks everyone. Again, broad based growth across the company, executing and transferring knowledge across our core categories, we are seeing obviously good consumption. Obviously an unprecedented environment around pricing, we will continue to be focused on revenue growth management, our funding the growth initiatives and our global productivity initiative as we go into the back half. Thanks for the call this morning and we look forward to talk with everyone soon.

Operator:

Good day and welcome to today’s Colgate-Palmolive Company First Quarter 2022 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to Chief Investor Relations Officer, John Faucher. Please go ahead, John.

Noel Wallace:

Thanks, John and good morning to all of you. Given the release of the prepared commentary earlier this morning, I will keep my remarks fairly short as I am certain you have a number of questions. Obviously, 2022 is shaping up as a more difficult year than we anticipated with greater-than-expected increases in raw materials as you have seen from others, particularly fats and oils and logistics. This is offsetting what we think will be a very solid year for organic sales growth now that we are seeing our global supply chain stabilize following COVID-related lockdowns and stress in logistic networks around the world [Technical Difficulty] sales growth for the balance of the year. First off, we knew that Q1 will be the most difficult quarter given comparisons, supply chain issues and pricing negotiations. We exited the quarter with high single-digit pricing as we took more pricing in developed markets starting in February and continuing into April. We believe this is more indicative of the pricing we will see for the balance of the year. Elasticity seemed to be either in line or better than expectations and this should help limit incremental volume weakness from the higher pricing over the balance of the year. Encouragingly, as we said in our prepared remarks, volume and organic sales performance improved in February and March versus January and organic sales growth has continued to accelerate in April. Importantly, we are beginning to see the benefits of the stabilization in our global supply chain network with the impacts of COVID-related factory closures behind us and the opening of the global logistic capacities. Our guidance does not assume further COVID-related lockdowns in the balance of the year that would impact our ability to manufacture and distribute our products. Our U.S. on-shelf availability for toothpaste has been below normal for several months as we dealt with the same supply chain challenges you have heard about from other companies. By tapping into our global supply chain, we were able to restore shipments and our availability is now back to normal levels, which you are seeing reflected in better market share performance in toothpaste. And with the improved share performance in manual toothbrushes in the U.S., where our share is up 4.5 points year-to-date, we feel better about the trajectory of U.S. oral care. Combined with increased advertising through the balance of the year, significant innovation, particularly around whitening in the U.S. and in Asia and the relaunch of two important core brands, our Hawley & Hazel brand in China and the Hill’s Prescription Diet business, we feel confident in our forecast for an acceleration in organic sales growth for the balance of the year. This gets us to our new guidance of 4% to 6% organic sales growth. Tempering this outlook obviously is the difficult cost environment. Our entire cost factor has risen over the past few months, but the biggest impact has come in the area that we call fats and oils. That’s palm oil, palm krona oil, soybean oil, tallow and others. This has historically been our second biggest area of raw material spend behind coal new resins. Although given the inflation we are seeing this year, our spending in the second half on fats and oils will equal our spending on resins. These ingredients are used in every category we compete in and we expect a more than 60% increase across fats and oils this year. And while you know our global supply chain is a strategic advantage, the global nature of our supply chain is adding to costs in the current environment. Freight rates from Mexico to the U.S. are up 30% year-over-year and ocean freights have basically doubled. We continued to take significant steps to offset these headwinds. We are taking additional pricing and we are launching premium innovation. We established our 2022 global productivity initiative to drive further cost savings for this year and next year while accelerating our Funding the Growth initiatives. We have reduced our overhead ex-logistics spending by $30 million in the quarter versus the first quarter last year already. So, as we open it up for your questions, we know we need to execute on during the balance of the year and we are very focused against that. While we know our guidance is below our previous expectations, we believe that our cost forecasts are prudent and that our plans are well thought through and well supported to deliver on our organic sales growth guidance, while leaving us well positioned as we look to return to profitable growth. Thanks. And I will be happy to take your questions now.

Dara Mohsenian:

Hey, guys. So just a two-part question on guidance. Noel, when you have this large external change in terms of higher costs, clearly, it requires a change in the level of guidance that we have today, but it also requires a change in sort of choices around the P&L in terms of pricing, levels of investment, productivity, etcetera. So a), just short-term with the new guidance, you quantified very well in the prepared remarks, the cost changes. Obviously, the org sales change. But can you just be a bit more specific on maybe some of the other drivers in terms of incremental price you are expecting with the new guidance for 2022, how you think about incremental productivity? Will it change ad spends at all? I am just – and part of the reason I ask it is you have got $650 million in higher costs, so that’s a high-teens earnings impact. That’s sort of doubled the earnings revision in the guidance. So I am just trying to better understand the offsets, just some of the cost pressures? And then b), just wanted to really extend that same question more strategically longer term. You have obviously had success reaccelerating organic sales growth to some extent with the changes under your leadership. Do these sort of P&L decisions this year – how might, if at all, it impact the strategies you put in place or sort of the long-term top line growth trajectory as you look beyond this year? Thanks.

Operator:

We will go to our next question from Peter Grom with UBS.

Noel Wallace:

Sure. So, let me deconstruct a little bit of Q1. January was a little softer than we anticipated. As I mentioned, we obviously saw a little softness in Europe given some of the delayed pricing negotiations. We saw little softness in our Hawley & Hazel business as we mentioned, that’s really transitory as we are moving from the old bundle to a new bundle. We saw little softness in our French business and we saw a little softness in the rural areas in India. So that led to a somewhat soft January. Sequentially, we saw all that improve in February and March, both volumes improved February, March versus January. And as I mentioned, we had strong pricing starting to get executed early March and towards the end of the month and into April. So, we feel quite good about where we ended the quarter. And as I mentioned, we have seen that translate into a strong April as well. So, that’s kind of how we have set up the guidance for the year. So, 4% in the first quarter, we believe will be the low end of organic for the year and that will sequentially grow as we move more pricing into the P&L as well as continue to innovate and provide some volume enhancements as we move through the balance of the year. I will say that again, getting the supply chain constraints behind us from a ball point, yes, it cost us money relative to doing some of the things that we did to get more toothpaste on the shelf to get more toothbrushes in the market. We have seen that translate into more volume in the business as a result as well. And that’s a good thing because we are seeing it translate into consumption and category growth for our retailers. So from an organic standpoint, you will see it sequentially grow through the quarters, particularly as we execute more pricing in the second quarter. And as I mentioned, we have now looked to take more pricing in the back half as we will see the peak in raw materials come through later in the year. Relative to the pricing aspect, I think not much more to add there. We have taken – we took strong pricing in developing part of the world. You see our 2-year stack on pricing at roughly 10%. And there is more pricing to come. And you will see pricing as a percentage of our organic growth likely accelerate certainly in the second and third quarters. And we will see where we end up in what situation we are in, in the fourth quarter, but pricing will accelerate. That’s a combination of a couple of things. Obviously, the revenue management initiatives that we have been taking – we are getting more premium innovation and I won’t get into some of the success we are having behind the Optic White Pro Series, which is our most premium-priced whitening bundle that’s doing quite well out of the box. We are obviously, as I mentioned earlier, importantly using our supply chain now to get core re-launches executed quicker, which will give us a pricing opportunity as well. So, those would be the three key initiatives relative to getting pricing up in the back half.

Andrea Teixeira:

Thank you. Good morning. I just wanted to perhaps focus on North America and talk about home care, which was obviously a headwind as you called out. And Noel, you just pointed out that some of the new franchises and the premiumization efforts have been bearing fruit. So, I was wondering how we should be thinking in the balance of the year? And just as a prior question regarding elasticities, how we should be thinking it looks as if, as you said, like you have a stacked 10% pricing. I am assuming that is U.S. So, how can we be thinking as you rollover more pricing? Just a fine point there, is that pricing coming in at the end of the summer into the fall or actually earlier than that in the U.S.? Thank you.

Operator:

We will go next to Wendy Nicholson with Citi. Wendy, your line is open please check your mute button.

Noel Wallace:

We can, Wendy.

Noel Wallace:

Yes. If you go back to – I believe you’re probably looking at ‘08, ‘09, and that was at least the beginning of the naturals boom, as you remembered. And as we have openly stated, we made in our view, some strategic errors in how we chase the naturals rather than staying true to the core business. So I think that was the biggest driver. And certainly, at that point in time, when the Hill’s business was nowhere near as salient and had nowhere close to the momentum that it has today, and we’re certainly on our front foot and continue to think about that business in terms of investment. You heard today that we closed the Nutriamo contract manufacturing facility that we bought in Italy. That is going to unlock more wet capacity for us, which is one of the fastest-growing segments, particularly in Europe, which is exciting. We’re relaunching the Prescription Diet business going into the back half of this year, which is obviously about half of our business, which we think is going to be an exciting innovation for particularly our veterinarian professionals. So the business is in a much different place today than it was back in ‘08, ‘09. Obviously, much more on us on it. We’re going to maintain the investment spend there, which we think is critically important. Again, this is a business that has low penetration and low share, so a lot of upside in North America and capacity constrained today, hence the reason of why the purchase of Nutriamo. So again, we think we’re in a much different place than we were in ‘08, ‘09. The brand itself is significantly stronger than it’s been in the past.

Olivia Tong:

Great, thanks. Good morning. Thanks for taking my question. I was hoping to get a little bit more granularity around your full year EPS expectations and how much of the EPS revision is due to input costs versus FX rate as you handicap, but perhaps a 10 points ring on EPS expectations from one end of the pendulum to the other. And realizing, obviously, there is no shortage of uncertainty. But can you talk about what the most meaningful changes are there? And mathematically, how do you get from where you were to mid-singles down the singles? And then specifically for international markets, can you talk about what your peers are doing not just the multinationals, but the local players with respect to pricing, is the expectation that they are pricing or the realization what you’re seeing so far that they are pricing at a commensurate level to what you’re doing? Thank you so much.

Stan Sutula:

Sure. Thanks, Noel. So as we entered the year, we knew the commodity costs were going to be up year-on-year, and we planned for that. In January, we entered the year, we saw in the market. We expected that material cost would moderate as we went through the year. At that time, in January, we anticipated roughly $750 million or 13% and year-to-year increase. But as we stated in January, if the commodity costs don’t moderate, that would represent a headwind. So what’s happened? Since January, as you heard in our prepared remarks, we’ve seen significant movement in those commodity costs. And now we see an incremental $500 million of cost for the year. What that means is that material costs will be up over 20% for the full year on a year-on-year basis. So we put some context a little bit underneath what’s happening in those commodities. Natural gas is up over 60%. And natural gas is used to power many of our plants and importantly, many of our suppliers’ plants, which puts pressure on their costs and timing. Soybean and corn are up by over third; palms, up 25% and increasing. So as we said earlier, what that means for the year, fats and oils, including palm will be up over 60% year-to-year and doubled since 2020. Resins are up over 20%. And these two categories combined fats and oils and resins make up a significant portion of the material spend and on a combined basis are up nearly 40%. Take glycerin, another important material, and that’s more than doubled year-to-year. So as we’ve looked at logistics, we saw similar cost inflation. And since we’ve seen that increase, we’ve over $150 million since our expectations in January, that translates to logistics being up nearly 20% for the full year. And some of this increase is because we prioritize meeting clients’ needs. We talked briefly about this, our decision to prioritize toothbrush shipments given client demand and market opportunity, particularly in North America, we grew that category double digits and gained over 450 points of share. Now I think importantly, Noel talked about this would represent over a 20% increase to our cost over $1.2 billion. But what are we doing to tackle that and mitigate some of that significant escalation? On materials, we’re leveraging alternate materials, we’re viable, reformulating where that makes sense, taking price to reflect the cost increase. We’ve talked about price significantly here. And then, things like leveraging analytics to enhance our procurement process and driving our robust Funding the Growth program to help mitigate that profit impact. On logistics, we are taking a number of actions. As our supply chain stabilizes from things like COVID-impact and material shortages, we’re going to streamline our logistics use less expedited transport. Now temporarily, we’re carrying more finished goods inventory due to erratic and longer transit times. We’re also making things like investments in automating our warehouses. So while these remain volatile, we’re being aggressive to tackle those. So from a P&L point of view, as you translate that down to EPS, those are going to be a headwind for us for the year. We’re taking aggressive pricing, aggressive funding the growth and productivity actions but we’re still expecting margin will contract for the year. And we are going to maintain investment in advertising. We believe that that’s an important component of our long-term model, and that’s why we’ve taken that our organic growth up to the 4% to 6% range. Take that down, we will continue to drive improvements in overhead. And stripping logistics, our overhead improved on a year-on-year basis. And the team has done a very good job of managing that prudently, but that’s what yields us down to a EPS when you take into the effects the multiple interest rate hikes, a headwind on tax, that drives the EPS here down on a year-on-year basis to mid-single digits.

Operator:

And we will go to our next question from Steve Powers with Deutsche Bank.

Noel Wallace:

Sure. Thanks, Steve. Listen, the supply chain, as we talked about throughout 2021 has been really choppy with a lot of second and third derivative impacts of all the implications related to COVID. But if you take specifically the impacts to us, where you really feel it is on shelf availability. And we have historically been best-in-class in that regard across our categories and some of the setbacks we saw from COVID lockdowns in China where we saw some of the challenges we’ve seen in logistics coming out of Mexico, raw material suppliers as well, having shortfalls that caused a lot of choppiness in our supply chain throughout 2021 and certainly accelerated a bit as we went into the first – out of the fourth quarter and into the first quarter. The good news is, as we finished off in the back half of February and into March, we saw a lot of those issues structurally get much, much better for us as a company. Our on-shelf availability, which should dip way below norms, was now back right at top of class. And you see that directly in our point-of-sale data in some of those customers where we actually now are measuring detailed on-shelf availability at the daily and weekly basis that allows us to react very, very quickly. We have taken decisions through 2021 and in the first quarter, to ensure that we have sufficient inventory to compensate some of those – the shortfalls that we we’re seeing and the uncertainty that we had from various contractors or raw material suppliers. That has cost us some money but we feel in the end is now given the trade, obviously, far more – a clear line of sight in terms of our ability to source an increasing demand, particularly behind our toothpaste and toothbrush business here in the first quarter. So on-shelf ability significantly improved as we exited the quarter and has maintained itself as we went into April, that has translated into better market share performance. Take the U.S. in the last 5 weeks, we were up or flat in seven out of 11 categories, which is a marked improvement versus where we had been in the past. Some of the issues likewise translated into the European business where we saw some shortfalls in terms of service levels there, that now has been addressed through some decisions that we have taken, and we’re seeing likewise, as we exited the quarter a little bit better volume. So all in all, across the board, – most of those issues now are behind us, particularly the lockdown issues that really had a significant impact on part of our business. And I give credit to the supply chain for doing a tremendous amount of agility work that I think is only going to set us up for stronger resilience moving forward as we see some of the uncertainty continue to unfold in certain parts of the world. China is actually a really good story from the sense of our CP China business was up high single digits in the quarter. Our CP China business, combined with Holly & Hazel, was up 650 basis points in market share in the online business, which is obviously the fastest-growing part of the China – the retail sector. Hawley & Hazel business was migrating, as I mentioned, Steve, to an entirely new portfolio and repositioning of the brand, including a brand name change that will incur – that was rolling out in the first quarter. As a result of the significant distribution scale of China, we were moving down inventories of old product distributors. We’re obviously taking their inventories down in preparation for the excitement behind the relaunch. We’ve started to see a lot of that unfold in the back end of March and now into April, and we will see it ultimately, it will take a couple more months before we see full distribution of that new product across the China market. So overall, the China business looks quite strong for us. For the first time in many, many years, our overall China market shares in toothpaste, that’s combined, Hawley & Hazel and Colgate are up. So it’s been a long time since you’ve heard me say that, but I think that’s a testament to some big strategic changes that we made in China. Now going back 2.5, 3 years, both in terms of portfolio strategy as well as go to market that we’d say is definitely paying dividends. And we will watch obviously the Hawley and Hazel relaunch carefully but quite excited about that thus far in terms of how we’re seeing it hit the market.

Jason English:

Hey, guys. Thanks for slotting me in. I guess a couple of questions. First, kind of building off your last comments around the online or the exit of the Darlie brand, when did that begin exactly like in the execution? And I imagine you’re planning assumption is that you’re not going to retain all of the sales as you migrate away from the brand. When do you think that pressure will be behind us? I think even or how many quarters do we have to live with what’s likely going to be a drag from the rebranding?

Operator:

We will go to our next question from Lauren Lieberman with Barclays.

Noel Wallace:

Sure. Lauren, let me just clarify. We have not had supply chain issues in Latin America. The supply chain issues and the volatility that we have seen has principally been driven by the North America complexities that we have incurred as well as some shortfalls from some of our raw material suppliers in the middle of the quarter in Europe, which created obviously some constraints there. So, specifically, it’s been North America driven by some lockdown issues in China as well as some of the COVID-related issues we had in some of our facilities here in North America. So, as I mentioned, we feel very good about where we have now in March. Structurally, things have gotten much better, efficiencies in the plant, asset utilization, capacity output, all are moving in the right direction, which are good indications that we are moving to where we want to be. And as I mentioned, some of the service level challenges that we have had. And I think everyone has moved through, but we were somewhat exacerbated by those in terms of our ability to get what we needed into some of our key customers are now back to historical high levels. So, good news there, no issue, Latin America. On Europe, specifically had dealt with a some raw material shortages that came from some of our suppliers mid-quarter. So, that was after we discussed it, we set guidance in January, that particularly hit us in Europe, and that has now moved behind us and things are back to a much more normalized level. We see that, quite frankly, all around the world. I mean if you look at a number of issues that we dealt with in 2021 and moving into the quarter this year with raw material suppliers or contractors, those seem to have subsided. Let’s watch it carefully because anything can happen in the current world, given the uncertainty that everyone is faced with. But we have put a lot more resilience into the system now to deal with some of the unforeseen circumstances that we are seeing. Listen, in terms of visibility, Lauren, we were – we came out of last year understanding that we were faced with $750 million of incremental cost and we had the pricing in place to deal with that. And the gross margins came in more or less in line, actually just slightly below where we expected, a little bit above guidance to the Street in the first quarter. And then we got hit with the significant incremental increases to the tune of $0.5 billion post the January call, which came in mid-Feb and into March. So, that’s been the single biggest issue in terms of visibility for us. We did not anticipate those. We had cost becoming more benign in the back half initially when we set guidance, obviously, with the war, all of that change. So, the visibility for us became dramatically different as we exited the quarter and hence the change in our guidance that we have communicated today.

Noel Wallace:

But no, nothing relative to LatAm for themselves, they have been able to obviously continue to do what they need to do. But as you know, we source quite a bit of product out of Latin America. The costs have gone up, but we don’t have anything that we would consider significant there.

Javier Escalante:

Hi everyone. I say that two things that it would be helpful because – and it’s really on Lauren’s question. This is that it feels that your supply chain is very global. And when you speak about Colgate, you talk about toothpaste and not toothbrushes. And then the problem in Latin America seems to be that you have problems sourcing toothbrushes out of Asia and toothpaste in the U.S. is out of Mexico. So, I think that there is a little bit of a disconnect between our understanding of the supply chain and your conversation. So, if you could clarify, in the U.S., what are the supply chain issues? Is it that Mexico is not delivering into the U.S.? And then in Latin America, is it that toothbrushes in Asia are now coming through into Latin America? And finally, in Latin America, you basically said that you had no supply chain issues, but volumes dropped. So, why is the drop, because if you think about Procter and Unilever, they grew organic sales in Latin America in 16%, so the consumer seems to be fine. So, what is that – why is it that Latin America is lagging your competitors? Thank you.

Operator:

And we will take our next question from Mark Astrachan with Stifel.

Noel Wallace:

Yes. What happened in the first quarter, obviously, as we saw a little bit of delays in our pricing execution in Europe, which I mentioned earlier in the prepared remarks, given some of the annual negotiations and ultimately how those unfolded. The good news is those are behind us as we exited the quarter, and we will see that pricing fully reflected as we move into the second quarter. We were a little late in the U.S. arguably, I think in terms of how we sell things, but we did lead pricing in our core business ahead of competition. We have seen competition ultimately follow, but we did lead in the U.S. So, we felt like we got to have it pretty quickly, but obviously, the costs moved a little bit beyond what we expected. So, coming back to gross margin, we were kind of more in line with what we thought. We thought we would see most of the pricing come through in the back half of the quarter, which would obviously deliver accelerated sequential gross margin through the balance of the year. That was the initial assumption. But obviously, all things changed when the February-March – mid-February, March cost increases came through. We have now subsequently taken more pricing. We will be taking more pricing in developing part of the world as we move through the balance of the year. And we are also looking at obviously accelerated pricing, particularly through re-launches in the developed part of the world as we move through the back half.

Kevin Grundy:

Great. Thanks. Good morning everyone. Noel, I think we covered a lot of this. I wanted to kind of pick up on Lauren’s question and some others. Just the degree of the downward revision of your outlook versus peers and even more broadly staples, so everyone can appreciate how challenging the environment is. It’s not lost in anyone for a moment. But it’s difficult for everyone, right, at the same time. So, without being redundant because we spend a lot of time on the cost headwinds and supply chain issues. But what do you feel like is materially different about your business, product categories, commodity basket, the speed or scope with which you can move on pricing, supply chain, scope of productivity savings, controls around FP&A, your stance on conservatism in guidance. As you look at that relative to the peers, which I know you guys are following closely, what do you think is very unique about your business that’s causing a sharper downward revision than we have seen elsewhere? Thanks for that.

Operator:

Our last question is from Andrea Teixeira with JPMorgan.

Noel Wallace:

Sure. Listen, it’s early days. We obviously took pricing very, very quickly, as I mentioned, we saw volumes come off a little bit in the business. And it was quite frankly, more in the personal. Our market shares in toothpaste are actually up 20 basis points in Brazil. So, overall, we have seen again, coming back to the core strategy, we have re-launched our Sorriso business, which is performing very well in the market. We launched Colgate Total, which is performing well in the market, and you have heard us talk about MX. So, market mix, so market shares are actually up. We will see or we will watch that very closely, but we feel pretty good about where we are, but we have got pricing in the P&L. We anticipate that, obviously, competition will follow given our leadership position in the marketplace, but that will be up for them to decide. But we feel good about where we are. And the volumes, historically, when we have taken pricing at these levels are more or less consistent in terms of the falloff that we would have expected.

Noel Wallace:

No. Thanks everyone. Let me again extend my appreciation to all Colgate people. Let me specifically call out our employees in the Ukraine, who our thoughts and prayers are with you, and we continue to support you and your health and your safety with all the possible opportunities that we can provide you. Thanks everyone. We will talk soon.

Operator:

Good day, and welcome to today’s Colgate-Palmolive Company Fourth Quarter 2021 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to Chief Investor Relations Officer, John Faucher. Please go ahead, John.

Noel Wallace:

Thanks, John and good morning everyone. Before I get into my remarks, I want to wish all of you a safe and happy new year. Of course, I will be speaking to you all again just a few weeks for CAGNY and I am very much looking forward to that. Over the last 3 years, we have revitalized our core businesses, innovative and adjacent categories and expanded our availability in faster growth markets and channels. All these efforts have helped us deliver 3 straight years of organic sales growth in or above our long-term targeted range of 3% to 5%. I believe our company is well-positioned to continue our momentum and drive shareholder value in this year and beyond despite the difficult operating environment. We compete in growing categories with high purchase frequency, daily usage and high levels of brand loyalty and we have strong brands that are well-positioned to take advantage of these category dynamics. Colgate is the most penetrated consumer brand in the world, with strength across emerging and developed markets. Hill’s Prescription Diet and Hill’s Science Diet have strong health credentials with vets and pet parents. Elmex and Meridol are leading premium brands and therapeutics in the markets in which they compete. And other brands like Irish Spring, Protex, Suavitel and Fabuloso, all delivered tremendous value to consumers and our retail partners. This also includes our skin health businesses, EltaMD, PCA Skin and Filorga. John discussed the impact of COVID-19 on Filorga, which resulted in performance below our targets. We have plans in place to revitalize our Filorga business in those key channels, along with building out distribution and other growth channels and accelerating innovation. We are confident that Filorga will be a strong contributor to future top and bottom line growth. Trends on EltaMD and PCA Skin remained very strong. We have and are building capabilities that will allow us to compete in all types of markets and channels. Our global operating model, including our supply chain, allows us to operate effectively and profitably in more than 200 countries and territories around the world. Our transition to our new innovation strategy has enabled us to deliver a better mixture of global and local innovation, including increased levels of breakthrough and transformational innovation. This has had a direct impact on accelerating our growth, particularly in Oral Care, our rebound in China e-commerce, for example and accelerated growth in Pet Nutrition. Our digital transformation, which will be an important topic when we present to you at CAGNY, has allowed us to accelerate our e-commerce efforts across all of our markets. We delivered another year of robust e-commerce growth and grew share in all 6 of our largest e-commerce toothpaste markets in 2021. And we are truly integrating ESG into our business strategy in ways that drive value. Bright Smiles, Bright Futures not only teaches children in underserved markets how to brush their teeth, but also help drive per capita consumption over time. And our recyclable toothpaste 2, which we shared the technology with our competitors, is helping to drive the entire category to be more sustainable, which is a requirement for any category to deliver growth in the future. We also issued our first sustainability bond in the fourth quarter. We will use the funds to invest in our sustainability and social impact strategies while benefiting from a lower interest rate. So, I firmly believe we are well positioned to deliver long-term sustainable profitable growth to our shareholders and all of our stakeholders. But we also need to balance managing through the teeth of a very difficult operating environment while still delivering on that long-term strategy. We stay committed to our strategy. We will emerge from the next few quarters with sustained organic sales growth and a structurally more efficient company that will allow us to grow profits, while still investing in our brands. Obviously, you all know about the headwinds that companies are facing in today’s operating environment in terms of raw materials. COVID and higher costs are putting significant pressure on supply chains, including unprecedented impacts on logistics, both in terms of efficiency and costs. And recently, the dollar has strengthened. The key for us to deliver against our targets in the shorter term is to continue to execute on pricing and revenue growth management. We have already taken pricing in many markets and we will have further significant pricing plan for the first half of this year, including moving some pricing that we anticipated for later in the year in 2022 into the first half. You all know our funding the growth is well-ingrained and a key component of offsetting rising raw material costs. We have put together new cross-functional teams that are focused on ensuring we are bringing additional opportunities to our funding the growth and that we are executing them as rapidly as possible. So, we are accelerating short-term actions to drive improved profitability, but we know the key to shareholder value creation is to remain committed to the long-term. To that end, we will continue to invest in brand building. As I said a few minutes ago, it all starts with strong brands. We have turned our growth trajectory around over the past few years and a key component of this has been additional advertising spend. Our guidance for 2022 includes an increase in advertising to make sure we are able to sustain volume growth as we exit a period of very strong pricing. At CAGNY, you will hear even more about how we have increased the return on marketing spend through our digital transformation. We will continue to focus on innovation, providing added value to our consumers through innovation that supports increased pricing. Our innovation pipeline is very strong for the year and heading into next. We have innovation across our categories with a particular focus on premium innovation that brings new benefits and forms to our brands. We are also investing in capacity. Our CapEx rose in 2021, primarily because we are investing in incremental capacity for growth, along with investments to advance our sustainability efforts. Our need to build capacity across the business, mostly in Pet Nutrition, shows that the rebound in organic sales growth is real and when we expect to continue. This investment won’t preclude us from continuing to return cash to shareholders through share repurchases and dividends. And finally today, we announced a productivity initiative that is focused on aligning our costs and investments with our long-term strategies. This program is designed to deliver savings that can both be reinvested for growth and apply to the bottom line. Importantly, this program, along with the pricing and funding the growth, should allow us to exit this inflationary cycle with more levers to drive growth and profitability and keep our strategy on track. So, 2022 will be another volatile year with all the headwinds you heard me described, but we intend to execute to deliver growth and drive shareholder value, all with delivering against our long-term strategies, which makes me very excited about the future for our company. And with that, I will open it up to your questions.

Dara Mohsenian:

Good morning, guys.

Dara Mohsenian:

So I was just hoping for an update on the Oral Care business. The full year is often a good time to take stock of where you stand. So can you discuss your market share performance in Oral Care in 2021? Trends as you progress through the year, probably most productive to talk about it on a regional basis? But as we look forward, Noel after the strategic changes under your leadership the last few years, are you satisfied with where you stand? And how do you think that business is positioned for 2022? Thanks.

Operator:

And our next question will come from Peter Grom with UBS. Please go ahead.

Noel Wallace:

Hi, Peter.

Noel Wallace:

Sure. So let – I guess to start with raw materials there. Obviously, we saw a significant acceleration in raw material prices following the first quarter in 2021. That continued to escalate as we went through the year. And certainly, based on where we thought we were in the third quarter, we saw significant increases moving into the fourth quarter. In fact, resins up more or less 50%, our tablet price is up 30% to 40% in the fourth quarter. So all of that is now built into how we’re thinking about ‘22, and we expect raw materials, quite frankly, to peak in the first quarter. We have developed our plans based on spot rates today, and we expect the spot rates to hold and begin to moderate towards the back half of 2022. So you see raw materials potentially peak in the first quarter and then stabilize and begin to potentially moderate in the back half. You layer on top of that our pricing strategies for the year. We took some pricing in the fourth quarter in emerging markets. We took more pricing in the developed markets in the first quarter, which will mostly take effect as we exit the first quarter into second quarter. We’ve got, obviously, the additional productivity programs that we talked about this morning, that will be very back half weighted more in the end of the third quarter, early fourth quarter and into ‘23. So we won’t see much benefit this year, particularly in the first half. So – and you combine that likewise with an innovation plan that is weighted more towards the premium side, particularly in North America in the first quarter. And all of that will help us lead to growing margins as we go through the year and exiting the year with margins up.

Lauren Lieberman:

Great, thanks. Good morning.

Lauren Lieberman:

Hey, I was curious if you could talk a little bit more about the restructuring, because I feel like it’s rare to see a program that only 1 year in nature. So kind of are these projects or programs that would have been on the to-do list, but were accelerated? Are they opportunities that you proactively sought out and look for ways to accelerate what would typically be funding the growth because of the environment? And then also, I feel like in the last 12-plus months, there have been a couple of things that have come up regionally with sort of operating surprises, whether it’s a supply chain hiccup in one market or another. So to what degree also does this program may be look at factors that impacted some of that less consistent operating performance that you’ve had over the last year or so? Thanks.

Operator:

And up next, we will hear from Steve Powers with Deutsche Bank. Please go ahead.

Noel Wallace:

Good morning, Steve.

Noel Wallace:

Sure. So let me talk a little bit about Oral Care. Obviously, in the prepared remarks, you saw that the fourth quarter was driven by Oral Care and Pet Nutrition. So overall, quite pleased. And that was despite some disruptions that we saw in the quarter. The shutdowns that we talked about in the third quarter had a more material impact in the fourth quarter. That was about 60 basis points of growth to the total company in the fourth quarter, and all of that would have been in Oral Care, so to speak. So we’re moving behind those. We see a little bit more disruption in the first quarter but we have a pretty good line of sight that by the second quarter and throughout the balance of the year, we will be back to where we need to get to be on that. So overall, Oral Care was good. I mentioned the strong exiting the market shares in Europe, which were very, very strong. We stabilized the shares in North America and actually saw some all outlet growth in the fourth quarter, driven by untracked channels, which was terrific. And we’re particularly pleased with the reception to our new products in 2022 that we’ve introduced as well as the acceptance of the pricing across North America. So we’re quite confident in terms of where we’re – how we’re setting ourselves up for continued growth in ‘22. You had a question on price volume, and I’ll address the Latin America question within that. Obviously, there is going to be more price in our organic growth in ‘22 versus volume given the significant increases that we’re taking across the world. And as I mentioned, we began taking pricing at the end of the fourth quarter. We have implemented and announced pricing across the emerging markets here in the first quarter, which will take effect, as I mentioned earlier, in the early part of the second quarter. But no question, given the size of the pricing that we’re taking around the world, and you’re seeing that from ourselves as well as competitors in other categories, you will see a falloff in volume. And we’re accustomed to that. Relative to how we think about our promotional cadence and how we think about our innovation plans as well to ensure that we continue to build volume through the balance of the year. So the makeup of the organic growth this year, no question will be driven more by price than by volume, which is a little bit different than what we’ve seen in historical years. I’ll say that all boats rise in this environment in the sense that everyone is impacted by the inflationary environment. So as a result, you’re going to see pricing up pretty consistently across all categories. That plays, as you’ve heard from others, into elasticity that you’re not seeing one competitor move, you’re seeing the category move. So elasticity tends to be a little bit less. We will see. It’s early days now. But our experience, as you well know, Steve, of taking pricing quite significantly to offset foreign exchange in markets around the world. We have been able to balance that elasticity impact with good innovation and good promotional cadence, understanding how to ensure we’re innovating across the price tiers and making sure that we’re protecting the consumer and the category growth at the same time. Latin America had a really strong quarter. Bear in mind, they had a strong comp that they were dealing with. So the 2-year stack looks terrific. I think it was about 16%, if I remember correctly and obviously, 6% on top of 11% a year ago and largely driven by pricing. So, a little bit soft in the volume line as we took some pricing but we fully expect that that will recover itself. Categories continue to be quite healthy in Latin America, mid single-digit growth and the consumer seems to be responding to at least in the short-term, but we will watch that carefully as we move through ‘22.

Andrea Teixeira:

Thank you. Good morning. I guess you mentioned consumption has been greater than shipments. Can you update us on the service level in the U.S., where I understand that you’re still reviewing inventory? And you mentioned that in the fourth – the first quarter is still going to be impacted by that – by some of the disruptions. So can you elaborate on that? And then on the Latin American comment that you answered to achieve just now, I was just wondering if – when you think about the volume shortfall, is it coming from mostly from Oral Care or is it coming from Home Care or even some of the Personal Care items that were – that had a lot of strong demand last year? Thank you.

Operator:

And next, we will take a question from Kaumil Gajrawala with Credit Suisse. Please go ahead.

Noel Wallace:

Yes, thanks. Early days. Obviously, as you mentioned, we’ve had a lot of experience taking quite significant price increases around the world, particularly as we went through periods of significant foreign exchange headwinds. As I mentioned earlier, I think the big difference here is that the price increases are coming across the entire market in all categories. And as a result, you tend to see a little less elasticity when that happens. But we’re very prepared for that. As I mentioned earlier, very cognizant of our promotional cadence in terms of how to balance that, very cognizant of our need to bring value to our innovations to ensure that the pricing is executed successfully. But we feel pretty good about at least what we’ve seen in early days again, relative to elasticity, time will tell. But my sense is we will be able to weather this quite well given the whole market is moving, and we have a strong innovation and promotional strategy in place to continue to ensure the consumer is valued.

Chris Carey:

Hi, good morning. Can you just expand a bit on the pricing actions in North America? I know it’s been asked, but perhaps in the context of the margin for the business in the quarter, obviously remains under pressure. And maybe loop into there how the productivity program for 2022 can potentially help that business. Do you think that with pricing coming with productivity coming with expectations around inflation getting a little bit better in the back half of the year that, that division from a margin standpoint can also improve along with the organic sales as some of the comps that have normalized and pricing builds?

Operator:

Our next question will come from Jason English with Goldman Sachs. Please go ahead.

Noel Wallace:

Hi Jason.