高露潔 (CL) 2003 Q1 法說會逐字稿

Good day, everyone and welcome to today's Colgate-Palmolive company first quarter 2003 earnings conference call.

Today's call is being recorded and is being simulcast live at www.colgate.com.

Again that's www.colgate.com.

Just as a reminder, there may be a slight delay before the question and answer session begins due to the web simulcast.

At this time, for opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Ms. Bina Thompson.

Ms. Thompson, please go ahead, now.

Thank you very much, good morning and welcome to our first quarter 2003 earnings conference call.

With me today are Reuben Mark, Chairman and CEO, Steve Patrick, CFO, Dennis Hickey Corporate Controller and Ed Stillis, Treasurer.

As you can imagine we're extremely delighted to report a really solid good quality quarter.

The momentum with which we left 2002 has definitely continued into this year.

And we're pleased that we reached first quarter records on virtually every line of the P&L and balance sheet.

Importantly, all financial ratios moved in the right direction.

Gross profit went up, overhead went down, total commercial spending increased, operating profit, net profit, EPS, all grew double digits, and operating cash flow, working capital reductions and return on capital were all robust.

In fact, starting right at the top line, our strong sales increase of 7% was the largest increase in over seven years.

That was composed of excellent volume growth, up 6%, and positive worldwide pricing of a percent.

Importantly, the volume growth was wide spread across all divisions.

Quarter after quarter and year after year, we've reviewed for you our simple financial strategy.

Again this quarter, our results reflect the continuous improvement of that strategy.

We work diligently around the world to increase gross margin while simultaneously reducing fixed expenses.

That combined provides with us funds to increase our commercial investments in support of our global branch, as well as to increase operating profits.

So let's see how this has worked in the first quarter and how we expect it to work for the full year.

As I mentioned a moment ago, sales increased 7%.

As noted worldwide, volume generated 6% and price was 1% profited.

Our gross margin increased 50 basis points, to an all-time record of 55.3%.

And that's on top of 140 basis point gain in last year's first quarter, the largest gain of all last year.

This good increase is the result of our ongoing efforts to streamline our supply chain, further increase efficiency due to our worldwide deployment of SAP, and our continuing move to our higher margin core categories.

Importantly this increase in gross margin in the face of general increases in raw materials, that all companies have encountered.

This, again, demonstrates our ability to largely offset external trends and fluctuations through internal progress.

Our overhead or fixed expenses declined as a percent of sales.

This too is as a result of our worldwide efforts to ensure that revenues grow faster than expenses.

The latest elements of our funding the growth initiatives are finding cost containment opportunities on every line of the P&L.

Total commercial spending in dollars in the quarter increased absolutely and as a percent of sales in every division, except for Latin America.

In Latin America, total commercial spending increased absolutely and as a percent of sales in local currency.

Media spending, as will be reported in the annual report increased absolutely and as a percent of sales for the entire company.

As we told you in the past, we have a full calendar of new products scheduled to launch around the world this year.

Pursuant to our strategy, we've increased our total commercial expense, supporting these new product launches, as well as already existing products.

And as you will hear in a moment, this effort is reflected in good market share gains in all divisions.

Operating profit increased a strong 11%.

Profitability grew as well, with operating profit margin reaching a first quarter record of 21.7% of sales.

Net interest expense of $34 million was fractionally below last year's levels, due to lower rates.

Net profit before tax increased 12%.

And the tax rate was 32%.

A tad higher than expected and even with the year ago quarter.

Net profit after tax increased 12% to another record 13.8% of sales.

Earnings per share increased 14.3%, to 56 cents, another first quarter record.

And while we don't yet have a full balance sheet and cash flow statement, let me give you some highlights.

Operating cash flow increased double digits.

Net working capital decreased a full percentage point from the very low level of the first quarter a year ago.

After tax return on capital reached another record, 35.3% of sales and this is a more than 400 basis point increase versus the full year 2002.

So we think a very strong start to the year.

But let's see how we did by divisions.

North America, volume in North America increased 6% with volume in the United States up a strong 7%.

Over all North American sales increased 2%.

The difference between sales and volume reflected as gross to net, as you know, now contains couponing expense and other promotional spending previously accounted for on the advertising lines.

The increased sales and trial incentives included in our total commercial spending are to support U.S. core brands and launch new products.

Overall, total commercial spending in the quarter was up both absolutely and as a percent of sales.

With a strong double digit increase in media.

As you know, we've had a steadily increasing flow of new products in the U.S., and the healthy spending increase in the first quarter was in support of this activity.

Operating profit increased 3%, up both absolutely and as a percent of sales to a record first quarter level.

This increase is worthy since it is on top of a very healthy increase in the year ago quarter.

It's important to note that in North America, margin increases, overhead containment and a continual mix shift to oral and personal care allow to us increase media, total commercial spending and operating profit, all at the same time.

The net result of all of this is increased market share.

On our call last quarter, we told you about our new offering in the at-home tooth whitening category, Simply White Night.

That new product started shipping at the end of the first quarter.

Distribution is building rapidly helping to increase in-store shelf prices together with our first launch, Simply White.

Other new products already discussed are building distribution as well.

Mennon 24/7 Deodorant, Irish Spring Icy Blast and Colgate Purple toothpaste.

National Nielsen market share reflects the new product launches with shares in bar soap and liquid soap and light duty liquid.

As of the first quarter, our soft soap franchise now has 46.6% of the U.S. market, up from 44.7% in the year ago period.

In toothpaste our market share for the first quarter is up from the full year level of last year, up to 35.1 from 33.2%.

And while we're pleased with the results in our Nielsen measure channels of distribution, the performance is even stronger when we take into being our business in oral.

As you all know the market share data now available represents less than half of our U.S. business.

Importantly, the consumption increase for the quarter, as measured for all outlets was one of the highest on record.

And in the month of March our consumption was at record levels and up strongly from the year ago period.

Consumption in the non-measured channels was up double digits.

So it appears there's good momentum item in the business.

Also with consumption of shipments strong, our inventories in the trade are down half a week from year-end.

Turning back to new products for just a moment, last week we had our first national sales meeting for 2003.

Nine new products were launched at that meeting.

Here some more highlights.

In the oral care category, we launched Total Advanced Fresh, the latest entry in the Total franchise.

This new variant of course delivers the same anti-bacterial benefits and whitening benefits as in other Total variants.

In addition, it provides clinically proven breath protection for a full 12 hours.

Consumer research shows that fresh breath benefits are even more important than whitening.

As you know, the whitening segment is currently the fastest growing toothpaste segment, and as you read in the press release, Total toothpaste reached a record share this quarter and we're delighted to add another strong new product to the franchise.

Our kids line of toothpaste and toothbrushes is being completely revamped and as part of this effort, we're launching a kids two in one toothpaste with a watermelon flavor.

Also we introduced baby Loony Tune toothpaste with a musical cat, as well as a long of LEGO and He-man toothbrushes.

In the surface care category, we're launching Palmolive dish wipes.

The first disposable wipe associated with the very powerful Palmolive dishwashing franchise.

And as you know, wipes are a fast growing business in the cleaning category, providing efficiency and convenience.

You will be hearing about more products later in the year.

We're excited about the ones introduced so far and it's year the steady flow should provide the consistent healthy North American volume growth we've seen year after year.

Volume in North America should continue to be good to the second quarter and the year.

Operating profit growth should accelerate somewhat from the first quarter for both the second quarter and full year 2003.

Turning now to Europe.

Volume in Europe increased 3%.

Exchange was positive 18.5%.

And as in North America, an increase in sales and trial incentives was accounted for in a price negative of 2%.

This resulted in a total dollar sales increase of 19.5%.

Volume was particularly robust in Eastern Europe, Germany and France.

Total commercial spending was up both absolutely and as a percent of sales.

Operating profit increased 19%, setting a new record and maintaining the record level as a percent of sales established in the first quarter of last year.

As you know, overall economic conditions throughout Europe, particularly in Germany, have been somewhat sluggish, so we are pleased that our business has delivered another quarter of volume growth.

As elsewhere, new products have helped in this regard.

In France, both Total Plus Whitening and Colgate Herbal Plus Whitening contributed to a year over year share gain.

Our new Palmolive dish liquid with oxygen has added share to our already market leading tradition.

Shares were up across the personal care lines with a steady stream of new variants in both shampoos and bath and shower gels and our leading fabric softener share increased as well.

In Germany, Palmolive Aromatherapy continues to drive the business.

With share gains in liquid soap, shower and bath gels.

And as in France, our dish liquid has increased with the continued roll-out of our oxygen variant.

In Italy, the shares increased in seven categories maintained historical highs in two and only declined in two.

And in the UK, our toothpaste market share driven as well by continued new product activity reached 41.2% in the latest period.

More new products slated for the balance of the year in Europe, include a new variant of aroma therapy, essentials, a new brightly colored all-purpose cleaner under Ajax and another Ajax [Fourth] and another Ajax all purpose cleaner, [INAUDIBLE]-safe soap.

Capitalizing on the heritage of that soap of gently and natural cleaning.

In addition we hope to be rolling Simply White throughout Europe in the second half of the year.

Both volume and operating profit in Europe should continue to grow in the second quarter, and the remainder of the year.

Turning to Latin America.

Volume in Latin America increased a strong 6.5%.

Led by very good growth in Mexico.

Volume increased in Brazil, Colombia, Chile, Peru and Central America as well, and as expected volume declined in Venezuela and Argentina where political and macro economic situations continue to be severe.

Price increases of 10%, coupled with the expected currency decline in excess of 20% resulted in an overall dollar sales negative of 7%.

Total commercial spending increased on a local currency basis.

Operating profit increased in local currency, but declined on a dollar basis down 5.9%.

Operating profit as a percent of sales increased to a record first quarter level.

Toothpaste shares across the region continue to climb, reaching record levels in Mexico, Colombia, Ecuador, Venezuela and Central America.

In Brazil, our toothpaste share is up year over year, over 6 full points.

Benefiting from the continued success of the new products.

New products in other categories helped to increase market shares as well.

In personal care, both the relaunch of Palmolive natural soap and the ongoing roll-out of Protex Herbal has been extremely successful.

In Venezuela, Palmolive Natural grew the total soap share by over 3 points, to 32.7%, 6 points ahead of the nearest competitor.

Protex herbal helped Colombian subsidiary to consolidate its leadership position in the soap category.

In liquid cleaners new variants under the [Fabuloso] equity have resulted in record high market leading shares in Colombia and Central America.

In Mexico, the economic recovery continues to be very slow.

In addition, as you are all aware the peso weakened significantly during the first quarter.

Despite the sluggish market conditions, as mentioned earlier, volume in Mexico was quite solid in the quarter and in addition, market shares across all of our categories either increased maintained their already high levels.

This is a further testament to the seasoned management team in place in this subsidiary.

As mentioned earlier volume increased in Brazil and we're pleased that our market share has continued to climb as well in toothpaste, toothbrushes and soap.

From the macro economic standpoint there appears to be optimism about the new government and the ability to manage the economy.

This is reflected in a somewhat improved exchange rate.

GDP is forecast to grow in 2003 and a number of key indicators point to a further economic recovery, a strong trade surplus, significant direct foreign investments and an improvement in the current to cap deficit.

So while we still remain cautious, the situation appears to be under control, and that's reflected in our healthy business.

We're very pleased with our Latin American first quarter results.

Looking forward, macro economic challenges in a number of countries mean that unit volume should increase slow to mid single digits.

Operating profits in local currencies should be up nicely but in dollars will be down somewhat as currencies remain weak.

And as you would expect, our view of impact of Latin American currencies has been factored into our overall corporate estimates for the year.

Turning then to Asia Africa.

Volume in Asia Africa increased an impressive 8.5% with broad based increases.

China, Hong Kong and Africa all contributed to the strong growth.

Favorable exchange added another 7% to the top line.

Accordingly, total dollar sales increased 14.5%.

Total commercial spending in the division was up both absolutely and as a percent of sales.

Operating profit also increased absolutely, up 19.8%, and as a percent of sales.

All-time records were set for absolute dollar profit, as well as profit margin.

And as in every other division, new products continued to play an important role in volume and market share gains.

In India, where we recently revamped our flagship anti-cavity brand, we received the Indian seal of approval.

As well, Colgate Fresh Energy contributed to the overall share increase, year over year, of over 1.5 points.

In Malaysia we consolidated our very strong leadership position with the success of Colgate Herbal Plus Whitening.

Our overall share in that market is now just shy of 80%.

Colgate Simply White is now selling in Australia, Hong Kong and China.

In Australia, it continues to exceed our expectations and has now garnered an 85% share of in-home whitening category and as in other parts of the world, Palmolive aroma therapy is meeting with success.

This new line of bath and shower gels have contributed to double digit growth in the personal care category in Malaysia.

Looking at the balance of the year, volume in Asia Africa should increase in the mid to single digit range for the second quarter and full year.

Operating profits should continue to increase in excess of 10%.

Finally, Hill's.

Hill's delivered yet another outstanding quarter with robust worldwide volume growth of 7%.

Both domestic and international volume performance was strong.

Total commercial spending was up both absolutely and as a percent of sales.

Operating profits grew 34%.

Operating profits was also up as a percent of sales to an all-time record level.

Category growth in the special channel continues to be robust, both here in the states and overseas.

This coupled with the continued market share gains has resulted in good volume growth.

Nature's Best, our line of all natural dog and cat food launched last year in the U.S. continues to help grow the business.

Hill's launched Nature's Best in Japan in the first quarter of this year and it's meeting with similar success.

In the prescription diet area of our business, we just launched the Nutritional Business Solutions Program among the vet community.

This is a bundled approached focusing on the multiple disease categories for which we offer diets, weight management, renal problems, etcetera, supported by in clinic materials and displays.

This should further enhance our position as a leading brand within the veterinary community.

In Japan where we hold the number one position in dry dog food in measured market share we also achieved the number one position in dry cat food for the first time.

We expect this good momentum in Hill's to continue into the second quarter and full year.

Volume growth should continue in the mid-single digit range and operating profit should be up for the balance of the year.

In summary 2003 has started out with excellent benefits.

The fundamentals of our business continue to be very strong in every division of the world.

As we reviewed with you, new products and market share gains have resulted in across the board extremely healthy volume performance.

Our dedicated focus on our market leading global brand and strict financial discipline have again produced good-quality results.

Our balance sheet is strong and getting stronger.

We expect our momentum to continue and look forward to sharing our results with you as we progress throughout the year.

That's the end of my prepared remarks now Rufus, it I could turn it back over to you to do the Q&A.

Thank you Ms. Thompson.

Our question and answer session will be conducted electronically.

If you would like to ask a question press the star key followed by the digit one on your touch-tone telephone.

We'll come to you in the order that you signaled and if you find it's been asked and answered before you could ask it, and would like to remove yourself, please firmly press the pound key also if you are on a speaker phone, please make sure your mute button is disengaged.

If you are listening to the conference on the Internet, that you please turn down the volume on your computer speakers when asking your question.

Again that's star one to ask a question.

And, for our first question, we go to Andrew McQuilling with UBS Warburg.

Thanks very much, and congratulations on a very strong quarter.

Reuben, I was wondering if you could update us on the rollout of Simply White in Mexico.

How are the trial rates relative to your expectations and pricing policies for Mexico and how you think the rollout Mexico is affecting your timeout for the Brazilian rollout?

Wow, that's a fairly specific question.

Mexico has just launched in the -- in the end of the first quarter, and Brazil is scheduled for later this year.

As you know, Andrew, so far so good.

Actually, as I've been mentioning on other webcasts, that the reactions, wherever we have launched our -- are quite good.

It's obviously too soon to say in Mexico but we see nothing that would -- certainly nothing that would discourage us and selling is quite good.

Thanks, Reuben.

We have -- just to be more specific, we are going to be -- we have already launched Simply White, as I think you know in seven countries, and the expectation between the second, third and fourth quarter this year is that we will launch it in 20 more.

And we're basically on schedule.

Brazil is scheduled, as you noted for the third quarter and that seems to be on.

Terrific!

Another one, Unilever appears to be putting the toothpaste business on the block.

Does Colgate have any interest in those businesses and I guess why are or why not?

Well I'm not sure that I have -- I heard that I heard that there's some U.S. businesses of their businesses being sold, but not outside the U.S.

My sense is that -- unfortunately in this country we only have a 35 share, whereas in some countries we have 80.

But even so, we would, I think, not be permitted to buy them if we wanted to, anti-trust reasons.

But my impression, although I don't know specifically is that any sale that anybody is offering is not a worldwide sale, but simply a single country sale.

Terrific.

Reuben, thank you very much.

Thank you, Andrew.

For our next question, we go to Wendy Nicholson with Smith Barney.

Hi.

Good morning.

Could you explain a little bit further, Reuben, the impact that raw materials had on the gross margins in the first quarter how much were raw materials down and how much were you able to offset that with your supplier relationships.

Okay, great.

Interesting question because it -- it bears, the raw material pricing -- hang on a sec.

Let me just -- where is that?

Okay.

Raw material pricing in the -- in the quarter -- no, that's not what I want.

In the quarter, overall -- well, let me back up a sec.

We normally, as you know, Wendy, try very hard to generate 50 to 100 basis points in the margin every -- every quarter and have for some considerable period of time.

In -- when raw materials are going for us, as last year, we were at 140, 130, 120 basis points and over the top, and we are at 50 or so when we -- when we -- sorry.

People are handing me papers and I want to -- I want to get that out of my mind.

So what happened in the first quarter was, yes, the raw and packed materials were more negative for the industry in general than they were last year.

We were able to offset that very substantially and I will tell you that, precisely the amount in a -- in a moment, but in concept, worldwide we went -- raw and packed materials hurt us by half a point.

They were half a point higher than last year and last year they were down.

In Latin America, in -- in dollars they were a half a percent higher, as well, but because of the exchange in Latin America, it takes several quarters to catch up.

So, essentially what happened -- and I'm giving you, again, the specifics in a moment.

I wanted to explain the theory first.

Essentially what occurred is that Latin America gross profit went down sharply, as a result from -- because it takes time for the price increases to -- to take effect, and offset raw material, costs which start immediately.

Then, without Latin America, we would have been up 100 basis points which is kind of terrific in this environment, and we thought the 50 was terrific.

And what will happen during the year, as time passes, that will gradually improve.

But to give you the specifics, which I usually do, is raw and packing materials last year, on weighted average basis, for Hill's and Colgate were down 3.7% versus last year.

This year, we budgeted, you may recall, up 2% and they are coming in, due to our unique relationships that she talked about and I imagine other people may have them, but we're down -- actually down versus the up .3.

And that's our estimate for the year.

And that of there were a number of increases that were stabilized or reduced because of the relationships in long-term contracts or partnerships and there were several decreases specifically in some flavors and fragrances in corrugated and so on which were engineered.

So that the net result of all of that was we were able to offset the bulk of raw and packing material increases, except because of the phenomena of price increases taking effect in Latin America and I think you will see Latin America coming in -- with increases throughout the year, and beyond that, the overall 50 basis points we should see improvement each quarter going ahead.

Okay.

Although I've got to say we are darn proud of 50 in this kind of environment.

Definitely.

Absolutely.

That was it.

Wendy, remember that was on top -- I'm trying to avoid the word "valuation".

That was on top of 140 basis points to an all-time record in the first quarter last year, which was the highest -- so this is 50 on top of 140, but, look, we're quite pleased.

But just to clarify what you were saying about Latin America, if the gross margin -- I guess if the pressure from raw material pricing is going to take longer to impact Latin America, I guess that would mean that you're expecting, actually --

No, I didn't -- I -- I -- let me -- I wasn't clear.

I was stammering, which I'm still doing for some reason.

Am I making you nervous? [ LAUGHTER ] Sorry.

This morning you made me nervous but not now.

The -- looking at Latin America, the gross profit was down in the quarter between 150 and 200 basis points.

It -- the primary reason for that, in fact almost the exclusive reason for that was the fact that you are buying dollar raw materials in many cases with pesos or rials or bolivers or whatever the currency is.

You -- as you know, in a inflationary situation, we raise our prices right away, which has happened but that takes time to pass through the chain so that your buying materials at an increased price and you haven't yet recovered.

So that what I'm saying is that it hits you more up front, as it always does and this is no different than any other time that there's been this type of situation and then over the next few quarters, as is based on ten times in the last time in 20 years it improves over each quarter.

Got it.

That's very helpful.

Thank you so much.

Okay.

Great.

Thanks.

We go next to Carol Wilke with Merrill Lynch.

Thanks.

Good morning.

A couple of quick questions.

Being in your dialogue you mentioned that Simply White shipped at the end of the quarter.

Was there a significant impact in the North American volumes from Simply White Night or is the bulk of that that to hit in the second quarter from shipping in?

I would guess between $8 and 10 million of dollar sales in the -- in the second quarter, the bulk will hit the second quarter.

The $8 to 10 was in the first quarter or second quarter.

The 8 to 10 is in the -- I'm sorry, in the first quarter that we just -- whatever quarter we just finished.

Okay the March quarter.

The first quarter, which is -- I'm -- the mental arithmetic is that it's about 70 to 100,000 cases which is about my recollection of what we shipped.

And my second question, on the operating income gross, as you look as the year progresses, do you expect the growth to be more balanced between consumer products and Hill's growth?

I mean certainly Hill's had a huge quarter on the operating profit growth side.

Would you expect it to be more balanced between the two, you know, chunks of business, as the year progresses?

Yes.

The answer is yes, because North America, which as you know operating profit grew with some very heavy appetite.

It grew -- I think the figure was 3% that Bina told you, is expected to be substantially ahead of that for the year.

Similarly, I think the pace -- the good double digit pace in Asia Africa, Hill's will continue strong, but not as strong as this.

And Europe, which was good in the quarter will continue -- we think will continue to be good.

But the main shift was Hill's -- Hill's U.S., primarily because of new products in advertising, I think that will -- that will balance a bit more as we go through.

And just -- my last question is that when you look through the remainder of the year for the North America business, do you expect the spread between volume and sales to be similar to what it was in this quarter?

Would you expect that to narrow as you anniversary Simply White.

Can I step back and look at the world for a moment on pricing and then come back to the United States.

Sure.

There has been a -- I think a good trend in pricing, interestingly enough on a worldwide basis that if we look in the third quarter of last year, it was zero -- we had no benefit from pricing worldwide.

As compared to the 50 to 100 basis points or a little more that we historically get.

Then in fourth quarter, we had a half a point, and in first quarter we had one point and for the full year this year, we are expecting -- and would knows how that comes out -- but we're expecting more than one point, actually meaningfully more than one point so that from a sequential basis that looks pretty good on a worldwide basis.

In the U.S., again, it -- these are -- I will tell you history, but basically, in the second half of last year, it was about a negative four, as you see on -- on your papers today.

And as it was in the first quarter that's expected to go down, quoting those figures here and I think I believe them and Ian Cook is sitting in the room and nodding his head vertically, that -- that that is expected to go down and for the year, we would expect to be less than the 4% which means the next three quarters should be down.

Thank you very much.

Thanks.

Our next question we go Amy Chasen with Goldman Sachs & Company.

Thanks.

Just two questions on the U.S.

First of all, on the Simply White Night, do you guys have any kind of estimate about cannibalization?

When you're talking about cannibalization in terms of our philosophical view towards it?

No, just -- it seems to me that if people start to use Simply White Night that that will take --

Oh, you mean one taking from the other.

I thought you meant something else.

Yeah.

Okay.

What -- Ian?

Yeah, as -- Amy, this is Ian.

As I said the last time, the key thing in this segment is the household penetration which when we started was only around 4%, as we sit now, it's in low double digits of around 11.5%.

So more people are coming into the category, and as we said before, the two reasons, the two barriers were price and usage behavior.

And that is both ease of use of the product, and how you choose to use it.

So the reason for the night product is that we think that meaningfully it will bring in new users to the category, but, yes, there will be some cannibalization and order of magnitude that would be around a third, maybe to a half.

Amy, a third to a half cannibalization.

That was just out of my head one would guess that it would be 50%.

But, again, don't forget this is a good new product.

On the other hand, it's worldwide this year.

It will be a quarter of a billion dollars which is great, but I think we should -- we -- we, of course, are looking at the picture that shows that our sales grew the most in dollars in a great number of years.

I'm sorry, Reuben, the -- the quarter of a million dollars refers to what?

Of a billion, sorry.

A quarter of billion regards to a -- a rough estimate of what we might sell this year, probably on the conservative side worldwide.

Okay.

And of the 6% volume growth in the U.S., I know that your volume numbers include mix.

Can you give us some idea of, you know, if you sort of strip out the mix impact, what that would be, given that Simply White is obviously still a much higher price point than your other products.

Well, let me give you, if I could, the sales growth analysis by core business, which is how I traditionally would answer that question, Amy.

And because don't forget you are very much aware of our priorities that our strategic priorities number one oral care and number two personal scare, detergents last in that order.

And as we like to see, as we've told you and everyone out there many times, we like to see a total volume in the 4 to 7 range which this is nicely towards the top end and higher in the priority categories and lower in the non-priority categories.

So as we look at total company for a moment, total oral care is -- is 8.6, plus 8.6 for Colgate world in volume. 8.6% up.

Toothpaste is up 6%.

Personal care is up 6%.

Surface care and fabric softener, which are good business for us, as you know, Personal care is up 6%.

Surface care and fabric softener, which are good business for us, as you know, but not as high priority as personal oral are up 4%, and heavy duty detergents which are the lowest priorities are 1.1%.

You said oral care was up 8.6 is toothpaste included in that?

Toothpaste is included in that.

Oral care is up 8.6 within that toothpaste is up 6%?

Yeah, I said five -- yes, I said six.

Yes.

Okay.

Okay.

I'm sorry, are you finished with that point?

No.

Oh!

But it's okay.

I mean, let me go then to North America because that was the trust of your question, I think.

North America oral care was up 14%, which obviously includes Simply White.

Toothpaste was up 5% -- 5%.

Personal care was up 2.5%.

Surface was flat and HCD was down 6% so this is something I've been saying many times we're very consciously prioritizing and this is happening exactly like we wanted to do the categories we want are growing.

Our market share is up in oral care.

If you want, I think Bina mentioned that.

I can show you the numbers.

But this is a good outcome.

Okay.

Great.

One last clarification question.

I'm still a little bit confused about this raw material issue.

I understand what you are explaining with Latin America that was very clear.

But I think you said, and maybe I just heard you wrong, that you were budgeting raw material prices to be up 2% this year.

So far this year, they're down .3.

If that's the case, then I don't understand why your gross margin on a global basis was --

Let me be precise.

The budget for the full year of 2003, versus 2002 was up 2%.

That was --

Right.

The negative .3 is the latest estimate, full year 2003 versus 2002.

And -- and the detail of that is Colgate raw materials, the latest estimate, is negative -- down .3, versus a budget of up 2.3, and packing materials down a point versus budgeted up a point for a total savings on the Colgate businesses worldwide of .6 in the estimate versus increase of 1.5, and Hill's is -- was expected to go up substantially and it's going up somewhat less.

Okay.

Bottom line is that that down .3 is an annual number, not a first quarter number?

That's right.

And is it fair to say that in the first quarter that it was up for you?

Yes.

Okay.

Great.

Thank you.

Our next question we go Bill Chappell with SunTrust Robinson Humphrey.

Yes, just a question on the Simply White business.

Any type of traction on repeat customers and kind of recurring revenue base you've seen there and also just a follow-up question on the tax rate.

Are you expecting the 32% tax rate to remain throughout the year?

Thanks.

Let me -- let me handle the tax and then I will -- and then I will have Ian mention the other.

Hang on one sec.

Again, I can't lay my hands on the folder, but it doesn't matter.

But the 32% is more or less smack on what it was last year in the first quarter.

And I think it was a bit higher than we expected, I think Bina may have mentioned that.

The expectation for the rest of the year, it should be between 31.5 and 32%.

It's very tough to pinpoint it to the last ten but it should be in that range.

Sure.

Okay and, and, Ian?

Yeah, we -- on the trial and repeat numbers, Bill, the -- the trial rate on Simply White -- I mentioned the household penetration for the category is now in double digits.

The trial rate for Simply White has built to mid-single digits.

That's up to six measured periods as we measure them which is a faster rate of trial build than the -- the leading competitive product in the market and the repeat rate so far through six periods, understanding that the benefit of the product lasts six months, is around eight to 9%, which is a -- as a repeat curve is as we would expect, slightly lower than a regular toothpaste, because with the regular toothpaste-type product, you come in, you try it, you like the flavor and you come back some six weeks later to purchase.

So we're getting two plan levels of repeat and the trial and repeat levels are building as we would like to see them.

Great.

Thanks.

We go next to Joe Altobello with CIBC World Markets.

Hi, good morning.

Two quick questions for you.

First, if you could give us a little more detail on the promotional environment, particularly in North America.

There are any particular categories that are highly promotional and some that are less promotional and second I'm not sure if you gave out this number but what was the local currency operating income growth for Europe?

Why don't we let them dig up the local -- the local currency growth and I will give you -- hang on one sec.

The -- I know.

I'm just looking.

Interesting.

I laid that out here and I lost it.

Oh, yeah.

Okay, Joe, the -- the promotional aspect.

First, I think there's -- let me give you a few facts, which -- I'll tell you basically everything I know about this, and the conclusion I've come to and why I have.

The facts are in the U.S. business, in the first quarter, our business was -- was good; that is to say, the top ten accounts are up which are the very important ups 6% in -- 6% over volume and slightly over 6% in sales.

So therefore, there's an equivocation -- equivalency between them.

Consumption was quite good.

Our consumption, especially in the mass accounts and in the -- and in dollar stores and the -- the various warehouse stores was strong, actually, in double digit in some cases.

Average selling price per case is an interesting thing which I can go into a little, if you want to, in great detail.

But the average selling price per case has increased the last several years.

And has increased again in the first quarter.

As we pointed out, it's -- a slight part of that is due to the higher price of Simply White but it's a big business beyond that.

And that overall, market -- market shares are good.

We're actually in the major categories from fourth quarter last year to first quarter we're up in four or five categories.

All that being said, I guess your specific question refers to category promotion and so on.

Right.

As you know the private label aspect of our -- of our -- this is not the answer but private label aspect of the -- of our priority business to oral care and personal care are very small.

Less than 1%.

So there's no private label activity.

But of the 4% pricing/promotion change the increase in couponing in a year is 1.3%.

Which, of course that would not be there, except for the accounting change?

I think everybody knows that we have -- last year we, together with competition dropped prices on electric tooth brushes and so given that little battle and we'll lap that soon.

So a toothbrush price reduction of almost a point.

Our Palmolive liquid shares are very good.

They went up almost 40%, as is our total dishwashing liquid and there was a half a point there.

And miscellaneous other were about a point and a half.

So that's the 4%.

Going back to a previous question, I guess it was by Carol that we do expect, A, on a worldwide basis to have this 1% pricing increase likely as we're going through the year, which is good, better than last year, and we expect that the pricing negative, which is as -- at least promotional aspects, largely, will be less as we go through the year on -- in the U.S.

My personal feeling, Joe is the fact that we're able to generate increased margin and reduce overhead so that we can afford, in a place like -- in a big market like the United States, we can boost advertising media, and total commercial spending very substantially, launch a bunch of new products and -- which require heavy competitive spending and still end up with positive product gain.

Okay.

Was there one category that's a particularly strong increase or was it pretty broad based?

I say, as you look at this, it was a combination -- I'm talking about our business.

Certainly -- I mean, this is a very competitive market and it's not getting any easier, that's for sure.

Right.

But my sense is each of the categories in which we compete, are competitive.

The specific expenditures here were oral care and dish, but I'm sure the other categories as well.

Okay.

Okay, Joe?

Mm-hmm.

Great.

Thanks.

Thanks.

We go next to Rebecca Sunnivan with Allstate.

I have two quick questions.

First of all, on the global basis I didn't get the breakout of price and exchange.

On a worldwide basis, price is up by 1%.

Okay.

And exchange is flat.

Flat.

Right.

So that basically -- and I don't know if the financial people are -- want me to say it this way but basically volume is 6%, price increase is 1%, which leads to the worldwide 7% sales increase.

Okay.

Great.

Thank you.

And lastly, the currency impact on the Hill's business was greater than I had expected and I was just kind of wondering if you could discuss what the global geographical mix is in that business.

Well, they have a very strong business in Europe and somebody can tell me what percent that is of their business because I don't know it in my head.

But -- and also that there was some fluctuation with the yen versus the dollar, and they have a big business in Japan.

There on a local currency basis, they had very -- they had double digit increases in operating profit, and so while that was a factor, it was not, by any means a significant factor.

If somebody could dig up local currency gain and profit for Hill's.

Hill's is doing extremely well.

Some interesting market shares.

Some -- some really nicely increasing in retail pet.

This says Hill's of -- less than half of their operating profit gain was -- which was very substantial was due to -- no, let me look at the foreign exchange.

Total -- oh, sorry, I'm reading the wrong way.

It's better than I thought. 22 -- their local currency was increased 23% in operating profit.

And then exchange built on top of that.

Right.

Yeah, I understand that.

I was just kind of wondering for, like, forecasting going forward and just trying to figure out what the currency impact if I should -- how much of a weight should I be looking at.

Our expectation for Hill's -- when I say expectations, I mean, it's just -- We expect a double digit growth in Hill's operating profit for the year.

As I said, in response to an earlier question, I think it was, again, from Amy, that -- that we -- substantial gain in this quarter will be very good for this year but this level won't be sustained because the U.S. will swing in with higher levels of operating profit and so on and as you know this is a balanced blend around the world and coming out with double digit growth in total.

Does that help you Rebecca?

No.

I'm just kind of wondering, is it it fair to say it's half U.S.?

You know 20% Europe the remainder -- I'm just kind of wondering about the geographic makeup of it all.

It's more two thirds one-third.

Two-thirds U.S.

I'm sorry.

I mean, I can't believe that we have so much high-priced help, including me, sitting around this table, and nobody has that number.

For the one-third, can I assume half of the international business is Europe and the other half Asia?

Why don't we do this, if we could Rebecca.

These are numbers that are available, and I actually don't happen to have them here.

I can give you the breakdown.

I can't give you the breakdown.

Okay.

If you take it this way, it -- it's roughly two-thirds $65% or so in the United States.

About 25% in Europe and 10% in Japan.

Great.

And the last two numbers have a plus or minus factor of a couple of percent.

Okay.

Thank you very much.

We go next to Ann Gillin with Lehman Brothers.

Thanks.

I wanted to follow up if I could, one more last question raw materials.

Was there any incremental hedging activity in the quarter that might have also contributed gross margins as you saw raw materials start to pick up?

No.

You mean -- you're not talking about currency hedging.

There was not -- the answer is no to that.

And the answer is no in Hill's -- we don't hedge really our raw materials, with the exception Hill's does in terms of their -- you know in terms of corn and beef meal and stuff like that.

But there's nothing in the quarter on hedging gains.

Okay and anything on energy?

On what?

Energy costs.

Some companies have started to put out incremental hedging costs on energy.

I can tell you categorically we do not hedge energy costs.

As my recollection that whose name started with an E -- we have -- we do not take -- we're not in that business.

We're in the business of selling toothpaste and generating EPS.

You guys worry about the P of the PEE and we worry about the EE and trying to make as much cash as possible and that's the simple business.

My decision is that Q1 last year was one of your easiest raw material quarters.

And so do you think we're looking at the toughest comparison right now as we go Q1 to Q1, particularly with what you said about your expectation or the way it seems to be running for the full year?

It could be simply because this is -- this is the quarter where it oil spiked and gas spiked but on the other hand we'll probably feel that next quarter it's tough to break it down because there's a long chain that this stuff has to go through.

But I guess suffice it to say is that we feel quite strongly that our 50 to 100 basis points is good and we're pleased with what we got so far, especially since it would have been 100 basis points had not the price increase lag in Latin America, which happens every time.

It happened to be with us this quarter.

Okay.

And then just to follow up on that point, is the Latin America price increase or the lag, we'll say the rollout is that one of the reasons for what I think would be caution in Bina's remarks around forward Latin America unit growth?

Well, I -- I think we are actually quite pleased with the fact that we were up in Mexico and Brazil, very substantially in Mexico but on the other hand, Venezuela and Argentina are in, no disrespect to the citizens of those fine countries, a bit of disarray.

And my sense is that being cautious is not bad as we always are.

We experience over many, many years of Latin America bounces back and we bounce back more strongly than before, because of market shares in that region.

A dozen market shares, if you want, but we are -- for the fortunately, as always, we were able to -- strike the as always.

As always historically because I shouldn't say as always, that we have been able to, with our balance of 218 countries balance it off.

So I would think that you'll see Latin America Latin shares up terrific in Latin America and you will see good stuff.

Okay.

Thanks.

And then just the last question, I -- I walked away from the February conference call discussing the December results, thinking that we'd see Simply White rolling out in Europe, you know, as early as March quarter but certainly by June and it sounds like it's second half.

Did we walk away with the wrong impression?

I don't know.

Let me tell you.

This is not -- I mean, I imagine all the people involved who -- I assume most of them are sitting in this room don't like me to give out specific competitive information, but it's largely -- Europe is largely -- well, yeah, I'm going to say.

It is the largely second half.

And that's as it was in February, we were just jumping --

I don't think there's been a meaningful change.

If anything, since the February call -- I will just give you my sense ever it.

Since the February call, when we were a little cautious, I remember, Javier mentioned -- made a cautious remark and rightly, because of regulation and different regulations in Europe, versus here, and we have found that it's not nearly the way -- the way we are doing it is not nearly as onerous as we had thought.

I imagine that we slowed down.

If anything, we would have speeded up, I think but does anyone know.

I think Ann, that the point was, that there was a regulatory question in Europe and we are proceeding to get the regulatory approval that we expect in the second quarter and then we would month of as quickly to the market which as Reuben says would likely be the second half and that's always been the start from the regulatory point of view.

I recall that.

But is it; is the regulatory approval pan continent or country specific?

This would be European approval and we would roll in our major markets.

So European-wide?

Yeah, this is cosmetic European wide.

UK included?

The cosmetic directive, yes, applies to the UK.

Terrific.

Thanks so much.

Again if you would like to ask a question, please firmly press the star question.

We go next to --

Rufus, don't push them if they don't want to ask.

We go next to Linda Bolton Weiser with Fahnestock.

Thank you.

I guess the $750 million dollar number for the expected sales of Simply White this year is a very big number.

Why shouldn't I be projecting 8 or 10% sales growth for your company in '03?

Okay.

Linda, is it true that I know your father? [ LAUGHTER ]

I don't know.

What is your father's first name?

Roland.

No, I don't know your father.

Then I can be -- okay.

I either misspoke or you misheard.

It was $250 million, not $750 million.

Oh, okay.

That makes sense then.

Okay.

And secondly, just to go back once again, to what you were talking about, with Latin America and the pricing, I -- you know, I guess the pricing for me in the quarter was actually a little better than I had projected.

You're showing pricing of 10%.

Are you saying then that the consumer and trade incentive piece of that is actually a more favorable comparison?

In Latin America?

Yeah, because you have overall pricing and trade incentives and all that up 10.

Yeah but in Latin America, it’s a little different.

It's -- in the United States, that -- we almost never actually raise list prices.

So when you see the pricing, it is a function now of couponing and other stuff.

In Latin America, they are real price increases to offset the devaluations.

So -- so that the valuation was almost twice that, so -- but that will catch up, obviously as we go through.

And fortunately, Linda, I don't know if you've been watching the currencies but the Latin American currencies have been surprisingly strong, both Mexico, Brazil, and a couple of others.

And so that that will catch up.

It's not -- a large part of it not those kind of couponing kinds of mechanisms that are here in the United States, because of Latin America is a different kind of market.

Okay.

So you expect the pricing to be even more robust than 10%?

I mean that's what we should expect?

We didn't -- Here's the issue.

Beforehand, you don't expect pricing to be at any specific level because it follows the valuation.

And what happened during the quarter, and the fourth quarter of last year, there was considerable devaluation of the Mexican Peso and the Brazilian rial and the Argentine Peso and the Venezuela boliver.

What happens -- when that sort of self-determined thing, when those currencies fall, you raise prices to offset it so you don't know in advance how much you will raise prices?

I have several experts in the room looking at it and Javier is nodding.

So do you understand Linda.

Yeah.

It's tough to talk about anticipation of Latin American price increases because it's a different kind of phenomena.

Okay.

And what we do, if you want to come in and talk to Bina at -- we can take you through that in some detail.

Okay.

And finally, just one other thing, can you give us the cash balance at the end of the quarter and maybe how much was spent on share repurchase?

Okay.

The cash balance at the end of the quarter was $224 million.

And our share repurchases were $89 million.

As you may know, Linda, we -- we raised the dividend and we're allocating, obviously cash between our normal capital expenditures, share repurchase and dividend increases.

Mm-hmm.

The dividend 30 odd percent two months ago.

And do you expect voluntary contributions to the pension plan in '03?

We -- we do and does.

That is included in those numbers.

We have made the voluntary contribution of $60 or $70 million during first quarter in March.

Second quarter.

Oh, in April.

I'm sorry, April.

Okay.

Thank you very much.

Thank you, Linda.

We go next to Neil Goldner with State Street Global.

Hi.

Just a simple question, if you don't mind.

Venezuela being shut down essentially for two months, I assume that impacted you for six weeks to two months as well.

How much impact does that have on the Latin American volumes?

I think -- actually I have a detail on that, which would be great.

Let me see.

Here's a real test of -- okay.

Volume in the first quarter was down 20% in Venezuela.

And my guess is that would have added two or three points.

I'm pulling that out of the air.

Two or three points or so.

They're nodding.

To volume so it would have been close to 10%.

Great.

In Venezuela.

And one more question, specifically about North America.

Unilever is making a big push with Dove in the personal care area.

Just anecdotal, I went to Wal-Mart, for example and noticed that their body wash product had fantastic shelf space, with Soft Soap below Away above so Dove -- Unilever is putting a big push behind their product.

I'm wondering if you're seeing any impact on your personal care business as well while Unilever is doing this.

Interestingly we have some interesting market shares which are encouraging.

I'm now showing -- I'm reading you market shares between fourth quarter '02 and first quarter '03.

And we are basically in five major categories.

So [dentist] is up, 33.9 to 35.1.

Toothbrushes are up.

Deodorants and anti-perspirants are flat, light duty liquid is up a tenth and hand and body soap which would be bar soap is up from 14.2 to 15.2 and liquid soap - these are Nielson shares? - Liquid soap 43.9 to 44.6 meaning soft soap.

We're looking pretty good.

If they are taking something, they may be taking it from somebody else.

Okay.

Great.

Thanks Neil.

Thank you.

Our next question we go to Beth Robinson with Faes, Seraphim and Company.

Good morning.

Just a couple of housekeeping items.

I missed a little bit so I hope you haven't already provided these but could you give us cash from operations and cap ex for the quarter?

We're still finalizing our cash from operations but it's up double digit, a strong double digit.

Okay.

And cap ex?

Hold on a second, please.

Capital expenditures were 48.2 million.

I noticed in the past couple of years that cap ex in Latin America has been higher than the other regions.

Is there something -- some specific reason for that?

Yeah, there are a number of consolidations going on.

There's a movement -- a factoring movement consolidation in Mexico, and down in Brazil with the Colinas, there's been a great consolidation there.

There's been some central -- consolidation there.

And there's some Central American consolidation and there may be more in the Andean region.

But the answer is, yes, it's consolidation which ultimately leads to very nice margin and a margin improvement and overhead drop.

Is there, like, a --

That's one of the reasons why, Beth, as you know that the Latin American profitability in dollars is the highest percentage in the company and actually they went up, I think, again this quarter.

So are you eliminating facilities on a net basis and can you quantify?

Yes, we are.

We'd rather look at that on an annual basis and we'll --

Right.

We'll talk to you on an annual basis but, yes that's a constant process.

Okay.

And can you talk about --

Excuse me for interrupting.

And as you know, Beth, the -- that restructuring of consolidating factor and closings we have historically for the last seven or eight years, charged that to the P&L as compared to taking an individual charge.

Right.

So in this quarter and other quarters there are charges for those -- those things.

There's a charge in the P&L for a setup of a reserve on Fleming and all other stuff that -- that we are reluctant to take specific charges for.

So you absorbed the Fleming charge this quarter?

That's right, Beth.

Okay.

And can you talk about share repurchase activity in the quarter?

It was somewhat less than the quarter a year ago.

Primarily because of -- of the dividend increase, but during the -- the first quarter of this year, we purchased a couple of million shares versus slightly more than double that last year.

And do you have debt and cash balances at the end of the quarter?

I don't, but -- but Steve does.

Cash balances, I -- as I said before was $224 million, and debt was $3. -- a little under $3.6 billion.

Our net debt declined for the third quarter in a row.

Okay.

Great.

And just one more question, if I may.

Sorry, Beth, we have an agreement with our board of directors and the rating agencies but the rating agent just informed us, not really vital to them, despite our strong AA rating, we are actually going to reduce debt.

Our intention is to reduce debt by $300 million.

That'll be coming, like, a slight slowdown in share repurchase?

Answer, yes, but the combination of some degree of debt repayment and the increased of 33% in the dividend will mean we will most probably we'll have complete flexibility if we should want to, most probably buy less shares back this year than last year.

And this year -- last year the -- the value of the shares got into the - into the 40s, as you recall.

Right.

Right.

Can you talk about China, the volume growth in the quarter, profitability levels?

Okay.

China had a -- a good quarter.

Actually, in oral care, the volume grew quite strong double digit and dollar sales grew double digit as well.

Their expectation for the year is a continuation of -- of that, whether or not it's quite at level, we expect double digit again in the second quarter and the year but one never knows.

But it looks quite good.

The -- the net profit after tax was up quite substantially for the quarter.

So this -- this potentially could be a year of significant volume -- significant profit growth in China as you get scale?

Well, we have had scale, but, Beth, I -- it may be, but we're at the stage where we're making very nice money in China, but we're investing back the greater majority of it to -- in order to make sure that oral care shares keep moving in the right direction.

We have about 30% of the national market in China and as you know, we've launched other new products.

So our profits should be up this year but I wouldn't look for any kind of enormous gain because we -- we'll manage it so that we invest that money back in the long term.

Thank you so much and congrats on the quality quarter.

Okay, thanks, Beth.

Appreciate it.

And with a follow-up question we return to Andrew McQuilling with UBS Warburg.

Why don't we take one more, I think everything has had a shot.

Thanks very much.

Reuben -- or actually, this is for Ian, Ian, can you talk about whitening toothpaste shares in the Americas and in Europe, just to compare them?

And maybe just one more question on the whitening category, U.S. penetrations at 11.5%, it is a new category -- just penetration at 11.5%, it is a new category do you have any near term hopes for penetration levels that you will talk about?

The answer to the first question is no.

He said that with a smile, though.

I'm sorry, I was smiling vigorously.

The answer to the first question is that whitening toothpaste commands over 40 share of the toothpaste market in the United States.

We lead that.

They are less developed on aggregate in Europe; although, growing very fast.

And, Ian, is it fair, Europe around 30% or so in terms of penetration, whitening toothpaste?

I would -- it's north of 20.

I'm not sure it as high as 30.

Alright, terrific.

Andrew, just another thought.

Interestingly, I think Bina in her commentary mentioned about the Total Advanced Fresh, which has some very interesting technology which is a new launch -- Total, as you remember is the single leading variant with 13 or 14% of the U.S. market.

The newest, Advanced Fresh has -- has an interesting technology that does provide 12-hour protection for bad breath and so I think that you may see that subcategory growing a bit faster now as well.

Reuben, did you source that technology from Hill's? [ LAUGHTER ]

No, quite the contrary, they sourced their very successful oral care brand from Colgate.

Thank you very much. [ LAUGHTER ]

But getting those -- especially the cats to hold that brush, that's tough.

[ LAUGHTER ] Thank you.

And with that, ladies and gentlemen, I will turn the conference back over to the speakers for any closing remarks.

Thank you Rufus, thank you, everybody, and I'll be in my office to any questions if anybody needs me.

Thanks very much.

Ladies and gentlemen, this does conclude our conference call for today.

You may disconnect at this time and we do appreciate your participation.