高露潔 (CL) 2003 Q4 法說會逐字稿

Welcome to today's Colgate-Palmolive Company's fourth-quarter 2003 earnings release conference call.

Today's call is being recorded and is being simulcast live at www.Colgate.com. (OPERATOR INSTRUCTIONS).

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

Please go ahead.

Good morning, and welcome to our fourth-quarter and year-end results conference call.

With me this morning are Reuben Mark, Chairman and CEO, Steve Patrick, CFO;

Dennis Hickey, Corporate Controller;

Ed Filusch, Treasurer.

We're pleased to report our fourth quarter, which is in line with the guidance we gave you a little over a month ago, and at least from our point of view, better in several respects.

The P&L shows record performance on virtually every line along with sales increases in commercial marketing, spending and operating profit.

Our balance sheet has strengthened yet again and cash generation is excellent.

Working capital at year end is at all-time low levels.

Volume growth is healthy in every operating division outside of North America.

And here in the U.S., without the difficult comparisons with the Simply White whitening gel sell-in, volume and market shares are good, as well.

On our last conference call, Reuben referred to some degree of loss of focus we briefly experienced here in the U.S.

As I am sure he will tell you himself, we all strongly believe the focus is firmly back where it had been and should be.

He also reiterated confidence in our basic business fundamentals around the world, and this is born out by both our finish to the year and expectations for 2004.

As we have done consistently year in and your out, we have made extra investments in the parts of the world that required it and that has been funded by the extra margin generated in other regions.

Our commitment to re-ignite momentum in the U.S., to further build market share is very firm and is beginning to show results, even as we speak.

Despite all the clamor, 2003 turned out to be a solid, very profitable year, and will serve as a starting point for another good year in 2004.

Turning to the specifics of the quarterly P&L, worldwide sales increased 6.5 percent, the best fourth-quarter sales growth in many years.

Unit volume worldwide in the quarter increased 2 percent.

As we all expected, North American volume declined in the quarter due entirely to the very difficult comparison with the sell-in of Simply White whitening gel in the year ago period.

Looking more broadly at our global operation, unit volume in the developing world was up 7 percent.

Exchange was positive 5 percent and pricing down slightly, resulting in the overall sales increase of 6.5 percent I just mentioned.

Gross margin in the quarter increased 20 basis points.

As you would expect, the gross margin was affected by the difficult Simply White whitening gel comparison.

Excluding that effect, the usual ins and outs of building gross margin led to a real gross margin growth toward the high end of our target range of 50 to 100 basis points.

The margin increase resulted from our global funding the growth initiative, which manifested itself in our many ongoing and new savings projects around the world.

Looking ahead, we budgeted another growth in gross margin in 2004 within our 50 to 100 basis point range, most probably again toward the higher end.

The gross margin growth should improve sequentially as we go through the year.

In the quarter, total commercial investment increased both absolutely and as a percent of sales and was up significantly in every division.

You will hear more about specific new product launches as we go through the division.

But this stepped up spending has helped boost market shares in many countries which we're starting to see as early 2004 results begin to come in.

Operating profit increased 8 percent to a record 21.9 percent of sales on top of the 16 percent increase in the year-ago period.

Let me spend a moment on the operating profit results.

As you know, we told you we would use 4 cents from the sale of our European laundry detergent business in Europe to partly offset U.S. loss on Simply White whitening gel.

We think it is interesting and encouraging that excluding both the Simply White loss and the 4 cent gain, operating profit increased a strong 12 percent for the Company as a whole during the fourth quarter.

Interest expense was down slightly, since our cash flow was excellent and we paid down debt even more than we had originally planned.

Profit before tax in the quarter increased 9 percent.

Our tax rate was 30.4 percent, consistent with our previous guidance and 20 basis points higher than the year-ago period.

Net income increased 9 percent as well.

Earnings per share increased 10 percent on a slightly lower share base to 65 cents, another record.

And as you know, earnings per share for the full year increased 12 percent.

Turning to the balance sheet and cash flow, our results were very strong, and all our important balance sheet ratios improved.

As Reuben mentioned in the press release, free cash flow and operating cash flow increased 16 percent and 10 percent, respectively, reaching record levels.

Our strong cash generation gives us the flexibility we need to fund the GABA acquisition we announced a month ago, as well as to continue our share repurchase program and make whatever commercial investments are appropriate.

Cash generation is expected to remain strong throughout 2004.

The Company's after-tax return on capital climbed to yet another record as it has every year for almost a decade, up 340 basis points to 38 percent.

Worldwide working capital was reduced yet again, reaching the record level of 1.7 percent of sales.

In addition, our debt coverage ratios continue to improve.

They were already well above the ranges required by the AA rating, and have strengthened even further.

Now let's look at the operating divisions.

North America -- volume in North America declined 6 percent as expected, and as a result of the Simply White whitening gel comparison.

Excluding that comparison, volume in the U.S. grew to 3 percent, and should increase at an even faster pace in 2004.

Pricing declined 3 percent.

Most of the price decline was the effect of ongoing couponing and promotional activity that has characterized this highly competitive market for all consumer goods companies.

Exchange was a positive 1.5 percent, resulting in an overall dollar sales decline of 7.5 percent.

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

Operating profit declined 24 percent.

As indicated in the press release, this decline was entirely as a result of Simply White whitening gel.

Excluding that comparison, the North American operating profit was up double digits.

We're very pleased with the recent national Nielsen toothpaste market shares received just yesterday.

For the month of January 2004, our national value share is up 1.5 point from the December period to 34.2.

We're the national market leader in toothpaste and this new leading puts us 2.3 share points ahead of our nearest competitor.

This was the best monthly share in two quarters, with strong performance both from Colgate Total as well as good early results from Simply White toothpaste.

As you know, we started shipping Simply White toothpaste late in the fourth quarter, with the bulk of the shipments coming in this quarter.

So far, these are tracking according to our expectation.

National television advertising went on air mid-January.

Retail support has been very strong from Wal-Mart, as well as other of our major customers, many of whom have established Simply White toothpaste as a priority launch for 2004.

Current marketshare is at 3.0 nationally.

In the fourth quarter, North American unit volume increased 3 percent, ex Simply White whitening gel, and our toothpaste volume was up 3 percent.

Other categories that did well were liquid hand soap, where our share continues to climb and we have solidified our clear market-leading position at 45.5 percent, almost twofold national points from the fourth quarter of 2003.

Our U.S. market share increased in body wash and barred soap as well.

Two new products, Softsoap Active Ocean Fresh and Naturals Milk and Honey contributed to the solid performance in body wash.

New products just hitting the shelves in the first quarter, Milk and Rose and Milk and Lavender, should help maintain our momentum in the fast-growing body washed category.

We are encouraged by the start of 2004 in the U.S., in both shipments and market share terms.

As you know, difficult comparisons, vis-a-vis Simply White whitening gel continue through the first half of 2004, so our volume will build sequentially through the quarter.

In addition, as we've said, we are budgeting aggressive advertising and commercial support behind new and existing products.

Operating profit in North America will be slightly down in the first quarter, but up modestly for the full year.

Volume in Europe increased 3 percent, a solid performance given the overall sluggish economies across Western Europe.

Total sales increased 15 percent, benefiting from a currency positive of 15 percent, offset somewhat by a negative 3 percent from pricing coupons and consumer and trade incentives.

Total commercial investment was up very strongly, up both absolutely and as a percent of sales.

This was in support of new product launches across categories, as well as the base business, and is reflected in the volume growth well ahead of overall category growth.

Operating profit was up 15 percent, maintaining the record-high operating margin of a year-ago period.

Importantly, as mentioned in the press release, operating profit on a constant currency basis was up as well.

A number of the Northern European countries experienced good volume growth, including Germany, our second-largest subsidiary.

Volume growth was also strong in the UK, Spain and Greece and up double digits in central Europe and Russia.

We are very encouraged by our market share progress.

Across Western Europe, our shares are up in virtually every category, toothpaste, manual toothbrushes, shower and bath products, liquid soap, dishwashing liquid, bleach and fabric softener.

In oral care, our new Sensitive toothpaste has been successful across the region.

In fact the launch has resulted in record shares in the UK, Portugal, Norway and Greece.

Our most recent share in the UK was almost 45 percent.

As you know, we also launched our Simply White whitening gel in both Germany and France in the fourth quarter, selling in both the pharmacy and mass channels.

While we are maintaining a cautious stance on this launch, initial results have been positive, in a crowded market with four other multinational selling competing products, we have achieved a 67 percent share in France and a 43 percent share in Germany in the mass-market outlet.

We told you last quarter about another innovative new product, our single-dose fabric conditioner, (indiscernible) Heart.

This product was launched in France, Greece and Belgium in the fourth quarter.

In France, the launch drove our share to a record 54.5, with the hearts product alone gaining over five full share points.

Our business in central Europe continued strong, with especially good results in Russia, which is now our number one subsidiary in that region in terms of sales.

It appears that the country is fully recovered from the macro-economic crisis in 1998.

The average disposable income of the consumer has been growing steadily, resulting in growing consumption of our category.

Volume, sales and profit all grew substantially in Russia and marketshares are up in every category.

In toothpaste, we launched Colgate with propolis, a bundle that was developed originally in Brazil, and that has helped increase our share by over a point.

Looking forward to 2004, in Europe, we are encouraged although still cautious, by what seems to be some gradual improvement in the macro-economic picture.

This is particularly true in Germany, which has been suffering from negative GDP growth and overall category contraction.

Given the more positive macro-economic projection, we would expect volume growth in Europe to accelerate somewhat in the first quarter and that full-year volume growth should be good.

European operating profit growth should continue to be strong, as well.

Turning to Latin America, volume in Latin America increased a healthy 5.5 percent, considerably better than what we had been expecting, and a good finish to the year.

As further encouragement, this growth was compared to the strongest volume quarter for the prior year.

As in the third quarter, price increases exceeded devaluation, resulting in an overall sales increase of 7 percent, the strongest sales increase in that region in twelve quarters.

Total commercial investment was up double digit, up absolutely and as a percent of sales.

Operating profit increased on a dollar business, the first quarterly increase in over a year.

Volume grew in virtually every subsidiary in the region, including Mexico, Brazil and Venezuela.

The results in Venezuela were surprisingly strong, given that country's deep macro-economic turmoil.

Volume increases have accelerated in each of the last three quarters and we are encouraged by the underlying trends and apparent momentum in the business.

While new products play an important role in growing our business, we also completely re-launched our base Colgate toothpaste last year.

New graphics and new impactful advertising, combined with an innovative point-of-sale campaign and outdoor media activity, resulted in our toothpaste volume growing 13 percent in the quarter, and helped lift our regional toothpaste share to 73.1 to 73.3.

Our volume in Mexico increased mid-single digit in the quarter on top of the very strong increase in the year-ago period.

Our toothpaste share remains over 80 percent and is very healthy, despite extremely aggressive competitive activity.

Market shares increased year-over-year in tooth brushes, shampoo, liquid cleaners and dishwashing products.

While it still early days, we are encouraged by some signs of returned vigor in the Mexican economy.

Our expectation had been that the macro-economic situation there would follow the U.S. recovery with a one to two quarter lag, and that appears to be happening.

That, coupled with our continued focus on strengthening our market-leading position through new product activity and attentive advertising, bodes well for 2004.

The macro-economic situation in Brazil appears to be improving gradually, as well.

The currency has improved since the end of 2002, and more recently has been fairly stable.

GDP growth for 2003 is expected to be reported at about a half a percent.

Current projections for 2004 are in the range of 2 percent, a clear pick-up in an environment which bodes well for our business.

In Brazil, volume in the quarter was up slightly, fueled as elsewhere, by new product activity.

New products in oral care have met with success, including Sorizo (ph) super refreshing, the most recent variance in the Sorizo line.

Our toothpaste share is up almost 1 full point year-over-year and our toothbrush share is up as well.

Two new products in the soap category, Palmolive Aromatherapy Translucent Soap and Palmolive Milk and Rose Petal soap together have helped lift our share to about 18 percent, the highest level in over a decade.

In Venezuela, volume was up strong double-digit.

Market shares are up in the majority of our categories, with very strong gains in oral care.

We continue to be mindful of the very tentative political and economic situation in Venezuela and are quite pleased that the subsidiary continues to deliver very solid results in the face of such turmoil.

So we are very encouraged by the increased momentum in the Latin American region, as we exit the year.

Latin American volume growth for 2004 should be at least in the mid-single digit range, with somewhat lower volume growth in the first quarter, as the first quarter of 2003 was particularly strong and creates a more difficult comparison.

Operating profit should be up for the first quarter and full year 2004, the first full-year increase in three years.

Asia Africa -- volume in Asia Africa increased 6 percent.

Sales increased 14 percent due to favorable exchange of 11 percent with an offset of 3 percent from pricing, couponing and consumer and trade promotion.

Total commercial investment increased strongly, both absolutely and as a percent of sales.

Operating profit increased 17 percent to a record fourth-quarter level of 15.9 percent of sales.

Volume was strong across the region with double-digit volume growth coming from China and ASEAN group of countries.

In China, we have now completed the expansion of our state of the our toothpaste manufacturing facility.

We now have 30 percent additional capacity to service this huge and growing market.

As you know, we are the clear market leader in China with over 30 percent of the market.

This factory expansion as well as other projects continue to help drive gross margin in the region, despite the inevitable pricing and promotional pressure.

In the Philippines, the launch of Palmolive Naturals shampoo as well as Palmolive Aromatherapy shampoo has positioned us as clear market leaders in the shampoo category.

Market shares are also up in toothpaste and tooth brushes, aided by the introduction of Fresh Confidence Citrus Last toothpaste and Colgate Massager toothbrush.

In India, we are also very encouraged by the strength of the business.

Volume was up high-single digit, helped by strength in the oral and personal care categories.

In addition, last quarter, Colgate was rated the most trusted brand in India in the brand equity survey across all brands and categories.

This is the third survey done by the economic times and Colgate has been the only brand to be consistently ranked in the top three for all the three years, a measure of the trust and confidence that generations of Indian consumers have placed in Colgate for their oral care needs.

Looking forward, volume share in Asia Africa should continue at current levels for the first quarter of 2004 and for the full year, as well.

Operating profit growth should continue at this year's strong double-digit pace as well.

Turning to Hill's, Hill's volume increased 2.5 percent, a good performance against the 7 percent increase in the year-ago quarter.

Pricing and exchange added another 6.5 percent, resulting in an overall sales increase of 9 percent.

Volume for the full year was up 4.5 percent, at Hill's historical level of growth.

Total commercial spending in the quarter was up strongly, absolutely and as a percent of sales.

Operating profit increased 16 percent to a fourth quarter record 28.3 percent of sales.

In the U.S., our strategy of sharp exclusive focus on the specialty channels distribution appears to still be very appropriate.

Our market share was up again in the most recent period, solidifying our clear number one market leadership position in the channel.

As always, new products have helped fuel our growth and build market share.

Science Diet Advanced Protection and Prescription Diet Feline MD have been important contributors.

In addition, despite a somewhat sluggish U.S. economy, the dog food category consumption growth doubled in 2003 relative to 2002.

Hill's volume was particularly strong in the international market, boosted by the continued expansion of Science Diet Nature's Best All Natural Wellness Food.

In Japan, we continue to hold the number one market share position in both dog and cat dry food.

Our Prescription Diet line has been doing particularly well in Japan, up 9 percent, and the expectation is that that growth will continue into 2004.

For the first quarter of this year and full year as well, Hill's volume is expected to continue growing at a mid-single digit pace.

Operating profit for the full year should be up double-digit.

In the first quarter, operating profit should increase in the high-single digits, as the increase in the first quarter of 2003 was 34 percent.

So in summary, we are pleased with our finish to 2003 and look forward to a good year in 2004.

As we have discussed, momentum should build throughout the year.

We are particularly pleased that our basic businesses worldwide are healthy.

Our ongoing strategy to focus on a limited number of high-margin businesses should help us continue to deliver solid results.

That's the end of my prepared remarks, Cathy.

We can now open it up for questions.

(OPERATOR INSTRUCTIONS).

Bill Chappell, SunTrust Robinson Humphrey.

I guess first on the Simply White franchise in the U.S., can you maybe give us an overview of what the plans are for '04.

Do you scale back on advertising or new product introductions?

Or how do you write that business as you move through the year?

The Simply White business in the U.S. appears to be a modest-sized business, representing a one or two percent of our total sales in the U.S. right now.

High margin, so it will be profitable, but it will have, I guess, modest support, certainly, in the budget.

It is laid out that way.

I think we will probably resist the temptation to increase spending radically even if it does better than budgeted.

So it's a -- as I think I mentioned in the December conference call, it's a reasonable size, but modest new product as it turned out.

It should be positive in EBIT, at least modestly in the year to come.

One follow-up, you might have mentioned this.

On the Latin America operating margin, it was down, I guess, as a percentage of revenue year-over-year.

Was there anything in that, or was that just more pricing?

Or can you just help me, give me more color?

EBIT in Latin America, you are talking about operating margin -- EBIT in Latin America was 28 percent of sales, 27 in the quarter, 28 for the year versus about 28 the year before.

So that's about a percent down, 100 basis points more or less, but very substantially above 6 or 7 percent -- percentage points -- above what the whole company is.

Next year, 2004 that is, it's budgeted back up to 29.

This year, as you know, it was negative for the full year, although it was negative for the first three quarters and positive for the fourth quarter.

Because of economic conditions and currency, as a percentage, went down slightly.

But it varies from year-to-year.

Consistently, the operating profit in Latin America will be higher than the rest of the world, even though gross margin is less high, and that should continue.

Actually, as I think Bina mentioned in her commentary and we may have talked about a bit on the December 17 conference call, Latin America is looking quite good, better than anticipated.

And actually, for what it's worth, the month of January started off very well.

Amy Chasen, Goldman Sachs.

Can you comment on the increase in days to sell inventory in the fourth quarter?

I think they were up about two days.

How did you like the pronunciation of your name?

I loved it.

I knew you would know who I was anyway.

Basically, I am not sure where you are getting that from.

The working capital component, you are talking about trade inventory or our inventory?

Your inventory.

My recollection -- I will dig up the folder -- but it is that both inventory and receivables are at a very low level it, same as they were last year.

I will give you the specifics in a se.

And overall working capital was down, (indiscernible) I think (indiscernible) 1.7 percent versus 3.4 last year.

The primary reason for that drop to that record level, about half of it is due to the fact that we are spending more on advertising.

And the payables on advertising are different than the general components, so that pulls it down slightly.

But in terms of -- let me give you -- in the fourth quarter, we had days outstanding of -- I am talking about receivables -- days outstanding of 43.2 versus 43.1 last year, which is as close as you can get.

And this year, in terms of total inventories, we had days coverage of 58.8 versus 58.

So that's 0.8 of a day coverage, which is a pretty fine gradation.

So I am not sure there is anything there.

My calculation, it might be a little bit different because we use the average.

So I was just wondering whether there would be any inventory worked down in the first quarter that would cause any gross margin impact?

Really, not.

That's as smack on as you can be.

I have, if you want -- I will give you the U.S. inventories, hang on one se.

I remember from looking at the Polaroid (ph), I can't lay my hands on it right this moment.

But it was smack on at 10.1 -- is that the right number?

Yes, here it is.

In the fourth quarter of 2002, we had 10.1 weeks; this is now in the trade, this is Nielsen.

And this year, it was precisely to the tenth, 10.1, as well.

So those are very normal levels.

And my sense is that is not a problem.

As a matter of fact, again, who knows how we will continue the month; it is only a month.

But U.S. shipments are actually quite good for January, which would indicate there is not a difficulty.

Lastly, I think in the press release, there was a comment that for '04, you'd expected accelerated new product activity.

And I was just surprised by the word accelerated, because it has obviously been pretty strong.

Can you just comment on that, and maybe talk a little bit more about the type of new products, the magnitude of the new products in '04?

It will be -- in terms of absolute number -- there will be a couple more.

I have actually -- I have again here somewhere -- in fact I think already 16 new products have been announced to the trade for the first quarter.

There are actually a number more in the first quarter.

So when all the dust settles, there will be more new products -- I am talking about in the U.S. -- then last year.

Then depending on the country, but in the developing world, with the economies picking up, that is a more hospitable atmosphere for new products so our overall plans call for, I, guess and justify the accelerated.

I'm not sure that the word was considered as deeply as you are considering it when that was written, but nonetheless, it is accelerated.

Are you launching Simply White into any other markets this year?

It has been launched, obviously, with cashing out, in terms of how big it's going to be and how much sell-in should or shouldn't be and how much advertising should be spent.

But yes, I can give you the specifics if you want it.

The historical, it's already in -- somebody just handed me the paper that I think I already have.

In the first quarter, it was in a number of Latin American countries; and that's essentially -- in the Latin American countries, our experience in Mexico indicates it's in the high end of the trade and it actually sells reasonably well.

Everything is controlled from an advertising point of view.

But again, our estimate for the year, Amy, is -- my recollection is 80 to $90 million -- somebody is nodding across the table, so my recollection is correct -- of worldwide sales, with a margin in the mid '70s.

So it's a -- you tell me, a little less than one percent of our worldwide business.

And obviously, it will be watched carefully.

It should be a profitable ongoing niche product.

John Facher (ph), J. P. Morgan.

You made comments about the volume and the profit numbers excluding Simply White in North America.

So I guess a follow-up to that would be, can you give us an idea of what your toothpaste shipments look like, excluding pipeline from Simply White toothpaste?

Also, with the growth in operating profit, excluding Simply White, does that mean that there wasn't that much of a shift in spending?

You said you had a big increase in marketing spending and I am trying to reconcile the big increase with marketing spending, which I'm assuming was coming on maybe some more of the core brands with that big increase in operating profit.

Let me try the first question first.

We sell-in a lot of new products around the world each year.

The sell-in for each of them is part of that year's business and the next year, there are other products and so on.

The uniqueness about Simply White was simply that it was a high-priced product with a very high margin that sold in and initially moved at considerably high levels, so it influenced the numbers.

We can take Simply White pipeline out of the toothpaste and whatever products in the previous year and the next year, and it would more or less balance out.

The reason there was a blip or -- was because this was an extraordinary emphasis by the trade and by us, and a disproportionate to its ultimate size.

Interestingly, I think you could take a look, John, at the EBIT for the total company, just to show you how it influenced it.

If you take out the 4 cents that we put into earnings from that gain in the European sale of detergents, and you also take out the loss -- the net swing -- the loss from Simply White, just in the United States, EBIT for the whole company, which is registered officially as 8 plus percent up, would have been between 12 and 13 percent up.

So it is interesting.

It had an inordinate effect for a very short period.

But I think we are back to the normality, or this year, we are back to normality.

And I don't think you'll see that again.

I think it was a hiccup that we created ourselves.

I think it's -- one would hope you'd seen the last of it.

The question then would be if you look at the increased investment, I am assuming that was coming on the balance of the business excluding Simply White.

So the EBIT performance seems pretty impressive if you are in fact shifting spending or maybe even providing new incremental spending on the core business.

Is that right?

During which period are you talking to?

During the fourth quarter.

Yes.

But I think you'll see an even more substantial increase in U.S. spending on non Simply White, i.e. the other 99 percent of the business, in the year 2004 beginning in the first quarter, which I think will be reflected in market share and in other ways (ph).

So the Q4 falloff was more about Simply White.

And in beginning of '04, it's more about new incremental spending on the core?

Absolutely.

But of course, the comparisons still exist for a few months remaining.

But each time, we will break out so you can see, anyway, you can juggle the numbers any way you want.

The essence of it is our market shares worldwide, but in the U.S. are pretty good.

In Bina's conversation earlier, I think she did mention the most recent shares in the United States on toothpaste, which I think are very encouraging.

Bill Pecoriello, Morgan Stanley.

A quick follow-up on the U.S. piece.

Given what you talked about the step up in spending in North America in Q1, given the comps, when will you expect to see Q1 profit in North America may be down more than slightly or whatever the definition of slightly is, given the statements that you made?

Why don't we be specific?

I am not sure who said, did anybody say slightly?

Slightly was in Bina's prepared comments.

The expectation is it will be down -- it will be down less than it was in the second half of last year, but it will be down.

It will probably be down high-singles or low-double digit on a percentage basis.

So it depends -- it's a pretty big basis, so I guess you couldn't call that slight; and if we said slight, it should not have been.

But that will be balanced out by substantial increases in other areas of the world.

Would you characterize -- the competitive environment in the U.S., is it rational driven by marketing and innovation, and that's where the battle is being fought?

Or more on promotional activity and discounting to gain market share?

I would think it's all of the above.

Far be it for me to say that anything is rational or irrational on the part of competitors.

But we are spending, we think, meaningfully and getting value for our money.

It's a combination of media spending, classical promotion spending and we own (ph) 60 degree promotional spending that we have talked about historically.

Fortunately, our growth in the classic formula, the growth in gross margin plus our containing (ph) of overhead and some very good-looking business trends elsewhere in the world, allow us to spend the money in the United States while meeting our -- what we consider our profit commitments to ourselves and to our shareholders.

When you talked about modest spending behind the Simply White gel and resisting the temptation if it was stronger -- as P&G is segmenting that category further with the high-end supreme, does that mean that you would not consider either reformulating the gel or improving the application method in the higher end at home whitening segment?

Again, that is obviously talking about prospective new products.

I really could not comment on it.

Clearly, what we do with all of our product is if there is an opportunity to give the consumer a better use of application or effectiveness of use, we will investigate it.

It's just that I have said that we, to a certain extent, lost our focus on the basic businesses and we will not do that again.

Windy Nicholson, Smith Barney.

A couple questions, the first being, there is a pretty wide range in terms of earnings expectation out there for the first quarter, I think 55 on the low, 61 on the high.

Can you comment on where you see the first quarter EPS shaking out?

Yes.

We are comfortable with the range.

The consensus is more or less in the middle of that, I think.

Actually, consensus, I think, is about 58 or 59 cents, which is about a 5 percent increase, and we are comfortable with that us well.

If you back out of, I think the first quarter, European margins are going to be hit a little bit by the lack of profits from the detergent business.

So will European off operating profits be down in the first quarter?

You were talking about operating -- gross margins because obviously --

Operating profit.

Gross margins will be helped rather than hurt as you know, because of the low margin of detergents.

But in the first quarter, their expectation is that operating profit will be up well.

As a matter of fact, it will be, on a percentage basis, it's expected -- again, these are budgeted figures and late assessment figures -- up slightly as a percentage of sales, 10 basis points or thereabouts, and up substantially in absolute amount, and north of 10 percent.

My last question has to do with the gross margin goal.

You talked about it for a long time, the 61 percent target for, I think, 2008.

And based on where you came out in '03, that means you have got to do 100 basis points per year to get to that goal.

So it strikes me that you either need to lower that 61 percent goal or you need to increase your 50 to 100 basis point target because you have to have several years that are above 100 basis points to get to that target.

How are you thinking about that these days?

As you know, a lot of activity -- since we do have this very sharp focus on high margin categories, look at our recent movements, Simply White base, which contributed, (indiscernible) three share points to the 34 or 35 share that we have now (indiscernible), has a margin in the low 70s.

I am looking for confirmation -- yes, in the low 70s.

The GABA business, which we announced, of course, in the fourth quarter and should close within the next few months, also has a gross margin over that, I believe, in the mid-70s -- the net (ph) margin much less because it hasn't been operated for profit.

And so that there are a number of programs under way.

That is on top of all the savings aspects.

One would think that, yes, there would either have to be a number of new products with those higher margins, which most of the products in the planning stages do and/or other changes to ensure that we get to that level.

But, Wendy, you are also aware that these days, that the margins are really -- gross profits are really understated a bit versus history, more than a bit, because the acceleration of promotional spending by the entire marketplace basically makes it even more difficult; and the fact that we are sticking to both the goal and the year-by-year increments, I think, is good.

Again, what we are looking for, of course, is overall P&L leverage.

When currencies were going against us by 4 and 5 and 6 percent by year, we were able to generate the earnings growth that we were trying for and desired.

We do get a bit of a benefit, who knows how long it will last, when currencies going the other way, so that each 10 (ph) basis points of margin goes further in terms of actually generating dollars which we can spend and drive (ph) to operate profit.

I know over the past couple of years, you have given us gross margin by product category.

I think '02 oral care was 59.2.

So assuming that business grows the fastest, obviously, product mix will be a huge driver of margin expansion.

Can you give us that number for '03?

I don't know that we have formally or informally given that out.

But it is up, okay?

Up over 59.2 from last year?

I am getting blank stares from some of the financial people because they don't like to give out that data.

But the answer is that mix well -- let me generalize, if I might.

Mix will continue to play an important role, just the mere fact of the disposition, as Bina mentioned in her speech, the mere disposition of our European detergent business and the addition of GABA has a net gain on a dollar-for-dollar switch basis of some 20 margin points.

It's, as you know, a comprehensive program, with many sectors of it, that together pushed the margin up.

I think -- I am not sure if Bina mentioned that, actually, the margin was up well into if not at the high-end of our 50 to 100 basis points difference.

Carol Wilke, Merrill Lynch.

Two quick questions.

Could you break out on Hill's, the U.S. growth versus the international growth for volume.

We don't normally do that.

But the U.S. was flat.

And international was up in the -- my recollection collection is the high teens, high single digits.

Up high single digit?

Yes.

Was there something that changed in the U.S. market in the quarter?

When you say U.S., it's domestic versus overseas.

And there was, I would say, from a volume point of view, a half a point to a point of mad cow phenomenon, which we don't want to (indiscernible) about stuff like that, that was primarily in Canada and in several overseas countries as well.

That was isolated to the fourth quarter.

That is to say there was some hold up in shipments because of -- I am looking at who is agreeing.

But that doesn't seem to be affecting us now.

And I think there will be a better balance throughout this year.

They are looking for volume this year -- a total volume increase for the full year of about between 4 and 5 percent.

This past year, it was 4.5 or 4 (ph); in the previous year, it was 5.3.

So there is some quarterly fluctuation, but it has been hanging pretty good in the middle single digits.

You mentioned in the opening comments how Russia had done so well and it was now, I think you said, your biggest, number one subsidiary in Europe for you or Eastern Europe.

I probably missed that.

Can you just give us an idea of how big that business is for you as well as all of Central and Eastern Europe?

And what you see as your growth prospects there going forward.

Yes, volume was up actually north of 25 percent in the quarter as were dollar sales.

And EBIT was up -- net profit after tax -- was up over 10 percent.

Russia, next year, will be the best part of $100 million, slightly below that, but they will probably exceed their budget.

And Eastern Europe would be what?

I can give them to you, hang on.

Central Europe would be about a quarter of Eastern Europe, which is a lot of countries.

Is that okay?

Russia is about a quarter of the Eastern Europe.

Central Europe.

Okay, got it.

So use a rough figure of about 400 million for Central Europe, of which Russia is about a quarter.

All of it is growing very nicely, but it is growing the fastest.

Lauren Lieberman, Credit Suisse First Boston.

I had a quick follow-up on the Hill's question and your mention of mad cow.

Was there any holdup of shipments in January that you have seen because of mad in the U.S.?

It's conceivable for the first week or two, but as of last checked, not at all.

As a matter of fact, the last couple of weeks have been strong.

Some of the (inaudible) in Canada still benefit.

About 5 of shipments in Canada.

Some modest shipments from the United States to Canada have been held up a bit because the Canadian government has been very involved.

But that will work its way out and it looks like the quarter will be fine.

In the U,S, again, you mentioned retail inventories as being 10.1 days this year as well as last year.

Do you have any sense of what this would be if you included Simply White or excluded Simply White?

Again, it's a very small part of the business.

There's no appreciable movement in either our inventories or the trades inventories.

Our inventories are, I think -- going back to Amy's original question -- are low by industry standards and continue to be so.

Our trade inventories over time, like everybody else's, has come down gradually and there is no -- it's not appreciable, the Simply White, either out there or in here.

I would think that last year, if you'd shipped somewhere between 50 or 175 even $100 million of Simply White in the fourth quarter that there probably would have been an inflated retail number at the end of last year.

But at the same time this quarter, we didn't shipped much.

So those inventories have been eaten up.

So you are comfortable also with the retail levels of inventories for Simply White at this point and for Simply White Night?

Yes, it is not perceived as a problem either internally or externally.

One more thing on the corporate and interest line, I am sure that part of the swing is related to the divestiture of the European detergent brand.

But I wanted to know if I could just get more insight on where the onetime gain is accounted for, where the onetime expenses are, and how this breaks down?

On interest?

Also, what the pretax amount would have been?

I'm not sure I get the thrust of your question.

But let me answer it as I perceive it.

Our interest expense between last year first quarter and this year -- last year fourth quarter and 2003 fourth quarter -- was down about $4 million.

And the interest rate, actually, the effective blended rate, was up about 20 basis points from 37 to 39.

So if the reduction in cost came from a reduction in average debt, our average net debt in the fourth quarter of last year was $3.4 billion, and now it's 2.8 billion, a difference of about $600 million.

Because of the liquid cash flow, a small part of that was the detergent sales, but only a small part.

Actually, I'm sorry.

I meant in the corporate line, the corporate expense.

The operating profit for the divisions and then you backed something out last year, it was $39 million, this year it was about $4 million.

That is the gain on the sale of detergents was the primary driver with that.

There was some restructuring in corporate, there are also some restructurings in the operating (inaudible) being spend.

But again absorbed in the P&L, as we have continued, as we have for eight or nine years, that any restructurings are absorbed (ph) into the current P&L.

So $33 million then would be the pretax amount of the gain?

The gain -- the portion of the gain that went into the operating earnings.

If you take that 4 cents a share -- $6 million after tax represents a 1 cent a share.

Six times 4 is 24.

And the before tax aspect of 24 million is about 35 or 40.

Connie Maneaty, Prudential Equity Group.

Reuben, my perception of Colgate is that it is very much run by systems and processes, having followed you for a long time.

It's a fairly methodical and predictable company, externally as well as internally.

So can you talk about how a loss of focus actually happened in the U.S. and what the concrete steps that you took to change it?

I guess there's no diplomatic way to ask this, but, were there some management changes in the U.S.?

I would normally ask a couple of people in this room about that, but they are no longer here!

I am joking.

Ian Cook, who had run the U.S. company, and now supervises it, is here with us.

And perhaps he can comment and I could comment, so the specific question, how would you think perhaps the loss of focus came about, and what is being done about it?

That would be great, thanks.

The loss of focus is specifically related to Simply White.

I think the product was launched, as you know, at the back end of 2002.

It was very warmly received by the consumer and the trade.

And there were expectations and forecasts of category growth rates with the consumer, that in fact, were too aggressive compared with how we had seen the market evolve.

And at the timely we launched, there was a flurry of activity in the marketplace with Procter new products and our new products.

And I think we got commercially off track in the U.S. against a too aggressive forecast on the business, from a commercial point of view in the U.S.

In terms of how we are addressing it, back to the review processing that we have at the Company and the personal involvement of many people in this room, amongst others, we crafted, together, a budget plan with a product activity level in it that was very much focused on the base business, as Reuben said.

And we are now diligently, as you have known us to do in the past, focused collectively on executing that plan.

I was also flipping through my model during the Q&A, which I am completely surprised to see goes back to 1994, on a quarterly basis.

And one of the things I noticed was that for most of the years -- for all of the years between '95 and 2002, pricing in North America was plus or minus a point.

And now we are coming through the ninth or tenth quarter where pricing is down 2 to 3 percent.

So Ian, could you give us your perspective on what has changed so much in North America, is it the competitive dynamics?

Is it harder to get products on the shelves?

I think part of it Connie -- I don't have the number at my fingertips -- is the accounting change, which now has, particularly coupon activity, now reported as a trade expense above the net sales line.

That is now captured in price.

As you know, in the U.S., couponing, particularly for new products, which have stepped up over that time period, is a very important part of the launch activity of those brands.

And yes, on selective category basis, there have been competitive pricing issues in categories that we have had to deal with.

But I think the biggest factor has been the change in accounting on couponing.

To build on Ian's point, there also has been a lot of new product activity prices that were in the industry, that were perhaps nonsustainable.

For example, when the whole power toothbrush effort was made, there were $20 brushes to compete with a competitor's $60 brush.

Those ended up down versus 10 and then the $5 level, and those reflect disproportionately because there are such big price changes by the industry.

Similarly, the pricing in the whitening category, again, those reflect disproportionately because they are an enormous percentage of the original price.

On the other hand, if you look at the basic products, the prices of toothpaste and dishwashing liquid and things like that, have not -- the actual retail selling price has methodically gone up a penny or two a year, and that has not changed too much.

That's right.

That helps explain why you can pull out the Nielsen numbers that show that the average retail price of Colgate products on the shelves has actually been rising, while we are looking at price mix, which has been declining.

Yes, there is a -- I have a chart which I can share with you, separately, which I think you may have seen before.

Our ASP -- I don't have it right here.

If we take, for example, first take toothpaste, basically, the price in 2000 -- this is (indiscernible) from Nielsen, $2.48 average a tube.

It went up to $2.55 in 2001.

And year-to-date this year, it's $2.58.

APDO, antiperspirant deodorant, 2.52 in 2000, 2.59 in 2001, 2.69 in 2002, 2.79, and it's a combination of new products and different size mixes and so on.

But essentially, true of all the categories.

So that the combination, as Ian says, of change in accounting of couponing and all promotional activity now is a price reduction when before it was carried in promotion, number one.

Number two, radical drops in some one off categories, like electric toothbrushes and whitening and so on.

But the basic businesses, even light-duty liquids for the category as a whole, 1.76, 1.79, 1.82 and 1.86 over those four-year periods.

So (indiscernible), it goes a couple up.

Joe Altobello, CIBC World Markets.

I just wanted to make sure I interpreted you correctly about your comments on pricing.

It sounds like the 2 to 3 percentage points of pricing declines are seen in roughly three of your regions now over the past few quarter is temporary and will probably slow down at some point over the next call it one to two years?

I'm sorry, say that again.

The price declines we have seen in North America, Europe and also Asia Africa, recently, are those going to slowdown at some point over the next few years?

I am not saying that.

We are not assuming that will happen.

Part of it is driven by heavy promotional activity.

We are simply assuming it's going to continue.

If it lets up, terrific and we will get the benefit of it.

We are financially and in every other way, planning for that to continue, number one.

Number two, the accounting unless it changes back, will remain that pricing will be classified, stuff that used to be in gross margin now disappears over the top line and is considered a price reduction even though you could argue that some of it is not.

So that I am not sure I would conclude that there's going to be any dynamic change in that.

All of our assumptions on margin and EBIT and everything else are assuming that the competitive environment stays as it stays, as it is.

If I could follow up with something off the beaten path.

CAPEX is relatively low this year, about 3 (ph) percent of sales.

Is that sustainable or should we expect that to pick up a little?

CAPEX is not terribly different, I think, than history.

Let me give you the figures.

Our total CAPEX, on a cash spending business basis, going back to 2000, was at 366 million, which is 3.9 and it's been 3.6, 3.7.

This year it was 3.1 and in 2004, it's expected to be about 3.3 or 3.4 and will probably end up a bit less than that.

Don't forget all this time, we are reducing the number of factories, so basically the same amount of money can be spent more intensively in fewer factories.

The average rate of return during that period on that money for the savings project says range from a high of 45 to actually last year, to a low of 40.

And next year we are expecting 43 percent.

So it's very protective money.

And we actually -- there's no restraint on it.

We try to spend as much as we can because of the high return.

And as you know from our cash flow, we're not the least bit cash constrained.

All of our ratios, as I think Bina mentioned, are well above what the requirements for our AA rating.

So we have access to funds if we need it.

Ann Gillin, Lehman Brothers.

A follow-up on Latin America, I am not clear as to why it wasn't a stronger EBIT growth, why you didn't get more operating leverage off the 7 percent revenue growth?

Number one, there was a good deal of spending.

My recollection -- somebody gave me a piece of paper but I -- hang on, let me (inaudible).

Our volume was good, as you know.

The dollar sales were up the 7 odd percent, whatever it was, commercial spending.

Advertising -- this is actual advertising, this is not commercial spending; this is advertising that is classified as advertising so it's media and certain kinds of promotion.

We are actually up over 30 percent in the quarter, which I think we will see some good results from next year.

And that continues very strongly, up 15 percent expected in the first quarter of this year, of 2004, against a relatively modest volume objective.

I think what happens, as the economies start to pick up in Latin America and as our business starts to pick up, we accelerate our spending to make the most of it.

That is (indiscernible) investing in the following year.

This is one of the sources, potential sources, that you alluded to that could offset some of the North American weakness in Q1?

Yes, the budget for Latin America EBIT is modest in Q1.

But I think there's a good chance they will exceed it.

Even if it's budgeted up -- I don't know if we can give the stuff, why not.

It was only budgeted up the mid-single digits.

But with those kind of spending levels and the kind momentum we are going in, it's very possible that we will do substantially better than that.

I wanted to go back to the gain.

If we use some of the numbers that are in the cash flow statement and make some assumptions around taxed (ph) it (ph), looks like it was about a 13 cent gain that was in operating income from the sale.

That is not correct.

I don't know what else to -- tell me.

I am just looking at what you posted for the cash flow -- the carve out -- in the cash flow statement.

It looks like it's about 107 million pre-tax gain.

Cash flow and earnings obviously are two different things.

That offset against -- there are a lot of costs which have not yet been incurred on a cash basis.

When we sold the detergent business, there are a lot of termination costs and a lot of other things that are approved but not paid out in cash.

So I think you may be moving between balance sheet and P&L inappropriately.

It was nowhere near that.

What I am really trying to get to Reuben, is, what was the effect of the sale in the P&L and where did it get booked, gross margin, SG&A?

Other expense and income.

The whole thing is SG&A.

We know there was a 4 cent offset for Simply White.

No, I'm sorry.

The offset was -- when you say -- the Simply White was substantially more than that, as I think it's been set by Bina, or perhaps not.

The actual loss, year-to-year, on the Simply White thing was well in excess of the 4 cents; it was actually between 6 and 7 cents, which on a money basis, is about somewhere between 15, about $15 million after-tax.

That's how we got -- and you may recall from a few months ago -- that if you take out the 4 cent gain and you take out the loss on Simply White, your EBIT actually was up 12.5 percent rather than the 8 percent in the numbers.

I am with you on that.

I am just trying to understand if there's anything else from the sale of European detergent in the operating income number?

Everybody around the table --

just the restructuring numbers that went along with that.

They were a net neutral?

No. what we said was, it was a net, equivalent of 4 cents per share, which was used to offset the Simply White.

So the HDDs (ph) gain, less the restructuring, was 4 cents.

And that offset, partially, the 6 cent negative for Simply White.

I just wanted that clarity.

Okay.

Andrew Shore, Deutsche Bank Securities.

It was good to hear you laugh before.

That offers so many opportunities, potential for comeback wisecracks, but I will not avail myself.

But thank you.

I actually laugh quite frequently.

Good.

You could give me whatever wisecracks you want, that's fine.

What I do is yes, okay.

To follow-up on Ann's $107 million, I thought GAAP accounting says you get a check, you have to flow tat through.

And any reserves you want to take after that, you take them after.

So what is the $54 million of restructuring?

Is that ongoing?

The $54 million of restructuring is the non-cash portion -- the cash portion -- as you know, the gain on sale of a business is not included in operating cash flow, it has to be reclassified down into investing cash flow.

And the restructuring, however, has to be included as a reduction of operating cash flow.

So, the number you see there for restructuring is the noncash portion.

They are different animals.

Let me understand, what is the question?

How big is the accrual that you're going to set up?

Again, you get a check, somebody writes you a check for X, and then you said there is a discrepancy between the cash flow income and the balance sheet income.

But that's setting up some accruals after that, right?

Some of it has already been spent.

But it's things like what we are doing in Europe relative to the detergent to sale.

We are sitting there with an idle tower, and production facilities and individuals and all of that will be spent -- almost all of that will be spent within the next six months.

Okay.

And Reuben, in terms of Simply White toothpaste, it's off to a good start.

But I have seen $2 coupons, which effectively takes the price down to lower than $2.

Is your strategy essentially to discredit the in-home whitening segment and move as much as you can into toothpaste?

You don't really have much to lose by doing that, especially at a time when P&G is coming out with its -- came out with its new whitening product at a high point?

I think you are crediting us perhaps, Andrew, with more (indiscernible) than at least I possess.

The objective of that -- we have a 34.6 or whatever it is market share in toothpaste, which is up from 20 percent over the last decade.

Our objective is to build that further here in the United States and add to it around the world.

This product, which, as you know, comes in a dual tube and actually does work -- and I don't know if you tried it, but it really is a good product -- the purpose of this is to incrementally build another two, three, four, whatever share points on top of the existing business and then do that around the world.

I don't think that it's a direct competitor to whitening strips or other products.

It's a toothpaste that you can use every day, or you can use it for a month and then switch back into whatever you want to do with it.

I don't think there's any kind of very clever preemptive strategy.

It is part of a many year-long approach to get as close to world -- what's another word for dominance -- whatever, for our toothpaste business, which world we consider to be a vital part of our overall strategy.

Andrew, (indiscernible), because that is interesting.

If we would discredit -- what is your thinking about discrediting the whitening category?

At home whitening, it doesn't seem like you really have much of a business left.

And P&G is coming in and still segmenting at the premium end.

And the price gap is going to be so high between what P&G is offering and what you are offering net of coupons.

You want to migrate as much of the business as you can into your whitening toothpaste?

By definition, we want to get as much (indiscernible) per share as possible.

I think in terms of couponing, I think if you are comparing our couponing levels with competition, I think you ought to look pretty hard at those numbers because I think there are some fairly astounding levels of couponing in both (indiscernible) category, perhaps more in the whitening category, both in terms of value and frequency.

But be that as it may, the initial trial so far is good.

It is one, again, one product, along with many other new products.

And the concept is to keep methodically building market share in 218 (ph) countries with each little increment as it comes along.

My sense is that it will be -- continue to be effective.

We will see how big the in-home whitening category ends up being over time.

I would guess that everyone, including trade and the competition, are surprised that the category is perhaps a little slower than the original expectations, but so be it.

I don't think this is a change in strategy at all, Andrew.

I think it's simply trying to, again, on a worldwide basis, simply get some additional share in a very high-margin category, in which we enjoy an enormous amount of leverage because of the domination that we have worldwide.

Neil Goldner (ph), State Street Global.

You have had about another month or so to the extent you can look at the GABA business.

I am wondering if you're still staying with that 3 percent dilution in 2004 earnings from that acquisition?

As we said, Neil, in the conference call in December, that we were being -- I think my exact words you want us to be conservative and that's what we're being.

It will not close at the earliest, probably in the latter part of this quarter, more probably in the next quarter.

And at that point, we will know what the intangibles are that we have to amortize and we will know all the closing details and so on.

And obviously, we will have an opportunity to give you a more close feel at that time.

But it's essentially unchanged because we are still in the (indiscernible) processes.

Again, as with everything else, every other thing we do, we would hope we will end up being conservative, and it will not be that much, but we don't have anything to say specifically now.

On the pension contribution, I think there was a small one made in the fourth quarter.

I am wondering where you are with respect to next year and (indiscernible) flow (ph)?

Sure.

All of our pensions are funded in excess of 100 percent for the qualified plans, of course.

We put a cash contribution in 2001 of 96 million, in 2002, 135 million.

And as you know, in two tranches, we put in 84 million; in 2003, we put 63 that we had previously announced, and 21 million in December.

It is expected that about 30 million of a voluntary contribution will be made in the first half of this year.

The next mandatory cash contribution would not be until 2009.

Obviously, our recent performance -- investment performance, as with most pensions, has been good.

On the other hand, there was a decline in the discount rate below those (indiscernible) but those two things have more or less balanced out.

The specific answer to your question is there is about 30 million planned in the first half of this year.

I am going to ask another question that is kind of sensitive.

I apologize, but you told us at one time, it's got to be two years ago, that there is no mandatory retirement for executives, specifically you, at 65 years old.

It's kind of a flippant comment, but now that we're kind of getting there, I am curious what's happening, what is the board thinking, what are you thinking as far as your tenure?

How much longer are you going to be in that position? (indiscernible).

I do not think the board is considering putting a mandatory 65 in, age in, if that's what you're asking.

I don't think that's what you're asking.

But I think there are expectations.

There are -- I think it's pretty well publicized that there are three specific potential successors, and hopefully, it will be a combination of those three.

They happen to be sitting in the room as we speak.

None of them are smiling.

But anyway, I think the expectation is, we have been in a job rotational mode the last several years and that will probably continue through one more job rotation of one kind or another.

And I would guess that within the next couple -- I will probably be here for another two or three or four years.

And at some point in that process, the chief executiveship will be passed along to one of these three individuals.

And I will retain the chairmanship, at least briefly.

It's not sensitive to me, it's sensitive to them.

Linda Bolton Weiser, Oppenheimer.

I think you had mentioned that your developing market volume growth was 7 percent the quarter, better than expected, or maybe that was the year.

But I am just kind of wondering, is there an opportunity to accelerate that growth or are your marketshares already so high that you expect it to be mid-single digit going forward?

No.

I would think -- there is an opportunity, and certainly, the marketshares are never too high, I don't I think.

And even in markets where they are extremely high such as Mexico and others, Venezuela and so on where they are over 80 percent, there, our job is to accelerate the market growth with infield activities.

But when you look at those businesses together next year, I would be disappointed if the volume growth was not on a combined basis, in the high-single digit even though the budget might be somewhat less than that.

As you saw a moment ago, Linda, that the way you accelerate those are by spending advertising money and hopefully simultaneously with the time in which the economies are improving.

And in the earlier question, regarding Mexico, or actually Latin America as a whole, you saw that the spending toward the end of last year was accelerated as it is in the first part of this year.

So in fact, you are attempting (ph), Linda, precisely what we suggest.

One other thing about the progression of the earnings growth as the year progresses, GABA comes in as a diluted acquisition in the second quarter.

So I am trying to balance what you said about the gross margin would improve as the year progressed, and the levels of spending, along with the GABA dilution.

Would the EPS growth, then, be higher or lower than 5 percent in the second quarter of '04?

My recollection is that the consensus -- we normally don't give specific guidance.

We simply comment on what you guys are thinking and whether we think it is reasonable or not.

The consensus, is, I think, between 4 and 5 percent in the first quarter, and we're comfortable with that, as we are with the range as well.

In the second quarter, it is somewhat higher.

It's about 6 or 6.5 percent or a tad above that.

We are also comfortable with that.

And then it grows each quarter, and as I say for the year, we are comfortable.

And naturally, it's in our interest and our shareholders' interest to get as much of it tucked away as early as possible.

So we would endeavor to do our best to at least meet, if not beat, those numbers.

Finally, sometimes you tell us what your different costs were in a year and then what you are projecting.

Could you maybe comment on raw materials, transportation, things of that sort?

Sure.

When you say sometimes, we do it whenever anybody asks.

So if you're asking, I will give it to you.

Just going back to last year, we had budgeted -- I am talking about the consumer part -- Colgate part of the business -- and I can talk to Hill's separately, if you want to.

We budgeted up 2003 about a percent and a half, in terms of (indiscernible) packing (ph), would be primary increase in raw materials.

But when it came out, we were able to, through a number of our purchasing programs and other longer-term (indiscernible) and some other things, reduce that to 2.9.

So costs actually went up 0.9 percent.

We budgeted up, essentially -- actually this number has changed since this morning.

The number I was going to give you was, we budgeted up about 1 percent for the same two things for 2004 budget.

Now the latest estimate, it's a little below that, but it's not a bad working number.

Obviously, all the savings programs and the funding growth programs and the various mechanisms that we normally talk about, we will use those to try to get the number down.

Hill's budget will go up somewhat more, about 25 percent.

The only aspect that has some degree of volatility in it is tallow, which, of course, comes from cattle or other animals, may have a bit of a spike because of mad cow and so on.

But the net result is that we would expect that the maximum it will go up would be the same amount as it went up in 2003.

And we will probably be able, through our own efforts, to do better.

We are expecting gross profit for the year, although as I just said, it's going to build through the year, for the full year, to be in the middle or towards the top end of the range of our (inaudible).

One final thing, I don't mean to beat to death the issue here with the gain on the sale.

But isn't $107 million item in the cash-flow statement pretax, so isn't this an after-tax amount, which would be 9 cents a share?

That includes the sale of (indiscernible) Euro soaps earlier in the year, which was offset at that point in time with associated restructuring as disclosed, as disclosed.

That's a combination of two things.

We sold several of our European soaps, not detergent, brands, earlier in the year.

We did announce it.

And that was offset by restructuring charges in association with selling that business.

So it's a combined number.

The two gains on sale put together would be 9 cents a share?

That's right.

Linda, just to clarify, all except this 4 cents that we have been talking about, which was used to offset the Simply White loss, all of it was offset by attendant restructuring charges.

So it did not flow to income.

Andrew McQuilling, UBS.

I'm sorry if I missed it.

But can you talk about Brazilian and Mexican volumes in the December quarter, what your outlook for Brazil and Mexico volumes are for March '04?

Yes.

They were both up in the quarter.

Brazil was essentially flat, but Mexico was up nicely.

For '04, Mexico, it looks like, in the first quarter, it is expected to be positive.

And as is Brazil, Brazil probably more than Mexico, although Mexican -- with no offense to the ex-general manager of Mexico, who is sitting in the room -- has a tendency to over sandbag and over-perform.

But they should be both up in the first quarter and up for the full year quite nicely next year.

Overall Latin America for March '04 and for full year '04?

These figures say that volume should be up about the same amount as it was this year, which is in the 3 to 4 range in the first quarter and more than that for the year.

My sense is both of those are conservative, given current trends, but we shall see.

Do you want to talk about current trends in Mexico?

Pardon me?

Do you want to talk about current trends in Mexico?

Current trends in Mexico -- actually, (indiscernible) is not worth much, because it's only four weeks of sales.

But four weeks of Latin America volume is running well ahead of the quarter.

But you cannot project from that.

I'm just stating a fact.

One last one, the Simply White toothpaste, other than the U.S. roll out, can you talk about the other countries that you have announced?

Or any thoughts about timing for international rollout?

Our plans on Simply White toothpaste, following the U.S. launch, would be to introduce it to some of our countries in Latin America as well as out in the Far (ph) East (ph).

We expect that in the first half of the year.

Thank you very, much, everyone.

We are looking forward to a good year this year.

We look forward to sharing with you as we go along.

And Andrew, I respect your opinion enormously, so I will laugh even more than I have been doing.

Thanks, a lot.

Bye bye.

That does conclude today's conference call.

You may disconnect at this time.