高露潔 (CL) 2004 Q2 法說會逐字稿

Please stand by for realtime transcript .

The Colgate-Palmolive conference call will begin momentarily .

Good day everyone and welcome to today's Colgate-Palmolive Company second quarter 2004 earnings conference call.

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

Just as a reminder, there might be a slight delay before the question-and-answer session begins due to the webb 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.

Go ahead, ma'am.

Thank you, Chris.

Good morning and welcome to our second quarter earnings release conference call.

With me this morning are Reuben Mark, Chairman and CEO, Steve Patrick, CFO, Dennis Hickey, Corporate Controller and Treasurer, and Ian Cook, Louis Juliber and Javier Teruel.

We're pleased to report a good quarter with strong volume growth worldwide.

In particular, the momentum we saw building in our U.S. business in the first quarter is continuing.

Around the world, new product activity continues to be robust.

That's reflected in excellent market share performance here and abroad.

Our topline growth is strong and that, combined with continued productivity, improvement has provided funds for increased business building marketing support behind new and existing products.

Our acquisition of the GABA Oral Care business in Europe is complete.

Our global strategic focus in the high margin businesses of oral and personal care while simultaneously methodically divesting our lowest margin detergent business, region by region is serving us well.

In the quarter and first half, our toothpaste and personal care volume increases were solid and as per our strategic intent, higher than the company as a whole.

We expect this to continue going forward.

We feel strongly that our proven business model and our emphasis on our basic financial strategy continue to allow us to deliver solid results in spite of the year marked by intense competitive and raw material cost pressures for all.

As you see in the press lease, sales in the quarter increased 5 1/2% on strong global volume growth of 5%.

Volume increased in every operating division for the first time in four quarters and has shown sequential improvements from the fourth quarter of last year and the first quarter of this year.

This volume acceleration is expected to continue into the third and fourth quarters.

Pricing net of exchange added half a percentage point at the top-line.

We're encouraged by the momentum and volume growth which as I say, we expect to continue through the balance of the year.

Gross profit in the quarter increased 40 basis points.

Excluding the affect of Simply White whitening gel, gross profit in the quarter was up 70 basis points and we're pleased with the performance given the current packing material pricing environment.

As I think you're already aware, raw material costs have been increasing quite dramatically throughout all sectors, particularly in the area of agricultural commodity that affects our health business.

Our well established, very sophisticated and innovative worldwide processes which continuously generate manufacturing and purchasing savings have allowed us to more than offset the substantial cost increases.

We have told you we're going to continue to spend aggressively to build market share and that is indeed happening.

Total commercial investment in the quarter went up both absolutely and the percent of sales and was up in every operating division around the world.

Anecdotaly, this quarter's level of media spending worldwide grew more than any quarter in the last three years.

Overhead remained constant as a percent of sales in the quarter reflecting our continued varied type cost control.

Operating profit of 585 million increased 5%.

On a percentage sales basis, we were able to maintain last year's record profitability of 22.7% of sales despite the strongly increased commercial support.

And we're pleased that we have been able to maintain the high operating profit ratio while simultaneously investing to build our core businesses.

Interest expense in the quarter was 29.3 million versus 31.3 million the year ago.

The small decrease in interest expense was largely due to lower debt levels in the first two months of the quarter.

Average net debt for the quarter was $3.2 billion while the quarter end level was $3.5 billion reflects the financing of the GABA acquisition late in the quarter.

Our tax rate in the quarter was 32.7%, as it was in the first quarter of this year, substantially higher than the year-ago rate of 31.6%.

As you know, from our discussion after the first quarter, our year-to-date tax rate has been higher than last year's rate.

In Europe, as we told you in April, we're in the midst of a major business relocation project which will result in very substantial tax savings next year and beyond.

As this particular project is being implemented, we have delayed other tax-saving projects that we do as a matter of course, thereby, temporarily increasing the tax rate.

As it stands now, we expect the tax rate to remain at 32.7 for the balance of the year.

We recommend that any of you using a lower tax rate should use the 32.7 figure.

Next year in 2005, we're expecting a rate of 31 to 31 1/2.

Back to the quarter PNL.

Net profit after tax increased 4% to 374 million.

And as a percentage of sales, this was 14%, equaling last years's very high profitability in the second quarter.

Earnings per share increased 6 1/2% to 66 cents per share.

Turning to the balance sheet, which remains very strong, our coverage ratios remain above the guidelines for maintaining our double-A rating.

Our after-tax return on invested capital is 33.5%, down a bit as expected as a result of the GABA acquisition.

Excluding GABA our return on capital was 37.1%, up from the 30.9 in the year-ago quarter.

Operating cash flow for the period was down a little over 10%, also as expected.

Since we told you earlier in the year we're required to pay tax cashes during the second quarter related to our sale of detergents in Europe at the end of last year.

Working capital increased slightly due to a planned increase in inventories.

Specifically, inventories in our Mexican subsidiary were increased to assure a smooth transition as we moved to face manufacturing from our plants in Mexico City to our newly completed state-of-the-art facility in Northern Mexico.

Since we have more than 80% of the Mexican toothpaste market, it's important supply not be interrupted during the transfer.

Further at some of the larger retailers in the U.S. have reduced inventory, we decided to slightly increase inventory levels, especially of new products in our own warehouses to ensure the necessary stock is delivered on time.

Our expectation is an inventory date that now stand at around 67 days should be back under 60 by year end.

As both of these factors are short-term.

In terms of total working capital, we expect it to be at last year's very low levels by year end, around 2% of sales.

Turning to the division, starting with North America.

As Rueben noted in the press release, we're encouraged by our momentum in the North American business.

Volume in the quarter is expected to be up slightly due to the Simply White whitening gel comparison that actually came in somewhat better than expected.

Excluding Simply White, volume in North America was up 4.3% and in the U.S., up 5.2%.

Sales declined about 2 1/2%, again, due to the Simply White comparison.

The Simply White comparison of course ends this quarter.

We had indicated to you we're committed to spending aggressively to support our base business as well as new products and that has, indeed, been done and is being done as we speak.

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

U.S. media spending behind our toothpaste business in the first half of the year is up almost 50%.

Operating profit as expected for the division was down 12%.

Encouragingly, dollar operating profit has increased sequentially over the last few quarters and should continue to increase throughout the year.

North American operating profit growth is expected to resume in the third quarter and further accelerate in the fourth quarter.

The increased commercial investment behind our core businesses in the U.S. seems to be paying dividends.

In toothpaste our market leadership position has grown and our national toothpaste share as measured by Nielson, has improved sequentially each moth throughout the quarter, excluding the quarter when the June share of 34.6, almost 360 (ph) basis points ahead of our nearest competitor.

The total toothpaste franchise has been doing particularly well.

As you know, total is by considerable margin the largest variant in the U.S..

For the quarter, the total share was almost 13%, up from just 12% a year ago.

As you know, we launched Simply Wite toothpaste, the best whitening toothpaste available, offering an innovative tool in the first quarter of this year.

That brand has been maintaining a solid share between 2 and 3%.

More recently, we announced the launch of another totally new entry, Colgate Max Fresh.

This is the first toothpaste that has been infused with many breath strips.

This unique technology provides genuine new advance in the growing fresh breath segment.

As you brush, the mini breath strips instantly dissolve releasing an extra rush of breath freshening power.

The product has been presented to the trade and early reaction has been very positive.

It's priced [INAUDIBLE] Colgate Total at a slight premium to the base Colgate business and the product will start shipping in August.

In toothbrushes, our U.S. share of the manual segment was up almost a full point in the quarter.

Strength in the business was across the whole range, premium adult, mid-tier adult and as well as kids.

In fact our toothbrush shipments in the quarter were the highest in seven years, driven by strong exceptions of our new Whitening toothbrush, Wave toothbrush, Total Professional and Sponge Bob kids.

This momentum should continue with a new kids Fairly Odd Parents toothbrush being shipped in the third quarter.

Our market share and dish washing liquids increased almost half point in the quarter verses a year-ago quarter.

Our new Palmolive [INAUDIBLE] launched in the first quarter is now the leader in the oxygen segment and has added incremental share to the category.

In the fabric conditioner category, Suavitel (ph)continues to perform very well in the Hispanic market, reaching record share levels period after period.

In the quarter, the shares of overall U.S. market increased 1 1/2 points versus the year-ago period and was up almost 3 1/2 points in the Hispanic market.

So all in all, we're encouraged by the revitalization of the U.S. business so far.

It will continue and we think there will be more good news.

We have a solid lineup in terms of new products and we expect a good trend to continue for the balance of this year and next.

Specifically, looking ahead for North America, we expect further acceleration of volume in the second half and as noted earlier, operating profits should be up in the third quarter and up more substantially in the fourth and up again in 2005.

Turning to Europe.

Volume in Europe increased 7 1/2% with exceptionally strong votes from Russia and Central Europe, UK, Germany and Spain.

The performance in Germany was particularly notable, given the extremely difficult economic conditions in that country.

Sales in Europe increased 11 1/2% with a currency netted price adding 4%.

GABA contributed 2 1/2% to both sales and volume increase.

Commercial investment was up strongly of absolutely and percent of sales.

Operating profit increased 3% effecting the increased investment behind a number of new product launches across the region.

These new product launches have been successful in both Western and Eastern Europe.

Our Oral Care business is doing very well, both in toothpaste and toothbrushes.

In western Europe, our recent launches of Colgate Total Plus Whitening, as well as Colgate Sensitive have been attributed to increased market shares and, in addition, a new series of strong testimonial advertising has helped strengthen our high margin of total toothpaste business across Europe.

As I've already mentioned we are now carrying similar powerful advertising here in the States.

In fact, our toothpaste share is up almost a point and a half year-to-date and another half of a point in the most recent share period.

In Germany, our Colgate share has remained steady with several of our competitors losing share.

Also in Germany, our newly-acquired GABA business added another point and a half to it's already strong share.

And in the UK, our share is up over 5 points solidifying a strong number one position.

In Eastern Europe and Russia, Colgate Total, as well as Colgate Propolis have resulted in the overall share in the region increasing by about half a point.

In April, we launched Colgate Herbal Propolis to compliment the initial Propolis launch.

This product line has been particularly successful in Russia, where our share is up a point and a half from last year.

Both in the Massager and Whitening toothbrushes have added incremental share in the manual toothbrush category.

In France, our share is up about a half a point, UK has similar results with the most recent share of well over a point.

And it costs all of Eastern Europe and Russia our share is over 2 points.

Our share is up in every country except Slovenia.

In the personal care category, we told you last quarter about our launch in the line of deodorants under the Palmolive equity.

Performance in the three initial markets in Scandinavia, Spain and Switzerland has been excellent and we expect to roll it out in additional countries as the year progresses.

Turning to our recently acquired GABA business, as you know, we closed on the acquisition at the beginning of June.

Integration is proceeding as planned and we're very excited about this strong and vibrant business.

The diluted affect in the quarter is something less than a penny as earlier indicated.

As we outlined to you when announcing the acquisition, we see a number of growth opportunities for GABA.

We'll continue to build the existing business in Western Europe, continue in share growth in existing markets.

And we would expect further expansion into new countries, as well as expanding existing channels.

We plan to use GABA's very strong pharmacy and professional capability to accelerate the growth of our own oral pharmaceutical business, which gets high margins and finally, we expect to expand further in Eastern Europe, Poland, the Czech Republic and Hungary provide the strongest potential.

GABA technology will be used in the new Colgate development process.

Going back to Europe as a whole, looking forward to the balance of the year, we expect European volume to accelerate even further over current levels in the second half, Buoyed by the edition of the GABA business and aggressive new products program.

Operating profit is expected to accelerate over second quarter levels in the third and fourth quarters.

Turning now to Latin America.

Volume in Latin America increased 5%.

Sales increased a percent and a half with a net of currency in pricing at negative 3.5%.

Total commercial investment was up and operating profit increased 5 1/2%, up absolutely and as a percent of sales.

Volume growth was good across the region with virtually all subsidiaries showing positive volumes.

And we're very pleased in Mexico, despite recent competitive entries, our toothpaste market share is actually up from the year-end '03 with our market leadership at over 80% of the market.

Our business there continues to be solid with volume gains and share gains in a number of our categories.

A steady -- excuse me, a steady improvement in our business in Mexico is likely over the rest of this year given the improving macroeconomic conditions.

The mexican economy appears to be gaining strength.

GDP growth for 2004 is now estimated at positive 4%, up from 3% in 2003.

Further, given the significance of oil to the Mexican economy, current high prices get added confidence for economic growth.

While the peso devalued somewhat from the beginning of the year, we expect it to maintain current levels for the balance of the year.

In Brazil as well, the economic picture seems to be brightening.

The government recently renewed its IMF agreement.

The availability of fresh funds appears to be stabilizing investor confidence in the currency and inflation and interest rates are, in fact, falling.

In toothpaste, the Brazilian market share has been stable at 60% of the market.

In toothbrushes, aided by the launch of a number of new products, the market share is up over a full point.

In fact, our share of Colgate toothbrushes has doubled over the last three years.

The macroeconomic situation in Venezuela continues to be in crisis mode.

Despite that, the subsidiary enjoyed double-digit volume growth in the quarter.

Market shares increased in toothpaste, toothbrushes, toilet soap and liquid cleaners.

Our toothpaste share is at a record 84% in the most recent period.

We try to capitalize on economic disarray and emerge stronger than before and it's certainly the case for the current crisis in Venezuela.

All in all, we're encouraged by the macroeconomic outlook across Latin America, as well as the buoyancy and momentum in the Colgate businesses.

Both bode well for the remainder of 2004 and full-year 2005.

We expect good volume growth in Latin America in the second half.

Also, Latin American operating profits should be up absolutely and as a percent of sales, both the third and fourth quarters.

Turning now to Asia/Africa.

Volume in Asia/Africa increased as strong 11%.

Sales were up 13%, aided by a positive currency effect net of pricing of 2%.

Total commercial spending was up strongly in operating profit increasing 13%.

Excellent growth on top of the 21% increase in the year-ago quarter.

Volume increased across the Asia-Pacific region and was up in south Africa and other African countries as well.

This good volume was driven by a broad array of new products supported elsewhere by increased investments.

In general, the economic outlook in the region is improving, both India and China are predicting somewhat better GDP growth in what was estimated at the beginning of the year.

In India, the very important agricultural sector is growing versus decline in 2003.

Volume in India in the quarter was up 10%, reflecting the renewed vigor.

Our tooth powder share is at a record high, up over a point and a half from the year-ago period.

Toothpaste share is maintaining its strong number one position, helped by the launch of Colgate Herbal White.

We recently rebranded our lower price [INAUDIBLE] toothpaste under the Colgate brand and it's now gained the number two position in that particular segment.

In China, we just launched Colgate Herbal toothpaste, a product designed to appeal to the particular flavor preferences in that vast country.

That, as well as several new toothbrush launches contributed to a healthy volume growth of 13%.

As you know, we're the market leader in China also, and in our most recent share in toothpast is up a full point to 32 1/2%.

The economies in the Southeast Asian countries continue to rebound with double-digit volume coming from the -- [ Indiscernible ] Country.

In the Philippines, new products in toothpaste and shampoo category boosted share.

The market share in toothpaste is up 3 points and in shampoos, up 8 points.

Conditioning Palmolive as the leading shampoo brand in that country.

We're most encouraged by the continued vitality in our Asia-Pacific business.

We expect continued strong volume both the third and fourth quarters.

Operating profits should be up in the high-single digit range for the balance of the year.

And Hill.

Hill's volume increased 4% in the quarter.

Volume was particularly strong across the international business.

The combination of currency and pricing added another 5% resulting in a 9% sales gain.

Total commercial investment increased and operating profit increased about 9%.

As you are aware, commodity prices in the pet food businesses shot up dramatically, even with the price increase effective in the second quarter.

Gross profits in the Hill's business were down almost 200 basis points in the quarter.

The full affects of the price increase has not yet been felt in gross margins and while we expect those profits to be down somewhat for the full year, the second half should be less.

Operating profit at Hill's is expected to increase in both third and fourth quarter and should be up in the high single digits for the full year.

In the U.S., we continue to benefit from the launch of Science Diet Advanced Protection.

Advertising for that new product began in late April.

We also focused on the feline portion of the business in the quarter with a number of initiatives.We launched the Science Diet feline hair ball wet diet, we upgraded the existing hair ball diet with antioxidants, we improved our claim structure to the hair ball diet and the food reduces shedding and launched three new feline flavors and we converted our dry products to new resealable plastic packaging.

The strong volume in the international market was fueled by new product sales of Science Diet, Science Plan [INAUDIBLE] and as well as Prescription Diet MD.

And in addition, the easing of DSE-related import restrictions allow some pipeline replenishment in several key markets.

The current estimates indicate the growth [INAUDIBLE] is continuing to outpace that of the overall pet food market, which bodes well for our business.

So for the balance of the year, we expect hill's volume to accelerate modestly from first-half levels and as noted, operating profits should be up for the balance of the year.

So in summary, we're pleased with our results for the quarter and a challenging environment with fiscal comparison.

We have historically met the challenges presented by the marketplace and we plan to continue to meet them.

Volume packing material costs increased significantly.

With our ongoing savings and funding the growth initiates, we have been able to meaningfully offset that.

The competitive environment has continued to be intense.

We appropriately invested and this investment has reflected in good volume momentum and market share incomes and we have continued to launch successful new products around the world and our new product pipeline is full.

So we look forward to a good [INAUDIBLE] in 2004 and another even better year in 2005.

And we look forward to sharing our progress with you as always.

That's the end of my prepared remarks.

Chris if we can turn it over now to Q&A.

Thank you, ma'am.

Today's question-and-answer session will be conducted electronically for the telephone audience.

If you would like to ask a question, you may do so by pressing the star or asterisk key followed by the digit 1 on your touch-tone telephone.

We ask that you please limit yourself to 1 initial question and one follow up.

We also ask that if you're listening to the conference on the internet, that you please turn down the volume on your computer speakers when asking a question.

Once again, if you would like to ask a question, please press star, 1.

We'll pause for just a moment and give everyone a chance to signal .

We will take today's first question from Amy Chasen with Goldman Sachs.

Hi, I have a question about some, a bill that is currently in Congress that may allow U.S. companies to bring back cash from foreign subs at a very low-income tax rate?

Do you guys -- can you tell us how much cash you have outside of the U.S.?

I am sure you have thought about this, whether you would plan to take advantage of that?

Amy -- Reuben, you -- I think actually as -- your volume is a little loud.

If -- on that particular question, clearly we're following that closely as a number of other pieces of tax legislation that would help multinational companies.

That would be a benefit to us without question and we have obviously not included that in any of our estimates, but that would be of-- we tend to repatriate cash as quickly as we can, and as you know, that's one of the reasons our cash flow has been good.

But, that -- that would be on the positive side without question.

So yet sounds like if you have been repatriating cash all along, you don't have a big chunk you would have to bring back all at one time?

I would say we have less cash overseas than most of the multinationals.

Again, you would have to ask them.

Ours is very -- designedly low and we said, like everything else, we have a process for setting objectives subsidiary by subsidiary, depending on the net profit, how much we have to come back.

There are pieces of money in various subsidiaries for local reasons are trapped there, but on a policy basis, we like to have the cash here.

Okay, and lastly, on Latin America, both of your volume and your profits were below what I had expected.

Can you talk about what happened in the quarter and whether it was below your expectations?

Well, as a matter of fact, at 5%, it was not below our expectations.

It was, my recollection is -- look at what we said last time, but it was slightly above our expectations..

Lois is nodding vigorously across the table as that is her responsibility.

Beyond that, their operating profit was -- I am not going characterize it with an adjective, but was better than we had in our estimate.

Also, I think you would be pleased, Amy, that Latin America, which was the last area of the world to get SAP.

Had, despite everything-- going on around the world had a gross profit increase in the second quarter of almost 200pressure basis points which is really excellent.

That bodes well for the year and we should have north of a full basis, full hundred basis points for the year.

And so the, the economic outlook likes good.

Our recovery looks good.

I think Bina mentioned Mexico and Brazil.

My recollection for this quarter, every country, we have a lot of countries in the division. 34, I believe.

That may not be exactly right.

And half a billion people.

Every country but the Dominican Republic, which is half the Island of Hispaniola you might remember, Amy is up for the quarter.

Okay.

Thank you.

We'll take our next question from Alex Patterson with RCM.

Yes, good morning.

Two quick questions, Reuben.

If you don't mind the break down on the cost goods that we usually go through..

Sure.

And also, the tax rate initiatives you're putting in place in Europe, I guess my understanding was you would hope to come out with a more favorable tax rate going forward and the 31 to 31 1/2% [INAUDIBLE] seems to imply maybe a little higher tax rate than what you've reporting in '02 and '03, at least on the numbers I have.

Is that just because it's the first-year of those benefits?

Is that expected to improve from there?

Can you give me a sense of what the real improvement is on that?

Okay.

This year in the last couple of calls, I have said to you quite candidly that we always -- I always sort of put Kentucky [INAUDIBLE] on the financial people's estimate of tax rate because they're historically conservative and then it comes in lower and there is a knock on quality earnings.

They told me it was going to be 31.7 this year and I mentioned to you I was discounting that and thought it would be 31 1/2.

It appears we're very consciously keeping it at that level to insure the project in Europe goes through, which will have benefits next year.

Again, this might be idle, but [INAUDIBLE] Article31 to 31.5, my sense is that it will be the worse it will be and yet might be better.

You know there is a fascinating thing about tax rate which I'm may figure out before I retire, but I probably won't.

And that is that somehow or other, when the tax rate is lower than the estimates, that's a quality of earnings issue and when it's higher, it's also a quality of earnings issue.

I will ultimately figure it out.

The net result of it is this is a good thing to do.

We're making a meaningful move in Europe with a short-term tax penalty that will give, I think, at least a rate of return of our return on capital, which is in the 30s on the longer-term basis.

Now, your other question was --

It was goods breakdown.

Yeah, okay.

Let's do that.

As you saw from the thing sent out, Alex, the pricing on worldwide basis is negative four tenths..

We start with what the second quarter last year was.

This is what you're asking, the gross profit break down?

Yeah, it was up 40 basis points.

How did that break down.

Right.

Savings projects, which are a combination of engineering-type savings projects and purchasing savings, versus market prices.

Savings are up .7, up meaning good, positive savings of .7.

Purchasing savings are at .8.

Raw impact material across the company, subtracted 1 full point and then there's all other changes, which if you--Simply White if you take out is .3.

If you add that back in, you know, it's .7 for the total company, 70 basis points up and the-- all of the changes mix, GABA et cetera, are .6 (ph) positive and so that comes out to a 40 basis point increase.

Interestingly, and you can take it or leave it, I have no other idea what companies are going to be talking about, but we're pretty pleased with the 40.

At Simply White, that's 70.

At the Colgate businesses, which, obviously, a very important part of the business and exclude for a moment, I know Alex, that you can exclude this and exclude that and come out where you want.

But nonetheless, I think it's important to look at the Colgate businesses.

Colgate businesses, including the U.S., around the world came out 90 basis points and that's even with [INAUDIBLE]. everybody's nodding yes.

It seems that 90 basis points higher so that Hill's, because of the commodity prices and the thing you mentioned, the fact that the price increase hasn't grabbed totally hold yet, I mean just on a timing basis, that there are Colgate gross profit, including Simply White, was up 90 basis points.

That was very encouraging to us.

My sense, that puts us in a position on an ongoing basis.

I think we're in as good or better position than most to meet these raw material costs and so on.

One thing about the raw material cost is that our expectation is that as we leave this year and go into next year, that it's kind of difficult to imagine oil doubling and so on and so forth.

But who knows.

But that will be an encouraging thing as we go forward.

Does that get you everything Alex?

Probably more than I can swallow.

Okay.

Just be clear on your last point about excluding Hills, gross margins trends were up 90 basis points.

Is that what you're saying?

That's what I was saying.

I haven't done it excluding Hill's and Simply White but that's over a hundred.

Okay.

Thank you.

I'm sorry, my apologies.

I take that back.

The 90 is excluding Hill's and Simply White.

Interpolating it would be 70 or so, all in actual results for the Colgate businesses.

Got it.

We'll take our next question from Bill Chappell from Sun Trust Robinson Humphrey.

Good morning.

I want to clarify on the Simply White thing.

That's just because Simply White artificially raised the gross profit last year, not because it's a lower margin business this year.

Is that correct?

Absolutely Bill.

The gross profit on Simply White is still higher than the company average.

Nice little steady business in a sharply declining overall market.

And since you opened the can of worms, can you comment anymore on your retirement plans, especially with the recent management changes?

Well, okay, I'll have to go home tonight and tell the family about the can of worms.

But I appreciate the wording.

We, as you know, we talked -- we have been working on this for, this succession program for Bill Shanahan and myself for half a decade and we have made successive moves.

We now have taken the next move and my sense is that the, the announcement that I think everyone on the call has received originally and that was written up in newspapers is self-explanatory.

I think it's a very thorough going program.

We have always operated on a team management and I think our teams here are as good or better than any in the country.

Sitting before me are the three senior managers who will be running the company in the future and I think everything else speaks for itself.

I won't even try to touch it from there.

Thank you.

We'll take our next question from Chris Farrar with Merrill Lynch.

Good morning I just want to see if you guys are still expecting operating profits in the U.S. to be up for the full year as you mentioned on last quarter's conference call?

Answer is yes.

I'll tell you from the top of my head.

Yes, but let me look.

We said that would be flat to slightly up last time.

I believe those were the exact words and we still think that.

If anything, our volume momentum is better.

I guess, why -- what was driving the deceleration in North American profit growth in Q2 as opposed to Q1?

Why was it down 12 instead of 8 last quarter?

Let me noodle that for a second.

My sense is, and I'll look at the financial people to make sure I'm right, that our spending was substantially higher as planned in the second quarter, commercial spending than in the first quarter.

And combined with that, because the -- hang on one sec -- the gross profit in the U.S. was, our spending was higher in the gross profit and it was lower and I have a, a chart here, which I was just handed, that in-- that there was a significant impact of the U.S. investment of some $35 million, I believe that's the figure, but I -- let me make sure to confirm that.

There's no question I am getting nods from around the table.

There is no question in the second quarter our spending was higher and the comparison of margin was lower.

Of gross profit.

Both of which were expected and as I said, and I think Bina had it in her commentary, interestingly enough, the U.S. results were a bit better than we expected on essentially every line, and that, for what it's worth, and it's not worth anything, is that the pace of the business so far in the third quarter is quite nice.

We just received a market share, which some -- we have weekly market shares in toothpaste and it's up again.

As a matter of fact for everybody out there who follows it so closely, let me look at that.

Where's the share?

I'll -- I'll find -- market share.

Here it is.

Let me just read you the last market shares that our low point in U.S. toothpaste market share, these are national Nielson value with all that puts in and takes out and everything else, they're national syndicated services, that the lower was in February, I guess it was we had a 32.6 progressively moved up 33.2, 34.3, 34.6 and then 36 in July to date.

Who knows what will happen but the gap is widening.

I'm sure that everybody will continuously react to that, but you have to -- I have to conclude that is a good, a good trend and that the -- and the overall business volume in the U.S. looks so far quite encouraging in the third quarter.

Okay.

Can you also talk about a little bit what was driving corporate expense down so much in the quarter?

Driving corporate expense down so much.

Oh.

Corporate expense, I think on that sheet you have it, is that represents, I guess the sheet that went out.

The corporate expense is composed of a whole bunch of things.

It's about 2% of our total cost structure.

On an ongoing basis.

It runs fairly constantly within a few million dollars each year and through that goes, as you would expect, gains or losses on sale of assets.

We put restructuring in there, obviously, because we take restructuring against the PNL as compared to one-time charges, et cetera, et cetera, and my recollection, if you look at the first half, it's almost precise -- it's 91, it's a little bit higher, about a million dollars, 92 million versus 91 million for the first half, and I think fluctuations and as tough to follow, but, Chris, I think it's a pretty well-maintained kind of line and it's a small part to start, but for the first half, it's actually the expense went up versus last year.

Our expectations for the year they would be about the same or higher for the year.

Thank you.

We'll take our next question from Bill Leach with Newberger Berman. (ph)

Good morning.

I just want to clarify the last comment.

The gain is $50 million, was that the corporate expense?

Yes, as is the restructuring stuff that are balanced against it which, has historically been done every time, we have as you know, for nine years now, not taken a restructuring charge and we have gone up a heck of a lot of restructuring in that period and we get an opportunistic gain or sell in asset or whatever, we offset it with restructuring charges and one-time events and things of that, that are in the same kind of category of non-recurring stuff.

So the charges didn't affect the operating income segment at all?t

Let me--give me a few--let me tell you what 3% is made up of.

Section 29.

There was a reduced price on Simply White which [INAUDIBLE] out last time.

Simply White gel. [INAUDIBLE] higher than the total company.

There was an increased level of promotional packs on liquid hand soap.

HDDs were .6, and a fairly substantial amount of trial building and promotional activity in the toothpaste business, which you, of course, know about, and that comes basically at a gross net and goes into price.

In terms of looking ahead, that 's very tough to project, but our expectation based on the current estimates in the spending that is in there show it down, but less in the U.S. in the third quarter and then slightly positive in the fourth quarter.

It's a fluid thing because it depends upon spending.

Thank you.

Thank you, Bill.

We'll take our next question from Wendy Nicholson with Solomon Smith Barney.

Hi, good morning.

The question I have on the gain in the quarter from the Latin American sale, if I'm not mistaken, the sale of that business occurred very late in the month, but I assume you booked all the restructuring stuff over the course of the quarter, so the fact that the gain came in, it appears it saved the quarter and prevented you from missing the estimate by two pennies.

Is that an unfair characterization?

Yes.

How so?

How so.

Because it -- at least the pressure ports we saw were that you sold the business the last week in June.

What if that had slipped into July?

Well, if it slipped into July, we would have had a difficult -- by no means have we has that we didn't take the restructuring charges simultaneously, so it's conceivable some of the restructuring had a bit of a longer life.

Could have been done third quarter or fourth quarter.

Let me -- Wendy, let me read you something for what it's worth.

It may not be worth much. but there was a -- this is a portion of a copy of a--an E-mail that was sent from a fairly significant buy-side person to a sell-side person this morning, both to remain nameless.

Let me read it in essence.

While I'm not going to argue with your reading or anything else out there, you and I know that it's typical of Colgate to take write-offs to offset gains and, frankly, this is what you want them to do.

It's tax and cash efficient.

And -- and I guess, Wendy, our intension is to keep doing that and we are divesting our detergent label.

We have consciously got them in a situation where they're, over many years that they're sellable and valuable to other people.

There is a very modest gain involved and we offset that with non-recurring and restructuring and stuff that comes up, and we sort of hold for those assignments when we get the gains.

How much of a gain do you expect to get from the sales of the Colombian business and will that show up in the third quarter?

I don't know when that will close, the gain -- our expectation is that any gain will be offset, but the total gain itself will be two or three cents, I think, but that will be, my again, my sense is that we're well of the accumulating, various restructuring charges, legitimate restructuring charges and they will be offset.

And then last --

You have to tell me, you may include it in your report.

If that's not a desirable way to do it, then we could consider -- we will, ongoing consider other methods.

But I had always thought from a basic business point of view, that the PNL should be the PNAL and that -- and similar to the, the question about taxes is that it seems it's coming and going.

I guess the concept of taking big restructuring charges is a more desirable thing, but who knows?

We -- we have, at least for the last decade or so, elected to go the other way as you know.

Absolutely, I would concur that's the right way to do things.

It's just given you take restructuring charges, you know, and record them as operating expenses.

I think we have sort of come to expect that that's something in your numbers every quarter through thick and thin, you know, quarter after quarter, and so when a gain comes along, it strikes me that that should be above and beyond whatever restructuring charges you're giving.

That would lead to an upside surprise.

I was actually looking for better numbers than what came out.

That might be.

You are from a prominent house, which I used to be familiar with.

The -- if you're saying that -- that we should flow through earnings at one-time earnings for sell of an asset, that that's an upside surprise.

I guess the way we have it on the business, that's not an upside surprise.

It's a non-recurring gain and will be discounted.

Our whole business motto is based on basic stuff.

Driving margin up, driving overhead down.

Spending as much as we can in advertising, all of which you know went very well.

I think there were companies, one company with a camera, they own bottlers and that they would buy and sell bottlers and that for many years, that was included as operating earnings and now, I think, the market, the stock market said that shouldn't be.

We have never thought of it that way.

If you're saying that you will consider that operating earnings, okay.

But we don't.

Well, I think we all look at earnings on a GAAP basis quarter after quarter.

Whatever you report you report.

My last question on Latin America is just in terms of the Delta.

Is the Latin American sale as big as the European detergent sale?

I'm trying to figure out what the reported sales for Latin American are going to look like.

No, it's not.

Not anywhere near as big.

Less than a hundred million in sales?

Yes.

Got it.

Thank you so much.

Thank you, Wendy.

We'll take our next question from Andrew McQuilling with UBS.

Thank you very much.

Reuben, can you hear me?

I can hear you.

Okay.

You're not speaking too loudly.

Thanks.

I'm trying.

Reuben, I want to check.

It wasn't in the press release.

Are you comfortable with current consensus estimates of 263 on the first [INAUDIBLE] machine?

Well, I don't think my entire 20 years in the shop we have ever said we're comfortable with a point.

We have always said we're comfortable with the range at which we are under the assumption that people do what Bina said, which is to change the tax rate to 32.7.

And we, we -- and can you rest assured that we will continue doing what we're doing and have done for many years.

Understood.

But that tax rate change, I guess I was using 31 1/2 for the year.

And maybe I was a little slow in changing.

But that adjustment will be a net negative, right?

It might be for some people, it might be a positive for some people who are higher.

Understood.

And I guess the next question is, can you give me a sense for how much marketing spending or commercial investment in total was up for the Oral Care business both globally and in Europe and your outlook for the back half?

You think these levels will accelerate or -- it's good to see you fighting fiercely.

I want to know if it gets worse in the back half.

Well, I don't have that number broken down by core business right at hand.

The -- I would say that the, I think the second quarter was the highest level and the third -- and certainly the fourth are less, but I'll get back to you on that.

Importantly, each time as you remember, Andrew, we showed you core business growth.

That's quite important because as you know, we're -- we work on our mix and everything else and toothpaste, toothpaste business in the quarter, this particular quarter, I don't know whether Bina mentioned this or not, was up 6 1/2%.

The toothbrush business, manual toothbrush business was up almost 20% in volume and our expectations are we will exceed the company level volume for the rest of the year and those two categories.

And long-term shareholders are very happy about it.

Can I ask another one/ I'm sorry, you know, if I'm moving --

Does that apply to short-term shareholders?

Who knows.

[laughter] Good work.

Maybe a question on the European restructuring, if you can talk through some of the details and specifics around it and any kind of critical timing issues in September, December?

What specific action have you taken?

This is not a restructuring in the sense of knocking down factories.

This is, as you know, a relocation, there are many aspects to it, but a relocation of the European headquarters and marketing center and financial center from one country to another and it's a meaningful change from both a legal and a controlled point of view but it's not an earth-shaking thing from an individual country point of view in terms of industrial [INAUDIBLE] because that doesn't happen.

I think the go date is, I'm looking around, I believe, January 1 and so that -- and I had a breakfast with the people doing it, and they thought they were on track.

So -- and I'm looking to Ian who is nodding that, yes, January 1 is a good day.

And, I guess, one last one on the European realignments, the loss of European detergent sales, was that -- was there much involved in adjusting the business for the loss of that volume or no?

Say again?

I guess -- the sell of the European detergent business, obviously your volumes in Europe came down.

Was there much restructuring related to that in terms of downsizing anything?

Infrastructure or no?

There was some.

Is that complete?

Not yet, but that's on-going and has been announced there and so on.

But, but there is an interesting aspect to your question.

With regard to core business.

Is that in this quarter when I said that toothpaste was 6 1/2%, heavy-duty detergents, which is what we're talking about, dropped 18%.

Not including -- that's the existing business dropped 18%.

As always, you're seeing a compound number so the volume of the stuff that, the long-term shareholders are interested in, I would hope is doing quite well.

Terrific.

Thank you.

We'll take our next question from Bill Picarello with Morgan Stanley.

Good morning.

On the stepped-up spending in North America that you talked about, just give us more color, please, on how you're spending yet media versus the growth in the coupon.

Do you expect the this intensity of spending on the core business [INAUDIBLE] white lapse to continue in the back half?

You're getting this volume momentum, but certainly you're spending a lot behind it to get the volume momentum.

You mentioned trial packs, promo packs.

How -- how much of this is trade versus couponing, versus media spending?

Well, again, the thing that is the most important, I would think, Bill is what the consumer share, was having the consumer share.

How many people are taking away and consuming the products.

As I said, our shares have gone up 4 to 5 consecutive months and this month is expected to do that gan.

That's certainly encouraging.

There will be spending but interestingly, as Bina said, the media spending behind, actually a very interesting testimonial campaign, which I think she mentioned as well, which I think claims superiority.

Everybody, all the lawyers in the room are looking anyway.

Let me withdraw that.

I don't know if it doesn't.

Anyway, that media spending is up 50% versus last year's second quarter in toothpaste and is and is the highest media spending in a couple of years in the base products.

The swing in the back half of the year, though is mostly the Simply White lapse and not really counting on any let up on the intensity here in the spending of the core business.

We're assuming the spending is there.

It's budgeted and planned, we will keep doing it.

The change in operating profit, which is, as I think Bina said it was down as everyone said, 8% in the first quarter and 12% in the second quarter, is expected to be up mid- single digits in the third quarter and up in the fourth quarter driven by volume and by, definition, the spending won't be as intense and illumination of that comparison that has played that so much.

And just one follow-up on the restructuring charges you said you put in the corporate expense line offsetting the $15 million gain.

That includes the ongoing plant rationalization, anything that you're doing regarding the Latin America, Europe disposals?

Is it all of the above or anything specific or just everything -- ?

There are a whole bunch of things in there.

Again, whenever we get a gain, we're going to hopefully continue to do that, unless -- unless public sentiment is so strong.

That's -- that's the way we run it and that's the way we would hope to continue.

As you would expect.

The auditors have been all over that line and every other line and our internal audit has as well and so on.

Basically close to the 15 million in this particular quarter?

That's right.

Okay, thank you.

We'll take our next question from Lauren Lieberman with Credit Suisse First Boston.

Thanks, good morning.

I needed, actually at this point, to get clarification on a couple of other questions asked.

First, what Bill was talking about.

The 15 million gain on sell, did you just say that the restructuring was about 15 million?

I said the elements -- I mean the restructuring is a kind of thing that goes on all the time.

Sure.

And there are alternatives.

You can sweep it all together and take a big, hundreds or billions of dollars of charge or as we have been doing for a decade or so, you can absorb it as it comes and -- and use the opportunistic things to offset it.

This is -- so I'm not sure I understand the question, actually, Lauren.

What is the question?

My question is at the end of your answer or Bill's last bit of his question just now, he was asking if the amount of restructuring or whatever we want to call it, the expenses were pretty close to the 15 million as a gain on sales, as a net benefit was not $10 million.

It was less than that.

Yes.

I still don't quite understand.

We can--

Essentially offset, we have done the same things several times in the last several years and we'll continue to do the same thing as we go and so, again, --

I understand the concept and agree with the concept and I think you're doing it the right way.

I'm just trying to get the numbers.

So it was 15 million gain on sell.

How much was the offsetting setting charge?

In the cash flow you see 5 million.

What?

I want to know if that's not the right number to be using for what I'm offsetting with?

Again, it's -- there are different pieces I mean, one piece is the European [INAUDIBLE] restructuring 3.2 million.

The thing in, that we have been talking about, the moving-ahead quarters is 1 1/2, 2 million.

The other items are .8.

There are a whole bunch of things involved.

I'm not sure, we can if you want go through it separately, but essentially, it's diminimus and I think you want, you may want to, Lauren, go back to the comments made earlier.

I think it was in regard to Andrew's comment that on the -- that all of these charges are contained in a line that is corporate expense which, is about 2% of our total worldwide expense base and it runs constantly from year-over-year and last year, it was 92 million in the first half.

This year, it was 91 million, that's to say expense.

The overall expense including all the things you're talking about is higher this year than last year.

In the same period.

Okay.

Great.

The summary is you didn't make the number with the gain on sale.

You know, depends who you ask.

Okay, the next, just another follow-up on Hill.

I think Bina mentioned in her comments the price increase is not completely realized this quarter?

If we assume raw material prices don't get worse for that business this year, which may or may not be a good assumption, would margins then, going through the third and forth quarters, we realize the price increase.

Yes, the margins, the gross profit performance versus last year will be better in the second half in Hill's, based on these projections than it was in the first half.

It was down in the whole first half, it was down 120 basis points or so.

It will be, I would say, at most 40 or 50 down in the second half and maybe better.

Okay.

All right.

Great.

Just one more.

When you said the, for gross margin that the Colgate businesses were up 90 basis points.

That's right.

[INAUDIBLE] Hill's.

Is that including or excluding GABA?

It includes, I think, one month of GABA, but it's, if there are three basis points in that from GABA, that's a lot.

Okay.

Great.

Thank you.

Thank you.

We'll take our next question from Joseph Altobello with CIBC World Markets.

Thank you, good morning.

A quick question on the restructuring charges you guys, I assume the restructuring and the gain are both in the SG&A line on your PNL?

Yes, and they're both in the -- down there in the other corporate, I think, in the sheet you got this morning.

Right.

It's listed down below.

Right, so there is no gross margin from either of those?

No.

Okay.

On GABA, I think you had said in the press lease GABA contributed 2 1/2 percentage points of sales in Europe.

You had it for a month.

And by the back of the envelope, I came up with something like 14 (PH) million for the quarter, which you -- you annualize that, comes up to 170 million for the year which, is, obviously [INAUDIBLE] a (PH)million-dollar number.

Was curious if the distribution business is what you're breaking out there and if you're treating that differently?

The actual sales.

Your calculations were pretty accurate.

It's less than 16 million a month.

Okay.

We're still expecting 200 million plus for the full year.

Does that include or exclude?

It doesn't include the trade business.

Okay where is the trade numbers?

The distribution business, which we're expecting, even though it's profitable, to go away.

We have an estimate that it will go away.

Okay, finally, at some point, obviously, you will be no longer a part of Colgate.

I'm curious if you would, at some point, consider splitting the Chairman/CEO roles down the road.

Say that again Joe?

Would you consider splitting the Chairman and CEO role down the road?

That's not my decision to make, obviously it's the Boards and I guess I'm the only Board member in the room.

I'm the only inside Board member.

The outside members of the Board would decide.

We have good governance.

I don't think they would be adverse to it but who knows.

Okay.

Great.

Thank you.

We'll take our next question from Ann Gillin with Lehman Brothers.

Thanks.

Reuben, when -- is.

Ann, do you want to correct the pronunciation?

It's two last names, I'm screwed either way. [ Laughter ] You originally got it, the restructuring realignment to 4 cent when you reduced GABA.

The impacts of GABA.

And I'm wondering with the gain on sales coming in is closer to 5 cents, whether there is a more, you're stepping up the realignment impact or whether there is some money freeing up from the original GABA dilution forecast?

I think we're still assuming that the total GABA affect will be that 7 cents a share that we originally said.

It was, as said in the, you know, somewhat under a penny share this quarter, and it included -- we did say in the last conference call, Ann, I believe, and the one before, that the last conference call, our financing cost as you would expect was less than we had conservatively estimated, which is part of the job of our treasury people, but that was going to get picked up by allowing us to do, again, very much what we have been talking about for the last hour or so, allow us to do more restructuring specifically in our own sales forces to accommodate their sales forces.

Okay.

I'm not sure of the question.

We don't have any change to talk about in the GABA dilution.

All right, let me break it out then.

The GABA that we have been projecting is more like the 2 to 3 cents dilution.

And about --at the time it went from 6 to 7 to 2 to 3, to 4 cents differential was identified as going toward restructuring, mostly realignments and restructuring in Europe.

Yeah.

Now, we're talking about with the combination of the benefit from the sales in Latin America, somewhere between 4 and 5 cents gained and try to match off whether the 4 or 5 cent gains that you're going to offset restructuring -- ?

I'm not -- I'm genuinely trying to understand, and I'm sure the question is -- is a good one and profound as always, but there is basically -- I mean in association with this sort of situation, there are some very clearly calculable in advance -- the financing costs and the write-off of the goodwill and all of that.

But in addition, there are changes, one-time changes that have to be made within both organizations and those are made.

Our -- those are being made and will be continued to be made.

Our sense is that there will be no difference from what we have been talking about since we announced the position.

I'm looking at the Controller and -- yeah.

Okay.

I just heard a buzz.

Were you giving us the razzama taz Ann?

Not at all.

Okay.

Let me clarify the question here.

The impact, as you're getting gains on sales, you're coming in with an offsetting restructuring charge.

Is that in addition and incremental to the 4 cents restructuring that you talked about as you changed the expectation around?

Yes.

Okay.

Okay. perfect.

Yes.

As you would want, I would hope.

I'm in the camp that says booking as you're booking, Reuben.

Okay.

If I could switch gears, I'm hearing loud and clear new product breath is increasing.

I am wondering if you could comment on the contribution of the new products year-to-date.

It seems as if some of the depth may not be as far reaching as you might have had even last year.

Ex-Simply White.

I -- it depends what you're talking about.

The world is a big world.

If you're talking about the U.S., I think the depth, if you mean the amount of sales from new products is going to be excellent this year.

Probably the biggest new product of the year, but we shall see, is Max Fresh, a toothpaste price that has a total level that is really unique and is getting good reaction so far.

We never want to make, you know, advanced claims, having learned our lesson about that last year, but it's a very good innovative product and so far reaction is good.

I sense when all the dust settles is that the second half of this year will be substantially better than the second half of last year in terms of new product editions in the U.S. company.

Okay.

That's helpful.

Then outside the U.S?

Is there anything that, you know, like Max Fresh that is stronger or --?

But, again, I think as, you know, Ann, there are 200 and something countries and there is anywhere from two to seven new products or whatever in those countries, so it's difficult there.

There is some excitement around personal care in a number of areas in the world.

There are some new toothpastes that are quite exciting.

Max Fresh, most probably if it does well here, will roll out around the world and early next year and so on.

But it's tough to select out anything.

I think that I'm looking at the people, the three people who control it worldwide and they're still nodding that yes we have quite good momentum.

Great.

Thank you.

Thank you.

We'll take our next question from Andrew Shore with Deutsche Bank.

Good afternoon, Reuben.

Good afternoon.

I'm waiting for a wonderful Bomo (ph)if that's the way they say it, Andrew.

Reuben, I believe your lease at 300 Park Avenue is coming up from renewal and I heard from someone that it's not only a pretty inexpensive place because you have been there a long time.

But what they want is a very big price increase you that don't want to pay.

This is a serious question.

No, this is a serious question.

Would you consider leaving New York if you go to New York, some other area, can you tell us how much your rent is going to increase and I have a follow-up.

Okay.

Good.

It's a serious question.

We have been in this building since 1955, Andrew.

We started out with a 25-year lease at $5 a foot, which was over in 1980.

In 1978, we had a task force that, which I happened to head, looking at should we move to Connecticut or wherever, you know, Jersey or wherever, and I remember visiting, [INAUDIBLE] , and came to the conclusion that all the guys, including General Foods that moved out of the city, slowed down a little bit and were, ended up being swallowed up by bigger companies.

We decided not to move.

We then, and fortunately, having been here for -- I might add the guy who owned the building, named Harold, was angry at us his whole life because we had the 25-year at $5 and we renegotiated for $13 as I recall in '78 and the last dip in, the next dip in real estate prices and he was angry until the day he died, which is okay.

He was wealthy.

I'm sorry, answered in a flip way.

We have, one thing--one advantage of continuity, we're able to do things like that.

And then during the last dip in the real estate market, which a win-win it was, but we renegotiated a lease which now my recollection runs to 2015 at below market, very much below market.

May guess is we paid half of what the space on Park Avenue would be and I'll get back to you with the precise number.

We have historically, even though we have a big capital value in this lease and could have sold it at any point for hundreds, perhaps millions of dollars, interesting, this ties back to the business philosophy, we never chose to do that.

What good does it do to the shareholders to sell the lease for $100 million and have a one-time gain.

What we do is enjoy the lower rent.

The answer is you won't find me, I promise you, Andrew, you won't find me coming on this morning and saying we didn't make the estimate because of the rent money.

Okay, that's the first question.

What's the follow up.

All right.

Thank you.

Sorry.

Ecuador, Peru, Colombia, European detergents.

Can you tell us where the U.S. now fits?

And would you consider selling the U.S. to take a bigger charge in the back half of the year?

We -- I mean it's quite well known, especially among our competitors and the potential buyers and as you remember, LEVER bought one piece, Procter & Gamble bought another or two, and HINCKLE (ph) bought a third that -- at the appropriate time and for the appropriate money, we're extricating ourselves from the heavy-duty detergent business.

As a step toward that, years ago, we moved the U.S. manufacturer out to a contract manufacturer so we could get the savings, some of the savings then.

So, we have no plans to sell it, and I doubt that would happen in the second half of the year, but, who knows.

But it's -- and there are no discussions to my knowledge that are underway now to do that, Andrew, but I don't think that would be a surprise, would it?

No.

Not at all.

How big is that business now?

Several hundred million.

About -- it's -- that, it's a little larger than the European business.

Market shares are very small, under 3%, but it's about to give the size of the market.

The operating profit is, my recollection about 13 or 14%, about half the level of the rest of the business even though it's not advertised.

Okay.

And then finally, can you help us?

What was the split between the domestic and international volume gain for Hill's?

The -- the volume in international was up, my recollection, 8or 9, close to 10%, and the U.S. volume was only slightly ahead, basically -- it's up so far in the third quarter, you remember, that they, in the first quarter they had a price increase in, sold in against it on a normal basis.

So, Hill's volume for the year, Andrew, let me look at that up to make sure I give you the-- it was 4% in the first quarter, which was a better balance between international and domestic. 4% in the second quarter, expected to be slightly above that for the third quarter and fourth quarter in this, at least in third quarter tracking on that.

Okay.

Beautiful.

Thank you very much, Reuben.

Thank you, Andrew.

Appropriate it.

Let me have one--one more question.

We'll take today's final question from John Plechet with J.P. Morgan.

Yes, good afternoon everyone.

I was wondering if you could give us an idea, very quickly, in [INAUDIBLE] of European operating profit.

If you exclude currency gain, acquisitions, divestitures, et cetera, sort of from an organic run rate, how operating profit looked, and also, if you could follow up on the impact.

It looks like it was up against a difficult comparison, so how we should read that European operating profit number.

Thanks.

Good question.

Last year it was, we published on not just the growth but the actual numbers.

So the -- last year we were $127.7 million in operating profit in Europe, which was up 29%.

This year, we had 131, which is up 3%.

For the year, watching that one, you know, very difficult comparison, we expect yet to be up in the high single digits for the year, and I don't know if I can break out right on the spot.

The currency aspect, but if you want, John, we'll get back to you on that.

That's an overall look at what is happening there.

Okay.

Thanks.

Thanks a lot.

Thank you very much, appreciate all the questions.

If there is anything else, obviously, give Bina or me or anyone a in the room a call afterwards.

Thanks for your attention.

Bye-bye.

This concludes today's conference.

We thank you for your participation, you may now disconnect.