高露潔 (CL) 2004 Q4 法說會逐字稿

Please stand by.

We're about to begin.

Good day and welcome to today's Colgate-Palmolive Company fourth quarter and year end 2004 Earnings Conference Call.

Today's call is being recorded and is being simulcast live at WWW.Colgate.com.

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

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

Please go ahead.

Good morning and welcome to our fourth quarter and year end earnings result conference call.

With me this morning are Reuben Mark, Chairman and CEO, Steve Patrick, CFO, Dennis Hickey, Corporate Controller, Ed Filusch,Treasurer.

Ian Cook, Chief Operating Officer, and Lois Juliber and Javier Teruel, Vice Chairman.

We're delighted to review with you this morning what we believe to be a very solid finish to 2004.

As stated in the press release, we're convinced that the steps we have taken to support our businesses around the world are being increasingly successful.

Volume growth is excellent.

At record levels, in fact.

Market shares are strong and growing virtually everywhere.

Most importantly, market shares are growing in the key countries we have identified as critical to our future growth.

Our restructuring and business building program announced in December is well underway and should begin to deliver important savings throughout 2005 and beyond.

Our remarks this morning will refer to our results excluding the previously-announced restructuring charge of $48 million after tax.

Which was included in our numbers as reported in the press release and accompanying financial information.

The reported GAAP results with reconciliation to the results excluding the restructuring charges is included with the press release and posted on the Investor Relations page of our website at WWW.Colgate.com.

Obviously we will answer any specific questions including or excluding the restructuring as you may wish.

For the fourth quarter, our results were encouragingly somewhat better than expected on virtually all lines of the P&L.

Worldwide sales excluding divestitures increased 10.5 percent and volume increased 9 percent excluding divestments.

The highest volume increase in almost 10 years.

Volume was good across all of divisions.

All of the Colgate divisions combined were up 10 percent.

Current fee net of pricing was positive 1.5 percent.

It is of note that worldwide pricing and promotion which was a negative 2 percent in the third quarter decreased only 1.5 percent in the fourth quarter and is expected to be still less negative in 2005.

Gross margin which was projected to be slightly down year-over-year in the fourth quarter was actually up 20 basis points.

This occurred despite steep rises in raw and packing costs that have affected the industry throughout this year and that continued through the fourth quarter.

Also, as you well know, we've stepped up our investment spending globally, a good part of which tends to depress the growth margin line.

Therefore, as Reuben said in the press release, we are indeed pleased with the gross margin performance in the quarter which breaks down as follows.

The increase in raw and packing materials resulted in a negative of 110 basis points.

Increased promotional activity was an additional negative of 80 basis points for a total negative of 190 basis points.

This was offset by a positive 180 basis points from our ongoing savings projects coupled with an additional 30 basis points from other areas, primarily mixed.

For instance, the toothpaste category which has our highest margins, grew much faster than other categories.

As planned, no restructuring savings were included in the fourth quarter so the good results in gross margin were due exclusively to our strong ongoing funding the growth savings program.

Advertising in the quarter increased almost 13 percent up to 10.3 percent of sales.

Global media spending alone increased at an even faster rate, almost 20 percent.

Total commercial spending which takes into account the promotion and trial devices related to our trade spending as well as the P&L advertising increased double digit as well.

As you'll hear as we go through the divisions, the stepped up investment in targeted markets has resulted in excellent unit volume and market share performance.

Operating profit overall declined 4.6 percent in the quarter and was up 1 percent for the full year.

Operating profit for our operating divisions actually increased about 7 percent in the fourth quarter which is quite encouraging.

Operating profit on the corporate line was down year-over-year reflecting the disclosed one time gain from the sale of detergents in the prior period.

Net interest expense in the quarter was 32 million up from 28 million in the prior period.

Largely due to the assumption of debt due to the GABA acquisition which closed toward the end of the second quarter.

The tax rate was 33.9 percent, a full 3.5 percentage points higher than the year ago quarter and slightly higher than what we had originally projected.

The incremental tax rate reflects the previously disclosed short term impact of our tax project in Europe as well as the increased costs of higher remittances.

Profit after taxes, 334 million was down 10 percent.

EPS was $0.59 down 9 percent and in line with previous guidance.

Our balance sheet and cash generation were strong as well.

And as noted in the press release, key capitalization ratios improved even further from their already strong level.

As you know, we took charges related to our restructuring program of 48 million in the quarter.

The expectation for full year 2005 is for charges between 185 to 215 million after tax or $0.33 to $0.38 per share.

As we told you at the time of the restructuring announcement in December, our expectation is for savings from the program to begin this year at roughly $45 million after tax.

And as you would expect, these savings should build through the year.

Our discussion of sales and volume in Europe, Latin America and Asia/Africa will exclude the impact of divestitures of noncore businesses in these regions in 2003 and 2004.

A sales reconciliation is included in the geographic sales analysis included with the press release and available on our website.

Turning to North America, volume in North America increased 7 percent..

An excellent performance and slightly ahead of what we had expected.

Strong growth was achieved in both the toothpaste and toothbrush category.

Pricing net of currency declined 1 percent resulting in a sales increase of 6 percent.

Total commercial investment increased high single digits and media alone increased healthy double digits.

Operating profit increased 7 percent.

We're delighted that our focus on increased investment behind existing and new products in our core categories has resulted in good market share progress.

In toothpaste, our national dollar share as measured by Nielsen is at 35.3 percent for the fourth quarter.

Almost 300 basis points ahead of the year ago period.

For the full year 2004, our share of 34.8 percent is a new all-time record.

New innovative products, such as Max Fresh and Colgate Simply White toothpaste have contributed to these good results.

In addition, Colgate Total toothpaste, the only toothpaste to have been approved by the FDA for fighting gingivitis has continued to show strong momentum as well and achieved another all-time record high full-year share for 2004 of 13.6 percent.

Capitalizing on the success of our innovative Colgate Max Fresh, the only toothpaste with breath strips right in the product which was launched in the second half of 2004, we're launching a new cinnamon flavored Max Fresh which is shipping now.

In toothbrushes, our shares increased in the quarter in both the manual and powered segments.

Our manual share nationally was up over 250 basis points with strong results from our whitening toothbrush launched in 2004.

We're excited about the launch in this quarter of our new 360 degree clean toothbrush, a truly innovative next generation high performance toothbrush clinically proven to reduce plaque and odor-causing bacteria.

As you may remember, we started shipping this toothbrush in 9 markets in the fourth quarter of last year across Europe and the South Pacific.

We expect to be in more than 50 countries by the end of this year.

Initial results are certainly encouraging.

We've achieved very fast distribution and market shares are either meeting or exceeding expectations.

In several markets, the 360 degree clean toothbrush has added incremental share.

For example, Australia reached a record 37 percent share of the whole category, up 2 points from the year-ago quarter.

Our market share increased in the quarter in power toothbrushes as well.

Our emphasis in powered brushes has been a strong focus in the kid segment working with licensing partners so that we can provide unique entries that are subject to less price pressure.

Our latest line is SpongeBob SquarePants which launched in the back half of 2004 and has given us leadership in the kids segment.

Our fourth quarter national share of the dish liquid category was up 220 basis points over the fourth quarter of last year driven in large part by our new Palmolive Oxy Plus.

This is a new product that has proven very successful in Europe.

Palmolive Oxy Plus alone reached a 3.2 share in December, twice that of the competitive Me Too product.

This quarter we'll be shipping a new variance, Palmolive Oxy Plus Citrus Purity which should help to maintain this strong performance.

More new products shipping in the first quarter of 2005 are a new Vanilla Mint variant of our Sparkling White toothpaste line, a Shea butter liquid hand soap under the Softsoap name.

A brand new exfoliating body wash and a new Irish Spring with microcleaning action.

You'll hear even more about more new activity as we go through the year.

We're pleased with the momentum with which we exited 2004 in North America and believe it bodes well for this year as well.

Volume in the first quarter is expected to be up in the mid single digit range with similar growth for the full year.

Operating profits should be up modestly in the first quarter with a full year up in the high single digit range.

Turning then to Europe, volume in Europe increased 18.5 percent.

Excluding the effects of the GABA acquisition, volume increased 9 percent, the largest increase in 30 quarters.

And most impressive given the tough macroeconomic environment in much of Western Europe.

Volume growth was solid in all our major subsidiaries with particularly strong growth in Italy and the U.K.

Across Central and Eastern Europe, volume was also strong.

Led by Russia, Romania, Hungary and the Ukraine.

Currency net of pricing added 5.5 percent for a total sales growth of 24 percent ex divested businesses.

Total commercial spending was up strong double digit at a faster rate than sales and media and advertising were both up at an even greater rate.

Operating profit was up almost 21 percent despite the sharp increase in advertising.

Across the division, there was excellent share progress.

In toothpaste, our year-to-date value market shares are up in 15 of the 16 Western European countries.

Regional shares are up as well in toothbrushes, bath and shower gels, deodorant, liquid soap, wipes, and fabric softeners.

As you might expect, there is some softness in the liquid cleaner and dishwashing liquid categories where the industrywide effects of private labels as well as hard discounters are being felt.

The hard discounter phenomenon particularly in Germany has been widely discussed recently by a number of household products companies and it is interesting to note that despite that, our volume in Germany increased over 3 percent excluding any benefit from GABA.

Innovative new products are playing an important role.

The continued roll-out of Colgate Oxygen toothpaste has resulted in a 1.3 point share gain in France and over a point gain in Italy to a record share.

Colgate Sensitive Plus Whitening has been one of the drivers behind a 4 point year-over-year toothpaste increase in the U.K. to a full year level of over 45 percent.

And as you know, Colgate Sensitive has revolutionized this category with a toothpaste that tastes better and works better than competing products.

As I mentioned earlier, the launch of our 360 degree clean toothbrush has helped drive growth in European countries where launched with shares already ranging from 2 to 5 percent of the category.

The launch of Palmolive Aroma Clean bath and shower gels have also continued to grow our business.

In France, our share is up to over 18 percent, almost -- up almost .5 a point year-over-year in a very crowded market.

In Italy, bath gels have reached a record share and are up 1 full point.

As I mentioned earlier, business in Central and Eastern Europe is very robust.

Market shares in that region are up in toothpaste, toothbrushes, shower products, deodorants.

In fact, we achieved market leadership in the toothbrush category.

Products just launched such as the 360 degree clean toothbrush should help maintain momentum and consolidate that leadership position.

Russia, as you know, a market of great potential, experienced explosive growth in the quarter on both top and bottom line with share growth in toothpaste, toothbrushes, and deodorants.

New products such as Propolis Crest Whitening now with 3 percent share of the market and Palmolive Aroma Creme now with over 4 percent share have contributed to these good results.

So, looking ahead at 2005, we expect Europe to deliver at least very solid mid single digit volume growth in the first quarter and for the full year.

Operating profit is expected to be up double digit for the first quarter and full year.

Latin America, volume in Latin America increased 6.5 percent.

Negative currency of 1 percent resulted in a sales gain of 5.5 percent.

Total commercial investment increased double digits.

Operating profit was down about 1 percent.

Volume was up across the division.

And in general, the macroeconomic climate seems to be improving region wide which gives encouragement as we enter 2005.

In Brazil, volume increased almost 8 percent.

The macroeconomic situation in Brazil continues to strengthen.

For the full year 2004, GDP rose 5 percent, accompanied by a rise in employment levels and consumers real income, a very positive trend.

In October, we implemented oral health month which helped to reinforce our strong Colgate brand imagery as well as to promote oral care, especially among children.

We had dentists in stores to advise consumers about oral health.

We also developed a national school drawing contest linked to oral health month in which 7,000 schools participated.

As a result, our Colgate share is up a full point from a year ago.

We've also seen good momentum behind our Brazilian shares in soaps, shampoos, and liquid cleaners.

Volume in Mexico increased almost 3 percent following a very strong third quarter volume increase.

In general the economy remains stable with continued low inflation and an exchange rate that has showed very little volatility in recent months.

New products have been instrumental in maintaining the good momentum in our Mexican business and in successfully addressing competitive activity.

In toothpaste, our share remains over 82 percent of the market with strength in both the low price and premium segments.

New low-priced entries were unable to gain market share from our Colgate Triple Action which now has over 18 percent of the market.

Colgate Total Advance Fresh has defended share at the high end with the latest share up almost a point to over 11 percent of the market.

Our third quarter launch of Palmolive Hydro Natura hand and body lotion is meeting with success.

Even before an extensive marketing campaign, our share is almost 5 percent.

Trade and consumer acceptance have been very encouraging.

And this is an exciting new category for the Palmolive equity which should provide further growth potential as we roll it across the rest of Latin America.

Across the rest of the division, we've seen strong results in oral and personal care.

We achieved record toothpaste shares in both Ecuador and Venezuela.

Early in 2004, Colgate became the number one brand in toothbrushes in Venezuela and in the latest reading, grew that leadership even further.

Well executed marketing plans and strong promotional activities behind key premium toothbrush variance has helped us achieve the highest ever shares in Columbia, Venezuela, and Argentina.

Looking ahead, volume is expected to be up mid single digits for the first quarter and for the full year as well.

Operating profits should be down for the first quarter but even with 2004 for the full year 2005.

Asia/Africa, volume in Asia/Africa increased 9 percent..

Pricing net of currency was a negative 1.5 percent resulting in a sales gain of 7.5 percent.

Total commercial investment increased as well.

Operating profit was up 3 percent.

Volume growth was widespread throughout the region.

China had particularly strong volume growth.

As you know, China along with India, are countries that have been receiving a lot of focus from us as well as some of our competitors due to their large and increasing populations.

Our investments in both countries are paying off.

In China, we launched Colgate Propolis in November and early results are very encouraging.

This is the first major Colgate gel product targeted to capture the growing consumer demand for gel products and to further expand the premium segment of the market.

Customer orders are ahead of expectations and our distribution is growing rapidly.

While it is still early days, we're encouraged that this new product is driving market share, the most recent data shows us at over 33 percent of the market growing our leadership position.

In India, as and in other countries around the world, we sponsored an oral health month supported by TV ads, dental checkups, school programs, and other 360 degree programs.

These efforts have been successful in growing our market share.

Despite increased competitive activity.

Our market share in toothpaste has been building throughout the year month by month.

Shares are up year-over-year in tooth powder and toothbrushes.

Other countries in the region have responded well to our new product activity supported by increased investment.

In the Philippines, where volume was up over 15 percent in the quarter, the launch of Fresh Confidence whitening toothpaste as well as Palmolive's Silky Straight shampoo and Palmolive Milk & Rose bar soap have contributed to share growth in 5 out of 6 categories.

In Australia, with new product launches such as the 360 degree clean toothbrush, our shares are up in toothpaste, toothbrushes, liquid soap, dishwashing liquid, all-purpose cleaners, and fabric softeners.

Looking ahead to 2005, we expect volume in Asia/Africa to continue in the high single digit range for both the first quarter and full year with strong operating profit increases for the full year.

Operating profit for the first quarter should be level with last year's very high level.

And Hill's.

Hill's volume increased 2.5 percent.

Pricing and currency added another 6.5 percent resulting in a sales increase of 9 percent.

Total commercial investment was up double digit with media increasing over 20 percent.

Operating profit increased 6.5 percent.

Both the domestic and international businesses showed increased volume with stronger growth coming from overseas.

As with the Colgate business, new products have contributed to the volume growth.

Here in the U.S., Science Diet for large breed dogs has been particularly successful.

Importantly, we've seen renewed vigor in the large format pet specialty retailers in terms of consumption.

The pace of business in those stores have been picking up through the year with category growth increasing each quarter, exiting 2004 with very good momentum.

This bodes well for 2005 in the U.S. business.

Just this quarter, we've announced another new product in the prescription diet line which has met with very good reception in the vet community.

Prescription diet JD is now shipping in both the U.S. and Canada.

This new diet has breakthrough patented technology which inhibits genes which can promote arthritis in dogs.

It is supported by the highest proven clinical data which confirms both a deterrent of cartilage breakdown as well as pain reduction.

In addition, it comes in special packaging that is important to preserve the unique ingredients.

Overseas volume was quite strong particularly in a newer market such as Australia and south Africa, both growing very strong double digits.

Europe grew high single digits as well as of new products as well as ongoing efforts with the vet community to educate consumers regarding the importance of proper nutrition for their pets.

Looking ahead at 2005, Hill's should grow volume in the mid single digit range both in the first quarter and for the full year.

Operating profit is expected to be up modestly in the first quarter and up absolutely and as a percent to sales for the full year.

So, in summary, as I said at the outset, we are delighted with the way we finished the year.

We're very excited about the excellent new products we've launched across all our categories but particularly pleased with the momentum in our high margin, high focus oral care and personal care businesses. 2005 to date is off to a good start and we expect to continue our solid investment behind both new and existing products which is critical for maintaining our excellent real life volume growth.

We're also excited about the additional savings forthcoming from our restructuring and business building program and look forward to sharing our progress with you as we go through the year. hat's all I had in terms of prepared remarks.

We would like to open it up for questions.

I would just like to say now we've got a number of new analysts on the call so if we could try to restrict questions to 1 for starters and then people who have follow-ups can get in the queue to ask a follow-up question.

Thanks.

Let's go ahead.

Thank you, Ms. Thompson.

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 one on your touch tone telephone.

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, star, 1 for questions.

We'll go first to Alec Patterson with RCM.

Good morning.

I just wanted to get a better feel on the Latin America trends.

That's a market which has seen margins kind of sideways to down now for almost a multiyear period.

Trying to get a sense of how much of it is mixed.

Mexico not growing as much.

Purposeful reinvestment on your part, category growth rates or competitive activity.

Can you sort of break it down as to what is sort of keeping it subpar relative to historical trends?

Well, both Mexico and Brazil grew and the second half --for total Latin America, Alec the second half of the year was substantially stronger in volume than the first half.

In the first quarter, we had 5 percent .

Second quarter, I'm rounding, 5 percent.

In the third and fourth quarter, we had a total of, in the second half, about 7.5 percent.

With 9 and 6, 3.

So, going out our rate is stronger.

Mexico for the year had about a 2.5 percent volume growth.

Little higher than that in the fourth quarter and Brazil had about a 7.5.

So, the biggest unit is clearly Mexico.

So, that was a little below historical standards.

It is expected that that will, for the full year and the first quarter, be somewhat better.

I think that is to say higher than last year's average on the fourth quarter.

I think our Latin-American people were quite pleased with the way the quarter came in.

Lois who is in charge of the area is nodding her head.

And my sense, it is regaining although slowly, it is regaining the very dynamic growth it had previously.

From an operating profit point of view, it will be up next year.

We had budgeted it flat.

This year, this year meaning 2004 and it came in slightly up.

It should do better even than that next year.

Market shares are, as you know, terrific, Mexico despite an onslaught of a competitive activity which I believe has now died down a bit.

Our market share in toothpaste, for example, is -- between 82 and 83 and generally speaking, our market shares are quite good there.

Throughout the area market shares are good.

So, yes, I think it's slowly regaining.

It used to be the fastest growing division.

My sense is it is little by little.

No pun intended poko, poko, getting back to that position.

Reuben, I guess, I'm trying to get a handle on fourth quarter operating margins are down 300 basis points from a couple of years ago.

Is there a purposeful reinvestment on your part which is now slowly manifesting in volume growth which you hope to start to turn into some margin expansion and get back to where you were or are we really more at the level where you think we should be and the prior couple of years were maybe a little bit excessive margins?

Well, I'm not sure about that.

As you know, what we do is we put and take various levels of operating profit depending how well we're doing in order to allow more spending.

And Mexico did have a very strong increase, our -- Latin America as a whole in the year had a very strong increase in advertising.

And is budgeted to have another strong increase next year.

Basically, our margin shares are dominant so the fact that we are advertising heavily on top of that indicates that the prospects are good.

The prime reason for the operating profit down was the gross profit in the fourth quarter was -- that is the only division where the gross profit is down slightly in the -- well, I better restate that.

It is not the only division.

The change is down less than 1 percent but for the year, it is up and we expect next year gross profits to be up in the high 70 to 90 basis points.

As a result, we have A, more spending and more opportunity to get the operating profit back as a percentage of sales.

For what it's worth and we shall see how it comes out, that we are budgeted -- you had mentioned 300 basis points, the full year this year was about 27 percent and 300 you're talking about is 25.7 as a percentage to sales in the fourth quarter for what it's worth, it's budgeted on a percentage basis back at slightly over 28 percent for next year starting in the first quarter.

Okay.

Thank you, Reuben.

We'll go next to Amy Chasen with Goldman Sachs.

Good morning.

Can you tell us over the volume growth which was obviously really, really healthy, how much of that, approximately, came from mixed enhancements because I know that your volume number includes mix.

That's tough to do.

It was -- my guess, and we'll get back to you, is less than 1 percent.

But nonetheless, 1 percentage point out of the 9 or 10.

But as you know, as I think both the press release and Bina said, the classic core category growth, the categories that we are absolutely focusing on grew the most which is -- I know what we're looking for and you guys are looking for.

For example, in the quarter, toothpaste worldwide grew 13 percent.

Am I supposed to give these out?

What the heck.

Manual toothbrushes grew 23 percent.

Personal care grew between 4.5 and 5.

Home care, household products grew 2.9 and detergents were down.

So, it is exactly -- and we of course divested that piece to detergents so it is exactly as you would want but we don't normally break that out but we'll begin doing that and let you know how much it is.

Again, it's very healthy because the business is moving to the more profitable core businesses which are advertising most heavily.

Then just on gross margin, can you just tell us -- you mentioned in response to the last question that Latin American gross profit was down.

Can you just run through the regions tell us which was up and which was down.

As a related question, have you yet started to focus on this growth to net differential and reducing that because actually I'm hearing that -- I'm getting the sense that that was actually up in the quarter conceivably.

Well, okay, let me do the second part first.

It wasn't up simply because you can read that it's not exactly the reciprocal.

But it's almost of the pricing negative and the pricing negative was down.

That is to say it was less of a negative in the fourth quarter than in the third quarter and at least in our planning and the way it's coming in so far, it should be down again in 2005.

But let me go through the figures.

In terms of gross profit, basically, you can look at North America, was down somewhat but less so than previous quarters because the price effective gross net was less as I say which is -- that is the Europe and Latin America -- Europe and North America are the focus of gross to net spending as you know.

And fortunately, they both went the right way.

Europe was up.

Latin America, as I indicated, was down somewhat.

Asia and Africa down somewhat and Hill's, surprisingly, was only down slightly.

Despite the enormous spike in raw and packing materials.

As you know, they took 2 price increases, well 2 on prescription diet and one on Science Diet during the 2004.

I'm sorry.

Reuben, Europe was the only region to experience gross profit improvement?

That means that it must have been up dramatically to drive an overall gross margin enhancement.

It was up dramatically.

Is that because of GABA?

It is partially because of GABA.

There was also a reduction in -- a less negative price.

We lapsed some of the previous year price difficulties and so on.

GABA itself, interestingly enough, as I alluded in a previous conference call, Amy, has a very nice impact on the world as you would expect because it adds to our high margin toothpaste business.

GABA itself has between a 20 -- will have in 2005, starting in the third quarter, in the first quarter, will have a -- between a 20 and 30 basis points impact on our gross margin by itself.

So, okay, just so I can understand this.

The increase in the gross profit in Europe was dramatic and it's basically being driven by the fact that you reduced your promotional activity?

Is that fair?

The impact of GABA in Europe in the fourth quarter was less than half of the increase.

And when I say reduced promotional emphasis, that goes back to the careful analysis of gross to net, the better uses of it, the more efficiency of which we're just at the beginnings, but you're seeing the first little tickle of that now.

So, how much was Europe up?

Must have been I don't know 200 plus basis points or something.

That could be.

Okay.

Okay.

Thanks.

Thanks, Amy.

We'll go next to Bill Chappell with Suntrust.

Good morning.

Just a clarification on the gross margin.

Was it that your costs were lower than expected for the quarter or that the contribution was greater?

And I guess with that, did you have any net benefit from soybean costs or soy meal going down for the Hill's division or will we see that more in 2005?

Okay.

Essentially, as I think Bina may have touched on these but obviously it was just briefly.

Is that our funding the growth savings, Bill, which are the normal programs which are quite sophisticated and continue to accelerate quite aside from the restructuring savings, we generated 180 basis points with those programs.

At the same time, and I'm doing this from memory so let me make sure I don't do it wrong.

Here it is right here.

For the funding of growth savings for the total Company was 180 basis points which is very good.

That's to me, very encouraging simply because the restructuring savings ongoing are going to be built on that, that momentum.

Raw and packing material costs actually versus the year ago quarter which is what you compare it to down 110 basis points and then going back to Amy's question, so all other changes including mix and GABA and so on and so forth were a plus .3.

That totally gives you the 20 basis points increase in gross profit.

For what it's worth, I think externally, the expectations were anywhere down from 40 to 80 basis points but we were expecting not quite that severe negative but we were expecting it to be down.

We're naturally quite pleased that it's not.

Right.

I mean, I guess, my question is internally, were the costs lower than you expected or the contribution greater than you expected?

Well, both.

And when the costs are lower, that means that the savings programs are work and that doesn't mean that -- they reduced -- somebody reduced the price on petroleum or resin.

It means our cost savings are working.

With regard to the specific question, Bill, about Hill's, Hill's margin as you -- gross profit, as you saw was in fact down in the fourth quarter.

Actually it was down more than 100 basis points.

But the projections and even the current prices today on January 27, or whatever the date is, for almost all our commodities are better.

I could read you, I won't do it, but I could read you the list of Hill's commodities where without exception, today's spot rate is substantially better than both last year's average and what we have budgeted this year.

Okay.

Thank you.

Thanks, Bill.

We'll go next to Lauren Lieberman with CSFB.

First, following up on Hill's.

The volume there was a little bit light and really versus a very easy comparison.

You did get more pricing this quarter.

Are you giving up volume for it?

Are your competitors also taking pricing?

So really is the trade-off of higher pricing worth it for the lower volume?

Good question, Lauren.

Obviously what we do and they're quite sophisticated, especially domestic and the domestic was as Bina said, the lower of the two growth figures, international grew very nicely.

First of all the fourth quarter consumption rate and that's measured off Nielsen.

As to how much of the product is actually taken off the shelf and consumed.

The fourth quarter consumption rate was the highest for Hill's this is domestically in 8 quarters which is obviously very good.

Number 2, again, you tracked the business, how the major accounts are doing in January, does that mean -- is the business continuing?

Actually, PetSmart and Petco were up 5 or 6 percent so far in January.

We did take, as I mentioned, 2 price increases.

In April of 2004, we went up in Science Diet and prescription diet and then we went up again on prescription diet in October.

And in some cases, we followed somebody else and in other cases, people went after us.

But basically, there was at least a brief period in which we had higher prices in the marketplace and the competition.

That seems to be something generalized, that seems to be equivalized now, the current rate of selling is good and again, you recall that from the figures you've seen, Lauren that volume is up 2.5 percent.

Sales are up 9 percent.

Now, a bit of that is -- some of that is currency but the rest is yes, we were able to recover, start to recover costs -- cost increases which grew quite sharp last year with price -- appropriately timed pricing.

I think you'll see the benefit of that this year because, as I said, gross profit is budgeted up and our volume is budgeted in a normal 4 to 7 percent range.

Okay, great.

And then on Asia, that was really the 1 region where prices were worse sequentially.

Wanted to know if we could talk a little bit about why -- where were the list price changes rather than just higher levels of promotional spending that would anniversary at some point and again, margins were flat sequentially so again, maybe this investment is worth it but how should we think about that going forward?

I think you can simply -- it is 2 things.

It is an actual following competition during 2004 in China although our Chinese margins are, interestingly enough, quite high.

Our Chinese margins since we are essentially an oral care business are in the mid 50s even with the lower prices.

That the market went down a little.

We went down a little as a price reduction.

I'm looking at Javier, I don't know when it anniversaries but sometime the middle of this year, I would guess.

And that is primarily the reason why.

Okay.

Great.

For what it's worth, our market shares in China are good.

We just had the highest share I think we've ever had a record share and if you want that number, I'll give it to you because we're proud of it.

The share -- our total share of market is --33.1 up 1.2 points since November.

Which is really good.

Okay, great.

Also, do you know how fast the market is growing?

In China?

Yes, in toothpaste.

Fast.

I don't know the number.

But it is -- it is the fastest growing market with the exception perhaps of Russia in the world.

As the conference winds on, I'll get that number for you.

Thanks.

We'll go next to Andrew Mcquilling with UBS.

Thanks very much.

Reuben, will you see what the monthly low in Mexican toothpaste share was in calendar '04?

Now at 82, 83 percent.

Also, has there been any improvement in sequential toothpaste prices in Mexico this year so far?

Okay.

Let me give you the shares first.

Hang on a sec.

I'm not sure I can give you the shares but the share never got below 79, 79.5, 80.

I'm looking around the room.

Lois is telling me higher.

But I mean it was -- that's the market in which, don't forget, that our main competition which coincidentally is the main competition in this country as well, their share has ranged between 9 and 11 over the last 20 years.

Don't hold me to these precise numbers because I'm doing that in my head.

We never got below 79 or 80.

We are back at 82 or thereabouts 82.3 or 4 which is equal to the historic highs.

They are in their 9 to 11 range or maybe at the low end of that range.

I don't know.

But it is -- again, I don't know this, my sense is that the spending that was in there for the last couple of years has pulled back somewhat in that particular category.

And in terms of sequential pricing, any improvement in Mexico yet for toothpaste?

I don't think so.

Because the overall pricing in Mexico which we may or may not have -- hang on.

I don't have it in this book.

I don't think so.

But there has been a modest reduction in promotion spending in Mexico so that may have translated into basic -- a higher average selling price.

Andrew, we'll get back to you on that.

Terrific.

Maybe one more if I could.

Just the sequential pricing trend in China.

Obviously, year-over-year, it's going to be a drag until midyear.

Any improvement there yet?

Let me read you, if I could, the gross profit in China.

That works for me.

Okay.

I'm not sure we give this but that's okay.

It is -- in the third quarter, it was 53.3.

In the fourth quarter, it was 55.1.

First quarter it's 55.1 and expected to stay at that level.

It has not affected the profitability.

As you know, we are in investment mode in China.

So that that is pulling down the overall operating profit because we are basically investment spending but that's part of the overall plan.

Terrific.

As far as you know, is it fair to say that -- is Colgate the plants in mainland China, the plants in Mexico making toothpaste, are those your most efficient plants globally?

Well, the Mexican plant is a new plant, freestanding plant up in the north of Mexico and we've just recently moved our base manufacturing -- Okay, we haven't recently, it has been there for a while.

I thought -- we have increased, we have taken whatever was there in Mexico City and moved it up there.

That is an extremely efficient plan.

Brazil is also an extremely efficient plan.

The new factory in China is efficient.

Thailand is another center of excellence which is very efficient.

Less efficient plants are primarily the older ones and the continent of Europe and North America.

Terrific.

Thank you very much.

We'll go next to Bill Schmitz with Deutsche Banc.

We did indeed move from Mexico City to the northern -- the northern plant.

Good morning, Reuben.

How much of the negative pricing in Asia and Africa is due to competitive battles in India?

Not a lot but simply because we are fighting -- we have a flanker brand in China and wea are fighting primarily with that.

We have not reduced the -- actually reduced the price in India.

Our market share is more or less steady and our gross profit -- let me give you that.

Our gross profit actually this year for the full year was a couple hundred basis points higher than last year.

And it is easy -- which is again, a pretty good indication of pricing.

Great.

Thanks.

And then just in Europe, have you expanded your distribution because of GABA with the core Colgate brand into of some those pharmacy channels that you weren't really represented in before?

Not fully yet.

That's a 2005 opportunity.

Okay.

It started.

The plans are in train but there's not much in the results for that.

Great.

Then finally, just on the cash flow side, should we model a big blip up in inventory because of some of these facility rationalizations?

Are you going to see a fairly large hit to cash flow?

How do you have to build up inventory to migrate some of these facilities elsewhere?

I don't think so, Bill.

We -- you've seen a day -- and these numbers you'll see when you get a chance to examine them, or you've already seen them, I don't know what you have in your hands.

You'll see a day on a 60 -- slightly more than a 60-day kind of worldwide inventory.

You'll see a day or day and a half because of some of these -- some of the build-ups around the world but it is not a heck of a lot interesting enough.

It has been balanced by very good working -- very good receivable performance so I don't think -- we have pretty good cash discipline.

I don't think you'll see a big jump.

If you see a day or two, that will be the -- pretty much the extent of it.

We have been on a long-term trend downward, as you know, on working capital and the inventory fluctuation has been quarter to quarter.

We look at it pretty carefully.

Great.

Thanks very much.

We'll go next to John Faucher with J.P. Morgan.

Good morning, everyone.

Quick question continuing on GABA.

You had talked about in the third quarter I believe that it wasn't really having much of an impact on operating profit.

Is that still the case and how should we map out the operating profit impact on GABA over 2005?

Well, GABA is not, in fact, it was -- in this quarter, a negative as I think we told you and expected.

And we expected next year to -- it will go up next year versus this year but on a percentage basis, because of the spending and distribution expansion and so on and so forth, it is about a half the level in terms of percentage to sales.

That the rest of the business is.

So, I guess you have to say that short term, it will be a drag, all of the things we've said will still happen despite GABA but it's in an -- quite purposefully in an investment mode.

It will help gross profit up but it will push operating profit down slightly.

Okay.

Thanks.

Thanks, John.

We'll go next to Connie Maneaty with Prudential Equity Group.

Could you just tell us what the restructuring programs were that you started in the fourth quarter and what has been announced for this year as well as -- as we look at the rhythm of the year, what is the planning for your restructuring projects?

I have a list which I don't want to read you, Connie, but I will if necessary, a list of fourth quarter projects which have, I would guess, 30 separate projects, half a dozen in Asia/Africa, 3 at corporate, 6 or 7 in Europe, 10 -- 4 or 5 in Latin America and 2 or 3 in North America totaling the $48 million after tax charge in the fourth quarter.

Were any -- 1 or 2 of them more significant than others?

1 or 2 of them were definitely more significant than others.

The commercial restructuring which has been already announced -- all of these have been announced in Germany was probably the biggest.

The next biggest was probably in Canada.

I'm sorry.

Canada was actually the biggest.

Canada, Germany, and Belgium were the 3 biggest all of which have been talked to.

Obviously because this was done last year.

And the $3 million of difference -- we had said that it was going to be about 45 million.

The specific difference is really -- a little over a million in European exchange.

A little over a million in Canadian exchange and 1 or 2 programs that were accelerated very slightly so that's the 3 million difference.

So we're about right on.

If you're looking for -- trying to divine the rhythm, I will give you what we expect so that you don't have to divine it very much but since these things involve a lot of human beings, they don't necessarily always fall precisely where we're saying so between, there may be some fluctuations between quarter but it will balance out.

So, in terms of the actual charges, -- does that have any significance?

The expectation is a range of 60 to 65 million in the first quarter. 25 to 35 in the second. 50 to 70 in the third and 40 to 55 in the fourth for a range of 185 to 215 which is what we had told you in December and as you would expect, the savings build throughout the year with a modest contribution of a half a cent a share or whatever it would be in the first quarter building from there.

And on the funding the growth programs that you've got going, the 180 basis points in the fourth quarter was really impressive.

Was that to accelerate those programs and what kind of contribution from that should we see in '05?

Well, it's -- I mean by definition, when there's more requirement, there's more pressure to get those savings but it is a -- as you look over the last several years, it has been growing quite consistently.

It was eaten away by the competitive spending but since that -- the promotion spending appears at least appears to be abating a bit, we'll have more available.

If you look out next -- let me give you the way it worked last year.

In the first quarter, it was 130 basis points.

Second quarter, 150 basis points.

Third quarter, 180.

Fourth quarter 180 for 160 for the full year.

We're running at that rate and my guess is -- is that -- Eddie, do you have anything for the first quarter?

My guess is that we won't be very far from that 160 point average right off that -- out of the box.

Okay.

Thank you.

We'll go next to Joe Altobello with CIBC World Markets.

Thanks, good morning.

Just wanted to break down the volume growth if I could.

Reuben, I think you said 10 percent ex Gaba this quarter.

I'm trying to figure out how much of that is sustainable.

If you look at it, top down, how much is from category growth, how much is from the new products you talked about in the fourth quarter?

How much is from the increase of commercial spending if you quantify it that way?

Which area are you talking about?

The volume growth.

Overall, how much was from those 3 areas?

Well, for the world -- if you look at -- at historic volume, I think going back to -- for a long period of time, we have averaged I think it is 5.4 -- from 1995 to 2003, we average I think slightly over 5 percent.

We talk about 4 to 7.

We are now at the higher end of that range.

Which is a function of some very substantial market share gains.

Some of the faster growing markets we just talked about China and so on are doing well and that the high growth areas of the world, question about Latin America, they're getting back on track.

I think it is led by current good success in both the United States and Europe.

It's tough to say that we will sustain volume in the high single digits in Europe which is the most mature market in the world but so far, we have pleasantly surprised and we do not -- we cannot really break it out by market growth and so on.

We can in individual markets.

For example, interesting enough, our consumption in the United States, this is not Hill's now but this is Colgate business consumption, was really good and as my recollection is almost 7 percent or more, 6.7, or something like that, Ann is saying it was 6.7. 6.7 in markets that are growing half or less.

So, that's good and it reflects market share growth and channel expansion and Hispanic and ethnic market shares and so on.

Is it fair to say in a quote-unquote normal year, your volume growth is 5 percent.

Anything above that probably comes from commercial spending.

Could be.

Again, I don't know what your experience is.

I have yet to encounter a normal year.

Fair enough.

66 of them, as a matter of fact.

Another question.

I think in December on your reception call, you mentioned an increase in R&D spending, and as I mentioned before, you talk about a lot of new products coming out.

What is the lag time between when you start to step up at R&D spending versus when we see an actual product on the shelf?

Is it 12 months give or take?

I think it is tough to generalize.

It would be certainly shorter than the ethical drug business and longer than the fragrance business, for example.

But that's tough to -- I think the only thing you can do on that, Joe, is watch the products, watch the market shares and get a feel for that.

Okay.

I mean, for example, the lead time on this Max Fresh which is now going around the world quite successfully, truly interesting new product was relatively short.

A record time.

On the other hand, something that you would think which is Palmolive with oxygen which is really doing well as well took substantially longer and you would think that would have been simpler.

So, it is tough to make a generalization, Joe.

Okay.

Thank you.

We'll go next to Chris Ferraro with Merrill Lynch.

I wanted to go back to the gross margin thing and the thought that Europe was the only place where you saw improvement.

I was wondering if you could talk a little bit about -- and this can be real broad but where are the funding the growth savings coming from geographically.

Is that heavily skewed toward Europe and in addition, like raw and packing, are you sourcing some from the states and are there currency impacts on raw and packing why is Europe so far ahead?

I think that it's tough to look at things by quarter by quarter.

I think you want to really look at it for the full year.

In the full year, Asia/Africa was up in gross profit.

Latin America was up in gross profit.

Europe was up in gross profit and primarily because of the Simply White comparison, the U.S. was slightly down.

But quarter by quarter, it varies a lot.

But short term, longer term, the trend is the right way.

Chris, let me just interrupt you a moment.

There was a question earlier about how much Chinese toothpaste market is growing.

It is growing in 2004, the volume -- the market volume grew 8 % in China which is obviously substantially faster than population growth and one of the fastest in the world.

I'm sorry, Chris, would you go on?

Yes, sure.

Okay.

I should just move on to the next one.

On restructuring.

What has been done to date and what I guess is the time frame of actually moving head count and closing plants?

What has been done so far quarter to date?

Quarter to date?

Sorry.

December quarter.

Well, I went through this briefly before.

But in Morocco, there was a factory realignment.

In bleach factory in Malaysia, was closed down.

In India, the toilet soap factory was announced as closing.

The Agent factory in Belgium was announced as a closure.

In our Glostro factory was announced as a closure.

There is a whole list of these but I guess the important thing is to say that it is on track and we have, to date, experienced -- well, there is a lot of human aspects to it.

We're historically very careful.

We have experienced no work stoppages or anything meaningfully out of what we expect.

Got it.

Thank you.

We'll go next to Bill Piccarillo with Morgan Stanley.

Good morning.

Reuben, you had mentioned that competitive activity was abating a bit.

You mentioned something about Mexico dying down a bit.

When you look across the key markets, North America, China, Russia in response to your stepped up commercial spending, are you seeing some pullback in that competitive spending or is it still pretty much the same?

Bill, I appreciate the thought you're saying but I'm not sure I said -- I may have but I didn't mean to make any implications or saying anything about competitive spending.

Because we don't determine competitive spending.

Presumably the other guys do.

What we have found is we are able to -- without sacrificing volume, cut back our pricing -- negative pricing pressure around the world.

Particularly in the United States which is very important.

Whether that's reflected -- reflects a hiatus temporarily or a permanent ability to do that, certainly we're working very hard and actually I have formalized our organization to make sure that we can get the best return on investment but what we've seen so far and you're seeing in these numbers is encouraging.

At any rate, one would guess that as we lap these things that have happened the last year and two years which have overlapped, that certainly the very significant increases in commercial promotion spending and so on will not be repeated.

So, certainly the rate of change will be substantially less even if it is negative.

Great.

Just one follow-up on the restructuring.

You've given a lot of details but one of the things you mentioned when you announced the restructuring was some of the consolidation of the sales forces and some mature markets.

Can you just give us some more details on geographies and the timing is that part of '05 restructuring on the sales force?

Again, on that list that I read, I just was focusing on the factory closings because that was the thrust of Chris's question but on that same list, there were various reorganizations of sales forces and so on and each quarter, we'll give you whatever detail you want but you do understand, Bill, that until those announcements are made, A, we can't tell you about them obviously for human reasons and for accounting reasons.

As we see reasons we can't even make the charge.

As we go on, we'll keep you posted.

But rest assured that again, even though it has been a decade since we did a restructuring, we're pretty good at that kind of stuff and it is reasonably well organized or very well organized since Javier just corrected me when I said reasonable.

It is very well-organized and we'll keep you closely posted as we go along.

Thank you.

How many people are in the queue?

We do have a question from Jason Gear with AG Edwards.

My question to you is how many people are in the queue.

There are 4 more questions remaining after Mr. Gear.

Why don't we deal with those 5 questions and then call it quits, okay?

Jason?

Hi, Reuben.

Just a quick question I guess commenting on or reiterating something that you mentioned in the December call that you thought the organic volume trend could stay at the high end of that 4 to 7 percent range.

You've given some guidance on sales growth but with pricing expecting to moderate, I think you were saying 1 to 1.5 percent hit in '05, are you still looking at the high end of that range similar to what you did in this quarter.

How does that factor in when the second half of the year, you face tougher comparisons?

Jason, I don't mean to be niggling but knowing how I would speak at these things, I don't think I would ever say at the high end.

I would say toward the high end.

Simply it is not in my lexicon to give a single point but -- and this of course, at this time we're not only at but past but above the high end of that range.

My sense is that we will be able to stay at the -- I say again, toward the high end of that range as we move forward through this year.

Okay.

We'll hold you to towards the high end of that range.

Toward the high end, on average.

Then second question, I mean after cycling through the increased advertising spending, where would you be comfortable with as a percentage of sales.

Advertising was 10.3 percent.

Do you see another step up in advertising once you cycle through this first round and can you kind of give a little color on that?

Well, nobody has asked a question specifically about what's going to happen to the restructuring money so I shouldn't say anything about it but I will nonetheless.

We have budgeted a substantial double digit advertising increase -- in 2005.

That does not include any savings from the restructuring.

And it is our current working hypothesis which we're starting to put into effect, is that roughly half the savings will go into advertising in appropriate places.

On top of the budget and that the other half will be kept to ensure that we meet our commitments from a profit point of view to meet unexpected aspects during the year.

And that's why obviously -- well, now we're comfortable with the consensus for next year.

We'll keep you posted and might get -- might be able to get more comfortable with it.

Who knows.

Great answer.

Thank you very much, Reuben.

Thanks, Jason.

We'll go next to Linda Bolton Weiser with Oppenheimer.

Thanks.

As part of the restructuring, you had talked about making some changes in your innovation process.

Can you talk about what you've done along those lines so far and specifically, are you doing anything to analyze the effectiveness of the spending that you're doing in the R&D area?

Linda, good question but very tough -- very tough to answer.

Obviously we are -- we are analyzing all the time our spending in both the R&D area and the new product and promotion area.

However, we have some very strong initiatives to organizationally to improve even further a degree of innovation.

I think some of our recent new products have been quite innovative but interestingly enough, we're going to have a worldwide meeting in the second quarter.

Lois, and Javier, and Ian have organized this meeting, one of the main thrusts is innovation in both promotional areas and new products.

With a lot of preparatory work obviously done, this is basically going to give marching orders to the worldwide organization.

Okay.

So, do you expect to see sort of improved numbers of new products or is there some metric that you could look at that would show improvement in '05 or would that not be until '06?

I think the way you read -- again, Linda, I think the way you read the success of true innovation is what happens to your market share in any given market.

What happens to your volume growth both of which are quite good.

I think if we can sustain this concept of growing our market share on toothpaste, in over 100 countries, including basically all of the key ones, that's quite important.

We'll keep you as closely informed.

I don't think there is a metric or that -- an innovation index or anything else.

I think you have got to simply -- you've go to read the numbers and see what the numbers say.

Okay.

Thanks.

Okay, Linda, thanks a lot.

We'll go next to Elaina Mills with Atlantic Equities.

Good morning, everybody.

Just a couple of questions as most of mine have already been asked and answered.

A clarification question.

You mention in the press release that toothpaste volume advanced over 10 percent in the quarter.

And I thought that I heard you mention in your commentary in response to another question that your volume growth on toothpaste was 13 percent.

Could you just clarify what those two figures refer to please?

Does one include or exclude GABA?

It was quarter and year.

In a quarter, it went up 13 percent.

For the year it went up 10 percent.

So -- which indicates a good trend going out.

But for the full year, that same breakdown I gave you had toothpaste up 10 percent for the full year 2004 in volume and 13 percent -- I'm not looking at numbers saying this.

Those are important figures to us so I know it.

And the 13 percent is the fourth quarter.

Okay.

Just can you just clarify whether that includes or excludes GABA?

Hang on a second.

I have never seen this gentleman, Eddie Davis, never seen him without an answer before.

So, I think -- does it?

It does.

It includes GABA.

Okay.

What was it excluding GABA, please?

I would guess -- I will guess about 11.5 percent for the quarter but we'll get back to you.

Maybe 12.

I'll get back to you.

Fantastic.

GABA on a quarterly basis is about $40 million or a little less. $35 million worth of toothpaste on a base of whatever the worldwide business is so I would guess it is not -- we'll get back to you on that, Elaina

Thanks, Reuben.

If I could just one follow-up question to another comment that you made in response to an earlier question.

In your December call, it sounded very much like you were maintaining a flexibility to spend back a significant portion of the savings from restructuring into other areas besides advertising.

Because obviously you've highlighted a 200 basis point increase in advertising as a percentage of sales by year four.

It sounds now that you want to perhaps maintain a bit more flexibility to use a larger share of those savings to actually enhance earnings growth.

Can you just comment on how you're thinking about that?

I think Elaina, in the December call, we said that we would use it for advertising on spending and so on.

All of the things that will build value.

And we're no different.

The difference between now and then is we have a very solid budget with big advertising increasing it already and we have the best chance I see in the last several years, to be able to spend and even overspend that budget without affecting profits.

So that what we're saying was sort of off the top, we're going to put half of that money into building spending, sampling.

Don't forget, in advertising, for example, professional relations, we spent in the United States $35 million on the -- $38 million on professional relations last year.

That is the longer term building aspect.

It is not just -- so, when we say advertising went up, it's not just media.

It's things like that.

So, I guess it's a really good position to be in, relative to a position where you're scabbling to get more spending money.

But I guess we've known since it's not -- it's kind of painful for the first time in a decade to come back and say we're not going to make the numbers.

We want to make sure we have sufficient flexibility to ensure we meet our commitments.

Thanks very much, Reuben.

I think this is the last one, is it not?

Next to last.

We'll go next to Alec Patterson with RCM.

My follow-up question per instructions, I was just curious, Reuben, the way you break down cost of goods, raw material impact then the savings component, the 180 basis points, is that savings figure sort of volume dependent?

Or asking it another way, how does volume leverage impact your gross margin algorithm because it seems like the way volumes have been moving up, there should be an impact here to the gross margin trend and I'm not sure I'm seeing it or I'm not sure where it is coming through in the way you break down cost of goods impact.

I used to have an algorithm but I had some surgical work done and I don't have it anymore.

I'm sorry.

Certainly, volume will affect it.

There is no other way than on a mixed basis because if we have a savings program on oral care, purchasing of cartons, for example, and we don't have a similar equivalent program on category X, if the volume falls in one place and rises in the other, so that it is volume related.

There is not a direct relationship but there is that kind of relationship because these are all very literally raw and packing material and factory and line oriented.

It is really down to what, if you weren't -- if one wasn't the jargon, you would again say it is very granular because it is built up from a million -- from a large number of individual projects.

I guess what you're describing, it sounds like though is still variable cost basis.

The more volume you have, hopefully it is in the right categories where you have good cost programs in place.

Of course, that on fixed expenses, they would fall on another part of the P&L.

That mix other component is it where -- strong volume numbers. 7 percent is generating only 10 or 20 basis points of gross margin improvement?

Well, no, because don't forget that costs, real costs escalation in oil prices and so on and so forth went up 170 basis points so that if there was not the escalation from $30 to $50 in oil and resins and corn and everything else, that would have flowed directly and it would have been a gangbusters kind of thing.

The thing that's good about the 180 basis points positive it's able to more than offset this very substantial -- coincidentally I read just this morning, one of our competitors has talked about raw and packing material, escalation.

But it is -- I can tell you when you get very strong volume, it helps most everywhere.

Okay.

I'll follow up later on this one.

I'm not getting the answer I'm looking for.

My apologies.

You'll have to talk to somebody here who is more sophisticated than I am.

Okay, thanks.

Our last question is from Amy Chasen with Goldman Sachs.

You know what, it is getting late.

I'll just talk to Bina after.

Thank you, Amy.

Appreciate it.

Thanks everybody.

We're excited and thank you very much for your interest and attention.

Bye-bye.

Thank you, everyone that does conclude today's conference and you may disconnect at this time.