高露潔 (CL) 2005 Q1 法說會逐字稿

Good day and welcome to today's Colgate-Palmolive Company first-quarter 2005 earnings conference call.

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

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

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

Please go ahead, ma'am.

Good morning, everybody, and welcome to our first-quarter 2005 earnings 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 Javier Teruel, Vice Chairman.

Our remarks this morning will refer to our results and expectations excluding the previously announced first-quarter 2005 restructuring charge of $45 million after-tax which was included in our numbers as reported in this morning's press release and accompanying financial statements.

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

Obviously during the Q&A we will answer any specific questions, including or excluding the restructuring, as you may wish.

All of us are delighted the year has started out well, and I'd like to reflect just for a moment on why we are encouraged.

As you know, we and other consumer products companies are operating in a tough environment.

It's highly competitive around the world, and raw and packing material costs are sharply up.

This makes the dual task of simultaneously spending to improve market shares while delivering our profit goals even more important than normally is.

So we're pleased that we've been able to do that in the first quarter, and we expect to do it for the full year.

I believe the results are evident throughout the P&L and balance sheet.

For the quarter we had excellent top line growth.

Sales excluding divestitures were strong, up 9.5%.

Excluding our acquisition of GABA, they increased a healthy 7%.

Volume growth was robust, increasing 7.5%.

And volume grew in every division around the world.

Excluding GABA, volume was up 5%.

And prospects for volume growth remain good for the remainder of 2005.

Even excluding GABA, our worldwide oral care volume increase was 10%.

Very importantly worldwide pricing was only down $0.5, and this is a significant improvement from the second half of last year when pricing was down about 2%.

As noted in the press release, the pricing negative was lower in the current quarter than it has been for five quarters.

Now we had expected our gross profit margin to be down slightly in the quarter, but it was down 30 or 40 basis points more than we had expected when last talked to you early in the first quarter.

This was due to the sharp oral price rise and comes from the non-oral care portion of our business, primarily detergents and other home care products.

And as Ruben noted in the press release, our gross profit margin in oral care was actually up for the quarter.

In this increased cost environment we are encouraged that our ongoing funding the growth savings program are coming in extremely well, and that they will be supplemented even further when the restructuring savings begin to ramp up late in the second quarter.

Our strong top line containment of overhead and funding the growth savings have allowed us to maintain a high level of spending to support both new and existing products.

Our advertising in the quarter was up 13%, up both absolutely and as a percent of sales.

And as noted in the press release, worldwide media increased healthy double digits.

So in the results our market shares worldwide are further increasing, particularly in our high-priority, high-margin oral and personal care business.

You'll hear in much more detail about how we have grown our market leadership in key categories as I go through the divisions.

Our cash generation is strong.

Operating cash flow was up 14.5% versus the increase of just 1% in the year-ago quarter.

Our balance sheet is solid with good progress in working capital, down from year end to 1.9% of sales.

And we delivered EPS of $0.61, up 3.4% from last year's first quarter, meeting both our own and external expectations.

As I mentioned a moment ago, our restructuring and business building program is proceeding on schedule.

Restructuring charges in the quarter were 45 million after-tax, a bit less than what we had originally projected.

This is due to two factors.

The first is that two of the savings projects underway this quarter will generate the planned amount of savings, but will cost less, and therefore require less of a charge than in our previous estimates.

The second factor is that charges for several projects are being recognized over several quarters rather than in a single quarter.

Savings in the first quarter represent, as planned, less than $0.005 a share.

Also as planned, savings will begin to ramp up late in the second quarter.

So all of the above factors give us encouragement as we look toward the balance of the year, even in the face of the challenging external environment.

We expect good top line momentum to continue.

Current estimates are for near-term raw and packing material prices to remain at high levels so that gross margin will be up on absolute dollar basis, but it will most likely be flat to slightly down in the second quarter on a percentage basis with 50 plus basis point improvement in the third and fourth quarters versus prior periods.

Savings from the restructuring program, as I just noted, will begin to ramp up late in this quarter.

And our tight control overhead will be a further source of savings throughout the year.

Let's now turn to the divisions to review the first quarter in more detail.

Our discussion of sales and volume in Europe, Latin America and Asia Africa will exclude impacts of divestitures in non-core businesses in these regions in 2004.

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

First, North America.

Volume in North America increased 7.5% with the US business up even more.

Pricing was negative 1%, considerably less negative than the fourth quarter of 2004 and also less negative than any quarter of last year.

Interestingly, pricing in the US by itself was flat, a great improvement from last year.

Currency added 0.5% resulting in a total sales gain of 7%.

Total commercial investment increased.

Operating profit increased 1%.

Gross profit percentage of the division was down slightly more than 1 point as the result of significant increases in raw materials driven by recent high oil prices.

The effect was greatest in our home care business, which includes the detergent and dishwashing liquid categories, both of which are more exposed to higher costs of oil and oil-derived products such as resin.

Gross profit margin in the oral care business in North America was up year-over-year, as it was for the Company as a whole.

You may recall that last year we increased our investment substantially in North America behind both the base business and new products, and that resulted in sequentially stronger volume increases in each quarter of 2004.

That momentum has continued in the first quarter of 2005 and is reflected in really excellent national market share progress.

In toothpaste our oral outlet dollar share as measured by Nielsen reached a first quarter record of 35.9% in the US, up almost 2 full share points from the year-ago period.

The gap between us and the next competitor has increased to 4.3 points versus 2.6 points in the year-ago quarter.

Our manual toothbrush business also has great momentum.

Our US market share in the quarter was up 2 points to 22%, the highest quarterly share in four years.

Our new 360 Degree Clean Toothbrush has met with terrific success already.

Shipments began toward the end of the first quarter and it was already the number two item in drugstores based on a dollar ranking of SKUs.

In the powered segment of toothbrushes, our focus continues to be on the kids segment.

The Sponge Bob Squarepants Power Toothbrush and Fairly Odd Parents Powered Toothbrush have been instrumental in our gaining leadership in that segment in the quarter, with the share up year-over-year more than 2 points.

New launches should continue that momentum as we go through the year.

We told you last year about the successful launch of Palmolive Oxy Plus Dishwasher Liquid.

New fragrances in that line have helped us to increase shares again this quarter.

Our market share in the quarter increased 2 points over the year-ago quarter.

We as a Company are now at 38.4% national market share of this category.

An exciting new product in the deodorant category is the relaunch of Mennen 24/7 with micro-absorbers that are powerful enough to absorb 100 times their own weight in wetness.

This line will be priced at a premium to the existing deodorant products and will begin shipping this quarter.

Overall we're very encouraged with the way the North American business has started out the year.

The very positive volume trend has continued so far in the still-young second quarter.

Looking ahead we would expect volume to be at least in the mid-single digit range for both the second quarter and full year.

Operating profit is expected to be up modestly in the second quarter with more robust growth in the second half, resulting in mid-single digit growth for the full year, up absolutely and as a percent of sales.

Turning then to Europe, volume in Europe increased 9.5%.

Excluding the acquisition of GABA, volume was down 1.5% driven by very tough conditions in Western Europe.

Volume in Central and Eastern Europe was up double digit.

Pricing was negative 2% and currency added 6% for an overall sales increase of 13.5%.

For the division total commercial investment was up very strongly.

Operating profit grew 4%, up absolutely but not as a percent to sales.

The issue that oral branded manufactures have been facing in Western Europe, especially Germany, is the growth of hard discounters, at retail channel that does not stock any branded product.

While the emergence of hard discounters started in Germany, they have now moved into France and Italy as well.

Fortunately, the category most affected is home care, while our priority categories of oral care and personal care are less affected.

Both toothpaste and manual toothbrush volume was up double-digit in Europe in the quarter with personal care at last year's level.

Our Western European market shares are solid with good increases in both toothpaste and toothbrushes.

Market share in toothpaste was up 1.5 points, and this is the result of continued rollout of both Colgate Oxygen Toothpaste and Colgate Sensitive Toothpaste, as well as excellent results in our GABA business.

In addition, our Total testimonial ads continue to drive share for Total toothpaste.

In Italy in March, our Oral Health Month Program resulted in strong volume growth in both toothpaste and manual brushes for that country.

As in the US, results for the 360 Degree Toothbrush have been excellent with regional toothbrush shares up over 0.5 point.

Our share in deodorant across the region is up over 1 point with further gains in the most recent reading.

As you know, we launched a full line of stick, spray and roll-on deodorants last year under the Palmolive name.

We are now in nine countries and will launch in France and the UK, two of our biggest markets, this year, which will add further incremental business.

As you may know, we are the leader in shower gels across Western Europe.

We have some exciting new news in that category which should help further grow the business.

Just launching now are four very interesting new products, the first in Palmolive Naturals with Olive Milk, with shower gel, bath salts and liquid soap.

Olive oil is deeply rooted in the Palmolive heritage, and already Palmolive is the only brand in the mass market spontaneously associated with olive as an ingredient.

This line is positioned to deliver ultra moisturization.

The second new product is Palmolive Firming Shower Gel, formulated to help firm up skin.

And the remaining products will be shower gels in a stand-up tube -- Palmolive's Spa Sugar Scrub to help exfoliate the skin and Palmolive Spa Softening for moisturizing and soothing.

As mentioned earlier, Central and Eastern Europe had an excellent quarter, led by Russia where volume increased over 30%.

Toothpaste continued to be a priority in that region, and the successful new products program backed by impactful advertising has increased our share and narrowed the gap with our closest competitor to under 0.5 point versus almost 4 points in the year-ago period.

In Central and Eastern Europe we've maintained and strengthen the leadership in toothbrushes that we achieved in the fourth quarter of last year.

Our new 360 Degree Toothbrush has been a contributor to this good performance.

And in the personal care category we've had good success with shower gels and deodorants.

Our deodorant share has been growing steadily, helped by the launch of aerosol forms to complement our already strong share of the stick segment.

So looking ahead we are modestly encouraged by our prospects across all of Europe.

While economic challenges abound in Western Europe, we think we have a good pipeline of innovative new products to meet those challenges.

And Eastern Europe and Russia continue to deliver outstanding results.

Our current estimate shows unit volume improving in Western Europe in the second, third and fourth quarters, and the strong volume momentum in Central Europe continuing throughout the year.

Operating profit for the second quarter is expected to be up mid-single digit and up slightly more for the full year.

Latin America.

Volume in Latin America increased a very strong 8.5%.

Positive pricing and exchange added another 3% for a sales growth of 11.5%.

Total commercial investment was up very strongly and operating profit increased 3%.

The volume growth was strong across all our major subsidiaries with Brazil, Venezuela and Argentina all growing double digit.

In fact, as noted in this morning's release, for the first time in memory every one of 18 countries in Latin America enjoyed volume growth.

As elsewhere, new products have played a critical role in our good volume and market share.

Fees (ph) and the base business have been well supported by commercial investments.

Across the region our toothpaste share is up from its already high levels by over 0.5 point, and we reached record shares in Venezuela, 85.2%;

Columbia, 82.8%; and Central America, 80.9%.

In toothbrushes new products such as Colgate's Whitening in the adult segment and Colgate Sponge Bob in the kids segment have contributed to the continued momentum in this category.

We gained over 1 point versus the year-ago period and have narrowed the gap between ourselves and the market leader of almost 11 points in 2000 to only 2.5 points.

Our Mexican subsidiary continues to deliver solid results.

In general, the Mexican economy appears to be stable.

Our toothpaste share remains at 80% levels.

We will be launching Max Fresh Toothpaste this quarter, which should add additional strength to the business.

In toothbrushes we are at record highs, almost 34%, up 2 points from the year-ago period.

In fabric softeners, where we have a commanding share of over 50% with our Suavitel brand, the launch of a no-rinse variant has resulted in increased volume and share in a category which has seen aggressive activity on the part of several competitors.

Our Brazilian subsidiary had excellent results in the quarter.

As was mentioned in the release, our Colgate toothpaste share was at its highest level in almost a decade, and our overall toothpaste share has been increasing steadily over the last six months and is ahead of 2004 levels for 2005 year-to-date.

Shares are up in toothbrushes and toilet soaps as well.

As in Mexico, the exchange rate has been quite stable and the economy appears to be continuing to show signs of strength.

The GDP growth ended 2004 very nicely at an annual rate of 5.2%.

Growth in the first quarter is expected to the above both the fourth quarter of last year and the year-ago quarter.

Overall, the Latin American economies are more robust than they have been for the last several years, which bodes well for our business.

Volume should continue strong in the second quarter and should be up mid to high single digits for the full year.

Operating profit is expected to be up modestly in the second quarter and should be up at least mid single digits for the full year.

Asia Africa.

Volume in Asia Africa increased 6.5%.

A positive currency effect of 3% was offset by 3% negative pricing, resulting in a sales increase of 6.5%.

Total commercial investments increased double digits and operating profit was down 3%, reflecting the higher level of investment spending.

As elsewhere, our toothpaste shares strengthened across Asia Africa.

In fact, we reached record high shares in China and New Zealand.

And in the Philippines our share was up well over 50% for the first time in seven years.

In China our toothpaste share grew to a record high of 34.2% for the quarter, increasing every month and finishing in March with a 35.4% share, driven by the strong growth behind the Colgate equity (ph).

This strong performance within the previous segment was driven by Colgate Propolis.

As you may recall, Colgate Propolis is a toothpaste first developed in Russia, and contains an ingredient found in beehives which is known by consumers in both Russia and China to contain very strong antibacterial properties.

Part of the recent rise in our toothpaste share in Russia is directly attributable to who Colgate Propolis.

Propolis was launched in China in November of last year and has already achieved a meaningful share the with most of the gains being incremental.

We also registered growth in the lower price segment, driven by the continued good performance of the Colgate Herbal equity, achieving a share of 8.3%, an increase of 3.3%.

And all the herbal variants including base, white and salt grew shares.

In India, to our toothpaste share climbed to over 50% in the latest period after steadily climbing throughout 2004.

We also strengthened our leadership toothbrush share position by 1 point with new products such as Colgate Sensitive and Colgate Designer in the premium segment, and the relaunch of Colgate Zig Zag to grow the lower price segment.

As I mentioned, our toothpaste share in the Philippines was very strong.

Our share also increased in haircare and soaps behind new products such as Palmolive Aroma Therapy Shampoo and Palmolive Milk & Roses Soap.

In Australia, our testimony television commercials behind Total Toothpaste have resulted in a 22% share, up almost 3 points, and positioning Total as the number one sub-brand on the market.

Our overall leading share has been maintained at well over 60%, with the most recent share at record highs of 67% as a result of the successful Total campaign.

In manual toothbrushes we reached a record level of 38%, up over 1 point as the result of the very successful launch of Colgate 360 Degree Toothbrush.

So looking ahead, volume in this region is expected to continue at current levels or better throughout the balance of the year.

Operating profit should be up mid single digits to the second quarter with double-digit growth for the full year.

And finally, Hill's.

Hill's volume increased 3%.

Positive pricing and currency added another 4% to result in a sales increase of 7%.

Commercial investment increased double-digit absolutely and as a percent to sales with media up very strong.

Operating profit was up 3%.

Volume grew both domestically and overseas with particularly strong growth in newer markets such as Russia, South Africa and Australia in the Far East.

In the US in the first quarter we launched a very innovative new product in the prescription diet line, Prescription Diet j/d.

Sales of this product into the vet channel exceeded initial expectations by 80%.

As you know, the key to Hill's long-term success is break through science and technology in the areas of pet nutrition.

An example of this is our relaunch of Science Diet Puppy and Kitten Food, which appears to be off to a good start.

This new formula contains DHA, which is a natural Omega 3 fatty acid vital in the development of the brain and nervous system in young mammals.

The primary source of DHA for young puppies is their mother's milk.

But when they stop nursing at 6 weeks, they have still only developed 70% of their brain mass.

Science Diet Puppy keeps supplying this critical brain building element long after weaning, making puppies smarter and easier to train.

Good volume across Europe in some of our newer high-growth markets was also driven by new products such as Science Diet Canine Large Breed, Science Diet Pro and Prescription Diet Feline MD.

The expectation for volume growth at Hill's for the second quarter and full year are mid single digit levels.

Operating profit in the second quarter should be up high single digits absolutely as a percent of sales, and at similar levels for the full year.

So in summary, as I said at the outset, we are very encouraged with the way this year has started out.

We've been able to deliver good results despite a highly competitive marketplace and in an environment of rising raw material costs.

We're pleased with our top line and volume momentum, with an improvement in our worldwide pricing and with our ability to contain costs, with our ability to develop new products and continue to invest in the business.

Our market shares are strong and growing and our new product pipeline is full.

Our restructuring program is right on track.

So we look forward to sharing our results with you as we go through the year.

Now, Millicent, that ended my prepared remarks.

We would like to open it up to Q&A.

(OPERATOR INSTRUCTIONS) Jason Gere, A.G. Edwards.

A quick question for you.

I guess I wanted to know your outlook on the consumer trend in Europe and what we're seeing.

Last week we heard from L'Oreal about the consumer trading down, and that was more in the beauty care, and then Reckitt talked more about the homecare.

And certainly you've addressed the homecare issues, but I'm just a little bit surprised that in the personal care side and the oral care side that you really haven't felt that type of impact.

I guess I was just trying to get a little commentary from you on that.

Again, dividing Europe into two halves, obviously things are booming in Eastern Europe and Russia, as you know.

In Western Europe, as I think Bina said in the commentary, the advent of the hard discounters haven't affected either toothpaste or toothbrushes and personal care a bit less, but have hit homecare harder.

As you know, we're no longer in the heavy-duty detergent business in Europe, but we still have big businesses, or fairly big businesses, in other forms of detergents and cleaners.

But quite characteristically, in the products with which there is a personal relationship -- and I think, Jason, you have heard us talk about the before -- tend not to go to private-label or to hard discounters.

Actually, as I think Bina said, our market shares in oral care, both toothpaste and toothbrushes, is up in Europe.

And among the personal care list there and are several that are up as well.

Just in terms of -- I guess you were saying you were seeing a gradual improvement in volumes in Europe over the next few quarters, so you don't see this as this might be the hardest of the quarters that would be affected, and then just going forward you would see this kind of as I guess wearing down a little bit?

For what our estimating system is worth, and I think it is a worth fair amount, at least we do expect in terms of -- this is Western Europe now -- for total Europe we expect it positive, strong throughout the year as the result in the first half of obviously GABA being added in and Eastern Europe doing well.

But in Western Europe, as Bina mentioned, we were down overall about 1.5 point as a result of Western Europe is expected to be slightly positive in the second quarter, slightly positive or a little more than slightly positive third quarter and a bit better in the fourth quarter.

And for the year, we expect overall Europe to be up somewhat in volume.

Just on another note --

To give you an idea, let me just tell you more specifically.

In the first quarter -- I don't think Bina mentioned this, but Western Europe was down 4 or 5% in volume.

It is expected to be flat to slightly up second quarter, third quarter, and up a bit more in the fourth quarter.

So that is encouraging.

Good.

Another question just in terms of with the restructuring program going on and with some of the plants that you have closed already.

How much in that increase in inventory year-over-year -- I think it was a 15% increase -- how much is safety stocked in there for when you're I guess basically shifting from one plant to another?

How much would you say is embedded into that 15% increase in inventory?

Again, we have to look at it in days.

As you know, the base is about 60 plus days.

And there's about 3.5 to 4 days, as I recall, in there.

That is about -- half of that or so -- slightly more than half is the supply chain buildup for restructuring.

And don't forget GABA is in there as well, and GABA had very significantly higher inventories than we have.

Just the last question.

I will be very quick.

You had good cash flow in the quarter.

And I was thinking about just from an acquisition standpoint.

I know there were a few weeks ago there were some stories that you might have been interested in buying back the 49% in the subsidiary that you didn't own, and I guess you kind of said no to that.

But what is your outlook at looking at acquisitions going forward?

Would you look at something that would be less risky, such as buying 100% -- getting 100% of a subsidiary where certainly you're getting strong growth as opposed to looking at external companies?

Certainly we have done that in the past when it's appropriate.

We've bought out partners and so on.

And there may be places around the world where we could do that.

So that does make sense in India in particular.

The rumor didn't come from here, simply because the PE in our Indian business is very much higher than our normal PE, which is at a 15% premium by whatever it is to the S&P.

So that's unlikely unless it should become undervalued over there, which is also unlikely.

But yes, we have done that.

We feel no compulsion to make acquisitions, but over the years we have done that when it's appropriate.

We recently bought out our Turkish partners, but we're considering that in other countries as well.

Amy Chasen, Goldman Sachs.

Two questions.

First, just to quickly follow-up on Europe, can you talk about why you're looking for the volume acceleration in Western Europe, and just specifically it seems like this issue is more structural, and just why you're so confident that we're going to see a pickup?

First of all, for what it's worth, the largest -- I'm talking about Western Europe, and certainly it is a difficult market.

But last year was by a considerable margin the biggest growth of the entire year.

So as we go through the comps are easier, number one.

Number two, they're launching a series of new products, as they do every year.

And usually that starts in the second quarter.

So we will get the benefit of that.

Also, the share movement, which has been quite pronounced in oral care, has not yet registered fully on volume.

So we're expecting that to help.

You notice, Amy, I was cautious because this is not an easy market.

But as you know, our overall sales growth was the best in a decade with good volume in every division, the one exception, of course, being Western Europe.

And that was down a couple of points more than we expected.

They looked at the numbers very carefully, and these are very conservative numbers.

And the expectation -- I was understating what is actually written on this piece of paper.

So I would be quite surprised if we didn't get flat to slightly up volume in the next three-quarters in Western Europe.

Eastern Europe -- again, we combine the whole thing.

Eastern Europe is well ahead of where we expected it and doing extremely well, as you know.

And GABA -- I'm not sure that was mentioned in Bina's discussion, but GABA is also performing on both the top line and bottom line better than we had in our Board presentation and in our expectations.

My second question is really just on the pricing environment.

Have you had any attempts in the first quarter and into the second quarter, kind of in the year-to-date period, of any price increases?

We're hearing that some of your competitors are taking pricing in the US specifically on dishwasher liquid, as well as in Comet.

So are you looking at any of that?

What is your expectation for actual list price increases over the next couple of quarters?

And also, if you could talk about that in Europe as well.

Like you say, we're encouraged to hear -- we have definite -- we don't even consider doing anything until we get in writing -- that is a copy of a letter to the trade, which we can appropriately come by from a competitor.

And that is the case in automatic dishwasher detergent.

There was an 8% competitive price increase effective June 1.

And so our expectations are that -- well, at any rate we will consider that very closely and act if it's appropriate.

We too heard the rumor, and even more than a rumor, on light duty less liquid, i.e. dishwashing liquids.

And it was to be a 10% increase effective at the beginning of the fourth quarter.

But we have not seen a written confirmation of that yet.

But obviously, given the fact that those are the areas -- the detergent areas are the areas that have been hardest hit by oil prices, we would obviously consider that very strongly.

None of that, however, has been included in the current estimates because obviously we don't want to bet on to come, but that's encouraging.

On a worldwide basis, a full year of a price increase -- we are the world leader outside the United States, as you know, in dishwasher liquid.

A full-year would be worth about $20 million a quarter, as I recall (inaudible) because obviously we are on top.

What about Europe?

Any price increases there?

Nothing specifically that we have seen.

But again, I think that our work on gross to net and the attendant price aspect is very important.

Let me give you that, because as you saw price was down worldwide 1%.

Actually it was -- I'm sorry, 0.5%.

The actual figure was almost precisely that.

North America was down 1%, as Bina noted.

And actually the US appropriately was flat.

These compares to numbers in the last year of -1.1 in the first quarter last year, -9 in the second quarter, -2.2 in the third quarter, -1.7.

Our expectations as we go through the year based on our projections of gross to net and all the things that we are doing is that next quarter should be again flat to slightly down, and we should be actually flat in the third and fourth quarter.

And if we're able to do what we hope to do, it may even be slightly up.

So that for the year will be a meaningfully different level of price.

Those numbers you just gave, those were for the overall Company?

I gave them for the overall Company, yes.

So when you announced the restructuring, you said there was this big chunk of potential soft savings from reducing gross to net.

But the way you framed it at the time was this is a longer-term opportunity.

It sounds like you're really aggressively going after that as we speak.

We are naturally, as you expect, aggressively going after it.

But anything that we get, this new organization has been formed.

The vice president in charge has been named.

He addressed our general manager meeting a couple of weeks ago out West.

And that is underway, but that will be presumably incremental simply because this is from a more disciplined, some additional systems, some very close looks at the amount of spending, and just a couple of years of history of what works best and what doesn't work best.

I don't understand what you mean by it will be incremental.

I mean that we have -- that this is going to -- what we just project, what we actually came up with in the first quarter and expect to get during the year in terms of worldwide price, is unrelated to what this new organization will be doing and this new individual who is leading that organization will be doing.

And one would hope, and we certainly expect, that any savings that will obtain would be incremental savings over and above those levels we're projecting for this year.

Because we don't expect much to bite from this new effort until next year.

So I think we should -- that we're quite pleased that the normal discipline and exercise of continuous improvement has led to a reduction in the price negative.

Wendy Nicholson, Citigroup.

My first question has to do with the gross margins.

Can you give us the breakdown you normally do of the moving pieces?

Sure will.

Hang on one sec.

I don't know if you -- while I'm looking for that -- I'm not sure you -- Bina mentioned, I'm not sure if it registered or not -- what was great about our gross margin calculation was that the gross margin in oral care was actually up meaningfully, and it was the homecare that pulled the overall Company down a bit more than we had expected because of the high oil kaboom (ph).

That is obviously good for the medium and long-term, because the business is moving more towards the oral and personal care.

Is it fair to say then that you have tweaked your investment spending in the short-term to push the oral care volumes up faster than the other business?

Well yes, but I wouldn't call that short-term.

I think, Wendy, you know well, as many of the sell side do --

Yes.

-- that that is part of our overall strategy to move our business away from detergents which we are selling off and homecare in general, and more to personal and oral care.

We have been doing that for years.

And that's why -- again, I don't think Bina gave you this, but there's an interesting figure that we usually give out in each conference call, which is how the core businesses grew.

And I think you would be interested to know that the toothpaste in the quarter grew over 10% volume worldwide; toothbrushes grew between 10 and 20%; personal care grew about 4%; homecare excluding HDDs grew about 2% -- HDDs being heavy-duty detergent; heavy-duty detergent dropped 5%.

Again, as has been happening for years, many quarters and many years, is that trend is continuing.

And as far as we're concerned that is terrific.

So it's not a short -- answer is yes, but it's not short-term.

Let me give you the details.

Starting at -- obviously the comparison, Wendy, is from last year's first quarter where we were 55.7.

Pricing, as you see, was down 0.5 point.

Funding the growth savings was 1.4 versus somewhat less than that last year.

All other changes -- mix, GABA, everything else -- was a plus 0.6.

And raw and packing material costs was a full 2%, negative obviously.

And I might add that that excludes the effect of the positive foreign exchange on European purchased raw materials.

Basically that's the breakdown.

So funding the growth savings ahead of where it would normally be, pricing better than it would normally be in the last couple of years, but obviously raw and packing materials up very sharply.

So in terms of your guidance for the next couple of quarters and the hope that the full-year gross margin is flat to possibly up slightly, what is the biggest moving piece there, because it sounds like at least from a raw and packing standpoint there's a lot of room -- there's a lot of pressure?

And are you forecasting that that eases or is it just that the cost savings initiatives are so big in the back half that you're okay?

We don't think the pressure is going to ease.

But number one, oil prices begin to lap the growth of next year.

If you compare the $50 plus oil price in the first quarter of this year with the first quarter of last year, it was 41 -- less than that maybe - 38, $37.

And the oil price was, as I recall, 48 at the end of last year.

And it's now up to over 50.

So as that begins catching up, the relative pressure is reduced and that's aided by the fact that the mix change continues, the savings programs continue, and then the restructuring come back on top of it.

And so to give you the gross profit, what we are expecting, because I think Bina had talked about that, and rightly very generally, let me give you a little more specifics.

The gross profit expectations were we should be flat to very slightly down in the second quarter and up 50 basis points or slightly more in the third and fourth quarter.

The official estimates have us a bit more than that, but we're being very -- official from our estimating system, but we are very cherry (ph) and cautious because everybody is being hurt by these prices.

But we're quite optimistic that on the year basis our gross profit will be up, my guess would be 20 to 30 basis points.

Okay, because I guess one of the things that is impacting the gross margins, but obviously favorably impacting your volume growth -- and the 10% volume growth in oral care worldwide sounds terrific, but it's clearly a big moving piece as a percentage of the product sold on promotion.

If we look at Nielsen data, the percentages of your oral care that is sold on promotion is now above I think 40% in the US.

And I guess the question is do you expect that number to remain at that level?

Because I know you've got very difficult comps in the US in the back half, yet it sounds like you're still expecting really strong volume growth.

I think, Wendy, you really have to look at how much of a price negative we have in the US versus history, because the price negative is a direct translation essentially of the amount of promotional activity.

So if you look at that -- hang on one second -- in the US Company -- now, this is on North America now.

This is the US Company.

Overall last year it was 1.8%.

Overall the year before negative.

The year before it was 3.2% negative.

In the first quarter it's flat.

And we expect it to be flat to slightly up, that is to say actual -- for the rest of the year.

So you draw whatever conclusions you want from that, but that's an indication that in fact -- that is reflected obviously in higher margins and everything else -- that that is a very healthy business.

When you combine that with the market share, where as Bina said is that our market share is a full 2 points higher, as I recall, than last year, and the gap between our nearest competitor and us, who coincidentally was the same person that may be raising prices on lightened liquids, has gone up to 4 points versus very substantially less last year.

So it's tough to find anything, but health in the domestic toothpaste business --and that's again by design, because that's part of our strategy.

I'm sorry, just the last thing.

So am I my wrong?

I'm thinking that the more favorable pricing is basically being offset from a margin perspective by the higher level of promotion.

But is that not a fair way to look at it?

Again, on a world -- somebody will give me the US figure, but the world figure is toothpaste gross profit is up close to 100 basis points.

And I believe that's true, although they're checking now.

It's true in the United States as well.

So what that says is that increased volume due to market share at increased sales of the higher priced versions and actual cost savings within it -- it's not very -- there is almost no oil in toothpaste -- have led to that.

And again, for the medium and long-term that's healthy.

Do we have a confirmation on that?

I'll get back to you on that, but my sense is that it will be between 60 and 80 basis points at least in the United States.

Ann Gillin, Lehman Brothers.

Just switching back to Europe, Reuben, I am wondering if you can give us a sense as to how much your homecare was down and how that tracked relative to the category being down.

Okay.

In Europe our homecare business was down -- this is all of Europe -- was down 9% and our toothpaste was up 12%.

I am not breaking out Eastern and Western, which I don't have.

And toothbrushes were up more than 12%.

Personal was basically flat or slightly up and HDD had basically disappeared in most countries, because we have sold the business.

But homecare was down 10, almost 10.

And that's on reported.

That includes some negative pricing?

That's volume, so that doesn't include (inaudible).

The actual sales you would have to track it the very carefully, because there is a positive currency and a negative pricing in this probably (ph).

Okay.

But we'll get back to that back to you if you want that.

No, I just wanted to clarify that it was volume for our total.

Just then switching to kind of the pricing discussion around Europe, given consumer confidence are discounters competitive behavior that others and yourselves are experiencing, is it really reasonable to think about any positive pricing or any better pricing, maybe less negative pricing, in Europe?

Let me give you the same figures, if I could Ann, that I gave for the United States.

During 2003 we had a negative 2.3 in Europe, which is slightly more than the US, as I mentioned -- or actually a full percentage point less than the US.

Last year the full-year was 3.2.

In the first quarter it was 2.0.

This is Western and Eastern Europe.

And that is expected essentially to stay negative throughout the year.

So this year it will be -- and included into those overall Company figures is a negative of about 2% for the year.

Perfect.

Reuben, as you look at your portfolio obviously with personal care having some better characteristics in terms of consumer usage and not trading down, have you done the price elasticity work on the non-personal care segments to kind of give us a sense as to what net revenues might look like if we start to see price increases here in the US?

Well, yes.

Well, you mean homecare?

Yes, sorry.

I wasn't clear.

Homecare in particular.

Homecare in particular if -- for example, we discussed a few moments ago that the competition is rumored to have taken a particular price effective at the end of this year.

If we should do the same on the same timing, that's a lot of -- a very hypothetical situation, that would generate about 5 or 6 -- a modest amount, because it's not even effective until the fourth quarter -- about 5 or $6 million this year.

Next year it might do as much as $30 million just for our -- don't forget we have about 40% -- slightly less than 40% of the light duty liquid market in this country, so that would (indiscernible) about 32 million incremental dollars.

Obviously in our longer-term plans we have not concluded that.

On the other hand, we haven't concluded $50-odd oil as well.

Although in this year's estimate and our 2006 plans, we have included $50 oil -- $52 oil for all the four quarters and 0 price increases.

Just to be clear, that 32 or the 5 to 6 this year, that is the gross price increase, not necessarily a net result, or you --?

The gross incremental margin before you would decide to spend any of it or if you felt that the profit you would have, you would (ph) obviously pay tax on it.

Or if you gave up some volume.

That's what I was getting at, is does include some volume growth slowdown?

I'm not sure that it does.

But again, if the entire industry does it history is that you don't lose much, especially since the private-label area in the branded merchandise represents I think about 92 or 93% of that category.

Okay, that's helpful.

One more --

The reason is because there are various price levels within the branded (multiple speakers)

One more question on -- to Latin America.

Just wondering if you can give us a little bit of color on given the strength and the acceleration of Latin America why we're seeing EBIT growth and you're projecting EBIT growth continuing to lag behind that strength?

Are you still finding the environment to be competitive enough that the marketing spending is rising?

As Bina said, our business in Latin America is quite strong.

I literally can't remember -- and that's what Bina said -- when all countries were up in volume.

Accompanying that is an increase in spending, but by no means as much as in the US and perhaps elsewhere.

We expect volume to continue, perhaps not a strongly, but certainly quite strongly throughout the year.

Certainly close in we expect it to.

And operating profit, which grew only a couple of percent last year is expected to grow probably somewhere in the mid single digits this year.

So that is accelerating.

And on a percentage to sales it's over 27%.

So it is the most profitable division.

So if you would want to see any division doing well, I think you would want the US and Latin America to be doing well because the profitability is the highest worldwide.

Obviously Hill's was very profitable as well.

But you're still projecting some pullback in margin in Latin America in the outlook?

(multiple speakers) margin, what do you mean by --?

EBIT margin in Latin America.

It's down from the --

EBIT, let me tell you what we have got here.

For the year last year the EBIT margin was between 27 and 28%.

Our projection this year is between 27 and 28 on a volume and sales growth that is substantially up.

So my sense is that I don't see anything there that would indicate any lack of health.

Am I missing something?

I'm asking the guys in the room.

Historically, Latin America has over-performed, and it looks like that trend is reasserting.

So what is the sales growth?

Anyone have it here?

Hang on one second.

For what it's worth, last year's sales in Latin America -- and this is the same operating profit percentage basically -- it is still Ann on there, right?

Yes it is.

Last year we had a 4% for the full-year growth in sales in Latin America.

This year in the first quarter it was up 10%.

And it will probably be up at least in the mid to high single digits for the year.

So therefore, the same operating profit percentage applied to a greater growth rate shows an acceleration.

I'll come back if I can (indiscernible) the same way.

Thanks.

And just a note.

Ian, just wanted to pass on congratulations on the announcement today.

Thank you.

Bill Pecoriello, Morgan Stanley.

A question on the gross margin at the beginning of the year, you had been guiding up about 80 to 100 basis points, which was the 60 to 70 plus the 20, 30 benefit from the restructuring.

And now you're talking about more up moderately 20 to 30.

So is the offset on the bottom line faster than expected top line growth, or higher restructuring savings potential, or gross to net?

Just trying to understand where the offset would be in that.

The offset is, yes I think you're -- the offset is, number one, our regular savings programs are doing better than originally programmed, and obviously we have accelerated some of those as well, number one; number two, that our volume is very healthy, as you state, and looks like it will continue to be healthy.

And that plus overhead containment and savings plans in those areas for the rest of the year will be able to offset -- again, when we talked about our budget we had a budget of $42 a share -- $42 a barrel for oil.

And now we have $52 in there.

If it is more than 52 we'll have to find a way to cover that.

If it is less it will provide us with more flexibility.

So you see with the 20, 30 basis point improvement in gross margins still being able to deliver the targeted operating profit given the other moving pieces on that then?

Yes.

And then on the US pricing being flat in the quarter, can you help us understand the oral care versus other businesses, because again in the tracked channels we don't see the improvement?

What improvement?

The pricing being flat overall in North America if you break out oral care versus other product segments.

Is there a difference there or is it flat overall?

Again, the number I'm giving is a macro number, which is basically a comparison of volume and then sales.

And the answer is I don't have a breakdown here.

I do -- the toothpaste margins up.

And you remember earlier, I guess it was when Wendy asked a question about that, I had estimated (indiscernible) and coincidentally it happens to be 80 basis points.

That is a combination of, A, cost savings;

B, some reduced gross to net, and so on and so forth.

And so one would have to conclude that pricing on toothpaste and oral care generally is a factor.

Now, obviously there's -- Total has a very good share of that as a premium price. 360 Degree Toothbrush as a very good share.

That's a premium price.

So I think what we would have to do, Bill, is let us get back to you and try to break it down a little more finely by category and see -- and then contrasted to Nielsen to see where it comes out.

Great.

And then just finally on the competitive environment globally in oral care, any changes to what you're seeing in reaction to you're stepped-up commercial spending in any of the key regions around the world?

Bina I think gave you some of those figures.

We have a worldwide that is all the countries we're in, which is a lot of countries, we have a worldwide market share increase.

And Bina mentioned that that is true in a bunch of the important countries.

We had an increase in the US.

We had an increase in India.

We had an increase in Russia.

We had an increase in China.

We had an increase in the UK, Brazil, Australia, Mexico, Venezuela and so on.

And the verbiage said over 100 countries.

So in repeated questioning by Ian and Javier and me and everybody concerned to the divisional people in our formal reporting systems we don't see any further escalation of competitive spending in oral care.

On the other hand, we don't see any diminution except -- on a globalized basis.

Bill Chappell, SunTrust Robinson Humphrey.

Just two quick specific questions.

One, again congratulations to Ian.

We wanted to see if there was any need to further expand the senior management team over the next 6 to 12 months because we've gone from 5 down to 3; if you're looking outside or looking to promote from within.

The second question is on the mouthwash business.

We have seen Crest come out recently with a branded product, along with their Scope product.

Is there any reason why Colgate wouldn't enter that market?

Let me take the first question first.

First of all, and when you say three, I assume you're using what Ian used in the press release, which is Javier Teruel, who is here with us today;

Ian, who is here with us; and me.

Essentially Javier and Ian will be working very closely together as we move into the future.

And we have very good bench strength at the divisional president level, and it's not inconceivable that some of those people will take on greater responsibilities as (inaudible).

The second point is that you will have to tell me what your impression of the Procter & Gamble product is.

We are in the Colgate mouthwash business in many countries around the world.

Not in United States, except on a medical prescription basis with our Colgate oral pharmaceuticals business.

But in Europe we have Colgate Plax and we have Colgate mouthwash in many other countries.

Certainly, as always, we are considering further launches, and we'll keep you posted as that happens.

John Faucher, JPMorgan.

Actually I'm all set.

Thank you.

Connie Maneaty, Prudential.

I have two questions.

One is just a point of clarification.

In the press release on the North American section you talk about your ACNielsen market share at 35.9%.

And then in the prepared remarks you said your all-channel share was 35.9.

Are these numbers the same?

Does one include Wal-Mart, one exclude it?

They're the same.

I think what I said was all outlet as measured by Nielsen.

Okay.

So do you have an estimate for what your all outlet share is including Wal-Mart?

No, but I can give you -- Ian may.

I do not, but I can give you something that's quite interesting, is that occasionally in response to a question we get how the US has been doing with top 10 accounts, and then we compare that to the rest of the business obviously because the top 10 are the Wal-Mart, Target, Family Dollar, Costco and so on.

And the total business is up on a case basis 8%.

The top 10 are up 13.3, and the rest is up about 2.

And Wal-Mart is one of that -- out of the top 10, the volume growth is one of the 2 best.

So you tell me.

Just one more question on the gross margin in the quarter.

How big are heavy-duty detergent sales as a percentage of total right now?

They'll get that, but heavy-duty detergent margins dropped about 400 basis points in the quarter.

So as you would expect, that was a drag factor.

In the course of this we will get that number, Connie, and give it to you, okay?

I don't have it right on my head.

Because you get to the -- I think you just got to my question.

I imagine it is probably a very small business at this point.

And I was wondering how such a small business could have such a disproportionate impact on the overall margin.

A, it's not that small a business because we have the business in big countries like the United States, Australia, some places in Latin America.

But beyond that, the other home care, which is specifically cleaners and light-duty liquids, has a very big component of oil in it, and those are down 3 to 400 basis points as well.

And in Europe we're the leader with that.

It is.

It's well under 10%.

Heavy-duty detergent (multiple speakers)

Homecare, on the other hand, overall is I would say 19%.

I'm picking that out of the air, but I would guess it's about 19%.

So something less than a third of your products have a big exposure to these volatile raw materials?

That's right.

HDDR for -- it turns out that light-duty liquids and cleaners combined with all the miscellaneous cleansers and so on is in the mid-20s.

So together it's under a third, yes.

Bill Schmitz, Deutsche Bank.

Is there any update on the sale of the detergent business?

I know it's a small business and everyone's kind of hounding on it right now, but I know it's been on the block for about a year ad a half now.

What's taking so long to get rid of that business?

I think you have got to break down.

We have had, I think, four sales in the last -- we are selling the business by geographic area.

We sold it in Mexico.

We sold it in Europe.

We sold it in Central America.

We sold it in other parts of Latin America.

But we have not sold it -- but on the other hand it didn't go on the market until much more recently than a year and a half -- in the US.

We sold it in Europe.

I don't know if I mentions that.

So it's on a very timely basis.

It's a limited number of customers for it.

But nonetheless, we've had I think four or five sales which have been reported in that year and half or two year period that you're mentioning.

Joe Altobello, CIBC World Markets.

Good afternoon now, I guess.

Most of my question have actually been answered.

I have a few.

On the cash flow side -- and I apologize if you gave this number -- but what was the cash spending on restructuring in the quarter?

I can give that to you.

In the CapEx budget -- let me just go for the year for a moment -- there will be about 77 or $80 million of capital expense on the restructuring in 2005.

The actual cash amount of that is a small amount.

It was 7 million.

That was 1Q.

Okay?

And I think looking at the inventories you guys are obviously building some safety stock here.

Is it safe to assume that we will continue to see inventory builds by the end of this year and probably into next year?

Slightly, but not appreciably.

Maybe another day or two, but I wouldn't think it would be much more than that on a base of 60 odd.

Then CapEx still expecting 3.5 to 4% of sales this year?

Yes, the CapEx historically has run -- the regular program is 3.5, Joe, and together with the restructuring it's 4.

Slightly over 4.

Alec Patterson (ph), RCM.

Couple of question, Reuben.

One, high oil prices, the consolidation of plants -- what's going on on the shipping and transportation line of SG&A?

Is that running up pretty high?

Are you feeling a lot of pressure on that?

Yes, as you would expect it is -- part of that goes to margin and part of it goes to SG&A, as you know.

But obviously our freight costs is up substantially.

My recollection is that freight and warehousing is up 0.9% of sales, just out of my memory.

And so that has to be overcome as well.

But it goes part and parcel with the oil component of margin.

Again, that's the world we live in, and our job is to overcome that.

And we historically have, and we think we will continue to.

So using the $52 barrel of oil price, that flows through as well to your estimates on that line item to a degree?

When we agree on a -- and we do this with all our raw and packing materials.

When we agree on a figure, that is exploded out through SAP to all our costs.

On the cash flow statement, it looked like there was potentially a refinancing on your debt that was done.

I'm not really sure what is reflecting this swing in paying down 600 million and taking on 757 million in debt.

Did that do anything to the interest rate outlook?

Ed Filusch, Treasurer, will comment on that.

We termed out some of our long-term debt in Switzerland to the tune of a little over $200 million which locked in some attractive financing at about 1.875%.

Could you give me a ballpark what you think your blended rate of debt is going forward?

Just one second.

I think our all-in rate is somewhere around 3.5 to 3.6%.

That's really tight, that range -- 10 basis points.

But this was a good conversion of timing in that we were able to lock up money for five years, as I recall, for 1.87.

It came out in the disclosure we communicated about that (inaudible)

Lastly, just one of those one-off items.

The non-operating expense line was up again as kind of a high number for what seems to be a trendline for the year similar to last year.

Is this likely to stay high?

Are there other factors at work here that's restructuring related?

Or will this tend to trend down to about 2% of sales for the full-year?

This is Steve Patrick.

Actually, all of the increase is restructuring versus the first quarter last year.

Otherwise it's flat.

No, I know it's flat quarter-over-quarter -- I mean Q1 over Q1.

But Q1 last year was sort of a high watermark for the year as a percent of sales, and then it trended down for the rest of the year to about 2% for the year.

And I was wondering, do we expect that to be a similar play for this year, because this seems to be a relatively high level of spend for this line item in the year.

Our first quarter is always a little bit higher than the rest of the year.

It's just a pattern of when we book expense; when you incur the cost.

And I think -- if it's any different we will tell you, but I don't think it will be different -- is that expectation of the non-restructuring aspect of that line will be (indiscernible) last year on a percentage of sales basis.

Actually, given the fact our sales were up more than they have been historically it may drop slight.

Lastly, the tax rate expectation for the year?

The tax rate expectation is 31.5 to 32.5.

It was 32.5 in the first quarter.

And we expect it will be in that range, 31.5 to 32.5.

Ben Maitland, WestLB.

Good morning.

This is Ben Maitland from WestLB in London.

I have another question on Western Europe, if that's okay.

You mentioned that volumes fell around 4 to 5% in Western Europe overall.

Can you say roughly how much volumes fell in the most difficult trading countries, i.e. Germany, France and Italy?

How did your market shares change in these countries?

And roughly how negative is the pricing environment in these countries?

Sure.

Hang on one second.

In Europe the positive countries were UK, Switzerland, Ireland, Spain, Greece, etc.

The less good countries were, as you point out, Germany, which was the worst.

It was in the teens in terms of volume drop.

France was about half that at under -- it was down, but under 10% down.

And Italy was down half of that again.

So if you took a number it would be 5, 8, 16 or 17 for Italy, France, and Germany.

Thank you.

And (multiple speakers)

And on the other hand obviously Russia and all that getting larger entities in Eastern Europe were up.

You want dollars as well?

Well, just really the pricing environment, how bad is it in Germany, France and Italy?

In Germany, it was negative about 5 points, France was negative about 2 points, and Italy was negative between 4 and 5 as well.

Linda Bolton Weiser, Oppenheimer.

Thanks.

My questions have been answered.

Alaina Mills (ph), Atlantic Equities (ph).

Just a question -- sorry to come back to the European issue, but it does seem to be of quite interest.

If we were to exclude GABA from your analysis, can you talk a bit about whether your operating and gross margins in oral care were up or down in Europe?

Our operating margin in oral care in Europe was up excluding GABA.

It was up -- I can dig up -- I don't have it right hand.

I'll have to calculate it, but I can -- unequivocably it was up. (multiple speakers) as I recall the operating margin for the total division was up.

And obviously the volume slippage was in homecare and any remaining detergents, so that oral care was definitely up.

We had a market share growth in both toothpaste and we had the cost savings, and it is not oil related.

I will get back to you and let you know what that is.

Thank you, Reuben.

Just a question on Hill's.

We've now seen several quarters where Hill's has had some very healthy volume trends and the sales have been trending at a very healthy pace, but where profit has really failed to keep pace with that top line.

I was just wondering if you could give us a bit more color on the thinking behind your commercial investment in that business.

Because I think historically it's been a business where your marketing approach has been very different from some of your consumer product categories.

And talk a little bit about how you expect that to evolve going forward for the rest of the year.

In terms of volume on Hill's looking forward -- I'll get the volume, and then I will get the profit -- we expect at least that first-quarter volume is probably more than that as we move through the year with new products program, some good overseas shares, and then some good takeaway from the big box stores here.

There is a goodly amount of spending at the same time.

As you know, they did raise prices last year, and that has not yet completely translated down so that while operating profit in the first quarter was up about 3% -- I don't know what number you gave, but operating profit in the first quarter was up 3%.

It should be up for the year at least in the mid to high single digits, which means that it will be accelerating through the course of this year.

And as you say -- Javier is responsible for that business and it is a healthy business, as you say.

I guess I'm trying to understand what is the thinking behind the spending, because it isn't really the same type of spending that you have employed behind some of your consumer (technical difficulty)

One of the essence -- as you know, Hill's continues to be sold through vets and pet stores, and an essential part of that business is the veterinarian recommendation in which we enjoy a major advantage over the competition and always have.

In that sense the oral care business and the Hill's business is similar in that you have to spend an increasing amount of money against the veterinarian, and we are doing that.

Also, there are a number of new product launches that have taken place in the last 18 months which are proportionately quite successful.

And there's not that much difference in spending.

Fortunately the difference -- one of the differences is there's not as gross to net, so the gross margins are substantially higher, and therefore the net margins are higher as well.

Does that answer it Alaina?

Hello?

Hello.

Just one final question please, if I may, on your guidance for the full year.

You seem to have changed your wording with respect your expectation for earnings growth.

Whereas you had been previously guiding the something in the order of 6 to 10 % EPS growth, you're now looking for high single digit growth.

I'm just really looking for clarification of what high single digits really means, because the consensus forecast is now roughly at 9% for the full year.

Let me be clear.

We had said that 6 to 10%, and we still think 6 to 10%.

As you say, 8. -- I think the actual consensus is 8.7 or as you say 9%.

We are comfortable with that.

We are comfortable with the range.

And we're comfortable -- I think the new element committing a little more forcefully to the return to double-digit next year.

So there was no word smithing -- there's a lot of word smithing, but there was no implication in that to try to decrease it or change it in any way.

Great.

Thank you very much Reuben.

That is extremely helpful.

Lauren Lieberman, CF First Boston.

I'll make it quick.

I just got booted out of the queue about eight times.

Just quick question first on price increases for heavy-duty detergents.

Lauren, does that affect your self-esteem at all?

It does.

I'm feeling a little bit sad.

Okay, such is life.

Okay, we'll move on.

Price increase outlook for heavy-duty detergents in the US.

We know your competitors have done 7 or 8% price increases in their mid-tier business this year.

Any outlook for you to do the same?

I'm not aware.

I guess maybe I may have missed it, but I'm not aware that the heavy-duty detergents (technical difficulty)

Yes, in January your major competitor announced a 7 to 8% price increase in laundry detergents, which I would think would give you a little bit of room to do the same.

We're missing somewhere, because the people who should know -- and I guess I'm one of them -- are looking blankly at each other.

But of course as you know we have about a 2% share of the US -- a 2.5% share of the US detergent market, and we are basically in the value brand segment.

So whatever happens in the premium segment, i.e. Tide and so on, isn't necessarily totally relevant.

But nonetheless, obviously if we have not examined that we certainly will.

It's worth taking a look because it helped markets (ph).

The other thing would just be (multiple speakers)

(multiple speakers) trying to keep Joe happy we wouldn't have that business very long.

Okay.

But it's probably more compelling to a buyer if it's got higher prices.

Absolutely.

Gross margins in other divisions, specifically pet and personal care.

If you can just give us directionally were gross margins up or down in those two businesses.

In which?

In personal care and pet.

For Hill's, sorry.

Bina is shaking her head no.

Why?

(inaudible)

The reason we don't give them out by category, but I had said that -- I had already given homecare and the detergent.

Personal care was (multiple speakers)

I don't need the number, just up or down.

It's slightly down in personal care and essentially slightly down in the pet care.

But I think you'll see pet care at the very least, because that is not oil-based, that's commodity based, as the higher priced commodity from last year are working their way through, and I think you'll see the Hill's gross profit go up quite nicely later in the year because those prices are way below on a match basis where they were year.

Okay.

And just the last thing was going back to the earlier question about the gross margin forecast now for the year being a bit different than it was back a couple of months ago.

I just want to make sure I understood, that you expect that to be offset with lower overhead expenses and higher volume, but no change in the outlook for marketing spending increases; that will continue as planned.

Yes.

That's it.

Thank you.

Why don't we take one more question, if we could?

Chris Ferrara, Merrill Lynch.

I was wondering if you could just -- I hate to go back to Europe again, but I just want to understand sequentially why the drop in organic volume was so significant relative to 9% growth in Q4 and down 1.5 in Q1.

I understand your environment is bad, but what got so much worse in that three-month period?

I think you may be comparing the apples and oranges, but last year the full year in Western Europe was up 4.4%.

And this year the expectation is that it will be up more or less 1%.

So there is a drop, but it is not precipitous.

Pardon me?

Let me -- I'm just getting some other numbers.

The 9% was -- included GABA in the fourth quarter.

And the numbers I'm giving you are ex-GABA.

So if you --

No, but I think the 9 excludes GABA and also excludes the 5% from divestitures on volume.

That's right.

So it's essentially organic right?

And the down 1.5 also excludes the gain from GABA.

To be sure, but let me give you Europe ex-GABA, which is Eastern and Western Europe.

The analogy to the 9.2 is 2.1 in the first quarter and between 5 and 6 for the year so that basically if you look at the full year ex-GABA last year, it was a little over 80, and the analogous -- the identical number should be between 5 and 6 this year.

So it is less because of the Western Europe economic situation.

You may have read in the paper this morning that Germany appears to be on the verge of a real recession.

But it's not really precipitous.

We had a very good year last year; a lot of new products.

And this year is going to be less good in Western Europe.

Fortunately it's offset in Eastern Europe, by GABA and by very strong volume elsewhere.

But this will be -- at least as far as we can see now, the first quarter will be the worst quarter for European volume.

I just also wanted ask about the fabric softener business in Mexico.

I know you guys have made some progress coming back from the sort of competitive assault you guys were enduring last year.

But what's the progress there in the short-term?

And what are you doing to get share back?

For what is worth, the last -- you're talking about -- there was a high of 58% in 2003 of the market, and then a new product was launched against us by our major competition.

That got down to under 50 -- 48 or 49.

And then the last three periods have been 49.7, 51.2, and 52.2.

The volume was up 13% this year.

They are being held to -- anybody know?

My sense is it's under 5%, 6%.

I don't know.

I'll get back in that.

But basically we are on the way back up.

Our share is well over 50% now.

And I believe they've been held to a very modest somewhere between 5 and 10% share mark.

But I will check that and get back to you.

Just one other that I don't know if you'll answer or not.

Are you seeing a lot of new hires coming into the oral care business, say, North America or Mexico, for any number of reasons?

I'm not sure I would see it, but that's possible.

Certainly one of our tactical moves when we read whatever announcements you're referring to was that in addition to other possibilities over the next couple of years, that was certainly one.

And certainly we will (indiscernible).

Many thanks.

We appreciate it.

Thank you everybody.

We look forward to a really good year and thanks for all your cooperation.

Thank you for your participation on today's conference call.

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