高露潔 (CL) 2005 Q3 法說會逐字稿

Welcome to today's Colgate-Palmolive Company third-quarter 2005 earnings conference call.

Today's conference is being recorded and is being simulcast live at www.Colgate.com. [OPERATOR INSTRUCTIONS] At this time, for opening remarks I'd like to turn the conference over to the Vice President of Investors relations, Bina Thompson.

Ms. Thompson, please go ahead.

Thank you, and good morning, everybody.

Welcome to our third quarter earnings conference call.

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

Ian Cook, President and COO;

Steve Patrick, CFO;

Dennis Hickey, Corporate Controller;

Ed Filusch, Treasurer; and Javier Teruel, Vice Chairman.

Our remarks this morning on the third quarter will refer to our results excluding the following items.

Our 60.6 million after-tax profit on the sale of our US detergent business.

A 29.9 million charge for restructuring.

A 36.5 million one-time tax charge related to the American Jobs Creation Act, and a $16.7 million charge for a one-time pension remeasurement as required by FASB.

Each of these items was included in the as reported numbers contained in this morning's press release and accompanying financial statements.

The reported GAAP results with reconciliation to the results excluding these items are included in 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 these items as you may wish.

So we're delighted to report what we think is an excellent quarter with record sales, record profits, and unusual momentum.

The business building plans we've put in place and have described to you in previous quarters are clearly producing results.

Our top line continues to increase through internal growth with every division delivering strong volume growth and increased operating profit.

The combination of our restructuring program and our vigorous worldwide ongoing savings projects are generating increased funds to strongly support the business.

And you will see that our P&L reflects our ongoing financial strategy of methodically increasing our gross margin while we continuously reduce our overhead.

And this, in turn, allows us to increase advertising at the same time as we grow the bottom line.

New product activity is very robust around the world, and our core business market shares are growing virtually everywhere as a result.

As you would expect, we are growing fastest in our higher margin businesses, particularly oral care.

This and our savings and pricing programs have helped us to increase our gross margin this quarter even in the face of a very difficult raw material price environment.

Our restructuring program remains essentially on plan.

As you know, we recently announced several additional plant closures along with the sale of our North American detergent business.

All these activities will allow us to further focus on our core businesses and continue to deliver solid results.

So let's look at the P&L in a little more detail.

Worldwide sales increased 8% to a record 2.9 billion.

Unit volume excluding divestitures increased 5.5%, and that was on top of an 8.5% increase in the year ago quarter, pricing was positive 1%.

As Reuben said in the press release, this is the first time pricing was positive in two years, and it continues an improving trend that has gone on for the last several quarters.

As you may remember, we've recently begun a coordinated global initiative to increase the effectiveness of trade spending.

So this quarter's results are the first indication that we are moving in the right direction.

Foreign exchange added 2% to the top line.

And we're very pleased that gross profit margin increased 30 basis points to 55.1%.

Offsetting significant increases in raw and packing material prices, we had savings coming on stream from our restructuring program and excellent results from our ongoing savings initiatives.

In addition the positive pricing I just mentioned helped us achieve the gross margin gain.

And this is the first time this year that we've been able to increase our gross margin, and we believe this positive trend will continue in the fourth quarter and next year.

Overhead expenses decreased as a percent of sales for our financial strategy.

As we continue to streamline our operations around the world.

Advertising increased 15% to a record 330 million, and was up in every division.

Operating profit increased 7% to 19.8% of sales.

Our slightly higher interest expense was the result of increased interest rates on a lower level of debt.

Our tax rate was 31.4% for the quarter excluding the one-time tax charge associated with the repatriation of overseas funds in conjunction with the Jobs Creation Act.

This brings our year-to-date rate to 32%.

And we expect the fourth quarter and 2006 rate at between 31 and 32%.

Net income increased 12% to 370 million, and our profitability increased from 12% of sales to 13% of sales.

EPS on a slightly lower share count went up 15% to $0.67.

Our balance sheet was strong, as well.

Net cash provided by operations on a year-to-date basis increased to 1305.4 million, up 6% versus the year-ago period.

Working capital improved to 2.6% of sales, as compared with 3.4% a year ago.

And additionally the receivable days outstanding and inventory days coverage improved from both the year-ago period and previous quarters.

Turning to the operating divisions.

Starting with North America, volume in North America excluding divestitures increased 6%.

This is on top of a 6.5% increase in the third quarter of last year.

Pricing added a 0.5% and currency 1% resulting in a sales increase excluding divestitures of 7.5%.

Advertising spending increased and operating profit increased 2%.

We're pleased with the trend in pricing in North America where we have seen sequential improvement for four quarters in a row.

And as we've told you before, this is an area of focus for us on a worldwide basis.

Here in the US, we've implemented several new pilot programs to move pricing in a positive direction by becoming more efficient in our promotional spending.

These are beginning to bear fruit and should be increasingly effective as we move into 2006.

New products play an important role in North America, and it's contributed strongly to the good volume growth.

We told you last quarter about our new toothpaste, Luminous, that began shipping at the end of August.

And shipments exceeded our expectations for the quarter.

This quarter we will begin consumer and trade activity in support of the new launch.

Our national Nielsen all outlet share is at 35.5% on a year-to-date basis, up almost a full market share point from the same period last year.

The manual toothbrush category continues to perform extremely well.

With our US market share up over a 1.5 points versus year ago to a new quarterly record.

In the quarter, our market leading Softsoap liquid hand soap gained further market share climbing to 43.8% of the liquid soap market, further consolidating its strong position.

Some of the new products we launched earlier in the year such as Softsoap Sensorials and with Shea butter have contributed to this good performance.

Our newer launches, Kitchen Fresh Hands and Advanced Protection are still gaining distribution and should help drive business in this quarter.

Further the anticipation of a difficult winter cold and flu season encourages more frequent handwashing.

In bar soap, our Irish Spring brand achieved a record high share in the quarter, almost 12%, and is now the absolute market leader in the deodorant bar soap category.

Our fabric conditioner brand, Suavitel, has done well in both the Hispanic and the general markets.

In the Hispanic market, we increased our share 1.3 points quarter over quarter, and in the general market, we are now the number-two brand overall.

So all in all we're delighted with the ongoing momentum in the North American business, and we expect this to continue for the balance of the year and beyond.

Specifically looking ahead, expectations for the fourth quarter in North America are from mid to high single-digit volume growth accompanied by double-digit operating profit growth.

Turning then to Europe.

Volume in Europe increased 4.5% with both western and eastern Europe showing growth.

And this growth is particularly pleasing when compared to a 16% growth in the third quarter of last year.

Pricing declined 2% resulting in a sales growth for the region of 2.5%.

Advertising was up strongly, up absolutely and as a percent to sales.

Even with a healthy advertising increase, operating profit increased both absolutely and as a percent of sales.

Up 4%.

Volume in western Europe increased low single digits.

Actually very encouraging given the continued sluggish economies across the region coupled with very low consumer confidence and declining categories.

Our core structure continues to improve, aided by some of the recent restructuring activities we've told you about, and that has provided the funds to support both our base business and new products.

As a result, our market shares are up in the high margin categories on which we put particular focus, toothpaste, toothbrushes, liquid soap, and deodorants.

In toothpaste, Colgate's share is up to 33.5 from 32.8 in the year-ago period.

Both Colgate and the GABA brand have gained share.

Colgate Sensitive Plus Whitening has been a very successful new product and has gained incremental share in all of the countries where it's been launched.

The UK, Spain, Greece, Portugal, and Scandinavia.

We expect to launch it in the remaining western European countries early next year.

In fact in the UK our share continues to climb to record levels with our latest reading almost 48% of the market.

Our Pan regional western European toothbrush share is up, as well, 1.7 points, with both our 360-degree toothbrush as well as Microsonic toothbrush contributing to share gains.

In Italy we've reached another record-high share with every other brand losing share.

And in France, our share is up three full points on a year-to-date basis to 16.3% of the market.

And the most recent period posted an 18.6% share.

We're also very excited about a new product just rolling out in the home care category.

Ajax Professional.

Advertising support is beginning in the fourth quarter.

Ajax Professional provides the extra efficacy synonymous with professional products.

It is an all-purpose spray cleaner that removes lime scale, soap scum, and rust, as well as grease on countertops.

Its superior performance allows us to price it at a premium to the baseline of cleaners.

In eastern Europe and Russia, volume was up strong double digit with virtually every country contributing to this strong performance.

Russia alone delivered even stronger volume growth in the region as a whole.

Across the region, market share increased in 7 of 10 categories.

Our toothpaste market share is up over 3 points on a year-to-date basis with the most recent share reading 1.5 points higher.

Establishing market leadership on both the year-to-date basis and in the most recent period.

In toothbrushes we reached another all-time high in the quarter with our year-to-date share up over two points.

Our Russian business continues to be very solid, having doubled in three years.

Our toothpaste share has increased every reading over the last 16 months.

The growth in toothpaste is due to better consumer offtake driven by advertising as well as increased professional endorsement.

Our distribution across this expansive geography continues to grow in all categories.

And new product launches have been even more successful as our packaging is now fully labeled in [INAUDIBLE] which obviously allows us to better communicate product benefits to the consumer.

As you may remember, much of our success in the toothpaste category in Russia stems from our launch of Colgate with Propolis, a natural ingredient generated in the bee-hive which has a long folk-loric tradition as a healer in Russia and other countries.

This was an excellent example of understanding local consumer habits and preferences and developing a product that addressed them.

So we've just launched another such product in Turkey.

Colgate with Misvak.

Misvak is a natural ingredient found in the Misvak bush known to have oral care benefits.

It's been part of the Turkish heritage for over 7,000 years.

This new product combines Colgate's expert science with a natural ingredient popular in Turkey.

Two months after launch it's already gained over 4 share points, mostly incremental, bringing Turkey's overall toothpaste share to a new record.

We're very pleased with our overall European results.

Looking ahead to the fourth quarter, volume's expected to increase roughly at third-quarter levels, and operating profit should be flat or slightly down versus a very strong quarter last year when operating profit increased over 20%.

Latin America.

Latin American volume increased 5.5%, continuing the good momentum of the first half and against a very strong year-ago increase of 9%.

Pricing added 5%, foreign exchange added another 7.5% resulting in a sales gain of 18% to the highest level ever for that division.

Advertising was up strongly, absolutely, and as a percent to sales, and operating profit increased 13%.

Volume was strong across the division with almost every country showing growth.

As in other divisions, new products and healthy levels of advertising led to good market share growth, particularly in our high margin categories of oral and personal care.

Our extremely powerful regional toothpaste share further increased by almost a full point on a year-to-date basis and is even higher in the most recent period.

Venezuela, Central America, and Ecuador all achieved record shares, and all well over 80% of their respective markets.

The regional launch of Max Fresh, the relaunch of Colgate Sensitive, and the support of Total toothpaste was high, in fact testimonial ads have all contributed to this good performance.

In toothbrushes, our market share is up almost a full point on a year-to-date basis, and we are gaining fast on our closest competitor.

Our new products had exceptional performance.

Colgate Microsonic, Colgate Whitening, and others.

Well-executed marketing plans behind these and other key variants have helped countries across the region move toward, achieve, and maintain leadership even in tough competitive environments.

Regional market shares are also up in soaps and deodorants.

Fabric conditioners are doing well.

As you know, Suavitel fabric softener is our brand in Latin America and is the leading brand wherever it is sold.

In countries such as Colombia and Peru where the share is 80% or higher, we've been investing in consumption-building programs to grow the category.

In Colombia, we've increased household penetration from 51% to 63% in less than two years, and in Peru we've increased usage five-fold over the last three years.

In Mexico, our business continues to perform well.

The currencies remain strong and the economy in general appears to be in good shape.

Our launch of Max Fresh has helped increase toothpaste shares in each of the last three bi-monthly meetings despite continued heightened competitive activity.

In toothbrushes we're up 40 basis points on a year-to-date basis, and the most recent period show a leading position of 34.1%.

In personal care, the launch of Palmolive Nutrimilk has been very successful.

This product addresses a moisturizing segment new for Palmolive and has achieved 1.5 share points in only four months.

Palmolive Nutrimilk is also now being introduced across the rest of the region.

In Brazil our strong business momentum continues.

Fortunately the macro economic situation continues to improve.

The combination of a growth economy, GDP for the year is estimated at 3% with a rising trade surplus and falling inflation, points will continue to a positive economy.

And that bodes well for our business.

Volume growth in the quarter was good, and market shares were up in toothpaste, toothbrushes, mouthwash, toilet soaps, shower gels, and conditioners, and stable in shampoo and liquid cleaners.

In toothpaste, both Colgate Triple Action and Colgate Total have helped increase the Colgate equity share to an all-time high, while Sorriso Triple Freshness continues to build share for the Sorriso equity.

Overall our toothpaste share in Brazil is up 2 full points on a year-to-date basis, and our most recent toothbrush share is at an all-time high as well at almost 25% of the market.

We expect the good momentum in Latin America to continue into the fourth quarter with volume increases at or better than third-quarter levels.

Operating profits should be up, though, double digits.

Asia/Africa.

Volume in Asia/Africa increased 7%, pricing was even with last year and exchange added 2.5% resulting in a sales gain of 9.5%.

Advertising was up strongly both absolutely and as a percent of sales, and operating profit increased 7%.

Volume was strong in essentially every country in the region with double-digit growth in China.

Expensive new product activity supported by the healthy advertising spending referenced above contributed to the excellent growth.

Our regional toothpaste share is up 50 basis points on a year-to-date basis, driven by share gains in China, India, Australia, and the Philippines among others.

We've had share gains, as well, in toothbrushes in the latest period, and shampoos and dish liquid are doing well.

In China, we launched Colgate Max Fresh in the third quarter which helped strengthen our leadership position of over 30%.

As you know, Max Fresh, which has been very successful here in the US, is positioned as a toothpaste with breath strips.

Breath strips are not prevalent in China, however.

So applying this local consumer knowledge we launched Max Fresh as a gel toothpaste with cooling crystals and it has been very successful in this market, as well.

This product is priced at a premium, parity to Colgate Total.

Just last month we launched Vitamin C Fresh, another gel offering, in the low-priced segment.

Gel toothpastes are very popular in China.

Now we have an entry at each price point.

Max Fresh in the premium, Vitamin C in the low price, and Colgate Propolis in the mid tier segment.

In India we continued to strengthen our leadership position in toothpaste and our share is up almost a full point year to date.

Overall the business is very strong.

We created a new innovation center this past July, and that has yielded two new products already.

Colgate Advance Whitening, and Colgate Active Salt which have both been adapted to meet local market preferences.

Our performance in the rural markets has been particularly strong due to some new initiatives to increase our already-deep distribution.

As an example, in one state alone we increased our reach of trade outlets by 117% in just 12 weeks.

And the opening of a new state-of-the-art factory in Bahdi concurrent with the shutting down of our Nepal factory has resulted in improved gross margins and reduced overhead expense which has allowed us to increase advertising spending considerably to support our strong brands.

In Australia, the business is also doing very well.

Our toothpaste share is at 65%, up almost a full point.

Total toothpaste by itself now has a 22.3% share of the market, one of the highest in the Colgate world.

And now the number-one toothpaste subbrand in the market.

Toothbrushes also continued to reach record share levels over 40%, due to the launches of Colgate 360 and Colgate Microsonic.

In the personal care category, we've just launched a repositioned Palmolive natural shampoo and conditioner, a bundle which was first launched in the Philippines resulting in their highest share reading in 10 years.

Volume growth in Asia/Africa is expected to continue at current levels for the fourth quarter.

And operating profit is expected to increase more or less in line with sales.

Hill's.

Hill's volume increased 4%.

Positive pricing of 1.5% coupled with positive currency of 1.5% resulted in a sales gain of 7%.

Advertising was up absolutely and as a percent to sales, and operating profit increased 14%, up absolutely and as a percent to sales.

Volume grew both domestically and overseas.

In the US, it's interesting to note that our business in the large format retailers was quite robust.

Despite some concerns raised during the quarter about this particular retail channel.

Our consumption in the LFRs is above last years and ahead of the overall retailer growth.

Our good performance in the LFR channel is due to a number of initiatives.

In the third quarter, we had two new product launches, Science Diet Indoor Cat, and Science Diet lamb and rice line extensions.

Both are resulting in consumption lift and are performing above expectation.

We've also been focusing on varied promotional execution which has resulted in more off shelf displays in the store lobbies and better-end cap positions.

In our international business, volume was strong across geographies and of particular note is the momentum in some of our higher growth markets which collectively increased volume more than 20%.

In Australia we achieved for the first time a ranking of number one as pet foods that veterinarians feed their own pets, accompanied by a record share of almost 38% of the specialty channel.

Looking forward to the fourth quarter, we expect volume at Hill's to accelerate somewhat from the third quarter.

Operating profits should be up in the low to mid single digits.

So in summary, we're very pleased that the momentum in our business continues worldwide.

We're putting healthy support behind our market-leading brands, resulting in solid market share increases in every region.

We're particularly gratified that our focussed approach to increasing gross margin and reducing our fixed expenses along with our restructuring and business-building program have yet again provided ample funds to build the business.

Our unit volume is excellent, and the investments we've been making behind our brands bode very well for further volume and profit growth for the fourth quarter and into 2006.

So that's the end of my prepared remarks and we would like to now open it up to questions.

Very good. [OPERATOR INSTRUCTIONS] Our first question will come from Wendy Nicholson with Citigroup.

Hi.

My first question has to do with Mexico.

Did you talk about the oral care market in Mexico?

Procter mentioned that they were gaining some share there.

I'm wondering whether it's new products or pricing that's helping them.

Yes, Wendy, Reuben.

Mexico is doing quite well.

Mexico on a year to date basis is up in sales, I have three numbers.

First reported about 8.5% to 9%.

Our share in toothpaste is almost precisely 80.

And where it's been for a number of years, it got as low as 78.5, I think, and then got back to 81.

You will have to get the share information from Procter.

But our Mexican toothpaste business is extremely healthy.

And there's nothing new -- we don't have to -- we're not looking at a new Calcident-type phenomenon or anything specific like that going on in the market?

Not that I'm aware of.

You have to, again, find out what Calcident shares are.

We mounted a very significant defense, and our share is essentially right back where it had been.

Slightly north of 80%.

Okay.

Then my second question has to do with sort of just a longer term outlook for your SG&A spending.

Obviously the terrific reinvestment is fueling fabulous market shares and that's wonderful.

But I'm kind of wondering, when do we start to see more cost savings from the restructuring program come in so that you can reinvest in the business, but still show more improvement in your actual operating margin?

When do you think we start to see that?

Well, our SG&A as you know, I'm sure, from being in this conversation, Wendy, the overhead portion of that is down as a percentage to sales as you would want it to be.

And the advertising portion is up faster than sales.

Advertising, I believe, Bina quoted was up 15%.

That allowed us together with the good pricing trend to increase gross profit so that in effect our net -- our net was up 12%.

The divisional net was up about the same.

I can simply reiterate that our expectations are that all of that combination -- we're obviously thrilled by the momentum and the volume of the business and we're thrilled at the fact that gross margin is growing back up again.

Also that's a company, as you know, by the strongest sales growth we've had in a number of years.

So that combination, we think, will certainly give us the high single-digit this year.

I think the estimates externally are between eight and nine.

And return to double digit next year.

But your overall operating expenses at about 35% of sales, are a couple hundred basis points higher now than they were a few years ago.

I'm just trying to get a sense for if we should think out over the next few years whether the business has just structurally changed so that that level of reinvestment despite some savings on your overhead line is going to remain at that level, or can we think about it coming back down to the 32, 33%?

If anything, I would think -- I would look at that -- I don't think it's quite that much.

But I would think that that's a very healthy structural change, Wendy, because we've basically taken overhead costs and converted them into business-building costs while allowing the bottom line profitability to go up.

To -- to, elaborate a bit on that, both the overhead and the promotional -- noneffective promotional spending or less effective promotional spending are going down, which allows media spending and sampling and the various professional programs you have to go up.

So that from a brand health point of view I think we're in a very considerably better position now than we have been.

Fair enough.

But now my very last question -- I'm sorry -- is the gross-to-net thing that you've talked about historically, obviously there's a huge opportunity there to improve your gross margin as you eliminate some of that.

Are you going to give us some sort of metric quarter to quarter about how much of that opportunity you're realizing our how much you've eliminated or -- or cut back that wriggle room, if you will, on your P&L?

Well, I don't know what you mean by wriggle room--?

Well, just because it's a great opportunity to generate some savings.

I'm wondering how we can monitor quarter to quarter how much you're accessing that?

Well, let me give you an idea.

In our worldwide pricing increase of 1%, about 0.6 came from reductions in gross to net worldwide and about 0.4 came from actual price increases.

So that might give you an indication.

And overall, this is a -- an opportunity that's every bit as equal to a restructuring opportunity in terms of total money available for both profit and increasing business.

Perfect.

That's exactly what I was looking for.

Thanks, Reuben.

Thank you, Wendy.

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

First question is just a little bit of a follow-up.

You alluded to, when you were talking about the U.S. a reduction in gross to net, Bina.

And you talked about some specific programs that you had put in place to get that reduction.

Can one of you just elaborate on what some of those programs are.

Okay.

There's a -- number one, there is obviously a general push and awareness in all the 200-plus countries that we operate in of the importance of becoming more efficient.

Then there are several programs, one of which has been developed in the United States, one of which is a companion program with SAP that actually boils down each element of promotional spending into merchant into an ROE and determines what has happened to the volume, did the consumer come back and so on.

So it's a linkage of consumer research with financial research.

And both of those are being essentially piloted.

So what I think is extremely exciting is that the gains we've gotten so far are really before that has any kind of either regional or international expansion which gives us some great -- great expectations that our historic margin increase will indeed continue.

So in the US how much was your gross to net down?

I have that actually, if you give me a second.

Well, let me do it a different way.

Let me give you a worldwide price increase.

In North America, gross to net was down 2.3%, okay.

And the gross to net -- I'm not going to give you the absolute numbers -- but it was down 2.3%, and it was down on a -- if I give you the reciprocal of that that's easy to figure out.

But anyway, it was down substantially in the United States.

An interesting thing, Amy, to look at is average selling price per ton on a worldwide basis.

Which is how we track our basic businesses.

And the objective obviously is to get the average selling price per ton up.

And that -- let me read you -- let me read you that for -- on a worldwide basis.

Back a few years.

And this is for toothpaste, a basic core business.

And we have really not raised prices on toothpaste.

So most of this has come from or virtually all of it has come from reduction in promotional spending over the years or mix changes.

So that in 2003 we got $5,160.

It was, as you know, an increase in promotion in 2004 that stayed at $5,160.

In the nine months of this year it's gone up to $5,440, and in the third quarter it went to $5,590.

So I -- that's a very encouraging aspect.

And the same numbers reflect basically what happened in the US.

Last year it was $8.05.

Now it's $8.26, or 27.

So overall, I think, Amy, you will -- sorry for the soliloquy.

You do know that when we set our minds to things on a worldwide basis since we are so focused and are in such limited numbers of businesses that we are able to really methodically make progress, and that is starting to happen.

It's just the initial glimmerings, I'm very excited about the prospects over the next couple of years.

That's great.

Then just on list pricing because it looks like you got 40 basis points from list price increases.

Where were most of those, and do you -- I've asked you on the last couple of calls about the pricing environment and the potential to announce some price increases.

And you've been somewhat guarded in wanting to suggest that you could with the exception of a couple of announcements that you did make.

Are -- have your views changed?

I mean, do you think the pricing environment is a little bit easier than it had been given the commodity costs?

Well, we were naturally pleased to see how the pricing came out worldwide.

And naturally pleased with the gross profit.

The biggest actual price increases were in Latin America.

And there were some in the United States which I think you're already aware of, which are primarily in the liquid detergent business late in the year.

And Hill's, of course, has taken several price increases they've just actually announced.

They took one last year, one earlier this year, and they took another one just recently.

Effective mid November.

So I would have to conclude overall that it is looking better for worldwide pricing, and that's a generalization, than it has been, and you can see that trend if you read price increases, if you put all the ones we've had in the last, say, six quarters, down on a piece of paper.

It definitely does show an upward bias, and that's encouraging.

Great, thank you.

Next question is from Bill Chappell with SunTrust Robinson Humphrey.

Just a couple of specific questions, first on Hill's, with the margin improvement, how much of that came from just lower commodities, soy bean meal type costs and would you expect that to continue going forward?

Well, it came from two areas, Bill.

Their costs were down because as you know there was an enormous spike last year on commodity costs so costs were down between 2 and 3%, but it's also helped by these two price increases, number one.

Number two, a mix change.

Again, each new product they launch is a higher margin.

And they also reduced promotion.

I think I can give you -- I'm not sure I have that.

Do I have that?

If you just hang on a second, I can give you -- yes.

Actually, they were the -- Hill's was good in the sense that I have a charge here which shows actual selling price increases and reduction in gross to net.

They did both.

They have a positive selling price increase of, as you see, 0.6, and a positive gross to net reduction of a full percent.

With the lower costs, you're not seeing the retailers push for price reduction, are you?

I have not heard of that.

I mean, there's -- there's the perennial quest for promotional allowances, but it has not come to my attention.

That doesn't mean it hasn't happened.

That either any of the big accounts are pushing for price increases.

Okay.

Then just second on--.

My sense is that their margins are not -- anyway.

Gosh.

On foreign exchange looking forward, any idea kind of what you see next few quarters, how that will affect top line?

I think Procter had said something like negative two for sales.

But I know you have a different kind of geographic mix.

What did they say, negative what?

Negative 2%, I believe.

Well, for what it's worth is this year's average will be down coincidentally 1.7% we think, and next year -- I'm sorry, up 1.7.

My apologies for that.

Next year it's -- we're budgeting or expecting to budget down on a worldwide basis about 1.7, as well.

Great, thank you.

Next question is from Bill Pecoriello with Morgan Stanley.

Good morning, Reuben.

First question on the structuring programs.

What are the savings year to date and any change to the full year '05 expectation of 35 million to 50 million.

And on the charges you took about 100 million after tax, year to date do you still expect 200 million on the full year?

The -- essentially everything is on track.

We've been able to do some of the things a little less expensively than we had anticipated so the charge will probably not be -- will be more like 150 million rather than 200 million.

Nonetheless the savings will be 30 plus this year.

Next year, we expect the charges to be about what we had originally said.

We had originally said about 200, as I recall.

It should be there.

We've had an opportunity to find a couple more programs, and the savings will be next year between $0.10 and $0.12 a share.

And then on the gross margin outlook in the fourth quarter, are you still expecting an improvement of close to 150 basis points?

Any change in that outlook given commodities and the incremental pricing and the savings programs?

I'm not sure where you got the 150 basis points, but we are not expecting 150 basis points, Bill, in the fourth quarter.

We are expecting a positive second quarter, a positive gross profit.

But if there's any indication -- I don't think most of the models have that.

That may be a residue from before oil prices in the 60's and Katrina and so on and so forth.

But we do expect that our operating profit will be up nicely.

Our net will be up nicely.

And the year will turn out to be a -- in the range expected externally.

And just the last question.

In the US if you can help us what the gross margin did.

Because with the profit up, too, to get a feel for how much was the increase in the SG&A, the advertising spending versus the -- any gross margin contraction there.

Gross margin was down.

I guess we don't give that out by division.

But it was down, somewhere -- it was down meaningfully.

That's going to be -- operating profit was -- volume as you know was good.

Sales dollars were good.

Gross profit is expected next year in the US to be up modestly.

As the year progresses.

And volume next year we are expecting another -- in its early days, budgets haven't been finalized, another good top line growth next year and a good growth in EBIT, as well.

Great.

Thank you.

Next question is from Bill Schmitz with Deutsche Bank.

Good morning.

Can you do the gross margin walk that you usually do on the call.

And in that bridge that you do can you tell us what the impact was of the detergent divestiture on the quarter?

Okay.

What -- Bill, actually what's wonderful is the last three questioners have been named Bill, which makes it -- which makes it great.

By design.

Yes, it was a collusive activity.

The -- tracking back from last year, which was 54.8, pricing -- this is gross profit by quarter.

Restructuring gave 0.4.

Funding the growth programs, which are our normal savings programs, were up 1.1.

Material prize were down 1.7.

And all other changes including pricing were up 0.5.

How much of that was the detergent not being in the quarter?

Hang on.

I can give you that.

It was on a worldwide basis a few basis points because it was only, I believe one or two weeks -- one month in the US.

But it was somewhere between 15 and 20 basis points.

Obviously that's going to be as part of our plans, a divestment of our lower margin business as part of our mechanism to get margin up.

That will help us next quarter and next year.

And that's part of our process, as you know, that's been going on, Bill, for a number of years.

We still have, my recollection is, about 1/3 of a billion dollars worth of sales in detergents worldwide which obviously, at the appropriate time, most probably we will divest.

Great.

Thanks very much.

Can you comment just on all this Tricolosan noise out there?

And I think it is just noise but it's starting to resurface again.

So if you guys have an official position on that, that would be very helpful.

Well, our official position is that there is a concern that Tricolosan, when used in hand soaps and other products are -- develops an immunity or a partial immunity to -- a resistance to any antibacterial agents.

The industry is looking at that.

And they have come with a very firm conclusion that the industry as a whole doesn't think that happens.

That carries over into primarily Scandinavia where there is that concern about toothpaste.

Our position very firmly is that this is a proven clinical product that has been approved by the FDA, and we are very strong in all of the data that we have in toothpaste -- antibacterial soaps is a different subject that's being handled separately.

But we have a very strong feeling about this.

My sense is that -- well, I won't give you my sense.

But our official position is very, very strong.

If there was an off chance some kind of liability associated with that, would Ciba-Geigy be responsible or would you?

Well, why would I speculate on that?

We feel very strong -- I don't understand what liability there could be anyway.

I agree with you, I was just curious--. [MULTIPLE SPEAKERS]

Developing an immunity is not something that is -- I mean, that's not a good concept perhaps if it indeed would be true of any substance at all.

But it's tough to see how that would generate a liability.

Hundreds and hundreds and hundreds of millions of people have used these products for 30 or 40 years.

And I'm -- and my understanding is there's been no damage to anyone during that period.

So I mean, it's a bit crazy for me to speculate.

Yes, and probably a silly question also.

So we can move onto the next caller.

Good.

I appreciate that.

Thanks.

Fair enough.

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

Thanks.

Good morning.

First question regarding Bina's remarks on Western Europe, you mentioned defining categories, what would they be specifically?

What would they be specifically?

Home care categories.

Home care categories.

Liquid cleaners, cleansers, liquid detergents for dishes.

Okay.

Then secondly, in terms of the $0.10 to $0.12 net impact of restructuring next year, is that net of reinvestment or is that a gross number?

In other words, is that all going to hit the bottom line?

The savings, I'm not sure that we -- $0.10 to $0.12 -- what you're referring to, Joe, is the $0.10 to $0.12 of savings coming out of the restructuring in the year 2006.

Exactly.

We have not said specifically what's going to happen to that.

We have said quite specifically that we expect a double-digit increase in earnings per share next year that obviously will be a factor in generating that total.

That together with margin improvement, reduction in -- in gross to net, good volume trends will -- all that will -- will end up in a substantial increase.

Okay.

That answered my question.

Thanks a lot.

For what it's worth, the -- if you track back the last 20 years at Colgate, we have -- during that period of time, there have been 18 up years in profit and two flat to down years.

The -- including all the 20 years, including the 18 up and two down, we've averaged -- had a cumulative average growth in EPS of 12.9%, and if you just -- if you eliminate the two years, obviously entire it's just under 15%.

I can tell you for what it's worth that the fundamentals of the business, that is to say trends in volume, trends in market share, ability to generate margin to spend on advertising business-building projects, clarity of strategy, et cetera., et cetera., et cetera, my sense very strongly is that we are as good or better now than we have ever been in that 20 years.

That was totally gratuitous, but I wanted to say that.

Thanks.

We'll next go to John Faucher with JP Morgan.

Good morning.

As you look at your marketing spend, your advertising spend sort of normalizing this year, can you prioritize your markets, your regions in terms of where you still see a potential need for incremental investment as we head into 2006?

Are there any regions where you say this is a good first step in terms of normalizing the spending levels, but we need another tick up looking out one more year?

Do not see that at all.

I mean, I think that in the latter part of 2003 and 2004, we ticked up our advertising, as you know, John.

And that had a very salutory effect in that our market share trends virtually worldwide and our volume trends have been very good.

This year, we found ways through promotional efficiency and others to ease back a bit on that.

And my sense is that you'll see that happening.

There is no area of the world where we see that we have to make a major change in our levels of spending.

Okay.

Well, shifting the perspective then, if you said, okay, if incremental dollars flow through, where do you see the biggest opportunity then in terms of maybe where you would increase it more going forward?

Well, we've had eight increases in advertising in Asia specifically in China.

And that -- and our spending levels very consciously are high there.

Our market shares are up.

Similarly in Eastern Europe, we have -- we are running those markets quite purposely at a lower operating profit level.

Russia, for example, has an -- the huge increase in operating profit, but it's still at a relatively low percentage.

And our volume is now a couple hundred -- close to a couple hundred million dollar business, and it's going very well.

So that markets like that, i.e. the developing parts of the world, where it's -- it's more of a free-for-all than it is in areas where we're truly, pardon the expression to the Disclosure Committee and the lawyers who are listening to this, where we're truly dominant -- because there's still a battle going on.

We are highly gratified, for example, that earlier this year in Russia we passed our largest competitors to become number one.

We are highly gratified that in a worldwide basis in a toothbrush market we passed our largest competitor, also to become number one.

I guess they're not any more an independent company.

And so I'm trying to think of, John, what the original question was because -- okay.

Obviously it will go behind the areas of greatest opportunity.

We are spending on a healthy basis in the United States but still seeing profitability go up.

And I think we'll continue to see that.

Thanks, Reuben.

Next question is from Alec Patterson with RCM.

To clarify the detergent sale in the US will have a greater negative impact in the fourth quarter because it's a full quarter?

On sales?

Yes, but that wasn't what I was saying, Alec.

I was saying that it will have a more positive gross profit impact because it has -- that business has a gross profit in the 40's versus the oral care business in the 60's, for example.

So -- but the answer is, yes, it will have a greater negative effect on the US, but nonetheless our North American volume for the quarter upcoming is expected to be quite healthy despite that.

I'm sorry, I didn't mean to imply it was negative.

Just clarifying that it's a full-quarter effect.

Yes, it is a full quarter -- it will be a quarter effect..

So it's around 5, 5.5% negative impact to North American sales?

Yes, hang on one sec.

Let me -- somebody will be digging that out.

But we are expecting North America in term of sales -- hang on one second.

In the fourth quarter to be up meaningfully, at least mid single digits in the quarter.

That's after, how much is it?

It's 3% negative to North America.

The reason probably the difference between your 5% and our 3%, Alec, is that North America includes Canada, Puerto Rico, and our professional business.

So that's probably the difference.

Okay.

So I guess I'm just trying to tie a few dots together here.

You suggested that the fourth quarter North America would see mid to high single-digit volumes.

I presume that's before divestments, correct?

That's right.

Yes, of course, yes.

And double-digit EBIT growth on a decline in gross margins?

Well, let me -- let's talk about that.

Volume is expected to be up, yes, healthily.

Operating profit expects to be up healthily, double digit, as we said.

And that's an increase in profitability from both last year and -- rather than this year.

And gross profit is not expected to be down.

It's expected to be up considerably in the fourth quarter.

I'm sorry I misunderstood--.

If for no other reason there's more in there because there's a lot of promotional savings.

But if for no other reason that we will have an absence of a full quarter of detergents and therefore the higher margin products will on a mixed basis weigh that up.

Okay.

And just lastly, the EBIT margin in Latin America down again.

I just -- I sort of go with your notion that it makes sense to invest to drive top line and margins create a buffer over time if they don't rise too quickly.

Is there an element here of Latin America getting to a margin structure over time that you're going to feel is representative of the strength in Latin America, sort of a corrective phase we're going through?

Or is there some other driver that's taking the margins down, as I see it kind of consistently year-over-year?

Even on strong pricing?

Well, okay.

I think that -- as I mentioned, gross profit, and if you talk -- gross margin is up in Latin America.

And is expected to be up in the fourth quarter and for next year, as well.

Profitability in terms of described as operating profit as a percent to sales is down, yes, you're right, it may be 100 basis points versus history.

But it is higher by 4 or 5 points than the total company.

So I think you could look at it, Alec, as given the high potential there what we're deciding is since other areas of the world are doing well, we don't have to run it at that high an operating profit level, which is extraordinarily high by any standards, and we can spend 100 or 150 basis point more in accelerating the business growth even further.

So that's a strategy that you feel comfortable continuing to employ currently?

Yes.

I'm not criticizing it as a sign of weakness, it's a sign of strength the way you're describing it.

I just want to make sure it's clearly your proactivity in driving the margins in that direction as opposed to an underlying competitive issue or a cost of raw materials issue.

If you want me to, Alec, I can read you the market shares in -- throughout Latin America, and they are really terrific.

I mean, five -- the top five countries have gone well over 80% in our basic business.

And our toothbrush business has gone up very substantially.

As you can see from these very -- from these figures that volume was up 5.5 in Latin America versus 9% last year.

And sales were up whatever it was, 15, 16, 18%.

What we have done is we have determined that we want to increase our gross margins there that have more money to spend because all the lines are going in the right direction.

And that is indeed what has happened.

Okay.

So you will -- again, the objective is to move the business even faster than it's already moving, which is very substantial.

And allow more tonnage of profit to come out that even though on a percentage of sales basis it's 100 basis points less.

Very high number.

Okay.

Sorry for that somewhat pedantic description.

But it's -- one thing about a focused company is you can have those kind of thoughts and then implement them over time.

Great.

Thank you, Reuben.

Next we'll go to Justin Hott with Bear Stearns.

Hi, would it be fair to -- well, I guess we've touched on this a little bit on some of the other questions.

But can you sort of prioritize where the higher advertising expenses were on a regional level this quarter?

Okay.

What was above 15, what was below?

Okay.

Let me give you something along that line, whether I can be very specific I don't know.

Advertising -- as Bina said, advertising was up in every division, and it was up -- below 10% in North America.

And above 10% everywhere else.

How's that?

Okay.

Well,--.

Although on a full-year basis, North America is very strong.

Certainly, certainly does help.

And just one more question, I guess.

If -- can you give us just a little bit of your outlook on the -- your cost outlook for '06?

Sure.

Maybe some assumptions, as well.

Sure.

We -- a little bit of history, Justin. 2004 versus 2003, our weighted of all the businesses were up 3.7%.

We had budgeted 3.0.

And now we're expecting 3.7.

So it's obviously -- coincidentally it's about the same as it was last year, higher than we expected as I'm sure everyone -- because nobody budgeted $60 plus oil.

Our budget for next year, is in the mid 2s, 2.5% extra cost increase.

Which it goes -- let me back up one step.

Our total Colgate portion of the business was up 4.8.

But as somebody noted earlier in the conversation, the Hill's costs were down several percentage points.

So that nets out the 3.7.

Next year, there's a rebound up slightly in Hill's, and the increase is somewhat less obviously in the rest of the business than this year.

So net-net that's 2.5% expected for next year, although we haven't finalized our budgets.

And that's based on a average $60-a-barrel oil during the year.

You may recall, Justin, that we've said to you before that every $2 in the price of oil costs us $0.01 a share.

We have basically usually found ways to offset that.

Now I have a similar analysis for all of our raw and packing materials, but that's a pretty good synopsis.

And just to follow-up on Alec's question on Latin America.

I guess I'm phrasing it a little differently.

If you're getting 5% pricing in Latin America and you're having a little bit of margin compression, when could we expect this margin to stabilize?

I would assume that 5% pricing wouldn't be something we'd--.

It depends what you mean by margin.

We haven't had margin oppression.

What we view as margin is gross margin which has gone up by 110 basis points this particular quarter and gone up for the year.

Since we run, we have historically run Latin America at a highly profitable rate in the basically mid to high 20's and the whole company is about 22, we are electing, since the US is doing very well and Asia's doing well and so on, since the possibility to increase per capita consumption of our products in Latin America is extraordinary, we're going to run it, take some of that extra gross margin money as per our financial strategy, and invest it in incremental advertising to drive our business faster.

So it's fair to say that with 5% pricing there is some operating leverage in Latin America?

There is a considerable amount of operating leverage in Latin America.

Thanks very much, Reuben.

Next go to Linda Bolton with Oppenheimer.

Thanks.

Actually, can you just talk about if you're doing any work on measuring the effectiveness of your advertising now that you're spending so much more in that area?

Well, Linda, I'm sure that you're aware that there's a lot of quite sophisticated testing that's done on determining what copy is effective and what's not.

And we do that, of course, around the world.

I can tell you that in our primary categories, I don't know whether you've seen advertising that's been run on Colgate toothpaste, Colgate Total for the last, I would guess, year, year to 18 months or so which is testimonial advertising that's truly human and truly extraordinary.

That tests extremely well.

It's now basically gone close to around the world.

And the market share results that Bina mentioned are due to very effective advertising, we think, combined with extra spending.

And the beauty of that is that the savings and the gross margin and the cutting of overhead allow us to spend that extra money without sacrificing bottom line profitability.

Okay, thanks a lot, Reuben.

Thanks.

Our next question will then come from Connie Maneaty with Prudential.

Good morning.

Two real quick questions and then a slightly longer one.

How big was the Hill's price increase?

Pardon me?

How big was the Hill's price increase?

I'll tell you.

Hang on one sec.

Pardon me -- 5%.

Looking for a piece of paper.

But everybody's holding up five fingers.

So I don't need to look for the piece of paper.

And when is that effective?

November 14 is my recollection.

November.

Okay.

And just a point of clarification on your currency assumptions.

Did you say you thought currency would be up 170 basis points in '05, and down that much in '06?

No, no.

Let me rephrase it.

We got a benefit of currency of 1.7 this year, and we will have a negative next year.

Which I guess is what you said.

Right.

By the same amount, right, 1.7?

Yes.

Okay.

Can we go back a second to the trade promotion efficiency.

Doesn't it also translate into stronger units, and what's the split?

How do you -- how do you assign the benefit either to units or to pricing?

Well, it doesn't really affect the units per se.

It just really affects the revenue per unit.

And so the revenue per unit goes up.

The number of cases sold, all other things being equal, stays the same.

It's just that your revenue and your margin and everything down the P&L improves for each case.

Hopefully the concept is you can take that money and spend it more efficiently and get more volume.

But that doesn't happen automatically.

And is the US a pilot for this?

Well, the US is -- the US is the pilot, and there are some overseas pilots, as well, with alternative programs.

Or additive programs.

So I suppose it's possible then that if this opportunity is as big as you said some restructuring, is it possible in a couple of years that pricing is positive 2 to 3%?

If you got 50 basis points in the very beginning now?

It's tough to speculate.

Our pricing historically has only been about 150 basis points without this very conservative worldwide effort.

It's conceivable, but one would not want to project that, Connie.

I think that's -- but who knows?

Okay.

Thank you.

I mean it's to a certain extent, as you know, it's the biggest item on the P&L.

And sort of it's uncharted territory.

And that's why we're very excited and enthusiastic that it seems to be working right out of the box.

So tracking the progress in the US is going to be a good barometer because there's -- it's probably the cleanest market.

There are less other inputs?

I would agree.

Okay, thanks.

Next question is from Alice Longley with Fulcrum.

Good morning.

Two things.

The advertising ration, will that go up again next year?

Again, we're in very early stages of our budgeting.

But let me show you what we have.

It's -- very much easier, Alice, to budget advertising than spend it, historically.

So I would guess until I get to the page, it will show that, yes, as a percent to sales, it is up meaningfully this year, and it is -- our preliminary budget is to be up again next year.

Okay, great.

Then the other questions are about market shares.

You and Procter are both saying your shares in the US are up.

Of course, you use Nielson and they do all retailers in.

Is it your sense that if you were to include all the retailers that your share would also be up year-over-year?

Actually my sense doesn't mean much.

They--.

Or your knowledge, or whatever?

They have their figures, we have our figures.

I can tell you that if you look at the top 10 accounts which include a number of Nielson aspects but the obviously -- Wal-Mart which is not in Nielson, Target, Sam's, Family Dollar, our volume is up double digit in those accounts.

And so that my sense is, and that's better than the rest -- than the measured markets.

So I would be very surprised.

And since our inventory hasn't built, my -- I would be very surprised if the market share was not up.

Would it be your guess that maybe both of you are gaining share and it's others are losing it?

That's possible, because that's also revealed by Nielson.

Our share is between 35 and 36.

Procter's is whatever it is -- whatever they've told you.

By on our measurement it's between 31 and 32, I believe.

And both we're up year versus year.

Okay, and could you give us an update on what the shares--?

That is not true on a worldwide basis.

That is not true.

We are up, and other people are down.

Could you give us a share in a couple of the other markets, a sense of the shares -- is it maybe the top three players, you, PG, and whether it's Unilever or anybody else in Russia and China?

Okay.

Well, maybe I can -- let me give you market share in Latin America.

Hang on one sec.

These are all in unit or value terms?

These are value shares.

In all of Latin America, and this is 16 countries, we had a 72% share in 2004.

Year to date, we have a 72.7% share.

And latest period we have a 73.1 share.

And so there's not much else there, but it does show almost by definition the other competitors' have lost.

I don't know -- you'll have to ask Procter -- we don't how many countries they're in in Latin America.

They've tried in many.

But anyways, in Asia, let me give you the market shares in Asia.

Hang on a sec.

In China -- total China, I don't have them.

As you know we have two brands in China, we have--.

Right.

I know.

Colgate -- I don't happen to have the share.

Our share is 30, about 33.

And I believe our major competition is about 25.

I don't have the precise numbers, because my chart doesn't show that.

In Russia we now have about a 26 share, and our major competition has a 22 or 3 share.

One of our major competitors came after us in Israel.

They are now down to a two, and we are up to a 56.

Anybody know the number?

Low 50s.

Okay.

So we can -- I can go on.

We've hit some -- as Bina said we've hit some interesting records.

Venezuela was up to the 83 or 84 level.

With our -- our major competitor down in the single digits.

And so on.

I have to tell you that our trend in market share in toothpaste and toothbrushes is truly excellent.

We have researched it and we were able to say that our market share is up in more than 150 countries this year.

And are those shares all -- the Asia and Russia ones and China ones year to date?

The Russia shares were -- it's been moving up the last -- I think it's written in -- in that writeup.

The last eight bi-monthly periods, which is 16 months I would guess, is -- it's been up in Russia.

And the last share was -- the last few shares were above the competition who had previously been leading.

Okay, good.

Thank you very much.

Next question is from Neal Goldner with State Street Global Advisors.

After this if we could, Neal, perhaps we'll have two more questions after this if we could.

Fair enough.

Great.

Appreciate it.

Just on commodities, if you don't mind, going forward, I know you don't do a lot of hedging, if any.

But are there any hedging -- hedging that you've got in '05 that potentially are rolling over or rolling off for '06?

This is actually impacted for other companies that have -- that I've covered, it's been a little surprising.

You're not talking now about currencies, you're talking about raw and packing materials.

Yes, exactly.

Well, a lot of our historic saving has come not from hedging per se but from long-term arrangements with suppliers and partnerships with people around the world.

And so the answer is, yes.

One of the reasons we're able to offset these big spikes is we have long-term partnerships that don't expose us to these -- these spikes as much as perhaps other people do.

Also, generally speaking, our raw materials are not oil based.

The -- for example in oral care, it's much less oil based than in the home care area of the business.

So yes, I read earlier when, Neal, when someone asked about these savings that there was 110 basis points for our savings programs, a lot of that is from these arrangements with the suppliers and various -- and e-auctions and so on and so forth that we use continuously.

All right.

Great.

And somebody asked this morning on the Procter call, I'll ask you the same question if you don't mind.

Have you seen in the US specifically, but you could talk worldwide if you want, have you seen any trading down at all?

I mean, gas prices for consumers are up everywhere generally speaking.

Have you seen any consumers trading down even as simple as toothpaste?

No.

And -- we have not.

And we obviously have looked at that fairly carefully.

But -- Neal, without -- without being trite, I would say that one of the things that we've accomplished, we think we've accomplished by keeping the prices relatively low even for the totals of the world is that when you get that loyalty and it's a relatively low-priced product to start with, and it's only once every two or three-month purchase, there is not a tendency to even in difficult times to cut down on consumption or switch brands.

That is why the private label presence in every -- everywhere but in the hard discounters in Europe and even there it's very small.

The private label presence in these categories is very minute.

Great.

And just real quick question.

And you may not know this.

This is kind of granule.

But the Ajax Professional product that's being launched in Europe, is that targeting -- there's another product out there called [INAUDIBLE] Bam.

I think it it's Record Bank Heaters, it's done very well from a share perspective.

Is that the market that we're targeting?

Everybody around the room is nodding yes.

So I would say yes.

Great.

Great.

Thank you very much.

I'll next then go to Chris Ferrara with Merrill Lynch.

Hi, I just want to talk about gross margins.

In the quarter they were pretty good compared to what I had been forecasting.

And relative to when you had last spoken about it, fuel costs were higher, oil was higher, obviously.

Did you get better acceleration than you had hoped in pricing or in gross to net?

I guess where is that upside coming from, or was there upside relative to your own expectations?

We were quite pleased, as I mentioned earlier, we were quite pleased with the worldwide pricing and the initial work on the gross to net.

So those did compensate.

And also the actual savings program, the 110 basis points that I mentioned were historically on the really good side.

Got it.

And then finally, in North America -- I think I have this right, but if you -- I thought you said gross profit would be up modestly in '06 in North America.

And if that's right, I guess, why is that just modest considering the divestiture of laundry and the amount of spending you guys have had going on this year?

It's expected for the year to be up 50 basis points.

Bina's looking at me.

But 50 basis points or so.

My sense is that that might be at this stage a bit of a sandbag.

But I -- we'll have to -- we haven't had a budget in review yet.

We'll take a look.

I mean, obviously we're going to be pressing everyone for gross margin.

And the sandbagging is not -- it's permitted in early November.

By December it's going to eliminate.

Fair enough.

Thanks.

Thanks, Chris.

One, this is the last one then if we could.

Our final question then is a follow-up by Alec Patterson, RCM.

Real quick.

Actually starting, Steve, this may be for you.

In getting a sense at how raw materials increases are flowing through the P&L, is it appropriate to look at the fact that -- with the days of inventory you're carrying on hand, that most of the spike in oil, et cetera, we're seeing is going to impact us in the fourth quarter and a little bit in the first?

The inventories as you see are down.

And since the dollar content is up, that would mean that the physical quantities are down even more than those numbers would indicate.

I don't know if we have a projection -- I'm looking for--.

Let me turn it a different way, Reuben.

The 170 basis points of raw material impact in Q3 given the environment we're in, the lag effect on inventory cost accounting, should we expect 170 to step up to around 200 basis points of impact in the fourth quarter?

It could be.

But there's an awful lot of factors involved in it, Alec.

We -- the goal for the full year on days coverage is about the same on full raw and packing materials is about the same as it was last year.

At the end of this year.

Up -- slightly below where it was in the third quarter.

I'm sorry, Reuben.

I misled you on the question.

I wasn't trying to get days inventory on hand type stuff.

I was trying to get a sense of impact on raw material basis points to gross margin in the fourth quarter.

I would expect it to pick up in fourth quarter.

It probably will pick up slightly, and it will be offset elsewhere.

Right.

Understood.

I just wanted to be clear on that.

Lastly, strategically, you guys are taking pricing in Hill's.

Last year, you guys tried to take some pricing, it was a bit competitive.

Some of it didn't go through and was pulled back.

Could you just give a comment about how the competitive environment is evolving especially since raw materials seem to be down.

Have you seen a major competitor change gears on their pricing policy here?

We have not seen that yet.

My understanding that our price increase earlier this year was in effect matched by competition or they made a move subsequently.

And we've just recently announced this one, and there's been nothing heard so far from competition.

Okay.

But you're right.

Again, our products at least are -- since they are really specialty products are not quite as subject to price influence as some of the grocery, the mass brands.

But nonetheless it's a concern.

The prices you're taking is US pricing, it will flow through the large format retailers et cetera?

Yes, yes.

Okay.

All right.

Great, thank you.

Thank you, Alec, and thank you everyone.

We appreciate your attention, and we'll continue to work our best for you.

Thank you so much.

Bye-bye.