高露潔 (CL) 2006 Q4 法說會逐字稿

Good day and welcome to today's Colgate-Palmolive Company fourth quarter and year-end 2006 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, before the question and answer session begins due to the web simulcast.

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

Please go ahead, ma'am.

Thanks, Millicent.

Good morning, everybody.

Welcome to our fourth quarter and year-end earnings release conference call.

With me this morning are Reuben Mark, Chairman and CEO, Ian Cook, President and COO, Steve Patrick, CFO, and Dennis Hickey, Corporate Controller.

First we will discuss our results for the fourth quarter and full year this morning excluding after-tax charges related to the 2004 Restructuring Program and incremental stock compensation charges due to the adoption of FASB 123R, as well as a gain in the fourth quarter on the previously announced sale of our household bleach business in Canada, which was entirely offset by restructuring charges.

These items were included in the reported numbers contained in this morning's press release and accompanying financial statements.

The reported GAAP results with reconciliations 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.

Comments about expectations will also exclude comparable charges.

And during the Q&A, we will answer any questions, including or excluding these items, as you may wish.

Well, we're certainly delighted with our above expectation fouth quarter results.

Great finish to a strong year.

And as we cover the numbers in considerable detail in the press release, I won't spend much time on the overall corporate results, particularly as we have an ever increasing number of participants who want to have the opportunity to ask a question.

So I simply say that we're pleased that our P&L and balance sheet are strong, and that the restructuring and business building program are proceeding as planned or better than planned.

Our ability to generate savings from all areas of the business, facilitated by our ongoing funding the growth programs, the restructuring and now more recently, our global implementation of Colgate Business Planning is allowing us to continue to appropriately build our business with increased advertising, and this, of course, generates the good market share gains and volume increases that we're seeing around the world.

So let me turn to the divisions for just a moment starting with North America.

We're quite pleased that our competitive plans and activities in the U.S. continue the success we saw in the third quarter.

As referenced in the press release, our all-outlet toothpaste market share as measured by Nielsen increased both for the full year and for the fourth quarter.

Advertising support behind all our toothpaste business, but particularly behind Total, has been key to this good performance.

Market shares increased quarter over quarter in the key categories of toothpaste, manual toothbrushes, dishwashing liquid and bar soap.

Overall consumption trends for our products in the quarter were strong across all trade channels despite weakness in overall retail sales reported by some accounts at the end of the year.

Inventories in the trade remain at a little over 9 weeks, down slightly from the year-ago period.

New products shipping in the first quarter combined with good going-out market share should continue the positive momentum.

One of the new products is Total Advanced Clean.

This new product, priced in the superpremium segment, combines a high performance cleaning silica with our patented therapeutic formula to help maintain the dentist clean feeling.

In consumer testing, the purchase intent was the highest we've seen against all previous Colgate Total variance in market and initial trade reaction has been very positive.

So we'll start shipping at the end of February and we'll support this new segment, as you can imagine, with strong advertising.

Another new product is Colgate Max Fresh BURST.

This toothpaste is infused with 50% more flavor for an invigorating feel of icy refreshment.

This will be targeted at 18 to 34-year-olds and will add to our already highly successful existing Max Fresh equity and this also ships at the end of February.

Another new product is Palmolive Scrub Buster.

This product is truly differentiated with a new, break-through bottle and graphics and an eye-catching microbead formula.

Its distinctive shape will stand out on shelves and will work to interrupt shoppers' grab- and-go routine.

Volume growth in the first quarter in North America should be strong, roughly at fourth quarter levels.

Volume for the full year is expected to be up at least mid-single digits, and operating profit is expected to be up nicely for the first quarter and full year.

Europe.

Our business in Europe/South Pacific remains quite robust, despite the mature and somewhat stagnant economies in certain countries.

The expectation is that there will be modest growth across the region in 2007 with some revival in consumer confidence in the larger markets of France, Germany and Italy, and we also expect the euro and pound to remain fairly stable in value throughout 2007.

As you know, our strategy, particularly in western Europe and Australia, has been to drive margins up by launching value-added premium price products.

One of our new offerings in the toothbrush category is our Colgate Max Fresh toothbrush, aligned with our highly successful Max Fresh toothpaste, and this is priced in the superpremium price segment and is targeted to consumers age 18 to 24, communicating a new dimension of freshness.

In the power brush category, which is a strong business for us across this region, we'll be shipping 360-degree microsonic in this quarter.

This premium price brush will build on the 360-degree Anchor brand, which has driven market shares in virtually every country where it's been launched and leads innovation in the hybrid category.

In the home care category, building on the success of Ajax Professional spray, we're just about to launch Ajax Professional bucket dilutable cleaner.

This is priced at a premium for the base business consistent with the other offerings in the Ajax Professional line and addresses the bucket dilutable cleaner segment that represents about 50% of all surface cleaners across Europe.

Our strong new product pipeline, the expectation in stable economies and stable currencies give us confidence that 2007 should be another good year for Europe.

Volume growth for the first quarter and full year is expected to be at fourth quarter 2006 levels.

Operating profits should be up strongly, up both absolutely and as a percent of sales for the first quarter and the full year as well.

Turning then to Latin America.

We're very pleased with the continued strong performance in Latin America.

Our focus on premium price, higher margin products, particularly in oral care, has led to the good share performance referenced in the press release.

A complete relaunch of Colgate Total toothpaste across the region, supported by increased advertising, resulted in a record share of over almost 11% in the most recent period led by gains in all the major subsidiaries, Brazil, Mexico, Venezuela and Colombia.

In the personal care category, premium price soap such as Palmolive Nutri-Milk, Protex Oats and Protex Propolis have allowed us to achieve market leadership in Venezuela and Peru and an overall regional share gain of one full point year-over-year.

Our Mexican business continues to do very well, with strong volume and market share gains in toothpaste, toothbrushes, toilet soaps and dishwashing liquids.

The currency has remained fairly stable and is expected to remain so through 2007 with only a modest evaluation forecast by year-end.

The economy is strong.

The country appears poised for further growth with the uncertainty of the presidential election now behind us.

Our second largest Latin American business, Brazil, had a very good quarter and year with record sales levels for both.

For 2007, the main economic indicators and outlook continue to be favorable.

Inflation is under control at 3% and interest rates continue gradually to decline, which should have a positive impact going forward.

So despite the inherently volatile nature of this part of the world, we're encouraged with the prospects going forward.

Volume growth is expected to be at least in the mid to high single digits for the first quarter and full year.

Operating profit is expected to grow double digit for the first quarter and full year as well.

Greater Asia Africa.

Volume growth across this division was strong and market share trends by country continue to be very healthy.

In particular, India, Philippines, Thailand and Russia showed share gains across almost all categories.

In greater China, our business appears to be gaining some momentum.

The relaunch of our lower priced anti-cavity toothpaste, as well as the launch of a Max Fresh toothpaste line extension in the premium segment, has resulted in our leading market share maintaining itself at over 30% in the most recent period.

We strengthened our sales force to allow even better penetration into the smaller cities across this vast country, as well as to improve our visibility and support for the indirect modern trade.

As you may know, Thailand was one of our pilot subsidiaries for Colgate Business Planning, the global program to increase promotion efficiency, which has now been fully implemented there.

Our learnings here have certainly contributed to what was a banner year for the subsidiary.

Sales increased double digit, our commercial spending was reduced, our SKU discount was reduced, our profit increased strongly, and market shares reached records in toothpaste, toothbrushes and soaps, all of this encouraging as we continue to roll out CBP around the Colgate world.

Looking forward to 2007, we expect another good year in greater Asia/Africa.

Volume for the first quarter and full year should increase in the high single digit range.

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

And finally, Hill's.

Hill's finished 2006 with excellent momentum in the business, which we expect to see continuing into 2007.

Business is strong both domestically and internationally fueled by our steady pipeline of new products across both the Science Diet and Prescription Diet line.

Consumption in the specialty channel remains strong, particularly in large format retailers here in the U.S.

For 2007, we expect Hill's volume in the first quarter to be at fourth quarter levels with solid mid-single digit volume growth expected for the full year as well.

Operating profit should increase double digit for the first quarter and full year as well.

So in summary, we're very pleased with both our fourth quarter and full-year results for 2006 and are encouraged with the strong momentum in our business everywhere.

Although it's still early days, 2007 has started out very well and we expect to deliver good top line growth, excellent growth margin increases and double digit earnings per share growth both in the first quarter and for the full year 2007.

So now let me turn the call over to both Reuben and Ian to respond to your questions.

Millicent, can we go ahead with the questions?

Thank you, the question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] Our first question will come from Bill Chappell, Suntrust Robinson Humphrey.

Good morning.

Just first on kind of the trade promotion and ad spend in North America in this past quarter.

How do you expect that to play out over the next two, three quarters as you defend your turf in the market share?

Should it go up?

Should it go down?

Are we looking pretty much similar levels over the next couple of quarters?

Bill, Reuben.

The spending was high during the year and noteworthy during the fourth quarter.

Our expectations, our budget and our current estimate is that the gross to net levels, that is to say basically the price promotional aspects, will be declining.

It will be lower in the first quarter and throughout the the year than they were leaving this year, leaving 2006.

As you know, this anti-competitive program that we've been on has been quite effective, and I'm looking at some of the latest market shares of Total between 15 and 16, which is essentially the highest it's ever been.

And when I look at the accelerated SG&A or trade spending, has it all been in the oral care category or has it been spread out on some other categories to gain share there as well?

It's oral and personal as well but primarily oral.

Okay, thanks.

We'll go next to Bill Schmitz, Deutsche Bank.

Hi, good morning.

Hi, Bill.

How you doing?

Fine, how are you?

Good.

Good.

Just to follow up on sort of the gross margin.

Actually, very good.

Oh, great.

That makes me happy.

Gross margin in the quarter.

How much of that was, can you just go through that bridge again how gross margin impacts from cost and the rest of those factors?

Sure.

You mean the breakdown of gross profit, where it came from?

Exactly.

Okay.

Again, on a global basis, pricing contributed, we're starting with the base last year, Bill, of 56%, which was the biggest jump in any quarter of last year went up 100 basis points, whereas the rest of the quarters went up somewhere, in some cases, 10 basis points, some cases 30, and so on.

So we got three-tenths from pricing.

Let me put it all in basis points. 30 basis points from pricing.

Restructuring, are we breaking down the restructuring specifically?

Yes.

40 basis points from restructuring. 1.8, 180 basis points, from funding the growth savings, which are a whole panoply of, as you know, programs that we have.

A negative 1.6 or 160 basis points from material prices, which leaves a total net savings of 60 basis points and there's all other changes, which is a whole, a whole bunch of stuff, of negative 0.3.

That gets you up to 56.6 and leads to the year of 110 basis points.

You remember, we had, Bill, we had raised our traditional 50 to 100 basis points target to 75 to 125 early last year.

And in fact, it was 110 and I think the press release says that we should, we fully expect and have budgeted to be up in the 110 or more.

Great.

Thanks.

You know what?

The new factories in oral care that are coming online, what's the timeframe for that and what does that mean for gross margin?

I imagine it's obviously accretive.

Well, the new factories that are being built, really construction is underway, but it will really be 2008 and 2009 before the Polish factory is up.

People are telling me third quarter.

I don't believe that, but -- the, we'd have to do it by factory.

The Tennessee factory, which is replacing Jeffersonville, is when?

That is at the end of this year.

The Palmolive liquid, this is the Polish factory, in the third quarter of this year.

What am I thinking of in 2008?

I don't know what I'm thinking about.

At any rate, but more importantly, I think in terms of where that takes us, it will, we expect the margin growth for several reasons to be up, I'm hesitant to say over 100 basis points, but the numbers say over 100 basis points in the first quarter.

Let me back up for a moment.

Well, we'll wait until the next question.

I assume somebody else will ask about margin because I have some interesting things, I think, to say about gross profit.

Okay.

Great.

Thanks so much.

Why did I screw that up?

Who knows?

Okay.

Anyway, sorry.

Go on.

No, thank you, that's great.

Okay.

Thanks, Bill.

Our next question comes from Amy Chasen with Goldman Sachs.

Well, I wasn't going to ask about gross margin but now I'm intrigued.

So I guess, Reuben, can you just tell us what you were talking about and then I'll ask my question?

Okay, great.

It's nice to intrigue you.

The first general comment and bear with me, Amy, a moment.

It's worth-- when you look at the P&L and balance sheet, the only thing one could even question a bit, I think in this quarter, which we view as a super duper quarter, is gross profit of 60 and I want to, I'd like to talk about that for a moment, quite obviously candidly.

First general comment is that I've watched the gross margin over the last couple decades go from 39% to 56-plus%.

And I can say, and obviously truthfully, and I might add there's a disclosure, internal disclosure committee that listens to every word of this and records it and makes sure that I, none of us say anything that's not accurate, but we are now in the best position that we have ever been in terms of stuff coming along to help our gross profit.

The restructuring is going well.

Next year, we'll get more savings than we got this year.

We are running, next year we'll be running somewhat ahead of what we had told the board externally.

And the total savings from restructuring will be at the top end, if not over the top end, of the original 2004 expectations.

We have, as you said, we're building several green field factories which are apparently going to be finished somewhat sooner than I expected.

We have our normal funding, that growth cost savings, which are going well.

We have a whole program of logistical centralization, which is fascinating and we haven't talked about much.

But means that our, we're sort of revolutionizing our logistically system.

We are mitigating the increase in the cost of oil and we have the Colgate Business Planning that I think Bina mentioned which essentially had no appreciable savings in 2006, and will start turning up meaningful moneys and showing up in volume in 2007 and 2008.

So, now, let me tell you specifically about the 60 basis points.

There's an official estimate that we go into, that we have going into each of these conference calls, as you can imagine, which is quite complex and has many pages in it.

And the actual official estimate for fourth quarter growth in gross profit, given the 100 basis points last year, was 60 basis points.

When I was editing the commentary last time, I said I don't think the U.S. is going to be spending all that money that they say they're going to spend and I think we'll do a little better so we ended up talking about doing a little better.

My fault.

I occasionally second guess the numbers and this time I didn't happen to be right.

But nonetheless, so, that's why very carefully in the press release the two words, "as planned," because this 60 and again, that has to be legally vetted and everything else.

That really was what we planned.

I guess what I'm saying, Amy, is that I don't see any ammunition in the trend in gross profit, and I will reiterate that I think it's better than I've seen it ever before.

Okay.

That's great.

Along those lines, on CBP, Bina mentioned a little bit about Thailand.

Can you just extrapolate a little bit more on what you've seen from the tests and maybe any early signs from the implementation?

And could you also give us some idea of the quantification of those savings in '07?

Okay.

Ian, I'll take the quantification.

You take the effect of the program.

Yes, Amy, this is Ian.

The -- obviously we have the two lead countries, Canada and Mexico.

We're now rolling it into a half a dozen more countries in 2007.

And on top of that, have put the process of Business Planning and a return on investment tool kit out to all of our subsidiaries so that they can focus on improving the return on their promotional spending.

The two biggest thing we have gotten from it in the lead markets and the other countries we are rolling out into, number one, the analysis of promotions that allows us to change our promotional programming to improve the return on investment, which essentially increases average selling price and gross profit and we have seen that consistently across markets that the analysis allows you to identify activity that is working well and activity that can be improved.

Secondly, it's improving our planning because it is putting a process across the entire commercial organization at the front end of an 18-month planning cycle, which is simply leading to better execution of those improved promotions, which also offers a return, which Reuben will now quantify.

And as Ian and other people have told you, this is an end-to-end process.

And I have still, I'm sure I will retire before I ever know what end-to-end means.

But it is a very interesting thing and the Company has embraced it.

The results will show up, Amy, in extra volume.

It will show up in lower gross to net.

So I'm, we have a great deal of difficulty pushing the financial people in and the Company and in this room to come up with a number, because it's the kind of thing that is very difficult to tease out.

Nonetheless, I got them to agree the other day that, that we would expect a minimum in 2007 of $50-plus million from this and that that should double in 2008.

And now you're going to ask me, is that gross to net?

And I'm going to respond -- I'm not going to respond to it.

But that doesn't include the volume impact, or it does?

Again, it's difficult to tease out and so I can't say how much of that would drop.

But the volume itself will in turn generate the gross profit on each incremental dollar of volume and so on.

While there wasn't a great contribution this year, or in the fourth quarter of this program, you can see that the things we are doing in terms of increasing advertising spending and increasing the efficiency, translates into darn good top line growth.

I mean, we don't use the term organic, but our organic growth was, I think, 11.5% on an apples-to-apples basis.

Sales growth?

9.

What's the 11.5?

That's the total.

Excluding foreign exchange.

Oh, yes.

Yes, that is the total.

It's our organic growth, including foreign exchange, but about 2.5 points of it is foreign exchange.

Great.

Thank you.

I'd like to think of it as 11.5.

Our next question comes from Linda Bolton-Weiser with Oppenheimer.

Thanks.

I was just curious if you could comment on, looked like the receivables in inventories were up double digit year-over-year, if you could comment on that.

And also if you would care to give some kind of a projection for operating cash flow in '07, do you think it will be in line with earnings growth?

And how does it fall out in terms of the cash charges related to the restructuring?

And also if you could comment on the use of cash in '07 and possible level of share repurchase?

Okay.

I think it's, when you talk about working capital, Linda, the working capital for fourth quarter '06 was 2.3% of sales.

I mean you would normally expect, with a 9, 10, 11% sales growth, what happens is your receivables go up.

But as a percent to sales, last year, we closed -- the fourth quarter was -- let me do the full year.

What's the full year?

Full year average was 2005, 2.6% and this year, 2.3%.

Also, the thing that did go up, as I think noted in the commentary, Linda, was our inventories in conjunction with shutting down the two biggest factories in the United States and a number overseas.

There was and is some build in inventory to protect the business.

And so I think if you look carefully at the overall working capital, I think you'll find that it's very appropriate for the business.

Hang on.

I'm receiving a note which says, so that many companies, not that this matters in the least, but it says receivables that all companies may show a slight increase in receivables over and above the growth of the business since the last two days of the year, the bank was closed.

That is, that to a certain extent is what we discourage our operating people from talking about when they say gee, business is slow because of the monsoon or because of Mardi Gras or Carnival or something, but be that as it may, on an overall year basis, our working capital as a percentage to sales is down somewhat, Linda.

Okay.

And then something about cash flow for '07?

Cash?

We expect operational cash flow next year to be up double digit.

And do you think you'll spend more or less on share repurchase in '07 versus '06?

The expectation, we will have available, perhaps just under $1 billion for share repurchase or any small odd acquisitions that we might make.

None are being planned, which indicates that we would probably buy back about the same in 2007 as we did in 2006.

I guess that's around 850 million?

Yes, about that.

Okay.

Okay, thanks.

Thanks, Linda.

[Lauren Lieberman] with Lehman Brothers.

Your line is open, please go ahead.

Great, thanks.

First I want to know if you could tell us what advertising spending was in the quarter?

What advertising spending was in the quarter.

You mean in comparison to last year?

Sure, or even just the dollar amount.

Either way.

Well, it was -- it increased, we said, give us a --, yes, 10%, Lauren.

Okay.

It increased 10% and a little more than that for the full year.

Okay.

Obviously depends on if it increased -- depending on division, differently.

But it did increase 11% and what else do you need?

Let me see.

This is what?

Yes.

This is average, the P&L item, and I guess we don't give out media, but that did increase in the quarter as well.

Okay, great.

And then, just more broadly, the -- I know Bina made some comments about, particularly about Brazil and Mexico, but there is a bit more political uncertainty throughout Latin America than there has been in a while and also in Thailand and so on.

So I just wanted to know how you and your people are thinking about the next year and the potential for some political unrest in some of these markets that have been very stable over the last couple of years.

Ian?

The -- our Latin American business has actually, as you know, performed very well in 2006, with certainly all of the major markets up strongly.

Market shares have been up, gross profit is up and EBIT is up.

And as we went through the planning process for 2007, we obviously reviewed in detail by each of the countries.

As I think Bina said in her remarks, we see good progress in Mexico in terms of our categories and Brazil had one of the best years it's ever had in 2006, and we expect the growth in Latin America to continue in 2007 at the high single digit rate.

Okay.

And --

At least.

I mean Venezuela, like there's, is it going to become the Venezuela national toothpaste company?

Well, obviously it's a whole different ball game if industry in general is nationalized in any of these countries.

You have to determine for yourself what the probability of that is.

Right now, what's happening in Venezuela is our business is good.

There's substantially more money in the hands of the people.

Obviously, the oil companies are not as happy as they could be.

But we are relatively low profile, number one.

And number two, the nationalization of non-government utilities, we consider to be quite a remote possibility.

It's always there.

It happened in Cuba, but we think it unlikely.

Also, I have here in folders the write-ups of, from each of the general managers of our Latin American companies and I was looking at them earlier and each one of them starts off that gee, inflation appears to be under control, the economy is doing well, things are relatively stable and so on and so forth.

We could separately take you through each of those.

But again, inevitably, something will happen in any developing country over the next decade or two that something will happen.

But we see very encouraging signs currently.

Okay, great.

And then just because you mentioned oil of Venezuela, what kind of level for oil prices are you using in your budgeting for '07?

Okay.

We, as we had told you, we budgeted oil at $65 a barrel.

Uh-huh.

And that, that led to an overall cost increase of 1.4% for the whole Company.

The -- the biggest negative was not oil, but Hill's commodity pricing because as you know, with ethanol and everything else, corn and other agricultural products are extremely high.

If oil, oil is now whatever is $54 and change.

If oil were $60 on average this year, and leaving Hill's for a moment unchanged, although their negative may be a bit higher, that would mean that we would be a 0.8% increase in weighted average of raw packing materials.

And if it was $55, it would be 0.4%.

Or looked at another way, is this Lauren still?

Yes, it is.

Thanks.

Lauren, that, that basically, if, if oil stayed where it was, where it is now, at $54, we would have a meaningful but not enormous savings versus the budget.

That is to say what we're projecting for the increase in the Hill's would be less than the benefit from oil.

And that would, of course, be folded into our savings program and increase gross margin and so on.

But I think the fact that we have built our budget and it's a pretty powerful budget on $65 oil is good.

I think, one never knows, but I doubt if it's going to average higher than $65 for the year.

Okay.

Thanks so much.

Reflects a somewhat conservative posture

Right.

Great.

Thanks, Lauren.

Our next question comes from Connie Maneaty with Prudential.

Good morning.

Hi, Connie.

I liked your comments about seeing the potential for the gross margin not as good as it's been.

It was very interesting.

And I'm wondering if you think --

Are you saying you like it when I [inaudible] the organization and I'm wrong?

I like it.

I guess I'm wondering, do you think you'll get to your 60% gross margin target for 2010 faster than you expect or do you think you'll probably be raising that gross margin target?

With no disrespect, it will not be my responsibility then.

So I'm willing to commit for Ian and the rest of the group in the room.

Definitely yes -- no, no, I'm joking.

But we are running a bit ahead.

Because we, don't forget we raised the target from 75, from 50 to 75, 50 to 100 to 75 to 125.

Last year, we were 110.

I think we'll be perhaps somewhat more than that this year as we said in the press release.

It will be at least that and that should take us out.

If we can continue that pace and don't forget we're not weighed down as much by low margin items like detergents although we still have a couple hundred million dollars worth of sales.

So I would say the probability is quite reasonable.

What percentage of the gross margin savings do you think you'll be reinvesting?

That's always tough to say.

Our historic rule of thumb has been half.

And although our advertising levels are now getting up very, to be very healthy in many, many countries, and so there may not be a need to accelerate it as much as it has been.

Okay and just one final question.

You said something that you're working on logistical savings to mitigate the cost of oil and that you really hadn't talked about that much in the past.

Well, could you flesh it out a little bit?

What does that mean?

We went in the last, actually in the last 8 months or 9 months, we went through an organizational change to alter our procurement and shipping so that it was far more globalized than it had been.

And that there are major savings target and they are being achieved and there's a whole new organization structure and it affects each subsidiary.

And I think that being in hope and could arrange for you or anybody who would want to, to sit down with our logistic people, and I had a breakfast, actually four breakfasts because there's a lot of people in the department, over the last few weeks, and fascinating, fascinating stuff.

Great, thank you.

I assume that many companies are doing similar things, but we are, again, we have the advantage of being linked up with essentially all, literally, virtually 100% of our business linked with SAP and therefore, and all the factories and everything else and that makes it very meaningfully easier.

Great.

Thank you.

Thanks, Connie.

And our next question comes from Bill Ticorella with Morgan Stanley.

Morning, everybody.

Reuben, question on the gross margin expansion for '07, the 110-plus BPs.

You gave us some of the pieces, the raw materials up 1.4%, and the CPV, 50 million.

Can you walk us through the components of the contribution raw materials, funding the growth, CBP in terms of the gross, in terms of the 110 BPs?

Bill, I really love to do that and I promise it will be done after each quarter comes in.

It's a little bit crystal balling, as a matter of fact, more than a little bit crystal balling, to put those out in advance or even to estimate them in advance.

It's all, it all comes together with a list of 10,000 materials and 20,000 prices and everything else.

And that it comes out with a formal estimate that has been historically proven to be pretty accurate except when I've second-guessed it.

And, and that the budget calls for a gross profit for the year north of 1% of 100 basis points and it lays it out by quarter and so on.

And we certainly, as always, will show you when it comes in, but it's very difficult to project.

Because there are times when you, when prices are raised and it has to be dealt back in country X or when there's a break on the price of oil or something else, so those kind of projections are kind of tough to do, Bill.

Okay, and then the timing, let's say, on the raw material component, this quarter negative 160 BPs, similar to last quarter, and we see this delay in the, some of the derivatives as oils come down.

So when do you expect to see that starting to flow through the P&L?

Well, Bill, let me give you a more general response is that we expect, I will say this again, but now the analysis supports what I'm saying.

We would be surprised if, if right in the first quarter, we didn't get more than the 60 basis points that we got this quarter.

Okay, great, and one other question.

On the Colgate Total Advance Clean that you announced, you talk about how you said superpremium price, how it's priced relative to both Crest Pro-Health, Colgate Total Advance Fresh, and significant push behind it.

So just give us more color on that new product?

Bill, this is Ian.

Let me take that.

It's priced at the same level as Pro-Health so it is at a premium to Colgate Total.

And the support we have behind it is, as you would expect, quite strong.

Not simply in terms of dollars invested, but also with the integrated marketing programs that we have behind these businesses both against the dental profession and to the consumer, using the Internet.

And, of course, our spokesperson, Brooke Shields, who has been very effective for us in the fourth quarter of this year.

Great, and the consumer, the selling proposition in terms of the messaging.

What is the focus on the brand?

Superior cleaning between dental visits, on top of all of the therapeutic benefits that you get from Colgate Total today.

Great.

Thank you.

And we'll go now to Wendy Nicholson, Citigroup Investment.

Hi.

A couple questions.

First of all, on China specifically, I know your market shares are looking good there, but can you give us a sense of what the pricing environment has been like in China and specifically how much was your business up or down in sales and profits for the quarter?

Wendy, in greater China, which is what we usually talk about, the volume was up about 1% and sales were up about 2%.

And the profit as a percent of sales, the operating profit as a percent of sales, hang on, let me make sure I give you the right number, stayed about the same as the previous quarter.

And for the year, it's in the high single digits as a percent of sales.

As you know, we're running that business at a meaningfully lower profitability than, than the rest of the businesses.

Ian, do you have anything on pricing or anything else?

No, the pricing in the marketplace is quite stable, and I think our focus in China going forward, Wendy, is behind the two new initiatives.

We brought to the marketplace in the second half of this past year, late in the third quarter, an anti-cavity relaunch in the lower price point for the category.

And then in the fourth quarter, a new variant of the Max Fresh product, which has been successful for us in in China, so we will be focusing on building trial for both of those through 2007 and improving our visibility in the marketplace with the strength and sales organization that we have and the focus on in-store merchandising.

So that's our focus going forward.

Terrific.

My second question has to do with the U.S. business and the profits being down year-over-year there.

And it just seems like that business has been increasingly volatile from an operating margin perspective over the last few quarters.

Do you think that smoothed out in '07?

I guess with the big new launches coming out, I imagine you're going to do a lot of spending.

So I know on the last quarter call, you said you thought the U.S. business were going to have operating margins up 100 basis points in '07.

Do you think that's still a good target and then just secondarily, and then I'm done, was the U.S. business gross margin up year-over-year or was it down with all the spending you did?

Okay.

Let me respond to that if I could, Wendy.

In the last couple of years, the volume in the U.S., North America, which includes Canada and Puerto Rico, has been quite solid, as you know.

It was 7% up in the full year 2005, and up 7% in the full year 2006, and the last quarter was over 8%.

Actually, almost 9%.

Operating profit went up slightly in the year.

It went up, we don't give these numbers or we do give these numbers?

You get them.

From as you see, $546 million to $550 million.

And the difference and I'll tell you gross profit in a moment, gross profit was flat on a percentage basis almost precisely.

So that the growth, the revenue and the gross profit from the increased volume essentially went into advertising.

Now, if we look at next year, that is expected, we don't feel we have to spend as much promotional money.

We have a 16 share with Total and whatever our competitor has, they have.

And so that we again, we would be surprised if their operating profit, and here I'm taking the official estimates, would not be up double digit next year.

And that, that should start off pretty well in the first quarter and I wouldn't be surprised if it was double digit in the first quarter.

Why would you assume that your competitor would spend less next year than they did last year?

We're not assuming anything.

We have seen, we have very strong plans.

Advertising is up, let me tell you what it's up, in the U.S., but it's not up as much.

Okay.

So that is -- okay.

The advertising -- yes.

Okay.

Excuse me.

We will -- I'm looking at the wrong numbers, the reason I'm stopping.

Okay.

The indication, for what it's worth, is we are spending what is needed behind the appropriate categories.

Not as much money is going into oral care on a relative basis as was this year because while the defense program is not over, I think you know and we know that the competitor that, what was troubling is sitting at about a third of the share of Colgate Total or a little less, and actually we have gained share year-on-year 2006 versus 2005.

So that we're able to spread some of the money around a little more effectively.

And as a result, the operating profit is expected to go up with an overall somewhat reduced spending level and a gross profit that is expected to be again at least 100 basis points higher.

Okay.

Thank you very much.

Thanks.

Appreciate it, Wendy.

And we'll go now to John Faucher with JP Morgan.

Yes.

Good morning, everyone.

Just a question on Venezuela.

If something happens there, do they get the Powerpoint slide or do you guys get do keep the Powerpoint slide?

Actually, Mr.Chavez has made a personal request directly to Bina to send that down to him.

Excellent.

Question for you on the funding the gross savings over the next couple of years.

As you look at this, I think it seems like companies do really well on cost saves when things are difficult, when the raw materials are going against them, when the trends are going against them.

I guess we're always skeptical in terms of how you keep that going all of a sudden when things are better and the rest of the numbers start to look good.

So any thought in terms of how you keep the pressure up on the funding the growth side of the equation there?

Well, there are a lot of organizational methods to do that, John, and people's pay for performance is tied into it.

There are all kinds of cross-discipline checkpoints and everything else.

But reading your report of this morning, they do that, too.

And they see that the only negative one can find, or in an otherwise what they would perceive to be a damn good quarter, is the fact that we came in at 60 basis points and the stock opens down.

Obviously there are internal disciplines and mechanisms to make it happen.

But they know that that move from 39% to 56% is what has driven everything, market shares and everything else, historically and it's still doing the same thing.

Each subsidiary has seen, gee, look what happens to my volume when I really can put more advertising money in, and the only place I'm going to get that advertising is from, from the panoply of cost-savings programs.

And I can tell you from my own experience as a general manager, everybody really has glommed onto this Colgate Business Planning, basically the return on investment for promotional spending, because that's something that they can do themselves to generate the money and then spend part of it back on business building activities.

Okay.

Thank you.

Alice Longley with Buckingham Research, your line is open.

Hi.

Have you seen any improvements sequentially in shipping costs or packaging costs from the third into the fourth quarter or even from the fourth into the first quarter?

Say that again?

Have you seen any improvement, any reversals, in shipping costs or packaging costs?

Well, let me, I actually have something that may be helpful.

I'm not sure it directly answers the question.

I have a folder that's amazingly labeled "Logistics," and our logistics costs have gone up over a period of time.

If you take the first quarter of 2005, our logistics cost was 7.5% of sales and that it ended up the year at 7.7%.

This year, we were also at 7.7%, which shows a, while it's slightly up, it indicates that we have been successful in offsetting the oil costs on an overall Company basis.

I don't have 2007 on this chart, but it's been essentially flat.

The first quarter was 7.6% and the last quarter was 7.8%, so there's a slight increase but not a heck of a lot.

And if -- we're guessing, I would guess that in the first quarter it will be slightly down as a percentage of sales for no other reason than this is driven by freight costs, which are in turn driven a lot by price of gas and that will be down somewhat.

Do you have the number in front of you for the third quarter?

I'm just wonder if the fourth quarter, what the fourth quarter looks like versus the third.

For 2006?

Yes.

Could you talk a little louder?

You said yes, right?

Yes.

On a percentage of sales basis, I have the absolute numbers but they don't really mean as much as a percentage of sales.

In 2006, the second quarter was 7.7% and the third quarter was 7.7%.

And the fourth quarter was 7.8%, which not terribly strong movement.

Okay.

Still trending up a little there.

I have the 2007 first quarter estimate but if I was guessing, it will be 7.5% or 7.6%.

Okay.

And then on -- for Hill's, I know that grain costs spiked up.

Some of them are up over 50% just in the latter part of 2006.

What kind of pricing are you taking for Hill's in '07 in order to deal with grain costs?

Okay.

Yes.

In 2005, we took Hill's a 1.5% price increase skewed towards the second half of the year.

And in 2006, and this is again overall worldwide, they took a price increase of 4.3% for the full year.

In 2007, my assumption is, it's somewhat less than what we got in 2006.

But at the same time, their gross profit is budgeted up for next year because we get the cumulative effect of all these price increases.

All right.

Does that help?

Is that what you want?

Yes, I'm just wondering if you might need more pricing there because of the grain cost issue.

In this year --

In '07.

2007 -- as of January 1, there was a 4% price increase announced for Science Diet and Prescription Diet.

Okay.

Thank you.

Okay.

Chris Ferrara with Merrill Lynch.

Please go ahead.

Hey, can you talk about advertising overall?

I mean I know in the '04 program, you guys had said that 12% advertising was still the right number.

I'm just wondering if that's still what you're thinking.

Ian?

Yes, Chris.

I think that would still be our internal aspiration.

And obviously we have continued to step our way towards that with the increases in advertising that we have seen over the last several years, which has been taking the ratio to sales up consecutively and we see the same double digit increase next year, which will further increase the ratio.

But we're not blindly headed to a 12% even though we had set that to an aspirational goal.

In addition to the increase in spending, we are very much focusing now on integrated marketing communications, using all of the different media vehicles, including the retail outlet itself, available to you so that we work on the efficiency of the increased investment as well.

It should, next year, end up between 11% and 12%.

Great, thanks.

And then also, I guess the last few quarters you talked about how the top accounts of your growth had been outpacing by a large margin the rest of the accounts, the rest of your customers.

Is that still the case for this quarter?

Yes.

In the top 10 accounts, for, why don't I give you the full year, actually?

That's a more meaningful figure.

Total top 10 were up in cases 9.2%, and in dollars 9.8%, and total U.S. was up cases 7% for the full year and 6-plus% in sales.

So again, it's -- for the whole year, it's well above the rest of the business.

Got it.

Thank you.

Thanks.

Appreciate it, Chris.

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

If that's okay.

And our final question will come from Justin Hott with Bear Stearns.

Thanks, just keeping on that.

In the prepared remarks, I believe you mentioned some weakness in key accounts.

Could you tell us about that?

Maybe give us a little more color?

And also give us some more information on Tom's of Maine?

Thanks.

I think what Bina, I think what she was intending by that, it may have not have, is we didn't experience the weakness.

Is that there was some published -- the sales account extra account Y for their whole line of business was somewhat weak.

Justin?

Okay, yes, I'm having trouble hearing you, Reuben.

It really was not us.

As indicated, our business in the fourth quarter domestically was quite good.

Are you gaining share in those key accounts?

Again, it varies by account by account, but generally, Ian?

Yes.

The answer, the major accounts, the consumption is up and usually outpacing the growth of the category in the accounts.

So as a general statement, we are growing market share in a broad-based way.

And if you hang on just one minute, I can give you actually that, is that in the fourth quarter, our consumption, again, this is Nielsen, Nielsen measurement -- but what is it?

It's a combination of Nielsen and all-outlet retail sales.

Was up 6.1% for this measurement.

So it was up and the categories were up meaningfully less than that.

And Tom's of Maine?

Tom's of Maine.

Doing well.

I have a folder here that says "Tom's of Maine."

And you should note, Justin, that our board of directors would be pleased that on both sales and operating profit, we are doing -- Tom's of Maine is doing better than the presentation that we made to our board which justified our partnership with Tom's of Maine.

And Reuben, since it's the last question, any update you can give us on maybe what we can be expecting, a Cagney, or on your future as well?

Well, as you say, my future, I think it --

At the Company, sorry about that.

It's, I think it's expected that Ian will take over at CEO during the course of this year.

I think that's, you're aware of that.

Also it was not idle that we put in the press release that Ian is the CEO-designate, even though you really have to look the precise meaning of that word up, and everything is proceeding on stream, the expectation is that when Ian becomes CEO, I will remain as Chairman for a period and so it's right on track.

Okay.

Thank you.

Thank you, Justin.

I guess that brings us to the end.

Many thanks, everyone.

Appreciate your support and look forward to a really good year with you.

Bye-bye.

Thank you, everyone, for your participation in today's conference call.

You may disconnect at this time.