高露潔 (CL) 2007 Q1 法說會逐字稿

Good day, and welcome to today's Colgate-Palmolive Company first quarter 2007 earnings conference call.

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

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

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

Bina Thompson please go ahead.

Thanks, Robby.

Good morning, everybody.

And welcome to our first quarter 2007 earnings release conference call.

With me this morning are Reuben Mark, Chairman and CEO; Ian Cook, President and COO and soon to be CEO, Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Ed Filusch, Treasurer.

We will discuss the results for the first quarter this morning excluding charges related to the 2004 restructuring program, as well as three other items consisting of; a gain in the first quarter on the previously announced sale of our Latin American bleach business, a charge related to the limited voluntary recall of certain Hills Pet Nutrition feline products, and an income tax benefit consisting primarily of the reduction of the tax loss carry-forward valuation allowance in Brazil following the successful development in the quarter of the previously disclosed legal and tax contingencies the country.

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

The report 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 these and comparable items.

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

Naturally we're very pleased with how we started out the year.

As outlined in detail in this morning's press release, our sales growth was very strong and very broad generated primarily by excellent unit volumes.

A healthy gross margin increase gave us the funds to increase advertising in every operating division absolutely and as a percent of sales while still delivering strong double-digit operating profit growth in every division as well.

So let's turn to the divisions.

North America.

We're delighted with the strong volume growth in North America, up 8.5%, excluding divestments and this on top of the 6.5% growth in a year-ago quarter.

Our steady stream of new products supported by effective integrated marketing campaigns has been critical to the good volume growth.

There have been a number of activities behind our launch of Advanced Clean, a Colgate Total toothpaste in addition to a nationally aired TV commercial featuring Brooke Shields.

There have been strong in-store shopper marketing activities, leveraging retailer loyalty card programs and in-store TV.

In addition, to extensive sampling and detailing to the dental professions, we have a strong multicultural marketing campaign lead by Myrka Dellanos, a well-known journalist in the Hispanic press as our spokesperson.

All this has led to an increase in our share of Colgate Total toothpaste to almost 15% as measured by AT Nielsen.

For MaxFresh BURST toothpaste, another new product aimed at the young adult population, we have included concert sponsorships and other special interaction media to support the recent launch.

Our manual toothbrush business continues to perform very well.

Colgate 360 Degree toothbrush is now the number one toothbrush in America, with a 7.8% share of market by itself.

To help sustain this momentum, in March we launched 360 Degree Sensitive toothbrush with extra soft clear translucent bristles especially designed to be softer on sensitive gums and teeth.

This quarter we also began a nation-wide integrated marketing campaign, a round of Colgate Total Oral-Systemic Health Initiatives which includes broad advertising in both newspapers and magazines.

A growing body of research suggests that maintaining healthy teeth and gums is important, not only to the health of your mouth but it may be important to your overall health.

Colgate Total has a unique patented formula that fights germs for s full 12 hours.

That helps to prevent gum inflammation from gingivitis, a mild form of gum disease, which if left unchecked may lead to serious gum disease.

And emerging scientific research a associating serious gum disease with other diseases like heart disease, diabetes, and strokes.

While still early days, the launch of Palmolive Scrub Buster with Micro Beads dish liquid has met with excellent success and achieved very good share results in certain key accounts.

So looking ahead, volume in North America is expected to be up mid to high single-digit for both the second quarter and full year as well.

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

Turning to Europe South Pacific.

Volume in both western and eastern Europe as well as the South Pacific was good.

In the European Union countries, the GDP growth continues positive, unemployment is declining, and therefore consumer confidence is higher which bills well for our business.

As noted in the press release, some of our larger and important subsidiaries in the region such as France, Germany and Italy, all had solid volume growth, which is indeed encouraging.

A significant increase in advertising was funded by both the gross margin increase as well as the reduction in overhead expenses.

And this is a good indication of the success of our restructuring programs across the region.

Successful new products have been critical to Europe and South Pacific.

A new toothpaste just launched in select countries this quarter is Colgate Total Professional Weekly Clean.

This product is designed to be used on a weekly basis in addition to the regular oral care regime.

It is priced at a premium, and provides a dentist complete clean feeling with the same cleaning ingredient that dentists use.

Early feedback from the U.K.

and Australia is that acceptance is excellent and sell-through is very strong.

In the home care category we launched Ajax Professional Bucket Dilutable Cleaner, which resulted in a 1.3 share point increase in France, our biggest cleaner market in the region.

So looking ahead, volume in Europe south Pacific is expected to be up at least -- at least at first quarter levels for both the second quarter and full year.

Operating profit is expected to be up double-digits for the second quarter and full year as well.

Latin America.

Latin America continues to deliver excellent results.

Good GDP growth is forecast for the balance of the year across the region.

(Inaudible) appear to be fairly stable and the general macro economic situation is good.

This of course bodes well for our business.

Regional market shares are up in toothpaste, toothbrushes, toilet soap, deodorants, and dish washing liquid.

In Mexico we saw excellent volume growth which was reflected in market share gains in toothpaste, mouthwash, fabric softeners and shampoo.

Our share of toothpaste is almost 83%, the highest share in five years.

And this is the result of a greater focus on higher priced, higher margin brands such as Colgate Sensitive and Colgate Total.

In Brazil, trends are very positive as well with market share gains in toothpaste, toothbrushes, mouthwash, toilet soaps and shower gels.

As in Mexico a special focus and strong media behind Colgate Sensitive and Colgate Total have been instrumental in growing share as well as margins.

Our market share is up about two points in both toothpaste and toothbrushes.

So Latin America has definitely continued with the momentum with which it exited 2006, and prospects are good to the balance of 2007.

We expect volume to be up at least high single-digits to the second quarter and full year.

Operating profit is expected to be up double-digits for the second quarter and full year.

Greater Asia Africa.

As did other divisions, greater Asia Africa has started off the year very strongly.

Russia, greater China, and India all grew volume at the 10% level accompanied by excellent market share results.

In Russia, market shares increased in five of eight categories.

Our toothpaste share was up almost four points year-over-year, reaching a record 33.5%.

Our toothbrush share grew 5.5 points to a record 46.3%.

In India, our toothpaste market share was up 150 basis points to nearly 50%, while our toothbrush share was a full point higher than a year ago and in a leadership position of 35%.

Our business in China grew nicely in the quarter.

The launch of a lower priced whitening toothpaste following the re-launch of our lower priced anti-cavity toothpaste have both provided a strong platform for growth.

Toothbrushes are also doing well behind the 360 Degree toothbrush anniversary campaign and the introduction of Twister Fresh Toothbrush.

In (effect the success) of all these launches has been assured by enhanced on the ground execution.

Prospects for China for the remainder of the year are very encouraging.

Looking ahead, volume in greater Asia Africa is expected to increase mid to high single-digits for both the second quarter and full year.

Operating profit is expected to increase double-digit for the second quarter and the full year as well.

And Hills.

Hills volume was strong in the quarter both domestically and internationally, our sales growth of 12% was the best in four years.

Like virtually all major North American pet food producers, Hills was somewhat effected by the recent unfortunate pet food recalls, covering the FDA's -- concerning the FDA's discovery of melamine in certain wheat gluten supplies during March of 2007.

Hills took the precaution of voluntarily containing two feline products, it's only products that may have contained the affected wheat gluten.

These products account for .5% of Hill's -- Hill's Pet Nutrition's annual sales and the related sales loss is not anticipated to have any meaningful impact on Hill's 2007 annual net sales or operating profit.

Hill's volume for the first quarter of 2007 does include a negative impact of .5% as the result of the limited voluntary recall.

Hill's overall business is running as expected so far in the second quarter and sales to veterinarian customers are very strong and growing well over prior years.

When the problem arose with Menu Pet Foods, Hills quickly informed customers and withdrew from the marketplace products that may have been affected.

The Company initiated direct contact with substantially all veterinarians in the United States through a vet professional calling center created to respond to this issue.

It has provided a reimbursement program to vets for testing animals who may have consumed the recalled product.

And of particular interest is a -- in a survey of vet professionals conducted by an outside research firm just after the recall, Hill's was singled out as doing a very good job in responding to the situation and was rated as excellent or good, far ahead of the competition.

As you know, Hill's is the most recommended pet food by vets and in the wake of the recall professionals still name Hill's brand by a wide margin as the one they are most likely to recommend.

Good U.S.

volume at Hill's was helped by our annual Pet Dental Health program.

Similar to our worldwide Oral Health Month programs in our Colgate business, the Pet Dental Health Program stresses the importance of good oral health in cats and dogs.

This is an integral part of the veterinarian practice.

Pet owners bring their pets to clinics for teeth cleaning and then the vet prescribes Prescription Diet t/d to maintain the pet's clean and healthy teeth.

Since Prescription Diet t/d has the majority of market share in dental diets, the awareness campaign is a good driver in the business.

Internationally an exciting area of growth for Hill's is Russia.

Here we've increased our numbers of distributors as we expand beyond the major cities of St.

Petersburg and Moscow.

In addition many of the vet clinics are still state owned, so as they become privatized, we have the opportunity to sell to them and greatly increase the universe of business.

Looking forward, we expect Hill's to continue to grow solid mid-single-digit as it has in the past for both the second quarter and full year.

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

So in summary, we're very pleased with the way 2007 has started.

Clearly, the momentum in our business which we enjoyed as we exited 2006 is continuing in to this year.

Our strategies are working.

Ongoing funding the growth programs as well as our restructuring savings are helping to increase gross margins significantly.

Our worldwide focus on increasing advertising is resulting in excellent sales and volume growth and our market shares are healthy and increasing around the world.

We look forward to sharing our progress as we go though the remainder of the year.

And now, Robby, I would like to open it up to questions.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go first to Chris Ferrara with Merrill Lynch.

Hey, good morning, guys.

First, Reuben, congratulations on retirement, and Ian congratulations on becoming the CEO.

Thank you.

Thank you.

Just I wanted to start out on this weekly toothpaste, the weekly clean that you guys are launching in Europe?

How new is this concept, and is it -- I assume it will eventually get to the U.S.

Could you just provide a little more color on that?

Chris, it's -- it's Ian.

I'll take that.

Yes, it is a -- it's a very new concept in the toothpaste field.

You will have seen it in other personal care categories like hair and skin care where a weekly regime is added to the daily regimes to strengthen the performance of, the respective products, and that is the case with this Total product in Europe.

So it's a very new concept.

It promotes a very strong, just left the dental office cleaning.

It is a new usage patent on top of your daily toothbrushing.

The testing was -- was very, very positive, and as you read, it is -- it is moving to the marketplace first in -- in Europe, and we have high hopes.

And Chris, just to add a bit.

One -- one sentence to that.

And I'm sure you know that regime is the -- is the non-American way of saying regimen.

Yes.

There'll be a glossary in July, Chris.

All right.

So I imagine that you will have a lot of trial building, sort of, exercises going on in Europe.

And I guess can you just -- what is the launch date again?

I mean, it is out there already at this point?

It -- it's moving to the market right now, and of course, yes, there will be the trial building techniques you would expect and likewise the professional trial building and educational techniques that you would expect as well.

Got it.

Thanks.

And then just more on a technical side, just looking at your corporate line within your segment reporting, it looks like if you back out the charges in the one-time items, (inaudible) on a year-over-year basis the other, or the corporate side was up about 36% because obviously the margins in the individual segments showed more improvement than did the overall reported operating margins X-charges.

So, is that right and what's driving that?

Let me handle that.

That is -- that is right but as -- as frequently happens, it's-- you have to go behind the numbers to understand it.

First of all, what we -- as you well know, Chris, our strategy is to, while driving gross margin up to drive overhead down, what we call overhead, which is the combined overhead at -- at the corporation and the subsidiaries.

And on a -- just a look -- take a macro look at it, in this quarter, it was precisely the same as the percentage of sales as it was last first quarter.

The expectation for the full year is that we'll be down several -- several tenths as I recall.

The unusual set -- several unusual sets of circumstances, number -- number one is the -- there is some timing aspects in the -- in the IT area in the global -- what's IT stand for?

Information technology.

It's a good thing I'm -- funny I asked a that question when I read this first.

The -- and the timing expense which accounts for a meaningful portion of it.

Also, there was some -- some compensation aspects because last year turned out to be a very good year and they were there, which of -- which of course won't be repeated, and there were some -- some miscellaneous aspects.

But importantly as I say -- and also there were tran -- some transfers in from some of the innovation centers which we have established, which are being paid for, in the subs were transferred into the corporation, and that -- that will, of course -- it's not a net gain or loss.

So if we look, Chris, at the whole year, that we do expect the -- our overhead, worldwide overhead to be down as a percentage of sales by at least 20 basis points.

So -- so basically what's happening is that we are able to afford this considerably more expensive innovation set of techniques, and various mechanics that -- and as previously explained to you, by finding savings elsewhere in overhead, and what this slight bump is is really only a timing aspect.

And I think you'll see that as the quarter -- the CFO is smiling at me, I must confess because when he said a week or so ago when we were looking at this, that my response, pardon the expression, was that's (explicit), but it turns out not to be.

Okay, sorry.

No, no problem.

So -- so it sounds like you did have some expenses pushed to the corporate side from the individual segments?

Yes.

That's correct.

Can you quantify that?

It would be I -- I would guess about a third of that amount.

A third of the amount and then the compensation is -- is a piece and -- I mean, yes -- and you'll -- you'll see that that does fluctuate.

And I think you'll see in subsequent quarters or in -- in at least a couple of the quarters little be below last year.

Okay.

Thanks a lot, guys.

Good.

Thanks, Chris.

Thank you.

We'll take our next question from Amy with Goldman Sachs.

Hi.

Hi, Amy.

A couple of things.

And by the way, Reuben and Ian I'm not going to congratulation you because this has been such a long time in coming.

So, you already hopefully have my congratulations.

Should I take -- should either of us take that in anyway but positively?

Absolutely not.

Okay.

Okay.

So first of all can we just talk a little bit about CBP which I think you know I'm little bit obsessed with.

But are there any initial readings now that you are starting to implement -- excuse me -- now that you're starting to implement it?

And was the improved pricing that we saw in North America because of that, or was there something else that drove that?

Well, I'll give you my reaction and Ian can give his.

I don't think we're seeing a lot of it yet, which is very encouraging -- encouraging from a point of view it's still on the (inaudible) we get 110 basis points in price.

The U.S.

-- our actual prices are higher, our shelf prices are higher as -- we do a lot of research on that, which is offset a little -- offset a little by gross to net.

So the net was a zero.

But the encouraging thing is in the U.S., is that is expected to continue.

And in -- in North America, we -- in the second half, we should be positive on that pricing level, and basically, we'll -- we'll continue to be flat or slightly up in the -- in the second quarter and then move hopefully in the second half up -- up.

So that's good, and the gross profit is -- is reflective of that because a lot of the savings -- the restructuring savings fell in to North America.

Okay.

And then on CBP if you are not seeing it yet in the numbers can you give us just a little bit of color on -- I guess the tests are largely behind you, I mean you're rolling it out so some early read on how that rollout is going?

Yes, I have a number of pages here on -- on the -- how it's going and how the essentials are, but let me give that to Ian.

Yes, it's rolling out to plan, Amy.

We're -- we're rolling it out to 17 markets this year, each of them still on -- on time.

Seventeen markets account for about 60% of our trade spending, and we are across the first half of the year doing deep dives in -- in several other markets, which is sending a team in in advance of the SAP driven CBP being in place, and essentially doing a manual look see and promotional ROI with key -- with key customers.

So that is moving very, very well.

There is a world of training that goes behind that, and I think to the earlier discussion, our expectation would be to see the benefits of that start emerging more in the second half of this year and into 2008.

And I think we said on the last call that the benefits we were expecting pre-tax were order of magnitude 50 million this year and probably the double of that next year as we, A, expanded, and B, get better on the ground working experience with it.

Great.

That's very helpful.

And just a second quick question --

Let me, Amy, just let me elaborate a bit on -- on what Ian said.

Is that, as you know, we are a very focused Company, and we are -- have a narrow line of products, and we put forward worldwide efforts.

I can tell you that even though it's difficult to track, that just the cog -- the cognizance of people in every country around the world, having received the training and gotten the tools, means that they are focusing on it more, doesn't necessarily mean that we can show that this use of this tool lead to that or that tool lead to that.

But so far, simply the focus on return on investment on promotional spending has had a salutary effect.

Which of course in turn allows us -- when we say advertising is up, that's media, and so that we're able to do precisely the things we had -- we had wanted to do.

Very encouraging.

That's great.

And then in the press release you talked about an incremental 50 million in -- in savings from the restructuring.

Can you give us the timing of when we should see that, realizing that it might not all flow to the bottom line?

Yes, increasingly the restructuring will flow to the bottom line be -- I mean, this year and next because this level of spending in advertising as a percentage increase will decline.

That's our -- our current plan, and we will -- will undoubtedly follow the plan.

So that the -- I think you'll see as we go through the year by -- by -- by the end of the year, the overall advertising increase will be less than it is in the first quarter by -- by -- by a fair margin.

So generally, the answer is that the restructuring will begin to flow more fully to the bottom line.

The thrust of that extra 50, after tax, will be oriented towards 2008, because there are some additional factory closings, some additional consolidation of -- specifically in a couple of product categories, the establishment of another toothbrush factory in Asia -- I'm not sure (inaudible) that's okay -- and so on.

So -- but it's all spaced out, and it will -- we're now slightly ahead of where we had told the Board and you guys we were going to be at this stage with the original restructuring, and this will be on -- on top of it.

So the savings this year are still about 100 million?

Hang on.

Let me make sure I have the right number.

I just looked up to the financial people and their --

Yes.

Answer yes.

The-- just going back, to show you the difficulty in tracking, whereas you can track very easily the savings that come from a -- closing down a factory in Jeffersonville, Indiana and opening up a new one in -- in Tennessee, that from the whole promotional area it's very difficult to track it.

To give you an example, I had said originally, that it was my sense that the savings from the Colgate Business Planning after tax was going to be roughly equivalent to the restructuring.

And so when we were preparing for the Board presentation on that increase in the restructuring -- on the savings increase, I naturally asked the financial people, can I also commit to the corresponding increase in Colgate Business Planning?

And they wouldn't let me do it, not because it's not going to be there, but because they can't really track it that closely.

But all I'm saying is that that is -- I have said -- I don't mean to go on -- my apologies, Amy -- but I have said in the last few meetings, that -- last few conference calls, that the fundamentals of Colgate are better than I have seen them in my recollection, and I truly believe that's true, and I think this -- this quarter and -- and think next few quarters are going to be demonstrating that.

Great news.

Thanks a lot.

We'll take our next question from Bill Schmitz with Deutsche Bank.

Hi, good morning.

Reuben I think you are probably regretting selling that Mission Hill's golf course now.

Why is that?

Well because you are retiring now, you'll have all that free time.

No.

I mean there in lies a whole tale but -- number one, I'm not a golfer, and number two, a consumer goods company, pardon me Mr.(inaudible), has no business owning a golf course.

Yes, I was just kidding of course.

Of course.

Can you -- can you just talk about what the savings pre-tax are from the inception of the program to date?

I'm sorry, say that again, Bill.

The cumulative savings from the restructuring program since it was started in the fourth quarter of 2004 until now.

Sure.

Okay.

The savings until now are a total of $100 million plus what had been previously, which is about 150 to 160 after tax.

Okay so the cumulative is 250?

No.

No.

No.

The 150 to 160 includes this year.

Okay.

Got you, so the end of the year it'll (inaudible), okay.

Great.

Quarter.

That includes this quarter.

Okay.

All right.

So -- okay.

That doesn't sound right.

That's a big number for this quarter.

Hang on, I'm being handed a piece of paper.

From inception to the end of this quarter.

That --

Yes.

It's (inaudible) from inception to the end of this quarter.

It was right.

About 150?

Yes.

And then this might sound like a totally random question, but you'll see where I'm going.

Are you guys switching sorbitol with glycerin --

Excuse me for interrupting Bill, but just a general comment since this is my last conference call, when you say just a random question, I -- my response -- I don't mean from you, but just generally, as compared to what?

Right.

Are you starting to migrate sorbitol out of toothpaste into glycerin, given the big spike in corn prices?

Because that could be a big gross margin driver.

We -- we have -- we have different formulas around the world Bill, we use sorbitol and glycerin often in -- in mixtures, sometimes (singlely), depending on the marketplace.

We're also evaluating switches.

I must say I don't -- I don't know off the top of my head a specific initiative in that area.

But we are very, very cautious in making those changes because clearly a flavor in a toothpaste is one of any most vital aspects of consumer preference.

Okay, yes, just because sorbitol prices are way up and glycerin prices are way down.

Anyway, kind of random.

Thank you.

We make -- we make a lot of our own glycerin because it's a bi-product of a -- of the soap-make progress, but believe me that -- that given the margins in the toothpaste business and given our -- as Ian says, our real caution and care about arbitrarily changing formulas, there's a one heck of a lot of testing that would be done before you would make a switch for short-term cost reasons.

Great.

Thanks so much.

Thanks, Bill.

Thank you.

We'll take our next question from Javier Escalante with Morgan Stanley.

Hi, good morning.

I'm just trying to clarify an earlier comment with regards to how advertising spending you expect it to come down progressively through the year, and shall we expect, then, kind of like greater efficiencies from these Colgate Business Planning to maintain the strong growth?

Is that the trough that the promotional spending is going to become more efficient and you roll out CBP and that's how you maintain the strong -- the strong volume growth going forward as you scale back the growth in advertising?

I think, Javier, it's important that -- that you look at what we -- what I mean by that.

Last year advertising was up about 11% for the full year.

Sure.

The first quarter as the press release reads, it was up 20%.

It will not be up 20% for the year, but it will be up more than 10%, so it's tough to say --

Okay.

-- I mean it's -- it's -- we're -- it's working and it's still being accelerated, but it'll -- it will not, in going back to Amy's, it will not -- the advertising will not chew up as much of the restructuring and all of the other savings and so on.

Understood.

And the acceleration that we have seen this quarter -- I mean I know that is very difficult to flesh out, given that you increased advertising by 20%, you are starting to roll out CBP but is your data showing any -- anything with regards to the underlying industry growth, say in emerging markets and also in western Europe.

Do you see any acceleration?

Or is it just the acceleration in volume is your own initiatives like CBP and higher advertising spending?

Again, a tough question to answer in general, Javier, but I -- the thrust of your question and thrust of my answer will be throughout Asia and Latin America, without question, we're seeing a market movement, that is to say the overall markets in which we complete, improving.

There is more money in the hands of the consumers.

It is -- and that combined with market share gains are a -- are a very good sign.

We have a -- throughout Latin America my recollection is we have about a 73, or 74% -- 75% says -- saying Ian market share.

So as we move (so moves) with the market and -- or vice versa and our business there is very good.

On a worldwide basis though Javier, you should know that I normally give somebody asks about the break down of our major businesses, sales growth by catagory and over many years we -- we have been talking to you about oral care growing very much faster than the rest, but being slowed down by detergents.

Well that continues if you look at sales growth in this quarter.

Oral care was up 16%, personal care was up 10%, and home care, excluding the (inaudible) -- were up about 8%, and so that -- one would expect -- and I think we have been saying for years -- that as oral and personal become a larger and larger portion of our business, that we may very well see a pick up in volume trends, which is why we raised last year our projection ongoing from 4 to 7 to 5 to 8.

Nobody is saying we're going to be at the top, the very top of that range all the time, but the outlook on volume is quite good.

And as I think Bina said, Ian and everyone are planning to have a very good volume year this year and the spending is layed in to do it and all expectations right up until today are that it will continue.

And just a last question, and hopefully it's going to be -- it's not going to take a lot of time.

It's just basically, the gross margin composition in the quarter, I know that you guys always have it.

Its very helpful for us too if you can decompose the 110 basis points of gross margin into -- into the different components like raw materials and savings.

That will be very helpful.

Okay.

Thank you very much.

Okay.

(Speaking Spanish.)

Okay.

That's fine.

I will translate to others, then.

Okay?

Fine.

If on -- first quarter of last year was 53 -- 56.3, Javier, and pricing added .3.

Yes.

Restructuring added .7.

Yes.

Our internal funding the growth savings as you have heard a lot about overtime generated 1.1.

Yes.

Material prices, which as I think you -- I'm sure you know and several of the analysts have commented, material prices in these categories are up somewhat more than anticipated, so they were negative 1.3.

1.3?

1.3.

So the total -- subtotal on net savings was plus .5 and then all of the other changes, mix and so on, up .3, so that makes the 1.1.

Okay.

Well thank you.

Good.

Thank you Javier.

We'll go next to Wendy Nicholson with Citigroup Investment.

Hi.

Two questions, first, can you give us a sense for where advertising went up the most or sort of the range?

I know it went up in every region but to be up 20% globally was obviously a very big number.

So I'm trying to understand, was it up 50% in one region and only 10% in others?

Sure I'm not sure how much of this -- how much that we give out.

How much do we give out, Bina?

Not a lot.

Not a lot.

But however --

But enough to make it interesting.

Okay.

Interestingly, it -- it's astoundingly flat -- that is to say that within 100 or 150 basis points of that 20%, every division went up.

I mean literally.

So I -- the range is from 21 point something to low of 19 point something or 18.

Wow, okay, interesting.

But my follow on on that is in terms of lesser increases, if you will, as we go through the year, I mean every year over the last couple of years we have seen sort of a 30, 40, 50 basis points increase in advertising as a percentage of your revenues.

Is it fair to say that if you looked out over the next three, four, five years you would expect that trend to continue?

Not indefinitely, but don't forget the whole strategy is, Wendy, as you know well, to drive gross margin up and drive overhead down and spend (inaudible) half of it in -- in advertising and let the rest drop, and that when gross margin is growing so well and top-line volume is growing so well, we will continue to get that (paid) up.

After it gets beyond 12% or so, who knows.

I mean, because that may be sufficient and the money may go elsewhere or -- or drop.

But last year, we -- advertising sales was 10.8 up from the previous year -- do you have the previous year?

I don't have it here.

This year, in the first quarter, it was 120 basis points up versus -- I don't know if we can give this, but anyway 120 basis points up off -- up over last year in the first quarter, but for the year, it will be about half that or so.

The reason I ask is because one of your competitors is -- is talking more and more about advertising as a percentage of sales as being not necessarily the right metric to look at in terms of how much you should spend and, hey, there's more to advertising effectiveness and all of these sorts of things.

But it seems like at least when I look at your business there's a very good correlation with an increase in advertising dollars as a percentage of sales seems to impact the top line so -- so

I don't know what competitor you are talking about, I'm sure they're very formidable.

But nonetheless just think if you are able to increase the advertising effectiveness at the same time you are increasing the absolute amount of advertising, wouldn't that be great?

And so yes, I think that it is a very important measure that we spend an enormous amount of time on, and busi -- Colgate Business Planning is to -- is the look on the promotional side and clearly we have similar initiatives on the media side.

But it's -- it's by definition if you're -- if you're spending on the wrong advertising, or the advertising that isn't appropriate, the return may be -- may be marginal, but again, the essence of -- of hopefully a successful business is to spend increasing amounts of money behind the right stuff.

Absolutely and obviously your top line is going growth, so no complaints here.

But just my last question was in terms of the transition to come in the management team there has --

What transition?

Yes, I know.

The subtle -- subtle evolution here.

The question, though, is what happens to sort of the COO and the President role, and are we going to see sort of a slew of reshuffling or promotions among the -- all the -- I don't know, Fabian, Seamus, Frank Moison, are those buy guys going to be promoted up in the organization?

Or how is that going to work so there isn't sort of a gap in the -- in the guys who sit in -- in New York here?

Ian, you want to do it?

Well, in some ways, Wendy, if you go back through this -- shall we say methodical and well-planned transition, at one stage there was a creation of a level in the Company that we did not have previously at a time when there were three Senior Executives with responsibilities in the Company.

Those were in essence created positions.

So they have gone away over time and therefore the organization is flatter.

But I think it would be fair to say from an operating point of view with a very strong bench, some of the names of which you have mentioned, there will be organizational progress, which will take advantage of that strong bench.

And Wendy just to philosophically add, I don't think you have seen any -- over many years, any abrupt movements or jerks back and forth, or shake ups or anything like this, because we do things on a -- on a planned basis, witness this particular transition, which is going on for a long time.

And I don't think you'll see them going -- going forward.

I think the Board is expecting a methodical process in every area to continue to development and promote really good people and you'll see it as a very logical extension of what's going on.

Terrific, congratulations , thank you very

Thanks, Wendy.

We'll take our next question from Linda Bolton Weiser with Oppenheimer.

Thanks very much.

It was such a high-quality quarter, I don't want to pick too much at it, but can you just explain, it looked like the receivables were up quite a bit year-over-year, is there some particular reason for that?.

Yes.

Receivables were up and inventories were up as well, Linda.

Although working capital because of payables was -- was actually down as a percentage of sales, but there's a -- I think a very appropriate legitimate explanation for both, and let me briefly give you that.

On the receivables part, it really has to do primarily with Europe and the exchange trend of this -- two factors, but the first is the exchange trend.

Is that during this first quarter, the Euro was going up in value, so the end of the month at which time the receivables are valued, was considerably higher than it was during the average.

And don't forget that the days are average, and the year -- the month end -- the quarter-end figure is an absolute, and last year was going the other way.

So that is a meaningful portion of it.

And secondly, we -- March was a very strong month, and -- worldwide and when there is a very strong month obviously, and the days outstanding are 60, you are relatively to the -- relative to the receivables that you have on that day, its more in days.

And our expectation is that receivables will be in the appropriate spot as we go through the year, and our projection for year end working capital is actually an improvement over last year.

Inventories, a couple of people who wrote about it this morning, came up with the right answer, and the right answer is, is essentially that we -- in conjunction with the restructuring, there are a number of factories that have gone down and are going down, so there's a combination of building inventories in a number of locations and importantly in several big locations, one in the United States, where there is a new factory, a greenfield factory that is busily producing goods and not shipping any.

For example the factory in Tennessee which replaced our biggest factory in the United States in Jeffersonville, Indiana, which closed last year, that is producing and not shipping.

So again I think you will see as we -- as we go on, Linda, that it's under control, and the -- and the -- the ratios will -- I don't know if we have a projection -- I saw one, but I'm not sure if we have one in this room.

But it's basically going to end up at or better than last year's levels by the end of the year.

Okay.

Thank you.

Can I just also ask about Hill's and -- it seems that some of the cost inputs are still kind of, maybe providing some pressure.

How do you expect the Hill's operating margin to improve in the remaining quarters?

And can you just give a little more color on how you are going to get double-digit operating growth for the rest of the year?

Sure.

Well, you are right in that -- is that the Hill's expectation had been for about 3% or there abouts, increases in raw packing materials, and it's a multiple of that.

So that it is higher, and you have seen the corn prices and whatever.

At the same time their -- their volume is expected throughout the year to be actually slightly better than it was in the first quarter.

Their operating profit is expected to be up double-digit, and interestingly -- where is their gross profit?

Yes.

Okay.

That their gross profit last -- it will be for the year very slightly, we think, below last year, but not by much.

They have an enormous savings program.

They have a number of various things.

They took price increases in January and so on, and we have very considerable confidence in Hill's estimates and -- borne out by history, and I think that indeed will happen.

Okay.

Thank you and congratulations.

Thank you, Linda.

We'll take our next question from Lauren Lieberman with Lehman Brothers.

Thanks.

Pretty clear that the quarter was great, so I'm just going to ask you to maybe tell us what in the business isn't going quite as well as you had hoped.

There has to be be spots for improvement.

Well, I mean, these are -- even though Colgate is simpler than most, these are big complex organizations, and there's always a creak here or a creak there.

But I can't really pick out anything that would really trouble me because, as I say, you look around, share trends, the volume trends, and the gross margin trends are good.

Interestingly, even there's been some note of a -- of a point or two of market share in the United States in toothpaste.

That -- I must say, first of all, they're -- they're doing very well and continuing to do well in terms of the actual business and the take-away, and the actual volume.

But importantly, this is after someone who we have enormous respect for, our major competitor, through everything but the kitchen sink -- I shouldn't say that -- put in a very aggressive program behind a new product, and the fact that we are -- we have basically lost 1.5 share points, and I think are going to be -- have regained that plus by the end of this year, is a pretty good outcome.

And that's in the country where that competitor is -- is very, very strong, has a strongest toothpaste franchise worldwide that they have, and so that's -- that's, to me, a very good part.

So that -- I can -- I can perceive that to be positive and certainly that our U.S.

Company is not considering it as a -- as a given.

And I think they will get that small amount of market share back.

And interestingly, the volume trends do not reflect that, and one of the -- somebody made an observation today that some of the mechanisms for measuring those trends may not be as good as -- as everybody has thought.

Right.

Okay.

Great.

And then just a quick question on China.

You know, pretty significant improvement in volume trend there.

I know in reading the script there were some new product launches mentioned, but, what sort of changed there this quarter?

Is this a change in trend?

Is it that the new -- your stepping up of the selling efforts on the ground there have really started to kick in?

But it's a dramatic shift, so if you can give us any color, that would be great.

Well I think it's all of the above, as I'm not sure if Bina gave out these precise figures but in greater China sales were up 12% and volume was up 10.

A significant part of that is as you know, I mean it's our brands and it's also our partners, Hawley & Hazel which we have been partners with for -- since 1985, there is -- let me just give you a projection, if I could of -- of that same -- in terms of -- oh -- (inaudible) -- in -- I guess we don't have it for greater China.

We are -- at the same time, our volume is going up, we are containing our profitability that is to say we are making sure that we are continuing to reinvest, and those numbers are included in the overall macro numbers that you have seen, Lauren.

But it's -- it's going well.

You want to add to that?

No.

Obviously, mechanically we have the two new products that were referenced, and as we have said before we have a very deliberate province by province program where we're increasing our merchandising capability in the A and B cities to make sure we have both visibility and promotional merchandising behind the brands, as we're putting the new products to the marketplace.

So just those two specifics to add, but in general terms, exactly what Ruben said.

Okay, great.

Thank you.

Thank you Lauren.

We'll go next to Nik Modi with UBS.

Yes.

Hi, good morning, everyone.

Hi, Nik.

Just a quick question on source of share just globally, I mean, are we -- are you guys seeing more pressure coming from larger multinational players or is this more of the tertiary regional players in merging markets?

Well actually I'm not sure what numbers you're looking at, Nik, but our global market shares, and we do a -- what is it called, scan track, a world -- a worldwide -- worldview it's called, I'm sorry.

I (don't remember the names) -- where we look at all of the countries, and our market share is up quite meaningfully --

Well that's what I am talking about.

I'm just wondering what the source of share is?

Oh, oh, oh, I'm sorry.

Yes.

I think it's a combination since multinationals represent in those 60 markets, the bulk of the market, it almost by definition, is coming from them.

There are no real remaining powerful local brands that I can recall virtually anywhere, and -- with the exception of China, perhaps, which -- yes -- but it is coming, essentially, from -- in the same proportion as people have market shares.

Okay.

Great.

And then just the last question, in terms of the Colgate franchise, and I guess we would start in the U.S.

and you could comment on globally, but is there an effort in place to kind of make it a more holistic brand proposition?

I know you haven't had mouthwash in the U.S.

and just curious on your -- on your kind of thoughts around that.

Well I -- this is Ian, Nik, I think you've seen a very conscientious and disciplined approach to try to expand the equity.

The two largest markets globally are toothpaste and manual toothbrushes.

As Reuben said, we have a growing worldwide toothpaste leadership share by quite a wide margin, and we have systematically built our manual toothbrush share to a global leadership position now.

Outside the U.S.

we have quite strong rinse market positions, and we continue to invest behind that and grow share there as well.

So in terms of expanding our representation in the complete oral care category, yes, we are focused on that.

We have prioritized behind the two biggest global segments, but we are growing in the other segments as well, which you would see more outside the U.S.

than here.

Okay.

Thanks a lot and congratulations to you both.

Thanks, Nik.

We'll take our next question from John Faucher with JPMorgan.

Yes, good morning, everyone.

Wanted to see if I could ask a question about sort of margin progression throughout the year because you talked about the corporate expense, then you talked about the growth, and at the sales leveling off a little bit.

So assuming we don't see a dramatic reduction in the -- in the top line, that -- that implies that we should see operating margin by division sort of ramp-up a little bit over the balance of the year.

And while we do have some -- maybe some difference in comps in North America and in Greater Asia Africa over the balance of the year, is that the right way to look at it, that, from that standpoint, if we adjust for the comps, that this is going to be the low point relative to divisional margin performance?

Are you talking about operating margin or gross margin?

Operating margin.

Operating margin.

Well, the -- it's right except for one caveat that I'll put in in a moment, but if you look through each division that it would appear that all of them will be better than last year and that the way the current expectations are, are that that ascending trend in percentage of sales will happen in North America.

It will happen in Europe.

It will happen in Asia, and it will happen in Hill's.

On this piece of paper, it doesn't happen in Latin America, but it will.

What I mean is, is usually -- I mean, Latin America always does better than the projections, or historically always done better, and so it doesn't show it now, but it will happen that way.

So answer is -- I'm sorry for that (inaudible) -- that was sort of an inside joke in the room.

But nonetheless, John, it -- answer is that's a reason -- very reasonable thought.

And it's not -- and it's logical as well because the -- since these -- we're talking ratios, John, the -- if the A to S is moderated a bit, and the savings increment, that's a very logical conclusion.

Okay.

Great.

Thank you very much.

We'll go next to Justin Hott with Bear, Stearns.

Thanks.

Most of my questions were answered.

Just a couple quick ones.

Can you give us -- maybe you did already, I don't remember hearing if the China market share trends and the pricing excluding FX?

In terms of the China market share, up -- up progression from the fourth quarter last year, I think we're at about a 30.5, 31 share in -- in China.

The second competitor is around a 23, 24 share in China, and as was mentioned earlier, with the new two products that we have taken to market, with the growth we have seen in the first quarter and the expansion of our merchandising efforts, I think we'll see the share continuing to grow across 2007.

And what was your second question?

Before I go on on that Ian, how much was -- how much has that market share grown year-over-year or quarter-over-quarter?

Gosh, I think from the fourth quarter to the first it's -- it's about a share point.

Okay.

Thanks.

On the second was you gave, I guess 12% sales, 10% volumes.

I would assume there's some FX involved in the --

There's some what?

There's some foreign exchange involved in the -- in the pricing.

Can you give us some, I guess how much pricing went up in local currency terms?

So FX and price combined for China.

I'm not sure if we normally give this out but there's obviously two by difference.

I'm just wondering if there's discount that's why.

Secondly --

It's also that there's a different exchange rate.

Because it (inaudible) as Taiwan which has a different exchange rate than China and so on and so forth.

So it's probably a slight appreciation in China and maybe a negative in Taiwan.

Okay but there's no discounting going on?

No what?

Discounting of product?

That's what I'm wondering.

No?

Discounting.

Price discounting.

Price wouldn't be negative.

Gross net -- no price -- I doubt it.

Do we have a an actual pricing for -- we'll get back to you Justin, but I don't -- I don't think so.

Interesting their undertaking of the business planning as well.

I think you are going to see their gross to net go down.

Secondly, have you seen any sort of potential trade-down in U.S.

pet food after the menu foods incident?

Anything at all?

Trade-down in what?

U.S.

pet food.

U.S.

pet food?

Yes.

We're not, and I think that they are -- they, Hill's, are very pleased at their volumes to date during this month is right on track, and interestingly as I think Bina may have mentioned that the debt to sales to veterinarians, which is the -- you know, the great measure are -- are at -- running ahead -- well ahead of last year and ahead of expectation, and I think that part of that is -- Bina told you about how we really, I think reacted well.

I assume other people did as well, but we reacted well to this and really contacted all of the veterinarians and made sure we covered their -- the testing costs for any consumer that was involved, and so on, and then I think that that is coming back to us in -- in robust sales.

All right.

And lastly, if advertising is growing slightly lower rate and more -- more of the savings flows down to the bottom line, could you be -- have you been thinking any differently at all about repurchases and your stance on that?

Repurchasing shares?

Yes.

We -- we will continue with our share repurchase.

We'll probably repurchase by the end of the year somewhat more than last year, and we resume it -- we're in a bit of a black-out period since we got the results 10 days ago or so, and we'll recommence and we're in the market every day, Justin, buying.

Okay.

Thanks all the best Reuben

Thanks.

Appreciate it.

Justin.

We'll no go next to Connie Maneaty with Prudential.

Good morning.

I'd like go back to Colgate weekly clean.

It sounds like this is more than a test market.

And if that's so, which countries in Europe is it going in?

And you rarely do this sort of thing without a worldwide roll out plan.

So when would you introduce it in to the U.S.?

Yes.

Connie,Connie, it's Ian.

The answer is we have actually started, indeed, in lead markets in -- in Europe.

It -- it is a new concept, there is a new behavior to be learned by consumers.

We don't want to be presumptive on changing people's behaviors.

We started in the United Kingdom and we do have plans to expand in -- in Australia, outside of the European markets, but we will probably learn our way in terms of the behavior and progress here before we transfer the product to other markets possibly including the United States.

So there's still some learning to be done.

And is this a technology that you have patented or developed in-house or licensed in?

No, it is technology that we have developed very much in-house, and it is -- it is patented.

And I assume that the -- what -- the price premium would put this at a margin that's above the toothpaste average?

It is an accretive product, yes.

Okay.

Great.

I also have a question from the earlier conver -- conversation when you were describing all of the North American marketing, the in-store loyalty program, TV, Brooke Shields and all of that, the concert sponsorship.

Is this part of Colgate Business Planning?

And then secondly, where in the P&L do you book the expenses for these things?

At this stage, Connie, it is not part of Colgate Business Planning.

That is still thus far very focused on trade spending only, which is in the gross to net line.

These initiatives, as Reuben was indicating earlier, are part of other themed initiatives that we have in the case of most of these two consumer marketing activities.

They come under integrated marketing communications or if they are executed at the store level, directly to the consumer under an initiative that we're calling Shopper Marketing.

In other words marketing directly to the shopper in different channels, and the majority of those expenses come in advertising, in the promotion line of advertising, below the line.

Okay.

And one -- I know the call has run long, but I do have one more question for each of Reuben and Ian.

Reuben, if you look back over the last 20-some years, could you comment on one or two highlights that really stand out?

And Ian as you look forward over the next five years, what do you think Colgate's Business -- biggest challenge is once the restructuring is completed?

At the risk of being glib and humorous, since you commented, the meeting was -- was running long, the discussion was running long, but the first thing that pops in to my mind are -- his high point and my high point may be the same thing, which is July one.

I'm sorry.

No, actually it is less important what has been historically, than what, if you want to comment on futures.

Yes.

The -- again, I think, Connie, that you say challenges.

I think it's -- it's continuing to focus on executing the business strategy that we are putting in place, have been putting in place over the last couple of years, like Reuben, I believe that Colgate Business plat -- Planning is a platform for future efficiency and future growth.

I think the initiatives we have in integrated marketing communication, shopper markets, and those areas, along with the very clear focus we have on innovation can continue to sustain the Company's profitable growth in to the future.

And I'm excited to -- to continue to work with Reuben and obviously the great (kaudry) of people we have in the Company to -- to keep delivering that, so it's focusing on the same business strategy in a very deliberate and methodical way.

Great.

Thank you very much.

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

Hi.

Good afternoon.

Actually this is Henry for -- for Joseph.

Just a very quick question with Colgate Total Advance Clean, do you -- I know it might be early, but do you think you're taking market share from Crest Prohealth, or are you cannibalizing other Colgate branded toothpaste?

It's -- it's too early to say on the competitive comparison.

We literally are starting our trial building activities right now.

Our testing says this is one of the lowest cannibalizing Colgate Total variance we have in terms of taking share from existing Colgate businesses.

So we're expecting to source from competitors, but we don't have yet have data to definitively show which ones.

Okay.

Great.

And then last question.

I know you took pricing on -- in Hill's Science Diet and Prescription Diet earlier this quarter, and I was wondering if you had seen sort of any resistance in light of the pet recall that also happened in the quarter?

Let me comment.

The answer is -- the price increase took place before that, but, I mean, the entire pet industry is aware of the changes in raw end packing material, especially raw material costs, and I think the best example of that is how volume turned out for the quarter, and how it turned out -- how it's coming in right now as we're in the third week of the month following.

So the answer is it doesn't appear, Henry that there's resistance.

The price increases were as I recall between 3% and 4.5%, in that range, and they were modest.

Okay.

Great.

Thank you very much.

We have one more, or two more?

We have two more questions.

Okay.

We'll go next to Alice Longley with Buckingham Research.

Hi, mine is really fast.

You referenced China, how fast is the market growing there for toothpaste?

I think, Alice from memory we can confirm it after, but I think it's high single digits.

Okay and that's been pretty steady over the last 12 months?

Yes, I mean, again, compared to some of the more explosively growing areas in China, one has to remember that here, you're changing people's behavior, pursuing the middle class, and I think we can expect that growth rate, which outpaces the world average, but nonetheless, to stay fairly consistently in that -- in that range.

Okay.

Great.

And my only other question is on pricing in Europe.

That's the only place where pricing was negative.

What would the outlook for the year be on that line?

On pricing?

Pricing in Europe.

Yes.

Hang on one second.

I will tell you specifically.

Europe, in our projections, although, Europe's gross profit was up --

Yes.

Although pricing was down.

The -- are expected to be about that level of 100 to 150 basis points down throughout the whole year, and that has been taken into our -- into account with our expectations that we as a total Company will have pricing up about a percent or slightly more through the full year.

Excellent.

Thanks a lot.

Thank you Alice appreciate it.

And the last question, please.

Last question will come from Alec Patterson with RCM.

Reuben.

Hi.

Hi.

On the addition on the cap -- on the restructuring program and -- cut me off if you have already answered this.

I wanted to get a read on the impact on the CapEx for this year and next.

Okay.

Hang on one second.

Yes.

Okay.

Alec the CapEx this year, with the -- the 648 is the with -- with restructuring, and we're expecting to spend 650 million.

The regular program is about 500 million.

Does that include the incremental?

There isn't much (inaudible).

There isn't much incremental this year.

It will be primarily in the beginning of -- of 2008.

But our -- it's expected that our spending this year will be in the -- give or take a little, $650 million range.

And the benefits of the ex -- the $50 million additional savings expected -- ?

I did cover that.

That I said is primarily coming in -- in-- in the 2008.

The savings side of it as well?

Yes.

Okay.

Great thanks very much Reuben.

Appreciate years of constructive dialogue.

Alec, I think it's --

There is one more question.

There is one more question, but I was going to say that I think it's very appropriate that you and I talked last, that's great.

One more question.

We'll take our last question from Jason Gere with A.G.

Edwards.

Hi, Jason.

Your line is open.

Please check the mute switch on your phone.

Okay.

Many thanks.

I do appreciate all of the involvement over all of the period of time.

It has been great fun working with all of you guys, and for the three people that are left on the call, a big (inaudible) and Ian and the entire group will continue the effort into the future.

Thanks a lot.

That does conclude today's call.

You may disconnect your lines at anytime.