高露潔 (CL) 2008 Q3 法說會逐字稿

And welcome to today's Colgate-Palmolive third quarter 2008 conference call.

Today's call is being recorded, and will be simulcast live at www.colgate.com.

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

Now at this time I'd like to turn the conference over to the Vice President of Investor Relations, Bina Thompson.

Please go ahead.

Thank you, Duane, and good morning everybody.

And welcome to our third quarter 2008 earnings release conference call.

With me this morning are Ian Cook, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Ed Phillips, Treasurer.

We'll discuss our results and expectations excluding charges relating to the 2004 restructuring program and certain other items in the first nine months of 2007.

And in addition, we will also discuss organic sales growth, which is sales excluding the impact of foreign exchange, acquisitions and divestitures.

A full reconciliation of these measures with their corresponding GAAP measures is included in the press release and the Company's financial statements, and is posted on the Investor Relations page of our website at www.colgate.com.

So we'll be glad to answer any questions you may have, including or excluding these items, as you wish.

We're very pleased to report a solid quarter, especially given the current uncertain external environment.

Market shares are healthy around the world, business continues to be robust in the high growth markets such as Latin America and Asia, which has helped to offset some of the slower-growing economies in Western Europe and North America.

Organic sales were strong across most divisions, up 9.5% worldwide.

This is the best organic quarterly sales growth in over 10 years.

As you know, we've taken meaningful price increases in the third quarter to offset the unprecedented increases in commodity costs we have seen throughout the year.

And this, as you would expect, has resulted in some temporary slowdowns in volume as consumers have worked down their pantry.

Our experience is that this type of slowdown generally lasts for a quarter or so.

Accordingly, we expect volume to be up somewhat more in the fourth quarter rather than the third, particularly at Hill's, where the biggest pricing was taken.

Overall, organic sales are expected to grow at current levels for the balance of this year, and into 2009.

So while commodity cost pressure remained significant in the quarter, and should abate only slightly in the fourth quarter, we're encouraged that the recent decline in oil and other commodity prices, if sustained, should provide a meaningful benefit starting in the first quarter of 2009.

As we said in the press release, this should fully offset the anticipated negatives from foreign exchange.

And in addition, we continue to achieve good savings from our ongoing fund in the growth programs, as well as our restructuring and business-building programs.

Importantly, this should allow us to continue to support our business with strong levels of advertising, while increasing profits as well.

And all these bode well for delivering continued strong results.

Our balance sheet and cash generation are strong.

We've continued to issue commercial paper at attractive rates and have had no difficulties in this regard.

Our pension plans are well-funded and our overall liquidity position is very sound.

Again, this is most encouraging in the current macroeconomic environment.

So let's turn to the divisions.

Volume in North America grew slightly.

We have witnessed some pantry destocking on the part of the consumer, particularly as our price increase in toothpaste was realized on the shelf.

However, we are still seeing dollar growth in all our categories.

And in addition, private-label levels for most of our categories remain low at mid-single digit or less.

Our market shares are level or up in 10 of 12 of our categories.

And as you read in the press release, our toothpaste and tooth brush shares are doing well, fueled by new product activity as well as our continuous investment in multiple media -- TV, print and online.

On the new product front, we're very excited about Colgate MaxFresh with Mouthwash Beads, which shipped to customers in the third quarter.

This, along with the launch of the Colgate MaxFresh tooth brush, provides consumers with a regimen approach to fresh breath.

In fabric conditioners, our Suavitel brand achieved record (inaudible) and in the market overall, 35.4 and 13%, respectively.

And we told you last quarter about our launch of Palmolive Pure & Clear dish detergent, that along with our new Eco Plus automatic dish detergent and Murphy's Oil Soap provides a cost category eco platform which we are supporting with an integrated PR program, shopping marketing activities and joint displays in-store.

We'll be shipping some very exciting new product in the first quarter of 2009 in toothpaste, tooth brushes, liquid hand soap, body wash and deodorants.

So looking ahead, volume in North America is expected to be up low single-digit in the fourth quarter, and for the full year 2009.

Organic sales are anticipated to grow mid-single digit for the same periods.

Operating profit is expected to be up modestly in the fourth quarter, and up mid to high single-digit for the full-year 2009.

Europe.

The macroeconomic situation in Western Europe remains challenging for, us as well as for other consumer product companies.

Despite this, our market shares are doing well, especially in the higher margin categories, such as Oral and Personal Care.

We see some indication that our business in Germany is improving.

Our toothpaste share is up almost one full point on a year-to-date basis, subsequent to a complete relaunch of our base business, which included price increases.

Similarly, in dish washing liquid, we relaunched our Palmolive brand with a more premium price position and our share is up 80 basis points year-to-date to 15.8% In bath and shower gels, our share is up nicely with good momentum in the most recent period.

In the UK, we reached a record toothpaste share of over 50% in September; and in Australia, our toothpaste share is now 70%.

We told you last quarter that we had launched Magic Moments Fabric Conditioner in France, Greece and Belgium; and as it has done in Mexico, this new product has met with good success in these European countries, as well as with increased market shares in all countries.

Looking ahead, volume in Europe is expected to grow very modestly for the fourth quarter and for 2009, with organic sales growing low to mid single-digit for the same periods.

Operating profit is expected to be down in the fourth quarter, primarily due to negative exchange.

For full-year 2009, operating profit is expected to be up low to mid single-digits.

Turning then to Latin America, markets in this region continued to be quite strong, and we are still seeing good category growth.

In fact, in Mexico and Brazil, we're seeing growth rates accelerating from 2007 levels in certain categories.

Our market shares have increased in toothpaste, tooth brushes, mouthwash, bar soap, liquid soap and hand dish across the region.

Our toothpaste business is healthy across the region.

Colgate Total is continuing to gain share behind strong support, a focus with the profession and constant innovation.

The new sub brand, Colgate Total Pro Clean achieved a 2% share in the latest reading, adding incremental share to the Colgate Total franchise.

In addition to the strong performance in toothpaste, in Mexico, referenced in the press release, other countries enjoyed good share gains as well.

In Brazil, our toothpaste share is up almost two points, reaching nearly 70% of the market.

Venezuela reached the prestigious 90 club with a share of 90.4% in the most recent period.

And in Colombia, our year-to-date share is up almost 4 points.

In addition to good regional share gains in toothpastes and tooth brushes, we've had very good success in mouthwash, with our year-to-date share up over five points, closing the gap with our nearest competitor by a full 10 point from two years.

Our market shares have increased in virtually every country, driven by strong innovation supported by full media and in-store activities.

Our regional bar soap share increased over a point year-to-date to 27%, climbing to a leadership position from almost an 8 point gap three years.

In the most recent period, our share rose further to 27.3%.

Both the Palmolive and Protex brands contributed to this success.

As you know, Protex is a brand with an antibacterial positioning that we sell throughout the emerging markets.

Protex had its outstanding results in many countries in the region, and in Brazil received a record 10 share in the latest reading.

So looking ahead, volume in Latin America is expected to increase at third quarter levels or slightly higher for the fourth quarter and for full-year 2009 as well.

Organic sales should be up mid teens for the same period.

Operating profit is expected to be up high single-digit and as a percent to sales in the fourth quarter, and is expected to be up double-digit in 2009.

Greater Asia Africa.

This division delivered another strong quarter, as markets throughout the region continued to show solid growth, despite economic difficulties in other parts of the world.

The toothpaste markets in China, India and Russia are all growing at double-digit rates.

Our toothpaste shares are up across the region, as referenced in the press release.

In India, our share is even with the prior year on a year-to-date basis and is up in the most recent period.

A new Colgate MaxFresh advertisement accompanied by an integrated marketing communications plan is helping to drive the positive recent MaxFresh shares.

And we also continue our equity enhancing consumer engagement activities along with Oral Health Month for the overall Colgate equity.

In Russia, our Colgate toothpaste share is up 50 basis points on a year-to-date basis, to 33.8.

and is at a record 34% in the most recent period.

In addition, the launch of our GABA products in the pharmacy channel, which we mentioned last quarter, is going well.

That has been supported by promotional and market research activities.

Our toothpaste shares are doing well also.

In India, our year-to-date share is up 290 basis points over the prior year, approaching 40%.

Much of this gain comes from our lower priced Colgate Super Flexible tooth brush, which is aimed at the large lower income population in both the rural and urban markets.

In Russia, we continued to strengthen our leadership position up 320 basis points on a year-to-date basis, reaching 50% of the tooth brush market in the most recent period.

Other countries showing good truth brush share gains are Malaysia, the Philippines, Thailand and Turkey.

Market shares are steady in our priority category of shower liquids, with particular focus on the Euro-Asian countries.

In Russia, for example, our shower gel share is at its highest level ever, up 220 basis points year-over-year to over 30%, with further gains in the latest readings.

So looking forward, volume in greater Asia-Africa is expected to increase high single-digit in the fourth quarter 2008 and for full year 2009 as well.

Organic sales should increase double digit for the same periods.

Operating profit is expected to increase double-digit, up absolutely and as a percent to sales, for the fourth quarter and full-year 2009.

And finally, Hill's.

While Hill's overall sales growth was strong, volume itself was negative, primarily impacted by the timing of price increases.

This year we took selling price increases effective July 1st, which drew volume out of Q3 and into Q2 as our customers made forward purchases in advanced of the announced SBI's.

However, in 2007, we took price increases effective October 1, drawing volume out of Q4 and into Q3.

The net effect was an unusually high volume in the third quarter of last year, and an unusually low volume in the third quarter of this year.

Volume in the fourth quarter is expected to increase low single digits.

As we and other pet food manufacturers have taken quite significant price increases to offset the steep rise in commodity costs, we've instituted a new program in the U.S.

and Europe to clearly communicate the value proposition of Hill's Science Diet to pet owners.

The he program, called, "Feeding is Believing," focuses on the power of precise nutrition and the actual low-cost per day of the product.

The integrated marketing plan reaches the consumer through pet magazines, online advertising, consumer brochures and coupons, as a variety of point of purchase materials, including shelf talkers, self laminates, counter mats and sidewalk signs.

Results so far have been very encouraging.

As you know, one of our very successful prescription diet products is Prescription Diet j/d, which treats arthritis and joint problems in dogs.

Based on consumer insight that showed about 50% of dog owners believe their dog has mobility problems and yet were unaware of any food solution, Hill's Europe offered a trial program which would give consumers first hand experience on how Prescription Diet j/d could help improve their dog's mobility.

The 21-day challenge provides consumers approximately one month of Prescription Diet j/d at no charge.

Vets are provided with the trial bags, as well as consumer information to help them discuss mobility problems and explain how Prescription Diet j/d could benefit their client's dog.

As soon as the consumer enters the trial program, they receive e-mails every week during the week during their trial period to reinforce the importance of compliance during the trial period.

As a result of the program, year-to-date market share for Prescription Diet j/d is up 10 points and volume has increased by 48.5%.

So following successful European results, Hill's U.S.

has launched the program, expanding to 3,500 additional vets in September.

Looking ahead, volume in the fourth quarter and for full-year 2009 is expected to increase low single-digits.

Organic sales should increase double-digit for the same period.

Operating profit is expected to be up mid single-digit for the fourth quarter, and full-year 2009.

So in summary, we are pleased with our results for the third quarter, particularly in these challenging and uncertain times.

We feel strongly that our strategic focus and geographic diversity positions us well for future growth.

Our four strategic initiatives with which you are all familiar -- getting closer to the consumer, the profession and our customer, efficiency and effectiveness in everything we do, innovation everywhere; and most importantly, leadership at all levels of the organization -- provide a clear direction for our 36,000 employees around the world.

We have a strong senior team and a deep and broad bench of future leaders who will work together to continue to deliver solid results.

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

Very good.

(OPERATOR INSTRUCTIONS).

Our first question will come from Nik Modi with UBS.

Good morning, everyone.

Good morning, Nik.

Just, my question is on the pricing, you know, given the magnitude of some of the price increases.

How are you protecting your market share in your two markets?

Are your competitors following?

Can you just give us some prospective around that?

Thanks.

Well, let me make a few comments, Nik.

First of all, relative to competitive pricing moves, yes, these commodity cost impacts are, I think, affecting all manufacturers in the categories in which we do business, and we are seeing competitors take pricing at similar levels to us across the board.

Obviously, there can be a little bit of a lead lag, 30, 60, 90 days, in terms of the pricing getting to the shelf, competitor to competitor versus ourselves.

But in the main, we are seeing everybody take price to similar levels and we are seeing that pricing move to the shelf.

And what we have experienced is that you do see some slight pantry destocking by the consumer as they wait for the pricing to settle on the shelf and then they come back into the marketplace.

That's the kind of flow we've been seeing.

And Ian, just to follow up on that, I mean, I guess -- and correct me if I'm wrong -- but are you guys pricing to offset some of the currency devaluations in some of your key emerging markets?

And in that environment, how does the competitive pricing look with your key competition?

That's always been a factor for us in parts of the world where currency deval impacts.

So that's a normal course of business and that effect is felt by all people in those markets.

So the answer is -- the answer is yes, in both cases.

But relative to our pricing so far the year, we have offset through pricing the dollar impact of the raw materials.

It It is our savings and other initiatives that have allowed us to limit the pressure on our gross profit through this year.

Thank you.

Sure.

And our next question will come from Bill Schmitz with Deutsche Bank.

Hi, good morning, guys.

Hi, Bill.

Hey, you've obviously been through this a number of times in emerging markets, but can you just sort of talk about how the consumer environment differs from the commodity environment, stock market environment and the currency environment down there, and sort of how it relates to emerging middle class and people's consumption rates?

I know it's a big question.

Yes, that's a -- an economics question, Bill.

The -- I think the answer would would be it is always interesting to me as I travel the world into those parts of the world, how attuned consumers are to marketplace events relative to currency and how that will affect pricing in the marketplace.

You know, we have very well-established processes in place, honed in Latin America in terms of how we respond to deval in taking our prices up, how we have elevated list prices for many of our products so that we don't get caught in price freezes, if that's where governments end up going.

And we find consumers very well attuned to managing in those environments.

Okay, and how about the emerging middle class?

I mean, have you seen a slow down in people entering that sort of consumption class, or not yet, or you don't expect to see it?

We certainly don't see it yet, Bill, and we certainly don't see them stepping out of the trade-up strategy that we have been putting in place.

So the Colgate Totals of this world continue to do well in Brazil -- our market share continues to do well in Brazil.

So no signs at this time.

Great.

Thank you very much.

Sure.

Our next question is from Ali Dibadj with Sanford Bernstein.

Hi guys, how are you?

Hi, Ali.

A question about SG&A, down 90 bips here.

It looks like you probably were aggressive on overhead reduction -- I know we talked about that earlier.

Could you help us just aggregate that 90 basis points in terms of the overhead versus maybe not growing your advertising spend as quickly as your top line, it looks like?

Just flush that out a little bit, if you would, please.

Sure.

The -- if we take the quarter, the SG&A for the third versus prior year, as you say, down 90 basis points, we see the majority of that coming from advertising -- overhead was down about 20 of those, and the rest was advertising, which is a reflection of two things, Ali.

What we have seen around the world is that if you break it into its geographic components, we're seeing traditional advertising spending weaken in Europe and the U.S., particularly if you take out the presidential spending.

And I think that would be intuitive to many.

And we're seeing advertising spending, the traditional advertising spending, continue to increase in the emerging markets of Asia and Latin America, although at a decelerating rate while still quite healthy.

And that's how our advertising spend has profiled so that we remain competitive in those markets in our categories.

I think a second point that is important to make here -- and Bina mentioned it in part with Hill's -- there is no question -- and we have talked about this several times -- that we have increased our focus on in-store communication, which is the place where, depending on the category, 60 to 80% of final purchasing decisions are made, and in some cases, added a value message to that communication through these times.

So spending, consistent with what we're seeing in the market, and a shift in communication focus to retail with a value message added, as Bina exampled.

That's helpful.

In that context, just as a follow-up, if you zoom in a little bit on North America margins, looked down obviously year-on-year, I guess I'd assume that it was from some of the new product launches that you mentioned in the press release, and certainly Bina kindly went through earlier on in the call.

But is that not the case, then?

Is there something going else in the margins in North America beyond increased advertising for the new products?

Maybe it's just commodities?

But just want to get an understanding of that one in particular, please.

You captured it in your question, Ali.

It's the commodities impact directly in the U.S.

marketplace.

Okay.

Thanks very much, guys.

Sure.

And we'll next go to Wendy Nicholson with Citi Investment Research.

Hi, good morning.

Hi, Wendy.

My question has to do with the pullback in raw material prices as we go into 2009; I know you've reflected the outlook for gross margins to go up to reflect that, but are you expecting, particularly on something likes the Hill's business where commodities are a particularly important part of the cost, to have to either roll back pricing or simply increase promotional levels?

And have you begun to do that or see that in any of the big categories?

To start with the last part of the question first, the answer is no.

Working back from that, we are in the midst of our budgeting process right now, so we haven't fully finished.

I think I have said before that if the commodities come back -- and indeed the visibility we have says that they are -- then we will certainly not be in a position of needing to take new pricing at the kind of levels we have seen this year -- which, if you go back three to four months, were still part of our planning.

So I think that comes off the table.

The question then, Wendy, is what will be a compelling value communication at retail, and how will you continue to keep the categories that are still growing in the United States growing at healthy rates?

And I think that will be a combination of promotion and other in-store communication techniques.

And your confidence in putting out the target for double-digit EPS growth in 2009, even though commodities -- excuse me, foreign exchange has moved as quickly as it has in so many of your big countries, I assume comes from that expectation of being able to drop those gross margin savings to the bottom line?

It's all a balance, Wendy.

Obviously, as we think about foreign exchange for next year, we're thinking about it through the lens of what we've seen over the last week or so.

And today we're thinking about oil in that 70 to $80 range for next year.

But, yes, I think we feel we will capture the benefit, and we will manage our promotional activity as we see fit across the year.

Terrific.

Thank you very much.

Sure.

Our next question is from Alice Longley with Buckingham Research.

Hi, my question is about pricing in Latin America.

If If you look at history where there have been big devaluations, the local currency pricing accelerates.

Do you -- but that doesn't seem to be in your guidance, because you guided to organic sales up in the mid-teens in the fourth quarter and for '09, and you actually have a little acceleration in volume.

So could you comment on that?

We talked about organic growth holding at about the same levels as we saw this quarter for the balance of this year, and into next.

As we look at pricing in Latin America, our current look at next year for all of the Colgate divisions has the Latin pricing higher than all of the other divisions.

So I think we are reflecting it; we will finalize it when we complete our budget process.

So your local currency -- your organic sales growth in Latin America should be accelerating, right, to offset the worsening year-over-year currency hits?

I think we have seen the -- some of that in the pricing that is already in this year that will roll over; and it will be, again, a balance between volume and pricing in Latin America, probably not unlike this year's level, maybe a little bit ahead.

Okay.

And then my other question is about the destocking in North America.

Are you seeing it by consumers and retailers?

And then also, does there come a point next year when that's kind of done with and we face comparisons against quarters in '08 when that was happening, so we get a little volume acceleration in North America?

Well, I think that, Alice, relative to retailer destocking, as we have said many times before, that is an ongoing aspect of business, obviously, heightened during these kind of times; but worked through in partnership, and there is nothing we have yet seen that is a significant dislocation in that regard.

In the consumer case, what you see is -- and we've seen it both with Hill's and in some of our other consumer categories -- is consumers work down pantry inventory until the pricing stabilizes at shelf and then comes back into the category.

And I think that's what we'll see going into next year.

Thank you.

Our next question is from Chris Ferrara with Merrill Lynch.

Hi guys.

Can you talk about what your actual currency assumptions are?

Because obviously it looks like your top line impact for '09 can hit you by anywhere as much as 8 to 9 to 10%, and I'm just trying to understand what the bottom line impact of that currency might be, given that you don't really hedge a lot of currency.

We've got a spread looking at next year, Chris, of about 6 to 8 on currency, and we're seeing volume in the 3 to 4 range.

As we said, the difference will be price.

Right, but I mean, is there a way to -- given your U.S.

company, your costs are probably more balanced or more exposed to the U.S.

dollar than your revenues are -- maybe that's wrong, maybe you can clear that up -- but I would have expected the EPS or the earnings impact from currency to be at a greater percentage than the top line impact.

Is that right?

About the same, Chris.

No, it's not right.

It' s about the same.

Okay, thank you.

Our next question is from Bill Chappell, SunTrust Robinson.

Morning.

Hey, Bill.

Just a follow-up on the Hill's pricing and the volumes in current quarter.

Do you have a sense -- or is there any way to gauge market share changes?

Is there any worry about pricing consumers out of the category or out of your products with some of the recent price increases you put through?

Bill, market shares have been okay, and we have seen -- consistent with what we saw in the fourth quarter last year -- the beginnings of a dollar comeback in terms of consumption at shelf.

I think the additional step we have now taken, given all of the pricing that we and others in this segment have put into the marketplace, is the communication program at retail and direct-to-consumer that talks about the clinical nutrition of Hill's and the real value of that for consumers' pets on a relatively low day-to-day outlay basis.

So that's, I guess, the answer.

And just with that, I guess it sound like the price gaps are not that different than they were before the price increases were put through?

On a relative basis, although as a leader, we lead in pricing.

And as I've said before, you sometimes get a little bit of a lead lag before all competitors have fully moved their pricing as well.

But ultimately, relative levels stay about the same.

Got it.

Thanks.

Our next question then is from Lauren Lieberman with Barclays.

Great, thanks.

Good morning.

Hi, Lauren.

The first thing was on the value message advertising for Hill's.

I was curious if you were doing anything similar with any of your other brands in any markets at this point?

Sometimes at retail levels, but not in the same way, given the relative cash outlay.

Okay.

And then the more real question was about Europe.

Just thought it was interesting, you know, volume down in France, Italy, UK, and for GABA; if you could talk a little bit about category trends, is it more personal Care, Home Care, or Oral Care?

Is it the category or just Colgate who's gaining share?

At some point one would think Europeans start buying this stuff again -- and talk a little bit about the outlook there.

Yes, sure.

Well, let's do a little bit of a world roundup but come back to Europe.

As I said earlier, still seeing categories -- now, this is specifically a profile of the categories in which we do business, so not the overall market -- growing on a dollar basis in that 2.5 to 2.5% range, which is probably half a percentage down on a dollar basis year-on-year.

In Europe -- and this is the combined Western and Central or Eastern Europe -- we're seeing categories continue to grow, down a little bit on prior year, and it's more helpful to go into the breakdown.

From a Western European point of view, we're seeing -- in constant currency, we are seeing category growth rates across the businesses in which we do business half; so, again, prevailing 3% growth rate running at about 1.5%.

Interesting, the profile is more favorable to Oral Care, which continues to run in a 2 to 3% range, Personal Care, which is a 1.5 to 2% range and Household Care, more flat.

And in Eastern Europe, we're continuing to see double-digit growth rates -- again, favoring more Oral Care and Personal Care.

So the consumer is staying with us, although at a more muted level, and I think going forward they will continue to stay with us, and hopefully we can stimulate the market enough to see that growth rate tick up a little bit.

Okay.

And then so in the markets where you said your volume was down in the press release -- so I guess that's Italy, UK, et cetera -- who is it then that's gaining share?

Well, the category is profiled pretty much like the country's profiled.

So --

Okay.

That was a broad average.

So the categories are down more steeply in those markets.

Okay.

And would you expect category growth to resume?

Because it looks like you're actually now getting some pricing.

So one would think volume -- I mean, at some point has got to be more toothpaste being sold, or household cleaning, or -- you know?

Yes.

Certainly that's what we will be working through on our budget cycle, how do we stimulate that return to the market?

But the markets are still growing, but at a lesser rate.

Okay, that's great.

Thank you.

Sure.

Our next question is from Connie Maneaty with BMO Capital Markets.

Good morning.

Hi, Connie.

I was wondering if you could talk specifically about the fourth quarter, where you start to get the big currency impact, but not yet the benefit of the lower raw material costs.

So how is the quarter kind of shaping up from where you see it right now?

Well, I think quite well.

We talked about the organic growth continuing to be in the same range that we have seen in the third quarter; and you're right, Connie, you don't get the full benefit of the commodity, given inventory, et cetera.

But we will see a little bit of improvement.

And obviously, we're very focused on our overhead area as we go forward into the fourth quarter.

And our advertising spending will be competitive with what we're seeing in the marketplace, but continuing to see a strengthening shift to the in-store, and keeping our consumer advertising competitive with what we're seeing in the markets in which we do business.

But the focus is a little bit of benefit on gross profit and a continued sharp focus on overhead.

So the mid-teen sales growth that you've seen on a year-to-date basis, does it slow to something sort of low to mid single-digits in the fourth quarter?

That's on a reported basis, not organic.

On a reported basis, it will probably be in the 2 to 4% range.

Okay.

And you would expect at this point to still see operating profit growth, right?

Yes.

Okay.

Thank you very much.

Sure.

Our next question is from Alec Patterson with RCM.

Hey, Alec.

Yes, good morning.

First of all, the obligatory gross margin breakdown -- I'm sorry, did you give that already?

No, we did not, and I'd be delighted to give it to you especially, Alec.

The prior year gross profit, this is just the walk-through now.

Th e prior-year gross profit -- this is just the walk through now -- the prior year gross profit at 57.3 for the quarter.

Material price is negative 5.5 points, benefit from pricing around 2.5% (inaudible), 2.5, and the balance then from restructuring and mix leading you to the 56.4, down the 90 basis points.

And I'm sorry, funding the growth is a part of that?

'm terribly sorry, funding the growth is 170 basis points -- 1.7, and then the balance is restructuring and mix.

Okay.

And then on the -- a big chunk of the SG&A line is the shipping and handling.

And I was just wondering if you could give a sense of how that -- is that going to be following more or less the price of oil, so to speak?

Are there other factors at work here as we try and get a handle on that trend on that line item?

Yes, that probably is the one area obviously we're very sharply focused on, because as we all see at the pump, that's an area that is translating through more quickly than other than other commodity prices.

And we have seen a bit of a pickup.

The ratio to sales of that is 10 basis points down versus prior year at 7.7% to sales.

It's been coming down every quarter, and we obviously will be hoping to continue that trend into the fourth and certainly into next year.

It's been coming down every quarter, meaning even though the diesel and energy markets have been up over the past several quarters -- ?

The dollars have been going up.

It's peaked at nearly 8% in the first quarter, down slightly in the second, and then 7.7 in the third.

Okay, great.

Thank you very much.

Sure.

Our next question will be from John Faucher with JP Morgan.

Thank you very much.

Just to follow-up on a couple of questions we've seen before.

Given the focus on the raw material pieces and offset to currency, can you talk a little bit about how the rest of your commodities are trending?

Proctor mentioned some commodities were still up dramatically year-over-year.

Most of the companies seem to be saying that it's taking a little bit longer than at least I think Wall Street expected for the lower prices to flow through.

So can you give us just a little bit of commentary on both of those issues?

Thanks.

Yes, we're seeing -- obviously, the impact in the third quarter was a little bit more than we were expecting.

I think we had talked about that the third quarter would probably be the toughest quarter.

You know, I must say, as we look at the most recent pricing on our key raw materials, we're seeing it pretty generally across the board down on quarter 3 levels, whether it's fats and oils, whether it's resins, and -- or of course the input to energy costs.

So what we're looking at is down from the third quarter.

Now , what you say is right, John -- obviously, there is a lead lag between the spot and what we can negotiate at and when you will see that in the income statement.

But as we've been looking at it, we think we're going to start seeing that benefit in the first quarter of next year, given the

Great.

Thanks.

Sure.

Our next question then is from Linda Bolton Weiser with Caris.

Hi, thank you.

You know, in looking back at your earnings growth in the early part of the decade when there were -- was some turmoil in Latin America, you actually had really strong earnings growth -- it was like in the mid-teens, I think.

But what you look at how you achieved that, I mean, there was a steady kind of decline in your advertising and promo spending ratio over that period of time.

So you managed to have earnings growth, but the decline in A&P spending, some would argue, ended up in not a good situation five years later.

So can you just comment on that and your current thoughts about -- will a decline in A&P ratio contribute to the earnings growth in '09?

Well, the way we are thinking about the earnings growth next year is obviously double-digit growth.

We haven't suggested mid teens growth.

Secondly, our current look at 2009 shows an increase in advertising behind the business, both in absolute dollars and in -- and on a ratio basis.

We will have to be attentive to what is happening in the various categories in which we do business around the world, but our thinking and planning assumption is that that will go -- that that will go up.

So our planning intention is to deliver good quality, double-digit earnings growth through times that we have managed through before, with advertising spending up.

Okay, thank you very much.

Sure.

Our next question is from Jason Gere, Wachovia.

Thank you, good morning.

I was just wondering if you can give us an update on CBP, just in terms of the outlook for the savings in '09, where we stand in terms of completion?

Thank you.

Sure.

Going along very well, continues to roll out around the world.

We expect, as we leave this year, to have about 70% of our global net sales covered by CBP.

And we have, again, a myriad of new examples, learning examples, from new markets that we have gone into that we are transferring to benefit other markets and our go-to market approach and strategies.

We still have a savings goal in place for 2008 of $100 million pre-tax, and are looking at delivering 150 -- north of 150 in 2009.

And in the first quarter of 2009, we'll actually bring two important markets live.

They are China and Brazil, along with Malaysia and some others.

But China and Brazil will go live in the first quarter of next year.

So continued progress in terms of the kind of shared learnings that can drive the business, and a 150 goal for next year.

Okay, thank you.

Sure.

And we return to Ali Dibadj with Sanford Bernstein for a follow-up.

Thanks for taking a follow-up.

Two questions, one more specific and one just a little bit kind of strategic thinking about the overall business.

Again, on advertising spend, you mentioned that you expect it to be going up or that's kind of what you're thinking in terms of planning for '09.

Can you talk a little bit about the -- I guess, ratio between in-store or trade spend versus advertising spend?

Do you see that shifting back and forth a little bit going forward?

How are you imagining that?

That's really something, Ali, I can't answer at this stage.

We literally start our budget review process here next year.

I will know about a month from now.

And I guess do you expect the total of those two to go up?

Can you even help answer that question?

Or is that still yet to be determined?

Well, the way we're looking at the advertising for next year, we see total advertising going up.

Some of the in-store stuff is captured between gross and net, and so it's not improbable that both could go up.

But you can't say right now growth to net expanding or contracting at this point.

Cannot.

Okay, then my other question is, over the years -- and certainly more recently -- there's still an idea among your distribution -- or among your kind of manufacturing network of bigger scale, more localized plants -- I'm sorry, more kind of consolidated big-scale plants to improve some of your scale leverage.

Does that change at all in the way you foresee -- or in this current environment right now, where currency is a little bit different so you have a little bit of a friction there?

Or oil prices may not go down to where they used to be even.

How do you think about that going forward?

Because it's really been -- one of the big drivers of your success over the past several years was a of that consolidation and getting more scale.

Does it change at all going forward?

I don't think so, Ali.

We obviously revisit it, and we'll revisit it again during our budget cycle; but we did a lot of sensitivity planning before we made those decisions.

And while you say that in the broadest sense, the answer is yes, for Oral Care and Personal Care businesses, indeed there is efficiency and it has a lot of sensitivity around it to take advantage of these highly efficient state-of-the-art, environmentally friendly facilities in providing our product wild world -- worldwide, although it is a wild world -- worldwide, based on the likeness of the product.

For our Home Care businesses, we continue to have local facilities servicing regions of geography, because obviously the shipping and transportation aspects of those kinds of Home Care businesses demand that kind of a supply chain network.

So maybe our business profiles a little bit differently than some others that would force a reevaluation; but in our case, we did a lot of sensitivity analysis around it and we're quite comfortable with that strategy going forward.

Okay, thanks.

And we do have a follow-up from Alec Patterson with RCM.

And just to clarify on '09, the tax rate is expected to be roughly the same, around 33?

Yes, Alec, indeed.

Okay, thanks.

Yes.

And with that, there are no further questions.

I' d like to turn the call to Ian Cook for a closing comment.

Well, thanks.

Thanks very much for being on the call, and we look forward to catching up with you again January of next year.

Thank you.

This does conclude today's conference call.

Again, we'd like to thank everyone for your participation and wish everyone a good day.