高露潔 (CL) 2009 Q4 法說會逐字稿

Welcome to today's Colgate-Palmolive Company fourth quarter year end 2009 earnings conference call.

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

Just as 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 touch the call over to Vice President of Investor Relations, Ms.

Bina Thompson.

Please go ahead, ma'am.

Thank you [Berlise], and good morning everybody.

And welcome to our fourth quarter earning release conference call.

With me this morning are Ian Cook, Chairman, President, and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Elaine Paik, who has been elected Treasurer, effective February 1.

This conference call will include forward- looking statements.

These statements are made on the basis of our views and assumptions as of this time, and are not guarantees of future performance.

Actual events or results may differ materially from these statements.

So for information about certain factors that could causes such differences, investors should consult our annual report on Form 10- K filed with the Securities and Exchange Commission, and available on our website, including the information set forth under the captions "Risk Factors" and "Cautionary Statements" on forward- looking statements.

We will discuss our results excluding charges relating to the 2004 restructuring program, which was completed in 2008, and a full reconciliation with the corresponding GAAP measures is included in the press release, and is posted on the Investor Relations page of our website at website at www.

colgate.com.

And of course, we will be glad to answer any questions you may have including or excluding these items as you wish.

We are delighted with our fourth quarter results a excellent finish to a year which had seem momentum building through the previous three quarters.

Our financial strategy with which you are all familiar continues to be effective.

We were particularly pleased with our volume growth of 3%, and our gross margin increase of 320 basis points.

And as we told you at the beginning of the year, we approached 2009 cautiously as there were so many uncertainties from the global macroeconomic perspective.

We said that the balance between volume and price would shift as the year unfolded, and that indeed has been the case.

In addition, we said that the rate of increase in our advertising spending would improve each quarter, and that has happened as well.

Our fourth quarter increase of 18% was a healthy one, particularly as we continued to benefit from reduced media costs in many parts of the world.

Our tax rate in the quarter of 32.6% was somewhat higher than our previous guidance, due to an increase in remittances from our overseas subsidiaries, but despite that, our EPS increased 21%, well ahead of consensus.

In addition to a healthy income statement, our balance sheet is very strong as well.

Our operating cash flow was excellent, up 42%, which should enable us to fund increased dividends and stock repurchases.

Both receivables and inventory days outstanding have declined, resulting in our working capital being at minus 0.4% of sales, the first time we've seen such a low working capital on a worldwide basis.

And our return on capital also reached a record of 39.1%.

So as we look out into this year, there are signs that the macroeconomic situation is improving around the world.

Happily, we've a robust pipeline of new products which should help continue our volume and share growth momentum.

And in the developing markets, such as Latin America and Asia, our strategy of offering good value at every price point should help continue to fuel growth there.

Now I would just like to spend a moment on Venezuela.

As you know, the Venezuelan currency devalued early this year.

Colgate people, who have extensive experience in managing in high inflation economies, minimized the impact and we have confidence in our ability to manage effectively going forward.

While difficult to estimate precisely, we currently anticipate the impact of the Venezuelan devaluation will be as a net reduction in 2010 earnings per share of $0.06 to $0.10.

This includes a negative $0.16 to $0.24 from translation, a positive $0.05 to $0.08 from lower taxes on accrued but unpaid remittances, and a positive $0.03 to $0.05 from the [re-evaluation] of the local balance sheet.

The Company continues to believe our strong top and bottom line momentum should continue, which bodes well for another year of double digit earnings per share growth in 2010.

And now before I turn to the division for a more in depth look at our results, I also wanted to share with you another step in our management development process, which realigns responsibilities among several Senior Managers, effective as of the first of February.

As has always been the case in the past, our goal is to insure that Colgate's talented Senior Management team can bring their deep knowledge and experience to all aspects of Colgate's global operations and key business functions.

So the new oversight responsibilities are: Michael Tangney, Hill's Pet Nutrition and Colgate South Pacific businesses, and Strategic direction of our important Global Shopper Marketing Initiative; Fabian Garcia, European Division, and strategic leadership for Colgate's Commercial Group, Global Marketing, Customer Development, Supply Chain and Technology; Franck Moison, Emerging Markets, greater Asia, Latin America, and Africa and Middle East divisions.

And in addition, Derek Samuel will assume operating responsibility for Colgate's businesses in greater Asia; Justin Scala will assume operating responsibility for the Latin American division; and Noah Wallace will continue to lead Colgate's US business, and will assume operating responsibilities for Colgate's businesses in Canada and the Caribbean.

And Noah will also provide business leadership for our Global Sustainability Strategy.

So now let's turn to the divisions, starting with North America.

We're very pleased with the 5.5% volume growth in North America.

This is the highest level of growth in 11 quarters, and is accompanied by good share performance.

Operating profit was strong as well, as it has been throughout 2009, as he US was the first to benefit from some of the decline in raw materials prices after enduring record highs in 2008.

Our market shares are strong, and a number of the new products which we told you about previously continue to help drive the business.

Our Colgate 360-Degree Actiflex toothbrush has added market share to the 360 franchise, which is almost up a full point quarter over quarter.

The consumer response to Colgate Wisp continued to be overwhelmingly positive in the fourth quarter.

Our full year share is at 5%, but jumped to 6.8% in the month of December.

Turning to Personal Care, our Body Wash share is up a full point year- over- year, largely owing to the re-invention this year of the Softsoap Body Wash bundle, along with the introduction of Softsoap Nutri-Serums.

Softsoap now is the fastest growing body wash in the United States.

As in 2009, our new product pipeline for 2010 is full.

Let me share a few new product highlights with you.

In the Oral Care category, we're launching My First Colgate Infant and Toddler Toothpaste, a new line of toothpaste with a non- foaming, fluoride free formula that is safe if swallowed.

It has a no-mess dispenser and can be used along with a companion My First Colgate Toothbrush.

For the slightly older child, we will be launching a Bakugan line of toothpaste and toothbrushes, both manual and powered.

According to the Toy Industry Association, Bakugan is the number one overall toy in the US, with viewership of almost three million boys, ages six to 11 on the Cartoon Network.

Another exciting toothpaste initiative is targeted at the adult Hispanic market, Colgate Triple Action.

As you know, our shares here in the US are higher in the Hispanic market, at over 50%, as a result of our very high share for Colgate Toothpaste across Latin America, and specifically Mexico.

Colgate Triple Action offers cavity protection, whiter teeth and fresh breath, at an attractive price point.

In Latin America, Triple Action has a 15 share across the region, and a 26 share in Mexico, up four points from the prior period.

In the Body Wash category, building on our successful new product launches in 2009, we will be launching Softsoap Body Butter Mega-Moisture Body Wash.

This provides the benefit of long-lasting moisturization, with moisture locking ingredients in a rich, thick formula.

And in Deodorants, we're launching an innovative new product, Mennen Speed Stick and Lady Speed Stick Stain Guard.

This patent-pending formula is designed to fight yellow stains on shirts, while providing strong odor and wetness protection.

And as you would expect, we'll be launching a comprehensive integrated marketing campaign, including sampling and a co-promotion with Haynes T-shirts.

You'll hear about some other exciting innovations as we go through the year.

So looking forward, we expect volume in North America to increase low to mid-single digit for the first quarter and full year.

Operating profit should be up double digit in the first quarter, and high-single digits for the full year, up absolutely and as a percent of sales for both periods.

Turning then to Europe, South Pacific.

We were pleased with another quarter of volume growth in Europe following the third quarter growth volume increase.

For the first time in six quarters, we saw GDP growth in the Euro zone, an encouraging sign.

And of particular note was good volume growth in three of the four largest markets, France, the UK and Italy, with the fourth, Germany, being essentially even with a year ago period.

And as referenced in the press release, we launched a number of new products across categories in Europe.

One of the most significant ones is Colgate Sensitive Pro Relief Toothpaste, which was met with very good success both with the dentists and our consumers.

Launched in late September in the UK, Colgate Sensitive Pro Relief Toothpaste has almost a 3% share in that market and has helped to drive our overall UK Colgate share to almost 50%.

New product launches are continuing into 2010.

In the Personal Care area, we're very excited about our new Body Wash line, Palmolive Nutri-Fruit.

This is our first offering in the Premium segment.

The product combines exclusive pleasurable fragrances and moisturizing skin care formulas, and the unique concept of a swirly shower cream has tested well with consumers, and initial orders are significantly above forecast.

An exciting new product in Home Care is Ajax Bucket Dilutable Cleaner, in packaging which is more respectful of the environment.

Made with PET technology as opposed to PE technology, the product will have a more modern look and feel with a new bottle designed by ergonomic experts.

It's lighter than current PE bottles, uses 60% of recycled PET, and is still 100% recyclable.

So looking ahead, volume in Europe is expected to increase low to mid-single digits for the first quarter and full year, and operating profit is expected to be up double digit for the first quarter and full year, up absolutely and as a percent of sales for both periods.

In Latin America, the good momentum we have been experiencing in this division throughout 2009 continued in the fourth quarter, with excellent volume and record sales and profits.

And as referenced in the press release, our toothpaste market shares continue to grow.

Interestingly, even in the face of somewhat more challenging economic times, shares of Colgate Total, our premium priced toothpaste, increased almost 2.5 points across the region with gains in 3.5 and 4.5 points in Brazil and Venezuela, respectively.

In Mexico, our share is up year over year to 85.6%, despite some increased promotional activity on the part of competition.

And similarly in Toothbrushes, we've gained marked share despite aggressive competitive activity.

Our regional market share is now seven points ahead of the nearest competitor, having been [flat] in 2006.

Another good success for us has been Mouthwash, where we've nearly doubled our share in three years.

Our regional share is at 27.6, up 280 basis points from the year-ago period with our most recent share reading at 28.7%.

Enhanced in-store activity as well as increased media has helped drive our share.

In Brazil, where we are competing head to head for market leadership, we are in the number one position on a year to date basis.

Two strong new product launches, Colgate Plax Complete Care, and Colgate Plax Sensitive, contributed to this success.

Our market shares increased in Bar Soaps as well, where we now hold the number one and two brand positions, Protex, followed by Palmolive.

Protex surpassed Palmolive as a result not only of successful new product introductions, but also the implementation of a Hand Washing Campaign, made particularly relevant by the recent concerns over H1N1 and overall good hygiene.

So looking ahead, volume in Latin America is expected to grow mid-single digit for the first quarter and full year.

Operating profit is expected to be even with last year's high levels for the first quarter, and up mid-single digits for the full year, up absolutely and as a percent of sales.

Turning then to greater Asia, Africa.

[We've seen] greater Asia, Africa experience a very healthy volume rebound in the fourth quarter with strength across the region.

Our Toothpaste share in China was up 70 basis points on a year to date base.

We marked a milestone in the Philippines, where our Toothpaste share reached an all time high of 55% in the most recent period, with our year to date share up 240 basis points to 53.5.

In Russia, our Toothpaste share grew 60 basis points to 33%.

You may remember we launched GABA's brand Elmex in Russia, and that's going very well.

Our Scientific Affairs Managers have now visited all target universities and key opinion leaders, and as a result, we grew our brand recommendations in Russia from 15% to 24%, and are now the number one Company recommended most often with the combined Colgate and Elmex brands.

Our market shares for Elmex are growing in both Toothpaste and Toothbrushes, and we have some strong plans with pharmacies across the country to further grow the business in 2010.

Another important launch for us was Colgate Sensitive Pro Relief Toothpaste, which we launched in Singapore in September.

And since we told you about it, our results have continued to improve.

Selling now in Singapore, Hong Kong, Thailand, Taiwan and Turkey, share gains have been incremental to our overall share in all those markets.

Our Toothbrush shares were up in India and Russia, with Russia achieving over 50% in the most recent period.

Mouthwash has been another success story.

Our year to date shares at 12%, with the most recent rest reading at 14.5%.

Two exciting new markets for us are China and Russia, where we've launched in key cities and in modern trade, and have achieved over 30% share in both cases.

So looking ahead, volume in greater Asia, Africa is expected to grow high single digits for the first quarter and full year, with operating profit growing double digits for the first quarter and full year, up absolutely and as a percent of sales.

And finally, Hill's.

As you know, this is our one business which has been disproportionately affected by the recessionary economies, here in the US and in Europe and Japan.

While consumers and veterinarians alike have always recognized the value of Hill's premium priced pet foods, which offer documented superior nutrition, a series of price increases, which we took beginning in 2008 and to early in 2009 to offset very sudden increases in commodity costs, resulted in the price cap between Hill's and our competition just being too wide.

Starting in September, 2009, we began to take actions to correct this.

Starting with the Puppy-Kitten segment, a key entry point into the Pet Food category, we implemented a permanent price reduction.

In addition in the fourth quarter, we offered a Bonus Bag promotion coupled with messaging on nutritional superiority.

Starting this year, we've taken pricing actions globally with in-store and media communication focused on, Feed the Best for Less, New Lower Price, Same Superior Nutrition.

While it's still early, we have seen evidence in some of our large format retailers that consumption is increasing, and importantly, our veterinarian endorsement remains high, and the gap between us and our nearest competitor is as wide as it has always been.

We are also very encouraged by two new products, which we'll be launching this year.

The first is a Dry Wellness Food for small and toy breed dogs under the Science Diet brand.

Science Diet already over indexes against these dogs, who have longer life expectancies than other breeds, and eat more treats and wet food than the average dog.

Small and toy breed dogs account for 40% of all dogs, and are the fastest growing category, offering a good opportunity for Hills.

A second new product in the US and Canada is in the Prescription Diet line, JD Feline.

This is the first therapeutic pet food clinically proven to help cats be more active in 28 days.

JD feline addresses the high incidence of arthritis in older cats.

Because there are no long term FDA approved medications for the treatment of feline arthritis, JD Feline is an excellent tool veterinarians can trust to help their feline patients maintain joint cartilage and improve their mobility.

So looking ahead, Hill's volume is expected to climb modestly in the first quarter, but should be up modestly for the full year.

Operating profit is expected to grow low single digit for the first quarter, and should be up high single digit for the full year, up absolutely and as a percent of sales.

So to summarize, we are extremely pleased with the way we finished the year 2009.

Colgate people around the world are all focused on our strategies and priorities, thereby delivering consistent strong results, even in the face of worldwide macroeconomic challenges.

We expect this momentum to continue into 2010, and look forward to sharing our progress with you as we go throughout the year.

And now [Berlise], I am finished with my commentary.

I would like to open it up for questions.

Thank you.

(Operator Instructions) Well we'll pause briefly to compile the Q and A roster.

We'll take the first question from the line of Joe Altobello with Oppenheimer and Company.

Thanks, good morning.

Actually just two quick ones.

First, if you could just go into the issues of at Hill's a little bit more; obviously we're looking for a little bit better volumes there.

You touched on it a little bit on the prepared remarks, but I was hoping for a little color there.

And then secondly, as you look into 2010, the gross margin side, you guys have typically put an evergreen target of up 75 to 125 [dips], and it sounds like you're short of backing that as well, although you start to lose some of the impact of pricing, and I would imagine that commodity costs become a bit of a headwind next year, or in 2010, so if you could comment on that as well.

Thanks.

Okay Joe, good morning, it's Ian.

Let me start with Hill's and try and put a little bi more color, as you say, on the remarks that Bina already made.

Clearly, we have understood the need to make pricing, and as we've said before, some sizing adjustment, to reestablish Hill's competitiveness with other premium pet nutrition brands, and we began that process in the second half of last year, principally in the fourth quarter, with right pricing here in the United States on key SKUs, and some right sizing on the most important market entry SKUs in the Puppy and Kitten areas.

Those programs continue into 2010.

We now have effective the right pricing across all of the line here in the United States, and we'll have the right sizing in place across the SKUs to be right-sized by the beginning of the second quarter and that is what will also occur in Europe.

As Bina said, our recommendation level has been strong.

When we see the right sizing and right pricing at shelf, we have seen a response, in terms of consumption uptake, in our leading retail accounts.

And what we are seeing at the beginning of this year is an acceleration of the pace of consumption uptake after the pricing action has hit the shelf, so we're confident that we have the right strategy being deployed, and encouraged by the initial response.

We do, as shipments take some time to catch up to consumption, expect to see a modest volume decline in the first quarter, as Bina said, but that will turn as the year progresses, and then that is a modest positive.

If I move from Hill's to gross margin, you will remember, Joe, that we said this was a very important part of our strategy for 2009, and as you have seen now with our most recent quarter results, we have much brought the gross margin back to 59.5%.

You're right, we tend to focus on evergreen goals in the context of our strategic planning, and the way I would categorize 2010 is that we see our gross margin around the 60% level for 2010 and are goaling a mid-60s gross margin over our next strategic planning period of five to six years.

So that's the way we're look at gross margin, Joe.

Next year, or 2010, is primarily coming from the top line, not necessarily the further gross margin expansion on the order of 200 basis points?

I was focusing on gross margin.

What I was saying, Joe, is that the gross margin increase, we expect to be around that 60% area coming from some rollover benefit of pricing, and obviously are funding the growth Colgate business planning and other efficiency and savings programs.

Okay.

Perfect, thank you.

Sure.

The next question comes from Bill Schmitz with Deutsche Bank.

Hi, good morning.

Hi Bill.

Can you just tell us what the advertising and promotion ratio was for the full year, as a percentage of sales, and then any guidance on what you think it could be for next year?

Sure, the [A to S] ratio for this year 2009, was around 10%, and our projection for 2010 sees us increasing both in the absolute and as a percentage to sales.

Okay, great, and this might be a totally stupid question, but when you talk about double digit growth next year, does that exclude or include the gain on Venezuela, so the first quarter gain that you're going to book from the taxes and then balance sheet changes?

Yes, maybe you came on the call late, Bill.

Bina made some comment to that in her prepared remarks.

Let me take a step back and put the answer in perhaps a broader historical and strategic context.

You know that we have had, over the years, considerable experience in Latin America, in dealing with devaluations in a hyper-inflationary environment.

Our approach to dealing with it has always been on a net basis, and the way we worked with our folk in Venezuela and the Latin America division was to prepare the Venezuelan Company to deal with the devaluation both from a balance sheet point of view and an operational point of view, as cleanly as possible, and that you see reflected in the net position, so it's a net position that we are taking.

While I say that, Bill, let me just offer another couple of data points.

Bina talked about the tax and the balance sheet pickup in the first quarter.

I would point out that from a tax point of view, that we'll see our tax rate in the first quarter, from an overall corporate point of view, running at about 24% to 25%, and the full year impact of that will be to see our tax rate running at between 30.5% and 31.5%, because of the timing of the events.

Okay, great.

That's really helpful.

Thank you.

Sure.

We'll be next to Ali Dibadj with Bernstein.

Thanks very much.

Just to follow that train of thought a little bit, and then a followup to it, if one were to just exclude Venezuela completely, do you still think it is double digit growth?

I'm trying to just get an understanding of how to think of Venezuela going forward in your guidance.

Your question Ali is if we were to exclusion Venezuela completely?

Yes, both the positive and negatives, is it double digit EPS growth is you would have expected?

Yes.

Okay.

And what about non-Venezuela FX?

The FX for the year.

Going forward, yes.

Yes I'm just going to get it for you.

What's baked into our planning for 2010 is an FX overall of flat to slightly negative, and positive in the first quarter.

Okay, so still double digits how we should think about it, excluding the benefit from Venezuela and the hit there in FX, okay.

The next part of my question, just I'm trying to understand more about the competitive environment.

So for example, Latin America, we have a volume number, we didn't get an organic sales number, so I'm trying to understand that in light of just hearing a few moments ago from one of your competitors that share in Brazil Pharmacy is 20%, growing tremendously in many their new entrants, growing similarly in the Benelux with a launch there in China as well.

So I'm just trying to understand competitive environment ,and this mix between pricing and volume going forward, first in Latin America and then beyond if you could please.

Sure Ali, let me start with Latin America.

And you raised organic, so let me answer the question using that as a measuring point.

The organic growth that we experienced in Latin America was in the mid-teens in Latin America for the fourth quarter.

We expect that our organic growth in Latin America going forward will likewise be in the mid-teens, and of course, there is a little bit of effect from pricing, given the pricing action consistent with the devaluation that will be taken in Venezuela, but we expect our volume to be in the same mid-single digit area it was in the fourth quarter.

Now, if I take a step back, still on Latin America, and talk about competitive activity, you mentioned the Pharmacy share in Brazil, I would comment that if we look at Brazil, our overall market share for the year, nationally, was running at around 70%.

In fact in December, it was up to over 71%.

When we look at our share in Pharmacy, it's essentially flat year on year, and the independent Nielsen data I'm looking at says that the competitive share which is the Oral-B Toothpaste brand is running at a 5% market share in Pharmacy nationally, with Pharmacy nationally in Brazil as we have said before at about 12% to 13% of the total category.

Interestingly, I would comment that Pharmacy in Brazil accounts for 50% of the consumer purchases of toothpastes that fight sensitivity, and we have just introduced our Colgate Sensitive Pro Relief Toothpaste, which provides instant and long-lasting relief, superior to what is currently available in the marketplace, and of course, we have pretty high expectations for that.

So for us, nothing material has changed with the share profile in Brazil.

What we see in Benelux is a light, mid- single digit share from Oral- B in toothpaste, and a Colgate share that is essentially flat year on year.

Benelux, with no disrespect, is obviously a slightly smaller geography than Brazil, but that's the status there.

And as for China, our market share on toothpaste, as has been commented, is actually up to nearly 32%, and our lead multi-national competitor is down in market share in that country.

So as we have said before on these kind of calls, while we take nothing casually, we believe we have appropriate plans to meet in market events whether it be Brazil, Benelux or China.

Thank you very much for going around the horn.

One thing that you said just maybe to cap up, Latin America specific, price versus volume, particularly in the context of, in the prepared remarks, operating profit being flat with last year, just some more clarity would be great, please, thank you again.

Venezuela is the answer to your second point.

But in terms of Latin America overall, as I say, we've got volume running about mid- single digits for next year, and SBI running at about mid to high single digits.

Thanks very much.

Sure.

We'll go next to Lauren Lieberman with Barclays Capital.

Thanks, good morning.

Good morning, Lauren.

My question is about the sustainability of pricing, broadly speaking, in emerging markets.

Because one thing I've been thinking about is that historically, when Colgate has raised prices in response to changes in currency fluctuations in emerging markets with your strong market shares, the pricing sticks long after currencies change course, and what that means for long- term profitability in those markets.

Can you talk a little bit about that?

Yes, you know, I guess, Lauren, our philosophy on pricing comes from two perspectives.

One is the economic reality of offsetting transaction impacts of Forex or commodity costs, market by market.

And the second is managing your pricing to a stated pricing strategy against key reference brands, and that is the balance that you are always seeking to manage.

As we look at the way we have structured our 2010 operating plan, we don't foresee new pricing in emerging markets in 2010.

In other words, we are simply maintaining the rollover benefits of actions taken in 2009, with the exception of the pricing that will be taken in Venezuela to offset the transaction impact of the devaluation there from an operating point of view.

So that's our general approach to 2010, Lauren.

Is the estimate that you have given, the $0.16 to $0.24, does that include the benefit from any pricing you may still take in Venezuela, or is that not yet in part of that guidance?

It is all net, Lauren, so it includes the actions we plan to take.

Okay.

Fantastic.

Thank you.

Sure.

We'll can next to Jason Gere with RBC Capital Markets.

Good morning.

Hi, Jason.

Hi, I guess, can you just talk about the pricing environment in the US, and it's two quarters in a row we've seen some negative pricing.

I know last quarter, you were talking about building some trial.

Is that still the case?

Is it just trade spendings increasing, and then just on that point, what's your outlook for 2010 on that note?

I guess the headline would be that it is a combination in North America of a couple of things.

It is a continuation of trial building behind new products, and there is a component, back to my comment about offsetting costs and maintaining pricing strategy, there is a component in the fourth quarter of some localized response to competitive promotional activity.

On balance, the way we look at 2010 is that pricing will be basically flat year on year.

Okay.

And then - - ?

And I would say, Jason, even with that approach in the US, the US is very much leading in terms of its recovery of gross margin in the fourth quarter, so the income statement structure worked out quite well.

Okay.

And then just in your response to an earlier question on the A and P spending.

In this quarter I think we did see I think a 50 basis points increase.

Is that generally the range that we should anticipate for next year, or something greater, just with the pipeline of innovation?

I would say, without getting pinned to a specific point in time number, that that would be a fair assumption.

It's going to be up in the absolute, it's going to be up as a ratio, and that ratio will certainly be 50 basis points up year on year, if not slightly better than that.

Okay.

And then just the last thing, if you could break down the gross margin components as you usually do every quarter.

Happy to.

So if we compare the fourth quarter of this year with the fourth quarter of prior year, prior year fourth quarter gross margin was 56.3.

The pricing in this fourth quarter, 2009, added 1.4 points, 140 basis points.

Obviously nothing from the restructuring.

Our funding the growth savings delivered a healthy 2.2 points, 220 basis points, the same as the third quarter.

Material prices were again less negative, minus 50 basis points in the fourth quarter, and then there was a 0.1 mix divestment et cetera change leading you to the 59.5, or the 320 basis points increase.

Great, thank you very much.

Sure, Jason.

We'll go next to Chris Ferrara with Banc of America.

Thanks, can we talk about, Ian, I guess the material side on what you just said of the negative 50 basis point.

I guess, and I know that includes currency, but can you talk about, maybe it's not materials, just currency.

What's the currency impact ex- Venezuela to gross margin now, and how will that flow?

Will it get positive in early 2010 and then swing back to negative again by the end of 2010, based on where spot rates are right now?

I don't have that level of detail in front of me, Chris, and I'm not sure I'd want to go there anyway.

I guess the way we're looking at the year going forward, by which I mean 2010, we're running oil baked into our cost assumptions of around $75.00 a barrel.

We obviously have our funding, the gross savings on the margin, the margin line.

We think material costs, which is a combination of everything, is estimated to increase between 1% and 2% overall year on year, and that with the combination of all we have, feel quite comfortable with that around 60% gross margin estimate for the year.

Thanks, that's helpful.

One other - - can you talk a little bit about mix, because you guys, I guess, bake mix into volume, which some your competitors break it up.

Can you give us sense for how mix has gone, in other words how has tradeup trended across the Oral Care portfolio?

I guess if you had overall, a view on the overall Company, that's great, but if not, just say the US and Latin America specifically.

Are you seeing tradeup to Colgate Total and other premium products accelerate, decelerate, or neither?

We don't break that out, Chris, you know we give a dollar-weighted volume.

Let me give you one example from Latin America, which might capture [the full] - - my general response would be as we deliver and convince the consumer we're delivering increased value, they are prepared to pay a higher price.

We see that in the early days of Pro-Relief, and the example I was going to give you is Total in Brazil, which has continued to increase market share, finishing the year at around 19 share, notwithstanding the environment we've been working our way through.

So I think if one offers the consumer value, and convinces the consumer as to that value, and in the case of Total Professional recommendation helps, the consumer continues to move what they see as a better value even if it carries a high price.

Thanks a lot, Ian.

Next to John Faucher with JP Morgan.

Thanks.

So just to follow up on Chris's question, in looking at that, is it safe to say that we're just simply not going to see raw materials end up as a benefit to gross margin, if I look at raw materials moving up next year?

So we're not going to get that big windfall it seems like?

And then the second question, totally unrelated, you've talked a lot about the competitive activity in Oral Care.

What are you seeing in terms of competitive activity on the Household side?

Is that heating up dramatically around the globe?

Thanks.

Yes, if I talk about material prices, as I said earlier, John, we're seeing, at least thus far, our estimate is that our materials costs will be up year on year between a point and two points, which will be a negative pressure on the gross margins.

So our gross margin improvement next year, by next year I mean 2010, this year, will be our funding the growth savings programs and the rollover benefits we get on pricing.

Remember, on the material side also, we're facing the transaction impact of Venezuela in 2010 as well.

So no big favorables just in terms of base commodity pricing.

If I move to the categories, we have seen less competitive activity in the Personal Care categories, and we have seen more observable, at least in terms of the data we read, more observable competitive activity in what you may call the higher volume Household Care businesses, which would be Heavy Duty Detergents, which we really aren't a player in, but based on the data we see, we have seen some step- up in promotional activity there.

If you focus on our HDD businesses, which largely around the world are Cleaners and Fabric Softeners, in fact, our fourths quarter volume movement in those categories is higher as in the year to date average, so we have picked up acceleration in our HP Household products categories, and when I look at the gross margins have materially increased gross margins across the board.

So yes, some step-up in promotional activity in volume-related categories, a clear focus on HDDs, less that is impeding us on Dish and Fabric Softener so far.

Thank you.

Sure.

Well's go next to Alice Longley with Buckingham Research.

Hi, Alice.

Hi, good morning.

A question in line with some that have been asked earlier, if I look at the layout of the year, the first quarter looks like it's up a lot because currency is most favorable, and then you get the gain in Venezuela, do you think EPS can be up double digits for the quarters after the first quarter?

The EPS will be up for the year double digit.

And as you rightly say, Alice, the first quarter will be higher than that because of effects previously discussed.

Double digit for the year is what we're guiding.

But is it likely to be single digit in the later three quarters?

Probably so, but marginally.

Okay.

High single digits then.

And then when you go out to 2011, and if Venezuela is no longer hurting you as I guess it will be in the latter three quarters, but you have that big gain, do you think you can be up, have EPS up double digits in 2011, given that comp against the gain?

We'll talk about that later in the year, Alice.

You know, we're focused right now on executing our plan in Venezuela and getting as much on the grounds clarity as we can, but you know well that our start point thinking is to deliver that double-digit EPS, which will be our start point thinking for 2011, but let's come back to that as the year unfolds.

All right.

And then you've given us some guidance for volume for the different sectors, can you give us some summary comment on what you see volume for the year putting all the sectors together, and also pricing, so we can see what you're looking for for organic growth Company-wide?

Sure.

Let's talk about that very specifically.

If you take the total Company, Alice, we're looking at mid-single digits volume.

That's for the corporation worldwide, and from a pricing point of view, we're looking at 2.5% to 3.5% on pricing, and then that gets you to the organic of between 6% and 8%.

Perfect.

Thank you.

We'll go next to Connie Maneaty with BMO Capital Markets.

Hi Connie.

Good morning.

Good morning.

I have some questions on Venezuela.

A lot of companies that have reported or commented so far have said that they are going to use the parallel rate because they haven't seen any evidence that business can actually be conducted at the 4.3 rate, and I think that's the rate this you're using.

Are you actually conducting business at that rate?

No.

Interestingly, we just today, we're back up.

You know they devalued to a 430 and then a preferential of 260, and the parallel hovers around six, depending on the day of the week.

We found interestingly, as the details of the various rates came out, that most of our products were on the preferential rate, and we just learned this morning that we had funds released at the preferential rate for us, in other words, the 2.6.

From a translation point of view, we will be translating at the official rate of 430, and as an operating matter, if the early indications that we will indeed get funds at the preferential rate for our products is sustained, that would simply mean we would take less pricing in order to offset the transaction impact of that, versus the 215, so that's where we are today.

That's really interesting.

In 2009, it seemed to me that the first time you reported out transaction expense tied to Venezuela was in the third quarter.

At that point, it seems that there was an official rate of 2.15 [in] a parallel rate.

Were you conducting business back then at the parallel rate, and then what you're saying now is, well first of all, were you conducting business back then at the parallel rate, and were you hit with transaction costs in the first half that were just not reported out, or do we start to get more transaction in the first quarter of, first half of 2010 than in 2009?

Okay.

Let me try and answer that.

Obviously, there's a pre-hyper [end] devaluation, and then there's a post.

We were operating our business in 2009, which the devaluation and indeed the hyper-inflationary designation had nothing to do with, so there was only one official rate, which was the 215 rate.

And we operated our business primarily at the 215 rate, and again, given our now 260 designation, that may well be because our products were essential in that marketplace.

We did have some non-qualified purchases at the parallel rate, because there was no other rate between the official and the parallel, and that's what we reported in the third and fourth quarters at similar levels in the back half of 2009.

So now you come into 2010, and as I say, early indications are that, from a transactional point of view, the materials should be at 260; from a translation points of view, there is clarity that the translation will be at 430, and that's how we are approaching 2010.

So that means in the first half of 2010, the transactions are now recurring at 260 versus 2.15, but in the second half, if your preferential rate holds, the 260 compares to the six.

Is that right?

No, because a large part of the business we managed in the second half of 2009 were still at the 215.

We simply had some non-qualified purchases at the parallel rate, which we called out in the third and fourth quarter.

Okay, just one final question.

As Venezuela was doubling in size because of inflation over three years, what was the EPS contribution in 2007, 2008, and 2009?

We don't call that.

What I would tell you, Connie, going forward to the question somebody else asked, that our estimate for growth in Latin America, even including the rebased Venezuela, is a 5% volume growth and that 6% to 8% organic growth, with the favorable exchange making the difference.

So we will continue to deliver at very healthy rates in Latin America.

Okay, thank you.

We'll go next to Bill Chappell with SunTrust.

Good morning.

Just a quick one on the new product launches for this year.

How does that compare in terms of numbers or impact versus 2009, are there any particular ones you expect to move the needle?

And then, will the rollout this year be pretty similar to what you saw last year?

Bill, good morning.

The answer is without sounding glib, the new product profile for this year is good.

In fact, the contribution to same-year sales of new products last year were slightly higher than our historical, average, pleasing.

And we will have a similar if not slightly better profile for 2010.

I think it's never wise to call out the so- called needle moving events.

We believe in a steady flow of good innovation that fits consumers' behavior at price points they see a value in, and that's what you can expect from us in 2010.

If I were to call on one, it would be Sensitive Pro-Relief Toothpaste.

Why?

Because it's a one billion global segment.

Why?

Because the product offers instant and long- lasting relief, at levels superior to currently available in the marketplace, and if you have pain, you want to get rid of it.

Our initial end market results have been quite positive, low single digit share increases, incremental to our Sensitive offerings, and largely increment to our overall Colgate share, give us encouragement.

We realize it's a journey, but it is a journey we are committed to, so if I was to highlight one, it would be that one, because of its strategic value over the long term.

Beyond that, you can expect a good, steady stream of innovation across all of our categories and at all price points, to make sure we service all consumers around the world.

I would assume the Sensitive product would be a big driver on the price mix side for 2010.

Depending on the share progress we make, there's no question it is an accretive business.

Great, thanks so much.

Sure.

Well go next to Alec Patterson with RCM.

Hi Alec.

Hi, Ian.

Good morning.

Good morning.

Just, I guess I do want to try to understand the flow of the questions surrounding the materials impact and transactional impact a little better, and I guess you've referenced how raw materials have actually been a year over year benefit in recent quarters in the US, so and economy [is where] obviously, it's dollar based, there has been a benefit, and the offset globally has been the currency impact.

Is that a fair assessment of what's happened?

In general terms, Alec, yes.

So I guess I'm trying to understand in the fourth quarter where currency was actually a benefit, I would have thought the underlying raw material trend in dollars would still be relatively beneficial.

What am I missing in that equation?

If you track the year, and I'm sure you have it in front of you, when we talk the gross profit impact as a negative, you see material prices, as a negative, moving from negative 350 basis points in the first quarter of 2009 to negative 50 basis points in the fourth quarter of this year.

Now overall, while we're getting favorability, there is a little bit of Venezuela certainly in 2010, where we're talking about materials up between 1% and 2%, and we have seen some of the [food stops] on the Hill side go up and down.

But if we want to get into more details, we have to take that offline.

Okay.

That's great, we'll take it off line.

Let me just then swing over to the Hill's business.

I thought in your discussion about how you're doing the right pricing, there was a comment along the lines of pricing is down in a lot of key categories volume is improving, but there was something along the lines of the price gap is not where you want it.

I'm sorry, could you refresh that comment?

If that was is take-away, that was either the wrong comment, or I wasn't clear.

The steps we took in stages, I guess the bottom line is the progress we have been making, particularly from the fourth quarter into this quarter and into the second quarter, has been to get the on-shelf pricing, and then through the right sizing, the pricing, and value relationship correct with other premium brands.

So in the four quarter, we did that across some of the key SKUs, but not the entire business, and the only point I was trying to make is, the right pricing in the US is now in place across all of the business, and by the beginning of the second quarter, the right sizing will be in place as well.

But the price gap versus those key competitive sets, are they where you want them to be?

Yes, they are.

Okay.

And you talked about EBIT margins improving as soon as the first quarter.

Should I presume that that's being fed by still beneficial raw material environment, given the pricing action?

Yes, I would say yes.

We are looking at continued modest gross margin improvement, quarter on quarter.

Yes.

Okay.

Great.

Thank you, Ian.

Sure.

We'll go next to Andrew Sawyer with Goldman Sachs.

Yes, sure, I have just one quick one.

Can you just give us some context on when you expect Sensitive Relief to get approved into the US, and then, we've seen a lot of market share progress out of Sensodyne from Glaxo.

How would you guys be positioned differently than that if you do enter this market?

Let me take a little bit of a step back.

Obviously, we have started our global expansion with Pro-Sensitive.

By the third quarter of this year, we will be in markets that account for about three quarters of the Sensitivity Category around the world, which you could read as a proxy for Sensodyne, in terms of their business spread.

Right now, our Sensitivity Pro-Relief product is under review with the FDA, and I don't care to comment, nor would I wish to try to and predict the outcome of that, but discussions are underway, and obviously, when there is any news, we will make the appropriate announcement.

As I had said before, the Pro-Relief product, driven by a patented arginine technology, offers when applied topically, instant relief from sensitivity and then of course, with regular brushing, provides sustained relief.

And clinical data which we have taken to Academia and dental professionals validates that, so our differentiation as we have introduced the product around the world, is this combination of instant and long- lasting relief.

Not to beat a dead horse, but just a real quick one.

If you look at the third and fourth quarter, you guys absorbed about $0.05 or $0.06 per hit per quarter for Venezuela on transactional stuff.

The $0.05 per quarter, or $0.20 for the full year, for next year translationally is entirely incremental for that?

It's year on year incremental, yes.

Okay, thanks a lot, guys.

Okay.

We'll go next to Doug Lane with Jefferies.

Yes, hi everybody.

Can you talk about, how should we think about dividends and stock buy back in 2010?

I think as Bina said in her prepared remarks, we were quite pleased with our cash generation in 2009, up 42% for the year, actually up 70% on the quarter, but who's looking?

And I think Bina made the comment in her prepared remarks that this positions us well to consider, in conjunction with our Board, the appropriate approach to dividends and stock buy- backs, but suffice to say, we're well positioned to have that discussion.

There's no other draws on your cash that are unusual in 2010?

No, in fact, our capital spending, a historical range of capital spending, has been in the 3% to 3.5% to sales range, when we embarked upon our restructuring and business building program which completed in 2008, we had the residual effect this year of completing capital projects, which had the spending up around 4%.

In fact, our capital spending will be down slightly, back more into our historical range in 2010.

So no unusual draws, no.

Okay.

And just lastly, can you give us your latest thinking Mouthwash category in the US?

Is that something you're looking at anymore, any less, just where do we stand there?

We stand in a place where we are very focused on the international market, continuing to make progress there.

Refining offerings and our go to market plan, and the US remains the US, and we will take a view there at the appropriate time.

Okay.

Thank you.

We'll take our last question from Linda Bolton-Weiser with Caris.

Hi, Linda.

Can I ask another question, just to further my understanding of the Venezuela situation?

When you talk about doing some purchases on transactions at a particular official rate, and then some at a non-qualified parallel rates, are those dictated by market dynamics, or does the government actually decide things that apply, and does that account for why we're seeing different things reported by the different companies that we're seeing involved there?

In other words, can the government advantage one company over another?

Far be it for me to comment on governments anywhere in the world, but from our point of view, Linda, we see it as pretty clear cut, in at least so far as the rules have been promulgated so far.

There is an official rate of 430, and that we will be using for translation, and there is an official rate for essential materials or goods which is 260, which as of this morning, it appears consistent with the rules we will get access to, and those therefore, will be the rates that we will be using.

Okay.

Thanks.

Okay.

Well, thanks everyone, welcome to 2010.

Thanks for your attention and support, and we look forward to catching up with you as our year unfolds, thanks.

That concludes today's conference, thank you for your participation.