高露潔 (CL) 2010 Q2 法說會逐字稿

Good day and welcome to today's Colgate-Palmolive Co.

second quarter 2010 earnings conference call.

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

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

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

Bina Thompson.

Please go ahead, ma'am.

Thank you, David, and good morning, everybody.

Welcome to our second quarter 2010 earnings release conference call.

With me this morning are Ian Cook, Chairman, President and CEO, Steve Patrick CFO, Dennis Hickey, Corporate Controller, and Elaine Paik, Treasurer.

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.

For information about certain factors that could cause such differences, investors should consult our most recent 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 statement on forward-looking statements.

And we'll discuss our results and outlook excluding the one-time charge of $271 million related to the transition to hyper inflationary accounting in Venezuela as of January 1, 2010.

We'll also discuss organic sales growth excluding foreign exchange, acquisition and divestitures.

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 www.Colgate.com.

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

We are pleased that we continue to deliver solid results despite slowly growing economies in many parts of the world, foreign exchange headwinds and continuing challenges in Venezuela.

These factors obviously affected our top line growth with organic sales up 3.5%.

Pleasingly we're still seeing stronger growth in developing markets.

Our growth profit margin was flat year-over-year and was significantly affected Venezuela, which provided a drag on the total Company margin of 90 basis points.

A portion of this is the result of pricing actions being less than originally anticipated.

Additionally, gross profit was burdened with higher cost inventory longer than originally projected.

At the end of last year we had purchased inventory at parallel market rates which translated into a higher US dollar cost and under hyper inflationary accounting this inventory is carried at historical cost.

So due to slower consumption it took longer than previously anticipated to sell through this higher-cost inventory.

Going forward, inventory values are now at lower US dollar replacement costs and coupled with more favorable pricing gross profit margins started to improve at the end of the second quarter and are expected to be higher for the balance of the year.

The Company as a whole gross profit margins in the third and fourth quarter are expected to be up around 50 basis points year-over-year.

As you read in the press release, advertising was up modestly in the second quarter.

And you'll hear in a moment how that has helped increase market share in countries around the world.

You know that our shopper market initiatives are an integral part of marketing communications strategy worldwide.

This includes effective instore merchandising and promotional activities in instances where many purchase decisions are made at the shelf.

Accordingly, in developed markets our commercial investments (inaudible) more heavily to this type of trade promotion and therefore is reflected in negative pricing rather than advertising reported in the P&L.

Worldwide overhead was down as a percent of sales reflecting our relentless focus on generating savings on every line of the P&L.

Our cash generation was good and our balance sheet remains strong with both receivable and inventory days trending down.

So a solid quarter in the face of worldwide challenges that we and all our competitors are facing.

Let us turn to the divisions.

North America, we're pleased with our 5% volume growth in North America, particularly in what has continued to be a highly competitive marketplace.

We've launched a number of products throughout the year and supported them with very effective instore activities as part of our overall integrated marketing campaigns.

Our excellent 2-plus share was referenced in the press release.

As you know, our Colgate 360 degree toothbrush has been a success in each of its markets around the world.

Since launching the first brush here in the US we added 360 sensitive, 360 deep clean and this year 360 active flex all of which of added incremental share and have nearly doubled the share for the franchise since 2006.

It is now over 10.5%.

Also our Whisk toothbrush continues to perform well.

Whisk plus whitening was launched in March of this year and the buzz and PR for the Whisk franchise, continues with over 15 million impressions in the second quarter including articles in Fitness and InStyle magazines and mentioned on The View and numerous blogs.

College sampling also has driven awareness along with brand ambassadors on campuses and a Facebook fan drive.

As a result, trial and repeat levels continue to climb.

I've often told you about our ability as a global oral care leader to share best practices and ideas around the world.

In the greater Asia division we launched an integrated marketing chain for Colgate Total toothpaste called seeing is believing in the fourth quarter of 2009 which has contributed to an increase of the share for Colgate Total in many countries.

We will be using this same integrated marketing campaign here in the US reaching all touch points starting this quarter.

The key communications points are, one, after you finish brushing with ordinary fluoride toothpaste bacteria starts to grow back in the mouth right away.

Two, bacteria is the cost of most common oral health problems.

And three, unlike ordinary fluoride toothpaste, Colgate Total helps fight bacteria for 12 hours and provides 12-hour protection against bacteria buildup.

We use a striking illustration of a before and after germ scan, where more plaque bacteria are shown to have grown back after 12 hours after using regular toothpaste and much less so after brushing with Colgate Total.

This demo is memorable and easily understood.

So this should be an important part of our Colgate Total commercial investment schedule for the second half of this year.

In personal care, the category that is growing well is shower gels.

We've launched a number of new variants throughout the year and one that has been particularly successful is Nutri-Serums.

Building on this success this quarter we're introducing Nutri-Serums illuminating mineral extract with a concentrated dose of skin softening emollients with standout gold beads.

Mineral beauty products are very popular in beauty stores and this brings them to a mass market at a more affordable price.

Looking ahead, volume in North America is expected to increase mid-single-digits for the third quarter and full year with organic sales increasing low single-digits for both periods.

Operating profit expected to be up modestly for the first quarter and full year both on absolute basis and a percent of sales.

Turning then to Europe, as we all know the macroeconomic situation across Europe is quite difficult.

A number of countries are beginning to implement austerity measures in the face of large deficits.

In this context we're pleased with the quarter's results.

We're still seeing modest overall category growth in oral and personal care.

And encouragingly as we continue to launch relevant and value-added new products our market shares are strong.

Our market shares are up on a year-to-date basis in, toothpaste, toothbrushes, mouthwash, liquid hand soap, bar soap, cleaners and fabric softeners.

We continue to see good results from the launch of Colgate Sensitive Pro release.

This breakthrough innovation is rolling out across northern Europe in 2010, supported with a strong and innovative, integrated marketing campaign.

Colgate Sensitive Pro release has already been launched in the UK and Ireland, Greece, Sweden, Poland, Romania, Iberia, Denmark and Norway and most recently Italy.

In market results are outstanding ranging from a 2% share of the market in the UK to almost 4.5% in Greece.

In the UK, Colgate has doubled its share of market within the sensitive segment while trial and repeat rates for Colgate Sensitive Pro release, are ahead of any toothpaste launched within the sensitive segment reiterating the strong potential of this product.

In Greece Colgate has achieved leadership in the sensitive segment.

Further innovations under the Colgate Sensitive Pro release platform will be launching in 2010 to further enhance the strong momentum of of this product.

In personal care Europe's major 2010 innovation is the launch of Palmolive Nutrifruit, a line of three shower gel variants enriched with moisturizing cream and pleasurable fruity fragrances selected from top fragrance houses in a breakthrough swirly formula.

This critical strategic initiative is helping establish Palmolive in the premium beauty care, shower gel segments.

In market results are already significantly above initial simulated test market projections for the Nordic countries thanks to a powerful and integrated marketing campaign.

So pleasurable it is addictive.

Nutrifruit value share reached 4% in Sweden, 4.5% in Norway and almost 6% in Denmark in the latest period.

Nutrifruit variants already rank among the best sellers of the category.

One of the most successful launches since the Palmolive Aromatherapy launch in 2001.

And importantly, Nutrifruit share has so far been highly incremental to the overall Palmolive franchise, 60% on average.

Other European countries Nutrifruit results are also very encouraging.

Value shares are already nearly in line with year end targets reaching 1.6% in Greece, 2.5% in Romania, 2% in Poland and the Baltic states, and almost 1% in France.

April saw the launch of Colgate Palmolive first cross category home care platform Natura Verde.

A performance that cares for your home and beyond.

The Natura Verde platform has been applied under our extreme core home care brands of Ajax for cleaners, Palmolive for hand dish, and Sublime for fabric softeners.

Natura Verde is a true innovation in the home care category designed to meet the needs of consumers looking for products with ingredients of natural origin and environmental reassurance without having to compromise on efficacy and it represents another step in our commitment to offer an environmentally responsible product.

The Natura Verde range was launched for the fully integrated market campaign in France, Greece and the Netherlands and in May in Belgium and Switzerland.

Despite the recentness of the launch, initial results are promising.

While this division is still building at this early stage, May retail audit data shows we're tracking well versus objectives.

In our main market, France, after less than two months in store we've already achieved a 2% share in our latest period which is 50% of our year one share objectives.

TV support started in June with more activities planned for July and August.

Launch plans are in progress for other European markets.

So looking ahead, volume in Europe is expected to grow low to mid-single-digits for the third quarter and full year with organic sales growth projected to be in the low single-digits.

Operating profit is expected to decline low single digit for the third quarter but to be up as a percent of sales.

Operating profit for the full year is expected to be up modestly, both absolutely and as a percent of sales.

Turning then to Latin America.

We are pleased with the continued good share progress across the region.

Of course, Venezuela has been a volatile and challenging environment and is referenced in the press release current macroeconomic conditions have resulted in the revised forecast for the full-year impact on the overall P&L.

Volume declines in Venezuela affected the division volume growth by about 400 basis points.

But across the rest of the region business is encouraging.

Our toothpaste shares have increased in all but two countries.

In Mexico where we have been faced with new competitive entries our year share is well above 80% consistent with prior experience.

Brazil we reached record level of almost 71% in the most recent period with particularly good performance from premium products.

Colgate Total share is now over 18% and our share of the Sensitive segment is over 3%.

And despite the difficult macroeconomic conditions in Venezuela, our toothpaste share is at a record, almost 94% of the market on year-to-date basis.

In the Toothbrush category we've also performed well in the face of ongoing strong competitive activity.

In Brazil, our market share climbed to 29.5% in the most recent period, within less than a point of the market leader.

Excellent merchandising and effective instore activities have been critical to the success.

In Mexico our year-to-date toothbrush share is at 41% up 30 basis points from the year ago period and the most recent period is at 42.8%.

As you know, another focus for us in oral care is mouthwash, where we have met with continued success in markets around the world.

Across Latin America our share is up 2 full points year-to-date.

Narrowing the gap between the leading competitor from 29.3 points in 2007 to just 15.7 points.

We achieved leadership positions in Brazil and Argentina, and in Mexico we achieved a record share in the most recent period of almost 18%, which positions us as number two in the market while the leading competitor continues to lose share.

Bar soap we maintained our number one position across the region and are market leader in 8 of 12 countries.

Protex is now the number one brand followed by Palmolive.

New product introductions as well as the implementation of a hand washing campaign have contributed to this success.

So looking ahead, volume in Latin America is expected to be up low to mid-single-digit for the third quarter and full-year.

Organic sales are expected to grow high single-digits to the third quarter and full-year.

Operating profit is expected to decline modestly for the third quarter and full year.

Turning then to greater Asia Africa, we're very pleased with the continued strong business momentum in this region, excellent volume and profit growth accompanied by market share increases in toothpaste, toothbrushes, mouthwash and shower liquids.

As in other regions of the world we continue to roll out Colgate Sensitive Pro release with encouraging results.

You may recall that Singapore along with the UK was our lead market for launch in September of last year.

On a year-to-date basis Colgate Sensitive Pro release has almost 3 full share points and has been completely incremental to our share of the Sensitive segment which has grown from about 4.5% to 9% while the leading competitor has lost almost 3 points of share.

In fact, Colgate Sensitive Pro release has been almost entirely incremental in every market across the region.

And in key cities in China, we've established a leadership position in the Sensitive segment.

Toothbrushes were maintaining our number one position at 36.5% up 60 basis points from the year ago period.

The launch of a range of new products across price tiers have increased our share of Indian market by 320 basis points to 40.3%.

Premium price offerings such as Colgate Max White and 360 ActiFlex have helped grow our leadership share in Russia from 49.7% to almost 52%.

Continued focus on mouthwashes helped our business, as well.

From just over a 3 share in 2007 we've now climbed to 15.4% with increases in every country.

Russia, our share is over 23%, having just introduced mouthwash this year.

Colgate Plax complete care has been an important driver for the business along with the launch of Colgate Plax ice and Colgate Plax whitening in select countries.

Gaining credibility and and endorsements for the profession has been an important element of our rollout plan.

Colgate Plax is the brand recommended most often by 26% of dentists up from 12% three years ago and way ahead of the nearest competitor at 4%.

We've told you often about our consumer innovation centers, strategically located in important markets throughout the world so as to better understand local habits and preferences in developing new products.

Success in the shower liquid category in Russia is an example of unique and relevant innovation based on specific local trends and context.

The scent oil segment we launched Palmolive thermal spa steam bania.

The bania is a place where the Russian consumer goes to get purified and rejuvenated.

This new product offers daily bania at home.

As a result our market share is up over 1 full point year-over-year to 28.2% with the most recent share at 28.9%.

Looking ahead volume in greater Asia/Africa is expected to grow double-digit for the third quarter and full year with organic sales growth at similar levels.

Operating profit is expected to grow double-digit for the third quarter and full-year.

Both absolutely and as a percent of sales.

Finally, health.

Decline in volume for the quarter which was greater than expected was due primarily to two factors.

The rollout of Hills comprehensive resizing and repricing initiatives and delayed shipments to Russia.

Delays in finalizing customs agent and distributor contracts upon transition to a subsidiary structure, precluded shipments to Russia in the quarter.

This contributed to 1.5% drag on Hills volume in the second quarter.

Shipments to Russia have resumed in July.

As we indicated in the press release, implementation of Hills comprehensive resizing and repricing initiatives also impacted volumes during the quarter.

Dry package sizes were reduced in key markets globally during the first six months.

Adverse impact upon initial shipment of smaller sizes is expected to be offset by a shortened consumer purchase cycle over time.

Considering implementation timing and an average consumer purchase cycle general in the 50 to 60-day range, this transition was not completed by the end of the quarter.

Encouragingly in the most recently reported period, unit consumption in the United States was up nicely, compared to the prior year.

So looking forward we expect unit consumption to be increasing sequentially for the balance of the year, while volume as the result of the downsizing is expected to be flat for the next quarter and full year.

But we're encouraged by the prospects for Hills.

We have a number of new product launches both here in the US and abroad.

Science Diet healthy mobility was launched in May and initial customer feedback and sellout pace has been positive and a strong promotion and media campaign is planned for this quarter and next.

Across Europe we've launched Science Plan and Essentials and distribution continues to expand.

In Germany, this was launched in conjunction with the season of prevention campaign.

The season of prevention program started in Italy and we have expanded it from there.

Similar to oral health month, we work in partnership with the Vet Association and we offer free checkups and education for the wellness of pets to the pet owners.

As we repeat the program every year, the numbers increase accordingly.

In Germany we registered 2100 vets in the program who did 15,500 health checks with pet owners.

The on-line portion of the campaign had 52,000 unique website visitors while 22,000 pet owners registered on line.

Both in the US and Japan, our small and toy breed products are off to a good start and a comprehensive support plan which includes print, on-line and word of mouth campaigns is in place.

So looking forward as we said, volume at Hills is expected to be essentially flat for the third quarter and full year with organic sales down modestly for the same period.

Operating profit is expected to increase modestly for the third quarter and the full year, up absolutely and as a percent of sales.

So in summary, we are pleased to again deliver profitable growth in the face of numerous macroeconomic challenges around the world.

Our market shares are healthy as a result of our continued support behind our leading brands.

Our pipeline of new products is strong.

And Colgate people around the world remained tightly focussed on our clear strategies and priorities.

We look forward to sharing our results with you as we go through the balance of the year.

And now, David, I'd like to turn it over to Q&A but before I turn it back to you, I would just like to say that we've got a lot of new analysts now, there are a lot of you out there, I'm sure you have plenty of questions, so that in order that everybody gets a chance to ask their questions, please limit your question to one question and then get back in the queue.

This means no multiple-part questions, just one question, please, and then get back into the queue.

David, lets go ahead.

Thank you.

(Operator Instructions) We'll go first to Bill Chappel with SunTrust.

Good morning.

Hey, Bill.

I guess just on the trade promotion and the competitive environment, how should we look at this quarter compared to earlier in the year, and how you see the rest of the year playing out?

Has it gotten better?

Has it stabilized?

Is this kind of the new normal in terms of competitive spin that you're just going to have to keep matching the competitors for the next two, three, four quarters?

Yes, I think, Bill, to sort of put that in a broader context, and then I will come back and answer the direct questions, I think the trends in our, shall we say, consumer engagement spending, or commercial investment, have been clear for some time.

We have said that as part of our communication strategy, particularly in the developed world, where we are seeing slower growth, a lot of consumer engagement is happening at the store level.

So we have always been quite strategically conscious of having sharper marketing programs at retail, which, of course, comes out of trade spending and is not measured in the traditional A&P.

And as we have seen our A&P progress, the traditional media spending has been led by the emerging markets where the consumer engagement is more that direct to consumer advertising.

If you talk about trade promotional activity on top of that, we have, I think, said before that there was that activity in the marketplace, that it seemed to be quite focussed on household product categories, those that have a very direct volume impact, and I must say that we have seen an uptick in promotional activity in the second quarter across a broader array of categories.

We have responded to that with the instore sharper marketing programs that I have mentioned, and as we look out to the balance of the year, we have used the second quarter as a guide for our developed market activity in this regard.

So if we look at our A&P spending going forward, we're going to see A&P up, both absolutely and as a percent of sales, but within that we are going to see more of the at-retail activity in the developed world, while the emerging market will see strong traditional media investment.

So going forward, there will, indeed, be more of that focussed in the developed world.

Thank you.

We'll go next to Doug Lane with Jefferies.

Two quick questions.

One, can you break down the total Company outlook for your top line growth this year between volumes, pricing and organic sales growth?

And, secondly, in your gross margin commentary, it sounds like you're still looking for expansion, but maybe not getting fully to the 60% for the full year.

So I read that as kind of a tick-down in your gross margin outlook.

Is that due solely to the second quarter?

Or is there a change in the lay of the land that might impact gross margins in the back half?

Yes, let's -- thank you for the single question, Doug.

If I start with the gross margin, obviously as we tried to identify a significant drag in the second quarter was Venezuela as Bina explained in her prepared remarks, that drag lessens over the balance of the year and we see ourselves with our traditional funding of the growth programs increase our gross margin and we will around that 60% level by the end of the year which is what we had said on the last call.

So holding to the around 60% by the end of the year, not for the year average.

In terms of the growth of the Company, again, responding to what we have seen in the second quarter, where in the developed world we saw a slow-down in our categories by about a point or so, perhaps in harmony with the economic landscape, and our sense for the balance of the year is that we will still be within our 4% to 7% volume range, but towards the lower end of that range.

Thank you.

Our next question is Chris Ferrara, with Bank of America.

Hey, guys, just wanted to ask about, so SG&A ex advertising and your other expense line, together they look like they got about 100 basis points better.

I guess in light of the fact that sales have decelerated, what's driving that better leverage this quarter?

Thanks.

I think, Chris, simply said, it is our unremitting focus on finding cost savings and largely those cost savings are in our overhead area.

So we are simply as part of your strategy, being more efficient in how we invest in the overhead area.

Our next question is Joe Altobello with Oppenheimer.

Thanks, good morning, guys.

Just a quick question on the market slow-down Ian, you just cited.

Is that new for 2Q and is that mostly Europe or are you also seeing that slow-down exacerbate in North America as well?

We've seen -- it is a change in the second quarter, and it is across Europe and the United States, as well.

And it's about a percentage point in both -- in both cases.

The emerging markets continue to be quite strong, high single, low double-digits, which of course is encouraging, given the global breadth of our business.

And our next question comes from [Al Debash] with Bernstein.

Hey, guys.

I know you are trying to keep to it one question.

But I just have a -- if you would, a quick clarifying question and then the real question.

The quick clarifying one is you do mention how much Venezuela hurt on volume in Latin America but you mentioned how much it helped on price.

If you just clarify that that would be great.

The other real question is as it sounds like more and more investment is needed to be -- to be put into the market, whether it be shifting from advertising or above the line, what have you, really to defend competition and to defend the slow-down in the consumer I'm trying to understand how much more you're going to need to invest, particularly it sounds like it is spreading.

I guess I ask that in the context of kind of your level of certainty on making your double-digit EPS growth for this year, and going forward, which you've sort of publicly said you would do?

Thank you.

The -- I can answer the first question quickly, and that is we don't break that out, so you can see the effects of Latin America in terms of our price as we show the division in the rest of the world, and given the environment we have just talked about, our expectation going forward is that we would see pricing modestly negative for most of our geographies with the exception of Latin America, going forward.

Now, when you turn to the consumer and what is required to engage and entice the consumer, both from a marketplace point of view and a competitive point of view, there is more at play than simply advertising.

Of course, we feel that we have a very strong innovation flow for the back half of the year, starting in this quarter and part of engaging consumers is having that strong flow of new product.

Then you come to the engagement and, as I said earlier, in terms of engagement in the developed world, in a slower economic environment, we are seeing increasingly consumers making decisions at the point of purchase, and, therefore, your best way of engaging is to do it at the retail level, and our plans for the balance of the year consistent with our strategy assume that, and with that shift in the developed markets, our total advertising increases in an absolute -- to on an absolute basis and on a percentage to sales basis, driven more by the emerging markets where the traditional media engagement still applies.

Now, all of that said, and we feel quite comfortable with that position, obviously we have absorbed the additional impact of Venezuela and the headwinds we face from a currency point of view, keeping our advertising at levels we believe are competitive, indeed, the traditional share of voice analyses we do, show that our spend levels are quite healthy year-to-date, and our market shares are quite strong.

All of that said, absorbing those pressures and maintaining what we believe to be the right focus on advertising for the balance of the year, we have indeed reaffirmed the double-digit, but in that environment it's double-digit closer to the 10%.

Next question is Ed Kelly with Credit Suisse.

Hi, good morning.

Hey, Ed.

Could you provide more color on the issues with the resizing and repricing of the Hills business?

And I'm specifically interested in the strategy behind it, and then why it took a little bit longer to roll out?

Yes, I guess there are a couple of things to say again in the broader context with Hills.

The repricing and resizing is an important part of a corrective strategy when we knew we had gone one price increase too far.

But as Bina said, for the balance of this year, new product activity supported by commercial investment to the consumer, and some of these larger promotional events, like the German one that Bina mentioned, are very important parts of our Hills business recovery and growth.

Now, when you turn to the specific pricing and sizing.

The pricing we were able to effect at the shelf quite efficiently.

The sizing unfortunately has taken us longer.

And the objective of doing both was to return our relative pricing, compared to other premium products, in the channels in which we distribute, to historical levels, i.e.

before the price increase we took that was one price increase too far.

And, as I said, while the pricing was reasonably easy to execute, the sizing took us longer to get to the retail shelf than we would have wanted, and then to the point Bina made, with a two-month purchase cycle, the rebuying of bags ends up being pushed out of the quarter.

Now, as Bina also said, at the end of the quarter, we have seen quite a nice runup in terms of the unit purchases, but simply said, if the consumer was buying nine bags a year before, she's now going to have to buy 10 bags, so your pickup from a volume point of view is somewhat delayed.

And it was that slowness in getting it to the retail shelf against our original projections, and the interval of purchase that has pushed the recovery back a little bit to the flat scenario that Bina mentioned earlier.

So that was really the crux of the matter.

Thank you.

Next question is Bill Schmitz with Deutsche Bank.

Good morning.

The gross margin, I don't want to waste my question on that one, but if you are feeling charitable, that would be great.

Then the other question is, I know when Proctor bought -- to let (inaudible) to really drive your toothbrush here, is there a similar sort of holistic global plan to try to address their stepped up spending pretty much globally in toothpaste now.

And if you can provide any details on that, that would be great, also.

Let me be charitable.

Thanks.

The -- so the margin bridge runs as follows--Prior year, obviously 58.8.

Pricing picked up 20 basis points, funding the growth savings of 1.6, basically offset material prices of 1.7, and that saw us back at the 58.8.

And as we said, Venezuela was basically 90 basis points of that from a transaction point of view.

Turning back to the project Achilles, we don't have any Greek coded plans in a holistic context, but we do have a global strategy and specific set of programs that we deploy when faced with competitive activities in specific markets.

We have deployed them before, and I think they are well understood and well tested, and as Bina said, Brazil continues to perform very well, we believe, from a share point of view.

And in Mexico, we are still north of 82 share points as the competitor cyclically is back up to 12, 13, which is exactly the kind of curves we have seen historically with the activity.

So suffice to say, we do have specific global plans that we deploy to each market condition in our oral care category, and part of it is when that category comes under attack, but part of it is us picking markets in which we want to grow our share or we want to establish a category expansion position as with mouthwash and China shares growing, India shares growing, Brazil share is growing and in Russia we're holding a strong 34 leadership position and bringing toothbrushes and mouthwash along behind it.

So it is a combination of a global plan deployed by country in response to competitive activity, and then it's selected plans by market to grow our businesses by segment, country by country.

So I guess the short answer would have been, yes, we do.

Okay.

Great.

Thanks.

Next question is John Faucher with JPMorgan.

Yes, thanks.

If I'm looking at my model correctly it looks like the European comp gets -- from a volume standpoint gets dramatically more difficult in Q3 versus Q2, so -- and I think you're guiding for roughly similar volume growth.

So can you talk a little bit about what you see there that's going to drive that sequential improvement in the underlying performance?

Thanks.

Yes, it is specifically a -- an innovation flow, John.

I think some of which Bina talked about, along with the strengthened integrated marketing activity that we have across the balance of the year, and the plans developed with retailers against those.

So it is innovation, joint business plans with customers, behind increased commercial investment.

And we'll go to our next question, Lauren Lieberman with Barclays Capital.

Thanks, just actually wanted to continue on Europe.

One thing is that you in the quarter, and in your remarks you said that the categories, while they slowed, categories are still up, and your shares are up?

Yes.

But your organic sales was down in the quarter in Europe, and a very significant deceleration sequentially, so what kind of -- can you just give me a little bit more color I guess on the quarter, and what changed so significantly sequentially because that doesn't look like a 1 point slow-down in market growth.

It looks like something more.

The -- there is nothing that stands out from a sequential point of view that I can talk to, Lauren.

It is -- it is a slow-down in the category growth.

Maybe there is some timing of activity, but nothing material that I can -- that I can point to.

But from 7% volume in Q1 to 1.5 in Q2, so was there a lot of shipping for Pro Sensitive that helped Q1?

Let me put that into context.

Okay.

I'm sorry.

Now I understand.

Let me put that into context.

The fact of the matter is, in the first quarter of 2009, we had a very weak point of comparison because we had at that point in time some fairly meaningful, shall we say, altercations with some retail partners that saw us without product at retail in some categories, and certainly far lower levels of promotional activity than we -- than we had.

So that was the reason for the, I would say, abnormally high comparison first quarter on first quarter.

Second quarter, if you take an underlying volume rate in Europe at between 2% and 3%, then that comparison for the second quarter alone I think tracks quite well with the category.

So it was an aberration of comparison first quarter to first quarter last year, driven by trade situations rectified in the first quarter of 2010.

Okay.

Thank you.

Next question is Jason Gere with RBC Capital Markets.

Hey, Jason.

Just a question on the advertising in the quarter.

I was wondering if you can just kind of rank in the buckets when you look at the 1% spend, how much was affected by, one, I guess the magnitude of the Q1 spend which was up over 30%.

Two some of the shift to promotional spending.

And, three, was there difficulty getting inventory just with the World Cup going on.

I had been hearing that.

Lot of the media rates went up.

I just wanted to see if that was actually a factor as well?

The World Cup was not a factor, particularly given the early exit of the US and England.

So it was not a factor.

I -- if you kind of profiled the second quarter advertising, I would make a couple of observations.

I think I have painted the strategic framework of how we think about advertising and how one engages with consumers in the developed markets, versus the emerging markets, so give some texture around that from a geographic point of view and where the spending is point of view.

The advertising -- and now I'm talking the traditional A&P below the line as you would see it -- increased in the emerging markets strong double-digits.

In the developed markets, we spent competitively, but we moved spending into sharper marketing programs at retail, and our overall commercial investment grew high single-digits on a global basis driven by the developed markets.

So that's the profile we're seeing in terms of how best it is to engage with the consumer, and that's how we're thinking about the balance of the year.

Great.

Thanks.

Next question is Connie Maneaty with BMO Capital.

Good morning, I think you probably expect a Venezuela question out of me.

What I'm wondering is, if you could sort of put market conditions in context in Venezuela, if you think the impact is going to be limited to this year or will there be some operating spillover into next year, and if you're still getting the preferential rate?

Thanks.

Thank you for the question on Venezuela, Connie.

The answer is, as we think about Venezuela from an operating point of view, even though this is a soft comment, I think our people down there are doing an absolutely terrific job in very challenging and difficult circumstances.

As we think about the balance of this year, going forward, we recognize what happened in the second quarter and although our market shares continue to be quite strong, toothpaste at 94 now, Venezuela consumption is, of course -- is of course, under pressure.

The margin will improve as we -- as we said, because of that change in hyper inflation rate accounting, and we have modified our investment over the balance of the year in harmony with that.

We are still getting the preferential rate at that 2.6 level, quite a sizeable sum, allowing us to continue to operate the business.

You well know that there are elections in September of this year and it would, I think, be irresponsible of me to talk about 2011, as we see how this unfolds, we will provide the customary early advice that we have all the way along on Venezuela, as we get a better sight on 2011.

But that's how we're thinking about 2010, and the access continues even if the process is a little bit slow.

I don't know if you mentioned this, but what did Venezuela cost EPS in the second quarter?

We didn't mention it and we wouldn't mention it.

We gave the guidance for the year.

Okay.

Thanks.

Next question is Alice Longley with Buckingham Research.

Good morning, my question is about North America, you said that categories have weakened here from the first into the second quarter and yet your volume was still up 5%, and we have seen in some other companies that shipments have started to be up more than sell-throughs because some retailers are restocking, particularly the biggest one in America.

And I'm wondering if you've seen any of that or expect to see any of that in the second half, meaning do you think your shipments have been or will be up more than your sales at retail?

I think that's difficult to project.

We haven't historically and don't believe so far have seen the kind of restocking swings to any magnitude.

That, of course, will depend on strategies that retailers deploy over the second half of this year.

As you know, we have seen a shift in terms of the consumers buying habits to more of the so-called mass, club and dollar retail outlets, and again we'll just have to see how those strategies from the retailers' perspective play out in the second half of the year.

But I don't think -- I know we're not planning for and I don't think we would suggest that there would be an inventory imbalance, lets say.

Our next question comes from Andrew Sawyer with Goldman Sachs.

I was going to follow up again on the topic of weaker US and European category sales.

And my question is that we've seen a pretty broad increase from sales from you and lot of your competitors.

What do the metrics say the effectiveness of the promotion in this consumer environment?

Are you seeing abnormally low volume lift as you promote or is there something else going on that is driving the category deterioration?

Yes, well, a part of it -- I mean, from a value point of view, obviously part of the category deterioration is promotional activity itself.

Not compensated for by volume -- by volume lift.

I think the answer to that question strategically and why we have been so cautious over time in terms of this promotional arena, is you have to ask yourself a question, which is the question you're asking, what is the most engaging way of reaching the consumers at retail?

And many of the programs that we try to structure, albeit executed at retail, seek to bring a conceptual value, not just a price value, so there is more of an equity build than simply a price-related volume build, which may be a transfer from one store to another, or will suffer the peaks and valleys in future -- in future periods.

And when we do that, we see good lift.

We see good lift on traditional promotional activities, too, but those tend to be shorter-term and you do them in order to protect your business from what you see from competitors, but ultimately our belief and my belief, even though we are assuming it for the balance of this year, is that manufacturers will have to move away from that and back to brand building through engagement, not price promotion.

Next question is John Anderson with William Blair.

Pricing in aggregate improved slightly from first to second quarter.

In light of your commentary on developed markets and incremental sharper marketing programs, how do you see pricing playing out in the second half of the year in the full year?

Thank you.

The -- thanks, John.

I think we covered this a little bit earlier.

We would see the balance of the year from a price point of view in line with our historical average, which is less than a percentage point, indeed, yes, less than a percentage point for the full year, and that really is composed of, as I mentioned earlier, pricing that would be positive in Latin America and part of that, of course, is Venezuela, and, yet pricing in the other divisions, particularly the developed world, reflecting the shift of activity to trade spending, the so-called above the line investment in at-retail sharper marketing engagement programs.

So positive in Latin America, negative -- modestly negative in the rest of the world, driven by that strategic shift in the developed -- in the developed markets, and, under a percentage point for the year all up.

Next question is Nik Modi with UBS.

Hey, guys, it is Mike on for Nick.

Can you just give us perspective on (inaudible) volume momentum outside of the 400 basis point drag on Venezuela.

Did you see a slow-down in market growth as well.

Just trying to reconcile the volume trends with your commentary on market share gains.

From a volume point of view, we didn't see much of the slow-down from a -- yes, we didn't see much of a slow-down in Latin America at all, nor in the rest of the emerging markets, and every other geography in Latin America was -- was up.

So which was why we called out the drag of Venezuela, because we're actually quite pleased with our continued volume growth in Latin America ex Venezuela, and of course, share progress, as well.

So would you say there is nothing really to look at going from 8% last quarter to 5% if you put back in the 400 from Venezuela?

Basically, yes.

Okay.

Okay.

Thanks.

Next question is Linda Bolton with Caris.

Hi, do you have any estimation of when you would get FDA approval for your Sensitive toothpaste in the US?

And if not, can you tell us when you filed?

Well, we -- as is customary with these things, Linda, we are in conversation with the FDA, as is part of a customary process, and I have nothing I can comment on relative to timing when we have a clearer view on that, you will be amongst the first to know.

Okay.

Thanks.

Next question is a follow-up from Chris Ferrara with Bank of America.

Hey, thanks, just, Ian, on the ad spending I know you said that it would be -- I think you said it would be up as a percentage of sales over the rest of the year.

I think you were referring to both media advertising and the gross to net promotional spending, but can you just clarify that?

No, Nik, (sic) I'm glad you asked the follow-up question.

I was -- earlier I was trying to say from a strategy point of view we are deploying investment in the gross to net, as you call it, the trade spending, particularly in the developed world, to engage with consumers where they increasingly make their purchase decision in a slowing economy.

The number I was talking about was the traditional advertising and promotion, which is exclusive of the gross to net.

The number that we customarily talk about, and I was saying that that, which is to say, advertise media and promotion, will be up absolutely and as a percent of sales for the balance of the year, led by the emerging markets as in the developed world, we put more of our investment into those sharper marketing programs at retail.

Thank you.

That's clear.

Perfect.

Good.

We'll go to our next question from [Mark Astrochan] with Stifel Nicolaus.

Just following up on the advertising question, again.

Just thinking about it from an effectiveness expense standpoint, when do you think you'll see evidence of an improvement?

And then sort of related to that from a developed market standpoint do you think there was a bit of restocking towards the end of last year coming out of the economic issues and now that things are potentially getting worse again, are you seeing a destocking that has to get cycled once again?

I don't believe so, Mark.

We don't believe so.

The rule of thumb in our -- in our business, certainly the way we approach it with our major retailers, is we're always looking for inventory efficiency.

So you don't tend to get these swings of destocking and restocking.

So, no, I don't believe that's a factor.

We'll go next to [John MacMillan] with Lord Abbett.

Hello, Ian.

I know you want to look forward, not backwards, but if you look backwards a year, you said come (expletive) or high water we're going to have our double-digit EPS in dollars despite whatever happens to dollars and euros and so forth.

And I just wonder kind of in your retrospect whether you kind of used too much gas in the tank and kind of left the organization with, a little vulnerable, with the P&G or so forth, but if you looked backwards for a second with me and said, was that a prudent move?

I'm not sure, John, that I would have said (expletive) or high water, but I think we -- we committed to double-digit, and we believed as an organization then, as we do now clearly, as we reaffirm it, that this is an appropriate stance to take.

We believe we have modified our plans for the balance of the year in a way that is responsible in terms of building our brands by redeploying between advertising and promotion, and the instore marketing, so we challenge ourselves all the time in terms of the appropriate balance between performance and brand-building, and we feel this is still the right place for our Company to be.

Thank you.

Our final question comes from Lauren Lieberman with Barclays Capital.

Oh, thanks, just a little quick follow-up.

One was just in the press release I noticed there was a comment about a Sensitive toothpaste of some sort launching.

In the US can you explain what that is?

Obviously it is not the special one.

It is a traditional potassium nitrate technology, which rounds out our offerings in terms of our current portfolio.

So this is not the so-called Sensitive Prorelief that we talk about all the time.

And is this -- was that part of your initial plans or is it something you're doing because there has been a greater delay with the FDA approval and you've had, P&G and Glaxo being aggressive with Sensitive toothpaste in the US clearly in anticipation of you launching Prorelief.

We didn't have Prorelief built into our plans, no.

I mean, was this -- I'm sorry, the multi-protection, is that something you've--?

That is something we would have done anyway.

In fact, if you look at our businesses around the world, we have quite a well-developed line of sensitivity toothpaste using what I might call traditional technologies and Prorelief is what we believe sets the new standard, and we add that on top.

Okay.

And then just on the other expense line in the P&L, because it is swinging around a lot, do you have any idea how we should think about it for the rest of the year, $38 million $39 million in the quarter in the back half last year, $2 million in June, that's a pretty big swing factor.

I think, Lauren, if you take a general look at the balance of the year you should see it reducing.

Year-over-year.

Yes.

Thanks.

Good.

Thanks, everyone, for the questions.

Thanks for being disciplined to asking to almost one and we look forward to catching up with you again as the year continues to unfold.

Thanks very much.

And this does conclude today's conference.

Thank you for your participation.