高露潔 (CL) 2011 Q1 法說會逐字稿

Good day, and welcome to today's Colgate-Palmolive Company first-quarter 2011 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 will begin, due to be the web simulcast.

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

Bina Thompson.

Please go ahead.

Thank you, Lisa.

Good morning, everybody, and welcome to our first-quarter 2011 earnings conference call.

With me today are Ian Cook, Chairman, President, and CEO; Dennis Hickey, CFO; Victoria Dolan, 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 caption risk factors and cautionary statement on forward-looking statements.

We will discuss organic sales growth, excluding foreign exchange, acquisitions, and divestitures.

A full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the investor relations section of our website at www.Colgate.com.

We're pleased with our results as we begin 2011.

As you are aware, global business conditions remain challenging with sluggish category growth rates in the developed world and steeply rising commodity costs everywhere.

Despite that, our volume and organic sales growth are accelerating and our global market shares are up on a year-to-date basis in toothpaste, manual toothbrushes, bar soaps, shampoos, household cleaners, and fabric conditioners, with balanced market share results across division.

Our advertising investment has also increased from the fourth quarter of 2010 to support our innovations, and that is expected to further increase as the pace of new product launches quickens through the balance of the year.

Our volume growth of 2% is on top of an increase of 6% in the first quarter of 2010.

We still expect full-year volume growth to be in the 4% to 5% range as comparisons ease for the remainder of the year.

You'll hear about new products launched and planned as we go through the division.

The pipeline is as full as it has ever been.

Due to the severe rise in commodity costs, our gross margin declined year over year as compared with the 170 basis-point increase in the year-ago period.

And we expect our gross margin to remain around our first-quarter levels for the remainder of the year, as we anticipate the current cost environment to be largely offset by another year of very strong funding the growth savings and appropriate price increases.

Looking forward to the remainder of the year, we should also benefit from a more favorable currency tailwind than originally anticipated in the beginning of the year.

And as you know, we announced the acquisition of the Sanex business a little over a month ago, along with the divestiture of our laundry detergent brands in Colombia.

Those transactions are still under review by their respective competition authorities in Europe and Colombia, but we're excited about the acquisition as it fits precisely with our strategy of focusing on higher growth and margin brands around the world.

As we previously told you, these transactions are expected to have an accretive effect on a combined basis of approximately 4% on total Company earnings in 2011 due entirely to the one-time gain on the detergent business sale and a positive effect on earnings in 2012 of approximately 1% from growth and efficiencies of the Sanex business.

As referenced in the press release, organic sales growth in the emerging markets is solid, and we expect that to continue.

Encouragingly, we are beginning to see signs of improvement in developed markets, particularly Europe, which should bode well for the remainder of the year.

Our balance sheet remains solid and cash flow is strong, which allowed us to continue our share repurchase program as well as to announce a dividend increase of 9% effective in this quarter.

Working capital levels remain low and our return on capital is at 38.1%, up over a point from the year-end 2010.

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

Business in this region remains challenging.

Category growth rates have slowed somewhat from last year and competitive promotional activity is still high.

So we're pleased that our all-outlet toothpaste market share is up on a year-to-date basis, maintaining market leadership.

One encouraging sign is that private-label shares are flat or down in most of our categories in the U.S..

As you know, private label in toothpaste has remained in the area of 0.5% for many years.

We are excited about a number of new product launches in the first quarter.

Our relaunch of Colgate Total is succeeding and strengthening the brand equity, with our share of Colgate Total up 20 basis points year over year.

Our latest advertising campaign is the strongest in five years.

Our tracking tests are showing superior recall, branding, and messaging, both versus our previous campaigns and versus competition.

In the second quarter, we also have a new campaign directed to diabetics, who are prone to developing gingivitis.

We will be advertising in print and on dLife, a lifestyle website for people with diabetes, as well as launching a program for diabetes educators along with the new Colgate Total variant placed in the diabetic section in store.

Our latest in the Max franchise, MaxClean with SmartFoam, has now gained full distribution at all accounts.

Advertising begins in May, both on television and online.

And given the younger target user, we will be sampling both in universities and popular travel destinations.

In the manual toothbrush category, first quarter saw the launch of Colgate 360 Surround, a breakthrough toothbrush innovation designed to remove bacteria in three ways.

The cleaning efficiency is achieved with unique Surround-designed bristles, a first of its kind wraparound cleaner, and a cheek and tongue cleaner.

And in support of the launch, media, accompanied by a strong integrated marketing campaign, began this month.

We have even more exciting new products which will launch in the third quarter and we'll update you on those when we get closer to their introduction.

So, looking ahead, we expect volume in North America to be even with a year ago in the second quarter and the full year.

Organic sales should be down modestly at the second quarter, flat for the full year.

Operating profit is expected to decline mid-single digit for the second quarter and full year.

Turning then to Europe.

We are pleased with our results in Europe, given the continued difficult macroeconomic conditions in both western and central Europe.

Encouragingly, we are beginning to see positive growth in the oral and personal-care categories, while declines in home care are slowing and our market shares are solid.

In 2010, we were the only company that increased our regional market shares in all oral care categories, and that momentum has continued into 2011.

On a year-to-date basis, our shares are up in toothpaste, both manual and battery toothbrushes, and mouthwash.

In toothpaste, our launch of MaxWhite One has been successful across the region.

In Greece, that has resulted in a record share of 50.3% in the latest period.

In Italy, where we are now the market leader, our share is up almost a full point year to date, and MaxWhite One has been completely incremental to the Max franchise.

In manual toothbrushes, our share is up 40 basis points across the region to 20.3% with the most recent period at 20.8%.

In non-oral care categories, we are very pleased with our share performance in fabric conditioners, where the share is up 70 basis points year to date.

In France, our biggest market, our share is up 50 basis points to 51.4%, the best performance in over three years.

So while we remain cautious in our outlook for this region, we expect the results to improve throughout the year.

Volume growth for the second quarter and full year is expected to be low to mid-single digit, with organic sales growing low single digit.

Operating profit is expected to climb modestly in the second quarter, but should be up mid-single digit for the full year.

Turning to Latin America, business across this region remains solid.

As noted in the press release, we maintained our leading share position in toothpaste.

And despite competitive challenges, our most recent Scantrack market-share data in both Brazil and Mexico show increases versus the prior period, with Brazil at over 70% and Mexico at 80%.

Our leading market share in toothbrushes is up over a full point on a year-to-date basis, fueled by good gains in Brazil, Mexico, Venezuela, and Colombia.

In Brazil, our share is up almost 1.5 points as products such as Colgate 360 meet with continued success.

In mouthwash, we continue to grow share.

Our share is up one full point year over year, narrowing the gap with a leading competitor from almost 30 points in 2007 to just under 12 points.

In bar soaps, we increased our leading market-share position, up over a point year over year.

And we now hold the number one position in eight of 12 countries around the region with Protex holding the leading brand position, followed by Palmolive.

In Mexico, our share was up 1.3 points, driven by the successful relaunch of our Palmolive Naturals line.

Year-to-date market share has also increased in underarm protection and fabric conditioners.

And in liquid cleaners, we were stable and maintained our regional number-one position.

We're encouraged with the momentum in our Latin American business.

As you know, volume growth in the first quarter of 2010 was 8%, presenting a difficult comparison.

Going forward, we expect to see an acceleration from the first quarter of 2011 in both volume and organic sales.

We expect volume growth for the second quarter and full year to be in the mid-single digit range, with organic sales growing double-digit for both periods.

Operating profit is expected to grow double-digit for the second quarter, up absolutely and as a percent of sales.

Operating profit on an absolute basis for the full year is expected to grow double-digit.

Turning then to greater Asia/Africa, the momentum in this part of the world continues.

Despite pressure on gross profit due to increased raw material costs, our good control of overhead expenses allowed us to increase advertising to support both existing and new products.

This has resulted in solid market-share performance.

Our year-to-date regional toothpaste share increased year over year by 20 basis points and now stands at over 40%.

We expect to continue to see strong results with the continued support of our relaunch of Colgate Total, as referenced in the press release, and the introduction this quarter of Colgate Sensitive Pro-Relief Multi-protection.

Toothbrushes, we maintained our regional number one position, close to 37%.

In mouthwash, new products, strong media support, effective promotions, and in-store visibility have allowed us to continue to grow our business.

Year to date, our market shares are up 250 basis points to nearly 17%.

And the particular note in India and Russia, our shares are now over 20%, and in China, our shares are almost 30%.

While this is still a small category, we see very good growth potential and are excited about our progress.

All of this bodes well for the rest of the year.

Looking forward, we expect volume in greater Asia/Africa to be up high single digit for the second quarter and full year, with organic sales growing double digit.

Operating profit on an absolute basis is expected to grow high single digit for the second quarter and full year.

At Hill's, we are delighted that our Hill's business has renewed momentum.

The plans that we implemented throughout last year have delivered good results.

First, our right-sizing and right pricing initiatives, and then, a full rollout of relevant new products.

Volume growth was good both in the U.S.

and internationally, and we're seeing an improvement in market shares and an uptick in veterinary recommendations.

Here in the U.S., we see continued growth behind Science Diet Healthy Mobility, which was launched in June of last year.

We are the number one brand in the mobility category and have brought new users into the Science Diet franchise.

The repeat rate is very high, evidence of the product's efficacy.

Much of the advertising support has been through online and in-store activities.

Increasingly, we see digital as a very effective and less expensive vehicle for supporting our brands.

We've told you on previous calls about the success across Europe of our Science Plan VetEssentials, a wellness food distributed only through the veterinary channel.

That resulted in an increase in our brand recommended most often in Europe by two points.

Shipments in the first quarter exceeded our goals by 10%, so we are very excited about our launch here in the U.S.

this quarter of a similar product, Science Healthy Advantage vet exclusive.

Initial orders have exceeded our goal.

In support of the launch, we have distributed free bags to vet technicians to encourage endorsements.

With a continued stream of new products planned for the balance of the year, we are encouraged about the prospect for Hill's.

Volume for the second quarter and full year is expected to increase mid-single digit, with organic growth at similar levels.

Operating profit is expected to increase mid-single digit for the second quarter and full year, up on an absolute basis.

So in summary, we are pleased with our results for the first quarter, particularly with the global macroeconomic challenges we and our competitors have been facing.

Momentum is building, and we expect that to continue as we go through the balance of the year.

Our strategies are in place and working.

Our market shares are increasing, and Colgate people around the world are committed to delivering another good year in 2011.

Lisa, that's the end of my prepared remarks, and now I would like to turn it over to the Q&A session.

(Operator Instructions).

Bill Chappell, SunTrust.

Just wonder if you could quantify a little bit more for us kind of the commodity exposure.

This is an old metric, but it used to be $1.00 of oil was a $0.01 to EPS, all else equal, and I didn't know if there was any way to look at that and maybe kind of quantify what pricing is needed to offset that.

Okay, Bill, well, let me try and give you a holistic view on commodity costs, the pressure they bring, and how we are dealing with it, and I think, frankly, the situation and the answer is probably more complex and broader than simple algorithms.

Perhaps I could take this opportunity to do what we traditionally do on this call, and that is to give you the roll-forward of the prior-year gross margin to this year's gross margin for the first quarter.

So, our prior-year gross profit was 59.2%.

We have some minor other and pricing offsetting, but the crux of it is that the material price impact was 1.9 percentage points negative, quarter on quarter, and our funding the growth savings were 1.1 positive, and that's the 80 basis points difference.

So, what we saw in the first quarter is that our funding the growth was inadequate to offset the cost impact and pricing did not contribute.

If you take a step back, from our point of view, as we entered this year we said we were redoubling our focus on funding the growth, and if you look back at 2010 and prior years, you will know that the way our funding the growth program builds, it tends to progressively improve quarter on quarter, which is to say that the first quarter is the lowest quarter in terms of our funding the growth savings.

And with our focus this year, we very much expect a similar progression across the balance of the year.

So we will get a better offset with funding the growth savings against the material prices as the year progresses.

Secondly, on pricing, we took pricing in the first quarter broadly across categories and around the world, and we'll have more pricing as the year progresses.

But with the lead lag on pricing, what we're going to see is that we will get some benefit in the second quarter, but the majority of the benefit from price will come in the second half of the year, and that pricing will see our organic sales move from a mid-single digit to a high single digit level, so we will be taking appropriate pricing in the circumstances so as not to prejudice volume, and it will not be at the levels we took in 2008 or 2009.

And if you put that together, that is what gives us our view on holding gross margin this year at the first-quarter level, essentially offsetting the dollar impact of the material costs.

Now the other thing we said was that we were focusing on structural overhead changes that we could also bring to the income statement as the year unfolded, and we continue to very much focus on that, and we'll report as we have anything to report, so that's an additional area that we are focused on.

Wendy Nicholson, Citi Investment Research.

If we can just continue on that train of thought, because that was a lot of information and I don't know if I got it all, because if the savings is supposed to accelerate as we go through the course of the year and the benefit of pricing is supposed to get better, as you look forward for 2Q, 3Q, 4Q, what have you budgeted or assumed that that 1.9 drag from inflation in the first quarter is going to escalate to?

And the next part of that is, can you talk about your expectation for promotional levels, kind of given that you've got it back half-weighted, I think, new product program or innovation program?

Do you think your promotional spending is going to go up, so there's going to be an incremental drag, if you will, on the gross margin?

Thanks.

Thanks, Wendy.

That's very much factored in.

As you know, when we go through this gross profit roll-forward, we tend to focus on the quarter that we are in and not talk to (multiple speakers) going forward.

As we look at commodity costs as the year unfolds, I think the last time we spoke we talked about an 8% to 10% increase.

That range over the year is now between 11% and 13%.

Therefore, the finding the growth savings and the pricing, we think, judiciously and appropriately being taken will offset that headwind over the balance of the year.

Now from a promotional point of view, as we look around the world, frankly we continue to see elevated levels of promotional activity and we continue to meet that promotional activity where necessary.

But we think the pricing we have in, we can take in the context of maintaining our volume momentum.

So, therefore, whatever activity to generate trial for our new products that we have built in are already built in to those assumptions.

And as you know, Wendy, when one thinks about price and leveraging from a gross margin point of view, we focus, yes, on the pricing per se, but also on the innovation and what premium pricing that can bring on our promotional activity and how we can make that more efficient with Colgate business planning on resizing in order to accrue a margin benefit, so there is the basic price and then the multiple marketing techniques that we have to advance gross margin.

Doug Lane, Jefferies.

Can you put a little bit more color on the reduced outlook for North America?

What's driving that?

And then, maybe, as a part of that answer, can you talk about recent declines here Mennen and Irish Spring, which seem to have been fairly persistent?

Okay, if we talk about the U.S., as you know, Doug, over half of our business is in the international markets and the growth attendant there.

North America and Europe, as we discussed them before, have slower category growth, to begin with.

And we have seen, as Bina commented, a slowdown in the growth of our categories even from the fourth quarter to the first quarter, so you see stepped-up promotional activity in our categories.

The big factor for us in North America is the timing of our innovation, which last year was very much first quarter-oriented and this year is very much third quarter-oriented.

We have already received the benefit of the relaunch of Total that we did last year, which is helping consolidate our leadership market position on toothpaste.

Bina mentioned the new Max variant, which is just going to market in the second quarter, and then, I think you'll be quite excited by some of the innovation you see in the second half.

If I turn to the other two businesses that you pulled out, actually Irish Spring is a very strong and buoyant business, and the modest slowdown we have seen is in part related and planned for in the pricing action we took, given the sharp run-up in fats and oils, but we have extended that equity quite nicely into the body wash category and have grown a very good market share position there.

On the underarm business, that is a challenging category.

It is highly competitive with multiple key players.

We have seen our Mennen shares under pressure in that business.

We believe we have a stream of innovation now that is relevant.

We have a stream of promotional activity that we view as strong and we're looking to see that business stabilize as we work our way through 2011.

Dara Mohsenian, Morgan Stanley.

Can you give us an update on and an overview on the competitive environment in your key categories and geographies in Q1?

You mentioned North America remains intense, but is promotion getting better at all in other regions?

And also, can you give us a bit more detail on what is occurring in North America?

It is just in-store promotional activity price related, seeking to attract consumers in markets that are not growing at historical levels.

And I think there are several factors at play in the United States.

Unemployment, even though the numbers are edging down, they are still high, and the underemployment rate is even higher, which has people economizing.

You have the cost of gas, where we see some quite substantial shifts in consumer shopping behaviors, both by types of stores and how frequently they purchase, and there is therefore a focus on price promotion to try and attract those consumers.

Now hopefully, some of the macro factors will improve as this year and next year evolve.

I think ultimately from our side, which is what you will begin to see in the U.S.

but meaningfully see as the second half opens, is a stream of innovation that the consumer believes adds value and a value that they are prepared to pay for.

And ultimately, it's that, I think, that is the challenge to brand marketers to win most from the consumer and move away from the price promotion, which we would very much like to do, but we are not going to see our market shares disadvantaged.

When you look around the world, we see similar levels of promotional activity in Europe, and as Bina said, in that context we are particularly pleased with the progress we have made there.

And in some of the emerging markets, as competitors perhaps take on strong established positions, we see significant promotional activity with more than half, in some cases, of businesses being sold on promotion and portfolios where it is the low price variants in the portfolios that are being pushed.

But again, our approach in those emerging markets is to meet the activity we think we need to meet from a promotional point of view, and to try and drive innovation so that we can grow categories and grow pricing and, therefore, margin.

But I would say that the promotional landscape continues to be intense worldwide.

(Operator Instructions).

John San Marco, Janney Montgomery Scott.

Can you comment on what your revised 2011 gross margin expectation should tell us about your mid-decade gross margin goals that you've communicated in the past?

I think if we had had visibility to the commodity cost increases that we have all enjoyed over the past six months, we would've commented on that already, so I think it's fair to say, John, that while we continue looking into 2012 and beyond to look for ways of having offset the dollar impact, then rebuild the ratio as we did over the 2008-2000 period, that would continue to be our goal.

I do not think that a 65 in that mid-2015 timeframe is clearly a reasonable goal in this environment.

But we continue to expect to make progress, having got the significant impact of 2011 behind us.

And as I also have said a couple of times before, we are broadening our focus, not just on savings that we can accrue for the gross margin, but also what we can do structurally with our overheads to reduce that as a factor and bring that into the income statement as well.

So, you'll continue to see progress, but 65 is unlikely to be realizable by the mid-2015s, and you will see a broader focus on overhead.

You might see, I would say, on the gross margin something more in the 63 range by that 2015 period.

Mark Astrachan, Stifel Nicolaus.

A couple of housekeeping questions, first.

Just what is the price of oil that you are assuming in your overall expectations for 2011?

And then, North America in terms of the difference between volumes being up and sales and profit being down, sort of, what is the assumption there in terms of the split to get operating profit negative in North America?

How much is COGS versus promotional pricing and that sort of thing?

And just lastly, on Hill's, curious your views on whether you can take pricing there or not, and just sort of how you think about the opportunity or ability to take pricing in that business going forward, especially given the improvement in volumes?

Let's start in the order you had them, I guess, Mark.

First, from an oil point of view, our estimate at this stage has about $100 for the balance of the year, although we have modeled beyond that, in fact up around the $110 level, and obviously, we will manage pricing and funding the growth between that, depending on what unfolds.

So I guess the answer is, in the estimate is $100.

We've modeled $110, and we would feel comfortable if that's where the year ends up.

So, I guess that would be one.

Moving to Hill's, obviously Hill's and pricing have been a topic of much discussion over the last couple of years.

And clearly, having got that business back, we think, on a sustainable growth footing with the right-sizing, with the right innovation, with the right pricing, we are very sensitive to committing the mistake we made a couple of years ago again.

That said, the commodity cost pressures are strong from an agro point of view.

We have pricing assumed in the third quarter, modest pricing, and pleasingly, we have, in terms of publicly available information this time, confirmation that others in that business have already announced pricing, so unlike the last three times were Hill's was the follower in that regard -- sorry, Hill's was the leader in that regard, this time Hill's will be a follower in that regard.

From a North American point of view, really what you're looking at is a pickup in topline growth over the back half of the year, and sequentially an improvement in gross margin, and the offset is the investment we intend, plan, to put behind our business behind that second-half innovation streak.

Ali Dibadj, Sanford Bernstein.

A couple of just very quick follow-ups, and then kind of the core question.

One, on buybacks given Sanex, should we be assuming the same amount as you talked about before?

Number two is, you certainly addressed North America.

You addressed kind of the challenges from a promotional perspective, but versus your expectations, you see North America and Asia/Africa were worse than expected, so what was that delta?

Was it promotional or was it other things?

And the core question is really just around pet and kind of linked to the answer to your last question (multiple speakers)

Around what, sorry?

Around?

Pet.

Sorry, pet.

Hill's pet food.

How do you think about it philosophically, particularly given the, it sounds like, tougher conditions for you to lead on pricing or raise prices?

My guess is as it has been given your company structure, the negative 190 points -- basis points from a commodity perspective was disproportionally on the pet food business that has been historically.

So, funding the growth is obviously a companywide initiative, and in some sense you could think about subsidizing pet by other pieces of the business, and how do you think about that?

Clearly it's a good business.

I'm not saying it's not.

But how do you think about that as you kind of work the portfolio of your categories, particularly under this very difficult time for commodities, and limits on how much pricing you can take.

So two follow-ups and the core question.

Thanks very much.

This is always a great way to beat the one-question rule.

In terms of the buybacks, as you know, we can comfortably acquire the Sanex business.

Any final determination will be when it actually closes, but we would say at this stage that our buyback intentions are basically unchanged.

If we turn to North America and Asia/Africa, let me take it in reverse order.

Asia/Africa was basically Russia.

The Russian markets were slow to down in the first quarter, which we were not expecting, had not modeled.

They have started to come back.

And we see that business back on track for the balance of the year.

It really is as simple as that.

And without trivializing a topic that we are extremely focused on, which is our North American business, you kind of hit it on the head, which is that it is the promotional activity and the fact that, in general, people are getting less return in terms of consumption from the promotional activity in the marketplace, which is why we want to cycle out of that as we move into the second half of the year with a significant step-up in innovation.

And on Hill's, whether one thinks about it philosophically or operationally or any other way, first, we are not subsidizing the business.

Secondly, actually when you look at the cost breakdown, it is not this time disproportionately driven by the Hill's business.

And third, we're always assessing the long-term vitality of categories that we are in.

Hill's is no exception, but the characteristics of that business are still very sound, which is to say that in the main, pet owners give their pets the same if not more affection than they give their children, which leads to good growth as the demographics change, which leads to an ability to absorb price so long as you don't take it too far, and which has a good gross margin and has the underlying security of that professional recommendation, which, as Bina said, along with our volume and share, is on a bit of an uptick right now.

So, those fundamentals we like.

The turnaround is actually playing out a little bit quicker than we had planned, and we think Hill's can and will continue to earn its way to pride of place in the portfolio going forward.

Joe Altobello, Oppenheimer.

First question, in terms of pricing, Ian, could you just give us a rundown of where you've taken or announced pricing in terms of categories in the first quarter?

And then, maybe, in terms of the year-over-year change in volumes on promotion versus where you were last year?

And then, one last one, if I could sneak it in, on Sanex.

I imagine your outlook on M&A has not changed and this is a really unique situation, but correct me if I'm wrong on that point.

Thanks.

Let's do it in reverse order, Joe, just to mix it up.

On Sanex, no, our view on M&A has not changed.

We actually view the Sanex acquisition as fitting exactly what we look for in an acquisition, in the sense that it is strategic, that it gives us strength in a business that is important to us, and that it is a premium-price product with a simple and consistent healthy skin positioning and the consumer strength that comes with that.

And we were able to signal our intention to buy that business at the same time as we sell a lower gross margin, inherently lower growth detergent business.

So, to your point, it was the perfect combination of both sides of our strategic equation, and we will continue to think about acquisitions the same way we always have, from which the Sanex acquisition came from.

In terms of pricing, I think, frankly, it would be competitively unhelpful and also take too long to try and take you through pricing that we have taken by category, by geography, but suffice it to say we have taken pricing in all geographies across a broad array of categories.

And we'll continue to do that as the year unfolds in a very planful way, balancing always the competitive environment, the innovation stream we have to support the pricing, the consumers' ability to absorb the pricing.

So, we are unafraid, after taking the right analysis, to take pricing on the right businesses at the right time.

And on the promotional line, again, that varies by geography.

I think it would be fair to say that our promotional activity would be higher in the developed markets.

And frankly, if you look at the developed markets year on year, they are, depending where you look, modestly higher than last year, and in some cases, lower than last year first quarter.

So, but I would say about the same level, modestly higher, certainly in the United States.

Chris Ferrara, Bank of America.

So, I guess I just wanted to revisit advertising, and in the quarter I know that it was up sequentially, and you talked about it going up against a higher comp, right, but if I go back through and I look at 2007, 2008, 2010, you were north of 11% in advertising.

This quarter, you're back down below that in a year where I think we were talking about advertising running higher, I guess.

Can you just give an updated view on how you're thinking about advertising for this year in light of the competitive environment and things like the shift from promotion to advertising, and back and forth, and so on?

Thank you.

Our view is unchanged, Chris.

Our plan is still to increase advertising double digit, and we will see advertising go up both on an absolute and as a percentage to sales.

Now, in all things, one ends up with internal differences across divisions and across categories, depending on how much you use the more efficient digital, and as I've said before, in some of those developed markets, the use of in-store techniques and vehicles, which sometimes hit the gross to net line which is between the gross sales and the net line.

So our advertising focus is behind gaining trial on our innovation.

When we look at the advertising we have behind the innovation we have in our priority markets, it is exactly where we would want it to be, and the phasing on the year, as you say, is partly related to a year-on-year comp, but more related to the timing of our activity, and we will see sequential increases in advertising ratio over the next couple of quarters.

Bill Schmitz, Deutsche Bank.

Can we just talk briefly about Latin America, specifically Brazil and Mexico, because I don't think Mexico is mentioned in the press release?

So, I guess volume trends in Mexico, and then, kind of how you look at those two businesses, which are obviously the bulk of your Latin American sales.

And so, kind of how you think that is going to progress throughout the year.

And then, conversely, I think people kind of are beating you up on the margin contraction in Latin America.

But it seems like Asia has more than overcompensated for that margin decline in Latin America.

So maybe just a question, longer term, on the sustainability of that margin expansion in Asia?

Let's start with your first question, which is to do with Latin America.

The Latin American story, frankly, is a very simple story.

The volume this quarter, as Bina said, was up against the highest comp in the prior year, and the highest comp in the prior year, that 8% that Bina talked about, was entirely related, as it had been in the fourth quarter before, to a step-up in activity consciously against the national rollout of the competitive toothpaste business.

And that was predominantly related to -- well, exclusively related to Brazil.

Going forward, you don't have that comparison, and as Bina said, we expect to see over the balance of the year our volume in Latin America at a, we think, healthy 4% to 5% clip with, again, appropriate pricing on top taking the organic to double digit.

And obviously, in order to accomplish that, we have to get appropriate growth in Mexico and Brazil, and we are very confident that we can do that, and I'm pleased to say this quarter has started off quite nicely in that regard.

If you then talk to greater Asia, again somewhat consistent with the comment we made about gross profit in total, we are expecting for the Company this year that our gross margin will be basically around the first-quarter level, and that plays out in Asia the same way.

Our expectation would be, depending on what 2012 brings, that we could, as we did in that 2008-2009 period, start to make ratio progress again around the world, including Asia.

[Joe Ladkey], Wells Fargo Securities.

I just have a question here related to SG&A other than advertising.

And I guess in context of your guidance, and correct me if I'm wrong here, previously just walking through the guidance gross margin, you'd previously said it would be up 30 to 50 basis points, and if gross margin stays at the first-quarter level, I guess that would imply now a headwind of about 70 to 80 basis points.

And with EPS unchanged and unless there is something going on below the operating lines, advertising is going to be up.

It appears that the majority of the difference there may be in other SG&A.

Can you discuss, maybe, the trajectory of that, I guess, in context of it being up 40 basis points in the first quarter?

As I said on the call -- on the call, I'm on the call.

As I said earlier on the call, as we look going forward, we see indeed our overheads improving, which is to say lowering as a percentage to sales as the year unfolds.

You will remember in the fourth quarter, we talked about talking a restructuring that would benefit a couple of geographies, Hill's North America and our European business, and we indeed have done that, and that is going to drive that ratio down.

And as I also mentioned earlier on the call, we continue to focus on other opportunities to change our structure organizationally to do even better than that.

But the difference is that sharper focus on the overhead component of SG&A.

Lauren Lieberman, Barclays Capital.

Just wanted -- my question was really quite broadly around pricing.

I know you've talked about it several times already on the call.

But I am just taken by your confidence in taking pricing, and I'm still not totally clear on kind of how much it is through the course of the year.

So this quarter, was there still any Venezuela pricing within Latin America?

Why mid-single digits is justified with currency in your favor in that market and margins arguably kind of got a little bit, maybe, ahead of themselves in 2009 when you had taken so much pricing?

So, I don't know.

I just struggle a little bit with why pricing can be so strong, as you seem to suggest, and also without any resultant impact on volumes.

Thanks.

I guess if one takes a step back, clearly in the 2008-2009 period, we took pricing at levels we had not seen in the prior 10 years, for both of those years.

When we think about pricing today and what we have assumed in our plans, we're not talking about that level of pricing.

And we're talking about perhaps a greater frequency of pricing.

I mentioned that we have announced broadly in the first quarter, and we have more pricing to come as the year unfolds, and we say volume in the four to five area and organic growth moving from the mid-single digits to the high single digits as the year unfolds, so that kind of puts a boundary around the pricing that we are taking.

And our view, in terms of what we know about the consumer, the way we tend to take pricing, which is not just you see the same package on the shelves and suddenly it's 3% higher, gives us confidence, we believe, that at the levels we're talking about, we can execute them and not prejudice the year.

Connie Maneaty, BMO Capital.

Could you explain a little bit what you mean by structural overhead changes?

It's come up a number of times on the call, and I'm wondering what sorts of initiatives you would think about, as you say sooner or later this will show up in the P&L?

Should we be thinking there is a restructuring that you're planning?

No, I did not say that.

The -- what we're talking about here is what we did in the fourth quarter, which was that we had identified some strategic improvements we could make to our organizational structure.

We offset it against some one-time gains and we will see the benefit, as I mentioned earlier, as we work our way through this year.

So what we're talking about is working those efficiencies through the income statement as we work over the balance of 2011.

And the kinds of things one is talking about, I think we have talked before about the shared service center in Warsaw servicing 27 European countries, which changes not only how you organize to do it, but actually changes the process that you use to get the work done, which brings further savings and efficiency.

It's that kind of structural change that we are looking at for the balance of this year and into 2012.

And you will remember we said that after the fourth-quarter call and before, because we wanted to have a broader view on where we could get savings from given the commodity pressure in 2011.

Javier Escalante, Weeden & Company.

Good morning, everyone.

Ian, now that -- how are you?

Good.

Now that you -- in the call, you have reiterated your framework about the type of acquisitions that make sense for Colgate, I cannot resist asking you if you could please apply that framework against another speculation that is now being rehashed when that runs contrary to the reduction of Colgate's exposure to categories that are commoditizing, like home care, which is the type of businesses you had been divesting for years.

I'm sure you already guess it.

I'm referring to this notion of a deal with Reckitt Benckiser.

I know that it's not your favorite type of question, but if you could please comment on that.

First, Javier, let me reaffirm it is not my favorite type of question, so you are correct.

I think the answer is that we don't comment on those kind of rumors, which, as you know, have been around for a long while and are often self-serving and not helpful.

So the answer is no comment on that type of rumor.

But as to your remark about our home care business, the truth in life is that when you rank things, something comes last.

And therefore as a matter of strategy, our home care business has the characteristics that place it as number four in our strategic prioritization.

That means, I guess, like a fourth child, we don't love it any less.

And although those categories do tend to have more commodity characteristics than personal or pet or oral care, you can find your way through.

The example being again with fabric conditioners in Europe where innovation can raise price and raise market share, and some of these categories, without being too grandiloquent, the emotional characteristics of a fabric softener is perhaps warmer than a bleach-type product you might use for other reasons, and of course bleach was the last of the home care businesses we divested in Latin America and Canada those years ago.

So, we like the business.

We think we can bring the innovation necessary to compete in that business and we have no intention of selling that business.

Lauren Desanto, Morningstar.

Thanks for taking my call.

My question -- you spoke a bit about kind of the investment that you're needing to make.

I guess I wanted to get a little more specificity to how you're thinking about investment, as -- comparing emerging markets versus developed markets.

Specifically, tactically how you go about approaching the consumer when you've got a consumer in emerging markets that's got less discretionary spending versus ones in mature markets where you see maybe they're making more trade-offs.

So kind of just any kind of -- strategically or tactically, how you think about going at those consumers to kind of build growth back in both regions?

Well, Lauren, very broad strategic question.

When you talk about the emerging markets, which are over half of our sales, I'm not sure we need to think about bringing growth back.

I think the challenge is how do you maximize the growth you can get, and that is a lot of factors.

First, you have to focus on those consumers that can enter your categories, because we know when they do, they don't give up those behaviors even when time gets tough.

Then, you have to have your products available to those consumers who can often live in the rural parts of the country, so that your brand is accessible to them in sizes and at a price point that they can afford.

When many of them are buying on a daily basis, you then have to educate consumers to want to buy into an oral hygiene practice, which is what we do with our Bright Smiles, Bright Futures program.

As you move more up the middle class, you put focus on dental professionals to educate them to the great oral hygiene you can get with higher-value, higher-priced products.

And of course, bring the advertising pressure.

Often times television at one end as the family still gathers to watch the evening news and maybe digital telephones with text messaging at the other end as you reach the villages that don't have electricity.

Now, when you come to the developed market, our brands are often well established, well known.

In fact, a recent Millwood Brown survey made Colgate the second most loved brand on the planet.

And there, you still need advertising to connect.

You very much want to use the professionals, whether it's on your pet nutrition business or your oral care business, to recommend, but you will have more of your engagement with consumers in digital vehicles and you will have more of your engagement with consumers on the shop floor in the larger retail outlets that those consumers shop.

And then, the way we allocate our funds is what does it take to get those jobs done in both of those geographies.

But we think we understand the consumers in both well, and we think we know how to reach them with our products in distribution and engage them in a conversation about our brands.

Jason Gere, RBC Capital Markets.

The important questions have been asked, so I'll just make this call a little shorter.

Thanks.

John Faucher, JPMorgan.

Thanks.

Ian, in looking at the new gross margin target, should we assume -- I guess I want to know how you're looking.

I'm not asking you to predict raw materials over the next couple of years because they've been so volatile.

But in that assumption, are you going -- are you assuming that the current level is sort of the new base and we grow from here?

Do you assume at some point there is a pullback, and then you grow at probably a little bit of faster rate off that pullback?

Just give us a little bit of color in terms of how we should map that out over the next four years or so, if you have any thoughts.

Thanks.

Thanks, John.

Congratulations on the 80 basis points, by the way.

The -- I think our current thinking now is that we would start to build as we enter 2012, but of course, that all has to do with where we finally see commodity costs evolving to.

But I guess, philosophically, we took that view over the 2008-2009 period.

Job one is to offset the dollar impact of the materials, job two is to continue making the progress on the gross margin ratio in order to make sure that you can grow both on the topline and the bottom line.

Andrew Sawyer, Goldman Sachs.

Just a quick one on growth rates by category.

I think exiting last year, I had the impression that oral care was growing in the mid-singles and personal care and home care were more flattish.

You've seen a little bit of re-acceleration here early in the year.

Can you just give us a sense of whether that's the personal home care business is picking up or if oral care has gotten stronger on some of the initiatives?

And then, how should we think about it as we move into the second half when some of your new products come out?

Thanks.

Let's take -- I guess net sales, the progression, I would say, is pretty much the same as the way you laid it out, Andrew, which is that oral care is running mid- to high singles.

I'm now talking the first quarter, personal running in the mid-singles and home care not far behind that and pet nutrition somewhere between personal and home and oral care.

So, no substantial acceleration, but our expectation is that those categories, the oral, the personal, and the pet nutrition, will be the ones leading the pack.

And as we said, we see and we forecast that that growth rate will start to pick up, particularly in the second half of the year.

Jon Andersen, William Blair.

Just a quick update on dish liquids in the U.S..

I think you talked recently, Ian, about some innovation going into that market that's designed to impact the trajectory of that business.

Is there any update there?

And then, also, just a quick update on Sensitive Pro-Relief in the U.S., if there is any.

Thanks.

The -- to take your second point first, there is no material update on Sensitive Pro-Relief in the U.S..

We continue to grow share internationally.

We continue to build professional recommendation internationally.

In fact, in some markets, we have a strong leadership position in terms of the dentists recommending Sensitive Pro-Relief for a sensitive condition over and above the leading brand previously.

So, continue to make very good progress outside the U.S..

No update on the U.S..

The dish, you're right.

We had two main activities in the first quarter of this year.

One was bringing the complete resizing and bottle change of the portfolio to the marketplace, which was completed at the end of the first quarter, and the second was introducing the first and only dish liquid approved by the EPA to kill germs on dishes, as opposed to on hands when you use the dish liquid as a liquid hand soap, which we think is a strong claim in today's market.

Early, because those two things have just happened, pleasingly, our market share has grown in the first quarter from the fourth quarter of last year, and obviously with the new portfolio at shelf and the innovation, we're looking for that to continue as the year unfolds.

So, early days, some encouraging progress.

Linda Bolton-Weiser, Caris & Company.

Can you -- I don't think you ever gave very much detailed information about the severance charges you took a couple of quarters ago.

Can you talk about -- are those headcount reductions already all completed or will they be spread throughout 2011?

And then, how much in cost savings are we looking for from that?

And are you thinking of it as an offset to higher commodities or is part of the savings going to drop to the bottom line?

Start with the strategic answer, first.

The answer is, yes, we are thinking about it as a way of insulating the income statement to the volatility of commodity costs.

That's why we began to step up our efforts in that area the second half of last year and why we took the charge we took in the fourth quarter.

Secondly, they're not all completed.

They are working their way through the year.

They are reflected in the reduction in the overhead ratio that I mentioned a little bit earlier and were all built into our budget.

What I said earlier was that we continue to look for additional opportunities that we may choose to work through the income statement and take as the year unfolds, but the general principle is that it is a focus that we have taken over the past year and one which will continue, given the environment that we are in.

So, I thank you for all of your questions.

We look forward to reporting again as the second quarter draws to a close, and thanks to all the Colgate folk around the world who make it happen.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation.