高露潔 (CL) 2012 Q4 法說會逐字稿

Good day and welcome to today's Colgate-Palmolive Company fourth-quarter and fiscal year-end 2012 earnings conference call.

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

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

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

Please go ahead.

Thank you, Cameron.

Good morning, everybody, and welcome to our fourth-quarter earnings release conference call.

With me this morning 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 captions Risk Factors and Cautionary Statements on forward-looking statements.

This conference call will also include a discussion of non-GAAP financial measures which differ from our results prepared in accordance with GAAP.

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

We will also discuss gross profit, gross profit margin, SG&A, operating profit, net income, and earnings per share, excluding the impact of certain items described in the press release.

And the full reconciliation with the corresponding GAAP measures is included in the press release and is posted in the For Investors section of our website at www.ColgatePalmolive.com.

We're pleased with our solid fourth-quarter results.

Our momentum is excellent in many areas of the world, both developed and developing.

We think we are well positioned to deliver stronger results in 2013.

On a global basis, our market shares are up year to date, in toothpaste, manual toothbrushes, mouthwash, bar soaps, body wash, deodorant, and fabric conditioners.

As you will hear as I review the divisions, innovation has played an important role in increasing market shares.

We have a very robust new product pipeline as we enter this year to help to continue this growth.

As Ian said in the press release, we are encouraged that we achieved our objectives in 2012 in the face of currency, competitive and macroeconomic challenges around the world.

For the full year, our organic sales accelerated in almost every division from full-year 2011.

The exception was Latin America, which even so delivered another year of double-digit organic sales growth, despite significant challenges in Venezuela in the fourth quarter.

In particular, a labor slowdown in our factory, coupled with ongoing macroeconomic uncertainty, negatively impacted organic sales and gross margin in the fourth quarter.

In fact, worldwide organic sales growth in the fourth quarter would have been almost 1.5 points higher, excluding the Venezuelan results, and gross margin worldwide would have been 50 basis points higher.

As Ian also mentioned, our global growth and efficiency program is off to a good start.

And as we told you on our last call, we expect after-tax charges this year between $185 million and $220 million, with after-tax savings in the range of $30 million to $40 million.

Consistent with what you would expect, we anticipate realizing these savings later in the year.

Of course, our ongoing funding-the-growth savings program is continuing to deliver considerable savings as well to allow us to invest behind our full range of new products.

In 2012, the program added two full points to gross margin lines, which helped offset increases in raw material costs.

And it provided savings at the SG&A line as well and we expect this to continue into 2013.

From the cash perspective, we had another good year continuing to pay increased dividends and buying back stocks to deliver more value to our shareholders.

So let's turn to the fourth-quarter division results starting with North America.

We're very pleased with the continued momentum in our North American business.

Our organic sales growth of almost 4% is very strong for a developed market, and pleasingly, our categories are growing and we are growing ahead of them.

On the year-to-date basis, our market shares are up in seven categories; even with the year ago period in one and down and three.

Importantly, our year-to-date market shares are up across oral care, fueled by a continued stream of innovative products.

In fact, our year-to-date increase in toothpaste share of one full point is the largest in 10 years.

Our new product pipeline is full and we are excited about some of the new products launching this quarter.

In toothpaste, one new product is Colgate Total ZX Pro Shield Plus Sensitivity, which has a triple-active formula that provides multi-benefit protection in addition to maximum sensitivity relief.

Consumer research shows that almost 50% of sensitivity sufferers do not treat their pain with sensitive toothpaste because the price is too high or the product does not have all the benefits the consumer is looking for.

Colgate Total ZX helps protect against sensitivity, helps prevent cavities, fortifies enamel and fights plaque and germs.

The second new toothpaste is Colgate Optic White Dual Action, formulated with the same level of effective hydrogen peroxide as Colgate Optic White toothpaste plus the addition of sodium acid pyrophosphate to whiten and shine.

The extensive integrated marketing launch campaign will incorporate new claims, whitens and shines, whitens more than three shades and results start in one week.

An exciting new toothbrush launching this quarter is Colgate 360 Total Advanced Floss-Tip.

This super premium priced toothbrush has tapered bristles for a deeper reach below the gum line resulting in a superior yet gentle clean.

In addition to oral care, we have a full new product line up in both personal and household care.

One interesting example is our new line of antibacterial hand soaps under the Softsoap brand, which is, as you know, the leading liquid hand soap in the US.

Consumers, particularly during flu season, are very concerned about hand washing.

This new antibacterial soap with moisturizers leaves hands feeling soft, and has an active ingredient which effectively helps to illuminate bacteria.

So we're encouraged as we enter 2013 that our North American business is off to a good start.

Turning then to Europe-South Pacific, as with North America, our European results were solid, particularly in light of the very difficult macroeconomic conditions in that part of the world.

Organic sales increased and were slightly ahead of overall category growth.

Year to date, our market shares are up in toothpaste, manual toothbrushes, mouth rinse, body wash, deodorant, and fabric conditioners.

New product activity is the key to growing in these highly developed market -- slow growing markets.

We have a full slate for the first quarter and beyond.

Here are just a few examples.

Colgate Total Pro Interdental, a toothpaste which continuously fights plaque even between teeth for a healthier mouth.

Colgate Plax Complete Care and Advanced and Complete mouthwash, for a healthy mouth with 12 benefits in 1, including 12 hour antibacterial protection, enamel strengthening, and the ability to kill germs up to 99%.

We are revitalizing both our Elmex and Meridol toothpaste with new modernized packaging design with strengths in claims.

You may recall these two brands were part of the GABA acquisition and had especially strong shares in the Germanic countries.

In this quarter, we will be expanding both brands into the mass market in both France and Belgium.

Heretofore they have only been sold in the pharmacy channel in those markets.

In personal care, we are relaunching our experiential Palmolive body wash ranges with new designs, new variants and a new advertising campaign -- unforgettable shower experiences for your body and mind.

Our Sanex deodorants are being launched under the new bio response concept with a new modern design and new variants accompanied by a new claim -- fight order causing bacteria while respecting the skins natural bacteria flora.

Sanex is also introducing Sanex Dermo Kids body wash with the mild formula with fewer chemical ingredients to keep your child's skin healthy.

This new product has been approved by pediatricians.

So, a lot of activity across the region, which bodes well for 2013.

Turning then to Latin America, as I discussed earlier in my commentary, difficult conditions in Venezuela affected this division.

Business in our other subsidiaries is very good and year today market shares are up across the region in toothpaste, toothbrushes, mouthwash, bar soaps, dish washing liquids, and fabric softener's, and deodorants are at last year's levels.

As elsewhere, new products have been critical to our success in this region.

In Brazil, where we have our highest toothpaste market share in the last 15 years, 71.4% year to date, both Colgate Luminous White and Colgate Total Professional Gum Health has contributed to these good results.

In fact, in the month of December, Colgate Luminous White alone achieved an 8.3% share.

In Mexico, our year-to-date toothpaste market share is 81.8%.

In toothbrushes, our year-to-date share across the region is up almost 2 full points.

In Brazil, we maintained our market-leading position of over 30% and in Mexico we continue to close the gap with our nearest competitor.

Three years ago the gap was almost 8 points and in the most recent period it is narrowed to 1.5 points.

Year to date, our share is at 42.3%, up 80 basis points year over year, and was at 43.4% in the most recent period.

In mouthwash, new products across the region, such as Colgate Luminous White and a relaunch of Colgate Plax have allowed us to narrow the gap with our nearest competitor from 29.3 points in 2007 to just 3.4 points in 2012 on a year-to-date basis.

We're excited about more innovation coming in the first quarter.

We're relaunching our Colgate Total 12 products with a new campaign, which emphasizes the 12 hour antibacterial protection for a healthy mouth.

Under the Mennen Speed Stick brand, we're launching Mennen Speed Stick Neutro Power with all the protective benefits that the brand is known for but less fragrance that will not interfere with colognes or aftershaves.

Under the Protex brand, we have driven our bar soaps shares with the variant called Deep Clean, which deeply cleans sensitive skin to remove dirt and bacteria that can cause pimples.

We're now introducing a shower gel with the same positioning.

And as you know, Fabuloso is our market leading, highly fragrant, all-purpose cleaner.

We're launching a new fragrance, Chamomile Explosion, capitalizing on the consumers belief that chamomile is a natural ingredient to be used to care for the family.

These are just a few examples of what is to come throughout the year in Latin America, and you'll hear more about innovation as we go forward.

Turning then to greater Asia, Africa.

Strong results continued in the fourth quarter to finish off an excellent year for this region of the world.

As referenced in the press release, volume growth was led by some of our major subsidiaries, including Russia, India, and China.

Despite concerns over a slowing economy in China, our categories there are exhibiting good growth and we've benefited from that.

Our toothpaste market share there is up 120 basis points year over year to 33.5%, consolidating our number one position in the market.

We've had particular success with new products in the premium segment of the business.

Our mouthwash shares are up 240 basis points year to date with over 34% of the market, fueled by this success of Colgate Optic White Mouthwash launched in this quarter.

In India, our year-to-date toothpaste market share reached yet another record, up 230 basis points to 53%.

And as with China, premiumization is driving our success with higher-priced products such as Colgate Total, Colgate Max Fresh, and Colgate Sensitive.

Our Indian toothbrush share is up [220] points, with 39.5% on a year-to-date basis with the latest reading at 40.9%.

Our leading market share is now 1,480 basis points ahead of our nearest competitor, from 880 basis points at the start of the year.

In Russia, our toothpaste share increased as well, up 50 basis points on a year-to-date basis.

And as elsewhere around the world, we will continue our launch of new products in 2013.

Launching in China is 360 degree Pro Gum Health toothpaste.

Gum problems are the number one oral condition suffered by Chinese and 360 degree is our biggest premium sub brand in the China portfolio.

Formulated to relieve gum problems in just three weeks, this China relevant new product will be supported by complete integrated marketing campaign.

In the toothbrush category, tapered bristles are the fastest growing segment in Asia.

This quarter we will be expanding our Slim Soft equity with a launch of Slim Soft Charcoal, which delivers a deep dental clean with a charcoal bristle.

So we think we are well poised in this part of the world as we enter 2013.

And Hill's.

As referenced in the press release, Hill's launched a number of new products in 2012.

As we look to 2013, the new product pipeline is full and we're very excited about these new items.

As some of you may have heard already, we are in the process of relaunching our Science Diet line.

The objective is to modernize and enhance the shopping experience with improved packaging and placements and to improve the perceived signs of quality.

Formulation will be of 100% natural ingredients with quality animal proteins first and no byproducts.

It will have significant taste improvements.

Our new integrated marketing campaign -- what vets feed their pets, has already gained strong customer support.

As part of the plan, we've added more nutritional consultants and direct store coverage with enhanced display plans.

In addition, we'll have materials and samples in the vet clinics.

Secondly, we are repositioning Ideal Balance as an authentic natural proposition.

We will expand into all key segments; dry, wet and treats, and remove wheat and soy from all products.

As with the Science Diet relaunch, we've added nutritional consultants and increased direct store coverage.

In the Prescription Diet line, we are now shipping Prescription Diet Metabolic in the US, Canada and Japan.

Other regions will follow in the second quarter and we expect to complete a full rollout by the end of this year.

Obesity in both dogs and cats is one of the biggest disease conditions globally.

Prescription Diet Metabolic is the first weight management food with proven real-world results as well as being the first offering for easy flexible weight loss success without deprivation.

In early trials, 88% of dogs and cats lost weight in two months at home.

This new product has been very well received by veterinarians, many of whom are recommending it to their clients.

So in summary, for 2013, we're looking forward to a strong year of investment and volume growth and continued acceleration in our market shares worldwide.

Our leadership team is committed to winning on the ground with superior execution behind an ever-increasing flow of innovative new products.

We have a full pipeline of new products spanning all price points to enable us to succeed in developed and emerging markets alike.

We look forward to sharing our results as we go through the year.

That is the end of my prepared remarks now, Cameron, if we could open it up for questions that would be great.

(Operator Instructions)

Dara Mohsenian, Morgan Stanley.

Ian, it sounds like Venezuela clearly had some massive sales and profit declines in the quarter given the impact you quantified on the Corporate results.

Can you give us more detail on exactly what's occurring there?

How long you think those issues will linger?

And then also separately, on the same subject, can you discuss your ability to hit your double-digit EPS growth guidance in 2013 if there is a devaluation in Venezuela?

And, how managing through that situation might be different than past evaluations just given the price controls in place?

Good morning, Dara.

Thanks for the question.

Clearly, questions on Venezuela, given what we have already said, are entirely appropriate and I will answer it in a moment.

But I do want to underscore what Bina said when you think about our Company in total.

We delivered at the low-end of our organic sales for the year, 6%.

We delivered 8%, $1 EPS growth year on year, absorbing a 6% headwind from foreign exchange, which means that we delivered our currency neutral earnings-per-share growth.

And we expanded our gross margin at the low-end of our expectations, given Venezuela.

More importantly, we believe the strategic initiatives that we have been deploying for several years continue to be effective.

We have a global growth and efficiency program now in place behind a very strong innovation stream to continue to grow our business going forward.

But yes indeed, in the fourth quarter, after our last call and based on the uncertainty between elections and inauguration, we did see a slow down in our Venezuelan business, as you say, partly due to uncertainty at retail level and partly due to the slowdown in our factory.

As Bina said, our global organic sales would have been up 150 basis points if it were not for that.

Indeed our emerging market sales would have been up some 300 points from the 6% you saw in the results.

I can tell you that after considerable dialogue and collaboration with our workforce, with support from local government ministries, we enter this year with our operations in Venezuela basically back to historical levels.

Our top line progress has bounced back to the levels pre the event and consistent with our thinking about Venezuela for this year.

Now, as we discussed on the last call, when I said that a significant devaluation in Venezuela along with price controls would weigh heavily on our results, we were quite straightforward in our release in saying that the double-digit in dollar terms guidance was absent a macro economic devaluation in Venezuela and that continues to be our view.

Now, clearly, there are many different scenarios there and in some ways it's not just the management of the devaluation, which as I have said before, would take to just over $0.5 billion of monetary assets there and reduce them by whatever the devaluation level is.

But, the effect is potentially larger in terms of what does happen in pricing and what may happen in terms of social or other macro economic actions.

Our view on that, as it was the last time, and we have many years in Latin America and other parts of the world experiencing these kinds of things, is that we would, as we were before, be very prompt and fulsome in becoming public in terms of how we would react to the devaluation and whatever comes with it should that time come.

Now, while that is out there, you know well that in terms of the way our Business is being managed in Venezuela, we have made the Business much more simple.

We are focusing on our SKUs.

We are making cash decisions wisely.

So, we are managing responsibly, understanding that we are in businesses and geographies for the long term.

So, that would be, I think, the confidence in the overall Company.

I hope confidence in our ability to manage Venezuela.

A statement that what we went through in the fourth quarter has corrected in January and that we will deal with any macro economic event in Venezuela swiftly and advice people accordingly.

Nik Modi, UBS.

Good morning, everyone.

Ian, if you could walk us through, as the year unfolded in 2012 and as you look into 2013, how is the competitive environment involved?

Has a gotten much more intense in the sense that more promotions, maybe some of the advertising money's going into promotions, and are you seeing it accelerate here as a lot of your global competitors have been obviously restructuring and have some more money to play with plus commodity costs have been a lot tamer?

Just curious on your view?

As you think about the back half of the year, where do you think that's headed as many companies have gross margin upside to reinvest?

Well, I think, Nik, we have been generally clear that despite or regardless of what many people have been saying about the level of competitive activity we have seen it.

We continue to see it.

We continue to plan that it will be at the levels that we have seen for the last little while.

We too will see expansion of our gross margin.

We see our material costs up about the same level as they were this year, which is around 1%.

We still expect to see our gross margin expand next year within the 50 to 100 basis points level given our investment in the formulas at Hill's.

So, that's what we think we will see in the ongoing operating costs from Venezuela.

We think we have, from an advertising point of view, a well structured our plan.

It is a plan that continues to confirm a 6% to 7% organic growth level.

It continues to see the Hill's business, with all of the terrific product activity behind it, turn volume positive, continues to see our advertising grow.

I would make the comment about advertising.

As we have said for some time, many of us in going to school came out with the view that advertising was good and trade spending was bad.

I think we have been trying to say that, in many ways, given the analytic tools available to us, the way one can execute at the retail level these days, a wise trade investment can be a terrific way of building a brand, engaging with a shopper at retail and getting them to that final purchasing decision on top of the traditional advertising and the social media and the other techniques that we use.

So, these things are all in a balance.

We build our plans accordingly, but essentially the plan we have for 2013 assumes the continuation of competitive activity, adequately funds our innovation.

We believe has the right balance between traditional advertising spending and that which we would execute and be able to measure the return on investment on -- at the retail level.

Wendy Nicholson, Citi Investment Research.

Could you talk about Hill's, specifically?

The margin that you generate there has for a long time been so good and above average for the Company, and can you talk about, going forward, what you expect from Hill's profit margin?

With all the new product activity and the volume declines you've seen, is that not an area where maybe investment spending should go up?

Or how much will Hill's itself benefit from some of your restructuring?

Thanks.

Well, I think, Wendy, as we think about Hill's, frankly, we're quite excited.

We think from an innovation point of view, we think we've got it right.

We think we have been able to improve the relevance of our Ideal Balance product while not losing the strength of the Hill's scientific credentials.

We think we have made a major upgrade in our Science Diet business for the US.

We have packaging we know works.

We have advertising we know works.

We have clear selling communications for our consultants at retail to bring back consumers to the business and we have invested in those consultants.

We have had very, very good collaboration with the Petco's and the PetSmart's of this world in bringing these plans to the consumer.

So, by all means it is an investment year for Hill's.

We are investing in advertising to convey the benefits of the products that will be coming to the marketplace, are coming to the marketplace now.

We believe we will see the volume of that business return into positive territory as we move across the year.

And, yes, we have made and investment in upgrading the formula in Hill's.

Having said that, we are going to expand the gross margin of the Company with in our 50 to 100 basis point range.

In the life of the plan that we have, we rebuild that gross margin investment on the Hill's business.

So, we are comfortable with where we are putting the investment funds and we look forward to reporting the progress of the Hill's business across 2013.

Joe Lachky, Wells Fargo Securities.

I just was wondering if you could describe how you're responding to the competition in Brazil?

And maybe if you could let us know what category growth rates are in that country for oral care?

And is net the competition positive or negative for the category overall?

Okay, Joe, well let me do a little bit of a whirlwind tour and I'll come back to Brazil.

Take the big high-growth markets that everybody talks to, China, our share is approaching 34%.

The competitor is below 19%, down over 3 share points year on year.

Russia, our share is over 32% and the competitive share has now drifted below 15% continuing a four-year downward progression.

Our share in Mexico, as Bina said, is about 82% and the competitive share towards the end of the year is around 13%.

And if we come now to Brazil, to your point, our share, as Bina said, the highest we have seen in 15 years, and the competitive share for the year is about 6% and change in the fourth quarter, based on Nielsen data is around 7%.

We have seen category growth in Brazil.

We have seen our market share growth in Brazil.

And the growth rate in Brazil is pretty much at the same as it has been in all of our emerging markets, which is high single digits, low double digits.

We have said many times that we believe the basis for growth in categories is innovation.

In Brazil, as you may know from our various comments on the subject, whether it was Sensitive Pro Relief, whether it was Luminous and the other innovations we have planned, we are constantly looking to engage with the consumer through innovation rather than just price promotion.

We see that and plan for that continuing in Brazil and the other emerging markets around the world in 2013.

John Faucher, JPMorgan.

I want to follow up on your comments on the relative value of trade promotion versus advertising.

Advertising for us, in terms of the information we get, it's obviously a fairly blunt instrument.

One of the things that the investment community focuses on advertising for is it can tend to be more of a leverageable expense, while trade promotion we associate is a little bit more variable in terms of having to put the trade promotion out there for the units that you get.

Can you talk with us a little bit about SG&A leverage in that context?

And then the second question I had was a housekeeping thing, which is can you talk a little bit about the interest income line, which went from negative to positive in the quarter and what happened there?

Thank you.

Yes, let me talk about it holistically.

I think from the trade spending point of view, I guess what it comes down to is the programming.

If you looked at our advertising in the fourth quarter, on a ratio basis, it was at the level -- it was down about 10 basis points as we said in the release.

But overall, our commercial investment was up a multiple of that.

When we think about trade promotion, there are two aspects to it.

One is pure price and the other is consumer spend, which can include price, but it can include activity at the retail level.

Think these days about any one's shopping experience, particularly in the developed world, one gets messaging from the traditional media, engagement from social media and other word-of-mouth type messaging, and then what one encounters at retail, which is substantially different today than it was even five years ago.

We have talked from our side about Colgate business planning, about better understanding of pricing as a competence in our Company and the use of analytics.

These things all tie together when you come to retail.

We are able today to construct programs that may be built around price, but are much broader than that at the retail level and are, as we call them, integrated communications that go from the television ad to the activity that consumers see at retail, the coupons that they might receive directly or indirectly.

You can do good analytics on it.

It's very targeted and you can collaborate with retailers against it.

You can track to make sure that it is not damaging brand health, but rather an additional component that is strengthening brand health.

So, that's how we think about it.

That's really how we deploy our numbers.

We don't tend to think of it from a leverage point of view.

We tend to build even our traditional advertising plans and the commercial plans, which go to retail, from the ground up against the programming we have, rather than a leverageable ratio going forward.

Now, as to your question on interest expense.

This actually has been a very conscious and focal area for us this year and will continue into 2013.

Obviously, as you have seen from our releases, we have taken advantage of a low interest rate environment here in the US to structure debt at very low coupon levels, as you know.

And have also, which has been part of our capital structure planning, located some of our cash in overseas markets where we see deployment opportunities.

With that cash there, the investment returns we are getting are quite elevated.

So, as we plan forward, and again this was planned for, for 2013, we're looking at net interest expense being basically flat with expense and income offsetting one another.

So, net income basically flat for 2013.

Now, in the fourth quarter of this year, obviously, we got a pick up, as you say, but of course that was fully offset by the increase in tax rate from the fourth quarter of last year.

So, we view those as offsetting items.

Ali Dibadj, Bernstein.

Clearly, you're affirming the double-digit EPS growth for the year, ex stuff, but I haven't heard you say directly the organic top line growth of 6% to 7% which you said on the last conference call is still intact.

Is that the target?

Is it smooth throughout the year?

You may talk about Venezuela in that context and thank you for giving us more detail on what the organic sales growth and gross margin would have been ex Venezuela in the quarter.

But to be fair, would you mind elucidating what you're organic sales growth and gross margin would have been ex Venezuela over the past three, four, five years?

Well, I guess I would mind.

I guess is the straightforward answer.

Looking forward, I thought I had said it earlier, but if I didn't then let me say now, that indeed, we do reaffirm our 6% to 7% organic growth for 2013.

And, the reasons are innovation stream, the return of our Hill's business to volume growth, and what we believe is an executional focus that we have in all parts of the world, but particularly in the emerging markets to make sure our distribution and our in-store visibility and activity truly engages the consumer.

Remember, the Venezuela impact in the fourth quarter was a very unusual impact.

Bill Chappell, SunTrust.

Just a quick follow-up on Venezuela and then another question.

On Venezuela, is there a catch-up that will happen in the first quarter with things back to normal in terms of what you see those sales materialize and boost organic growth?

And then just the regular question is, on a new product launch this year, is it in roughly the same in terms of revenue generation and timing as we're trying to model out?

If I take the second question first, if you think about our innovation in total, I think the contribution to the top line from innovation in total will be around the same level as it was in 2013.

Quite how it profiles across the year, I must say I don't have.

And from a Venezuela point of view, it is -- and that will be around 7% to 8% by the way, Bill.

And from a Venezuela point of view, the first quarter, as I said, is back to historical levels, but I wouldn't think there would be a rebuild of any significance from a modeling point of view.

Javier Escalante, Consumer Edge Research.

I have a question, a follow-up on Brazil and basically in the context of also what is happening in Europe.

As I understood it, you held up market share in Brazil this quarter.

But, do you see this 50% shipment growth, that one of your competitors indicated early this week, as the leading indicator of heavier competitive activity in the future as opposed to now?

And in the context of the need of upping reinvestment in Brazil, I would like to bring up this issue of Europe where you had seen negative pricing for three years.

Is this because of your Home Care business, which is low in terms of a strategically and financially in your ranking?

And if that's the case, should you consider doing something more drastic in Europe, maybe divesting Home Care, if that's the core of why pricing has been negative for so long?

Thank you.

Okay, Javier, let me take your one question in the two parts it was asked.

Starting with Europe first, we were pleased with the organic growth we got in Europe, albeit volume driven in the fourth quarter.

Secondly, the pricing negative relates to the European environment and has been that way for the same years you quoted.

It is not especially oriented towards our Home Care business.

You may recall that when we talked about our global growth and efficiency program, we very specifically said that we were in a world where growth rates in our categories was going to be driven by the emerging markets in those high single digits, low double digits ranges, and that the category growth rates in the developed world would be low single digits and in Europe definitely low single digits.

And that therefore, we wanted to go forward and lower the structural costs in our Company that would increase our speed and efficiency and strengthen us for the longer term with these concepts, of parts Colgate Business Service Centers and of course more facility rationalization.

And you will remember that one of the first announcements we had relative to that program was indeed relative to Europe.

So, I think we've been attentive to the world that we are living in.

We like our businesses, we don't think we have a business problem, and we are trying to create structures that will make us strong, not just today, but for the medium term.

Now, relative to Brazil and 50% volume numbers, I seem to recall over the last three to four years there have been quite a few plus 30, plus 22 types of volume numbers quoted and our reaction would be, you can see the market shares.

We see the competitive activity in the country.

And I think we have demonstrated, over the last several years, an ability to meet that competitive activity.

We have said that over that period, a lot of it was priced promotion related.

The latest entry now gives competition to the Luminous offering that we had in the marketplace already at pretty strong share levels.

And, you will continue to see our innovation at play in Brazil and other countries as we work our way through 2013.

Jason Gere, RBC Capital Markets.

I just wanted to go back to the organic sales question.

Some of the numbers you threw out there, you talked about the innovation I think being 7% or so this year.

Is that right?

Yes, 7% to 8% sales for the year.

Okay, so then with the 6% to 7%, I just want to talk about the pricing element, how you look at pricing this year relative to some of the maybe incremental promotion out there?

And then put into context, when you look at last year, the pricing that came through, because 50% of that 6% organic sales was price, what was the impact that you saw in volumes?

I'm just trying to reconcile the numbers to get comfort with that 6% to 7% that you've laid out.

Yes, I think, Jason, as we think about pricing, again, take the more strategic perspective.

We called out back-to-school two areas that we were going to, over time, build competence in.

One was pricing and the other was analytics and to a certain extent they go hand-in-hand.

We have definitely been focused on that and trying to find the right balance between pricing and volume.

So, this year, as you say, it's been about half-and-half price and volume in terms of that 6% organic growth.

Next year, we are looking at pricing that's going to be in the 1.5% to 2.5% range, reflecting our capability in that area.

About one-third of that is going to be rollover pricing from 2012.

The balance will then be volume.

And again, back to the reasons for the confidence in the volume, the turnaround of Hill's, from a negative volume to a positive volume business, and the growth we have in the emerging markets, and the innovation stream that we have behind our businesses.

So, this is built up from the ground up and we feel reasonably comfortable with where the plan sets.

Bill Schmitz, Deutsche Bank.

Can we get some more color on the mechanics of the restructuring program?

Like when the savings are going to come through, where the big buckets are?

Maybe I missed over the last few months, but it would be great to just get some color on if you've gotten anything to date and when you're going to see us through the big up tick in the savings?

Yes, well, I think we spelled out the savings we were expecting this year and the one-time charges we were expecting this year.

So, savings in the $30 million to $40 million after-tax range and one-time charges for this year in the $185 million to $220 million.

This year being 2013.

So, that's what we're looking at.

Now, the buckets, I think are the buckets that we framed the program with when we started.

They will be this notion of hubbing, of our operating units around the world so that smaller operations can benefit from greater capability in the hub center.

The Colgate Business Services Center, that we have talked about for quite some time, out of Warsaw in terms of the operating efficiency and related savings that you get with that, and the rationalization of our facilities, largely manufacturing, which you started to hear about in Europe a little bit earlier.

In terms of the timing of the savings for 2013, as Bina said, as you would expect it will become more normaltively towards the back half of the year.

So, by deduction you can see that the majority of the savings will come in the out years.

We will talk about progress on those out years as they become concrete.

Christopher Ferrara, Banc of America.

Ian, can you talk a little bit about the innovation stream?

One of the things I think some investors are little bit concerned about is the ability to lap what looked like a pretty aggressive new product flow in 2012.

I think you had a number of what you might describe as platforms like Optic White and Luminous White that really impacted '12.

So as you move to '13, that 6% to 7% organic growth rate, obviously that's a big number considering the innovation pipeline last year.

So, can you talk a little bit about a, what is that pipeline look like in '13 relative to '12 with respect to number of big hit innovations?

I guess put that into context of what your growth rate looks like?

Thank you.

Yes, well, again, this year we delivered around 6% organic growth and next year we're talking about the same 6% to 7% range that we had for this year.

As I mentioned earlier, we expect innovation to deliver about 7% to 8% of the sales in 2013.

We think the pipeline is strong.

Unfortunately, for the question you're asking, some of the products that are coming to market have not yet been announced and it would be remiss of me to provide competitive advantage.

But, we have a very good, we believe, process in place from an innovation point of view.

We have talked about it many times.

We have external linkages.

We have innovation centers around the world.

We have long-term innovation groups.

We have a strategic group that meets to try and accelerate capital investments and other investments that might be required to accelerate in innovation.

We have even done some of these rapid innovation models, as we have talked before, in some of our emerging markets to identify innovations that are directly for those categories.

So, we think we have a process in place that will give us an innovation stream as productive as 2012.

Remember, in that organic growth for 2013, the innovation that is now coming to market from Hill's is going to, we believe, turn that business positive from a volume point of view.

Of course that's an important factor not to forget either.

Alice Longley, Buckingham Research.

Good morning.

You might've answered this at the beginning of the call, but if we look at margins in Latin America and Asia, in both those regions they were down year over year while they were up a lot in the US and Europe.

The first question is about in the emerging regions, if you were to take Venezuela out, I know you commented on a gross margins, but would operating margins have been up?

And the same is true for Asia, Africa, or similar question, with competition rising, do you expect margins to go up or down ahead?

We don't comment going forward, Alice, on operating margins.

Clearly, given what we said on the gross margin, the operating margin in Latin America would have been higher in the fourth quarter of 2012 had it not been for Venezuela.

So, that is indeed true.

Again, for 2013, we have said that we planned for our gross margin to increase by 50 to 100 basis points.

We have reaffirmed the top line at 6% to 7% organic, and the bottom line at 10% on a dollar basis, ex a significant deval or macro economic event.

So, that's where we are on the market.

We were very pleased with the pricing we've been able to get relative to margin.

Obviously in the US, you have the comparison between a fourth quarter of 2011 when we were investing at very elevated levels to introduce Optic White and where we are this year with that innovation still driving share growth in the US I would add.

Lauren Lieberman, Barclays.

I'll just ask what no-one else has.

The gross margin buildup for the quarter, if you could go through that?

Thought you'd never ask.

So, if you take the fourth quarter, we have the prior year gross profit at 57.7%, pricing added at 0.9 of a point.

Our funding-the-growth savings came in strongly at plus 2.8 points, 280 basis points, higher than prior year, although 2012 followed the same profile as last year.

Material prices were a negative 2.9 percentage points and the majority of that was the operating costs in Venezuela as we had said earlier.

There were no other changes and that roll forward therefore gets you to the 58.6% in the fourth quarter.

Connie Maneaty, BMO Capital Markets.

I have a housekeeping question and then a real one.

What's the normalized contribution to Venezuela to sales and earnings?

So if here you would exclude the fourth quarter disruption?

And then, could you also explain the big increase in North American operating margin?

Is it sustainable or were there some one-time factors that caused it to go up as much as it did.

Yes, let me take your second point first.

The operating margin, as I said, in North America was a reflection of the fact that in the fourth quarter of 2011 we had very elevated investment behind the launch of Optic White, and of course we didn't cycle that this year.

I wouldn't project out at the fourth quarter level in North America going forward.

Now relative to your second question, I think we said, Connie, that Venezuela represents about 5% of our sales and that is what we provide.

Caroline Levy, CLSA.

I think it's good afternoon almost.

Thank you.

I just want to understand, Ian, if you could help?

What took you by surprise in Venezuela?

Because I do get the sense that you weren't expecting quite as severe a devolume hit our cost hit?

And, what has changed as you look at the first quarter?

I guess there was incredible uncertainty after the election and the lead up to the inauguration.

I would say the biggest factor was the labor slowdown in our facilities.

That was something that took us time in conjunction with our local management, in conjunction with our workforce and with support, as I said, from appropriate government ministries.

We have resolved the labor slowdown that we had, basically in the November/December months.

In January, as I said a little bit earlier, our factory in Venezuela, which is where we make about 85% of what we sell, is backup running at normal historical levels.

And of course, the sales have bounced back meaningfully from the November/December levels of last year as we have product to supply the market.

So it really was that and the correction is as I laid out.

I think if you read some of the general press, as we tried to say in our release, I don't think that was at that particular period was a situation unique to Colgate.

But that really was the issue.

Alec Patterson, RCM.

Ian, just quickly, I was curious, the interest expense as sort of the cost of financing initiative that you talked about earlier, if you do unfortunately have a Venezuelan devaluation, would that dramatically change the ability to generate strong interest income?

Yes, many things would be affected.

I think, Alec, that would.

Mark Astrachan, Stifel Nicolaus

One quick question and then a follow-up to that.

Doubled your earnings growth, is that still 10% to 11% type range?

Yes.

Okay, and then the follow-up, so I'm just trying to reconcile 6% to 7% sales growth to that number.

So --

Organic sales growth, yes.

Right, right.

Benefits from three restructuring programs, budgeting oil last time at $110, so obviously it's lower than that, the interest expense benefit, share repurchase, where are the incremental spend?

Or where's the incremental spend going?

If you could maybe help us reconcile those two numbers, the sales to earnings that would be helpful?

If you're trying to get at the top line, where's the incremental spend going to drive the 6% to 7% top line, well it's going into commercial spending, which is to say spending we do directly with retailers.

It's going into traditional advertising.

It's going into innovation.

It's going into overhead of SG&A, because we will in some locations be strengthening our on the ground capability.

So it really is geography and project specific.

So, that's where it's going.

But remember, that the restructuring savings in 2013 are in that $30 million to $40 million after-tax.

It's a relatively modest number compared to what has yet to come.

That does conclude today's question-and-answer session.

I'll now turn the conference back over to our speakers for any closing remarks.

Well, thanks, thanks for your question.

Thanks for joining us, always a pleasure.

And a particular big thank you to the Colgate folk who may be listening or read the transcript who actually make all this happen, and particularly thanks to our folk in Venezuela.

Thank you.

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

We thank you for your participation.