高露潔 (CL) 2013 Q1 法說會逐字稿

Good day, and welcome to today's Colgate-Palmolive Company first-quarter 2013 earnings conference call.

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

Just 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 and introductions, I'd like to turn the call over to Senior Vice President of Investor Relations, Ms. Bina Thompson.

Please go ahead.

Thank you, Melissa.

Good morning, everybody, and welcome to our first quarter 2013 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, and these statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance.

Actual events or results may differ materially from these statements.

So, for information about certain factors that could 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 the 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 earning per share excluding the impact of certain items described in the press release.

A 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 very pleased with the way the year has started out, continuing the momentum with which we finished 2012.

Our organic sales growth was robust, up 6%, and even more satisfying considering the strong organic sales growth of 6.5% in the year-ago quarter.

Our worldwide market shares are up across all Oral Care categories.

An improvement in gross margin has allowed us to support new and existing products with increased advertising while still delivering a healthy bottom line.

Macroeconomic challenges continue to present themselves, particularly in the more developed parts of the world, and, of course, more recently in Venezuela.

But despite that, our business is strong both from a P&L and a balance sheet standpoint with excellent cash generation.

Our global growth and efficiency program is on track.

Just this quarter, we announced several initiatives.

First, in Europe, we are creating an Oral Care Center of Excellence by moving our consumer innovation center, our Category Management Group, and our Consumer Insights Group all to Basel, Switzerland where they will be combined with our professional affairs and technology group already based there.

As you know, Basel has been the headquarters for our GABA business.

So, this newly formed organization will be able to benefit from GABA's long-standing expertise in the areas of professional affairs and technology.

Also announced this quarter, is further progress in the area of Colgate business services.

Applying our learnings from our existing center in Warsaw, we will be establishing a global center in Mumbai and a regional center in Mexico City, and we will be migrating additional financial functions to all three locations.

As you know, another element of our global growth and efficiency program is to expand our commercial hubs.

Just this quarter, we announced our intention to hub Romania with Poland, Czech Republic, Slovakia, Hungary, and the Baltic countries to create the Central Europe East Hub.

The hub center will remain in Warsaw, Poland.

This hubbing will allow us to be more efficient, drive smarter and faster decision-making, strengthen capabilities on the ground while improving our cost structure.

And, of course, as we generate savings from these projects, we can provide funds for reinvestment to sustain our growth opportunities around the world and especially in the fast-growth emerging of markets.

So, let's turn to North America.

We're very pleased with the strong results in North America.

The strong organic sales growth of 5.5% was a good balance of 3.5% volume growth and 2% pricing because as you know, pricing excellence is a key focus for us around the world.

We told you about a number of new product launches last quarter which have contributed to the strong results and which helped drive our Oral Care shares referenced in the press release.

Our shares are also up in body wash and in fabric conditioners.

And, as you know in the US, we only sell fabric conditioner in Hispanic markets, but it has now reached a national share of 16.3% on a year-to-date basis, up almost 1.5 points from the year-ago period.

We're very excited about a significant launch in this quarter of Colgate Total Mouthwash, our second entry in the US in the mouthwash category after Colgate Optic White Mouthwash.

This is a very exciting opportunity to offer a complete regimen solution under the Colgate Total brand.

The new mouthwash offers a number of benefits, 12-hour protection even after eating and drinking, kills 99% of germs, fights formation of plaque and gingivitis, and has no burn of alcohol.

Trade reception has been very encouraging, and the product will be supported by a very robust, integrated marketing campaign with both in and out-of-store activities.

Our off-shelf displays are at record levels, and along with Colgate Total toothpaste and toothbrushes, the complete regimen is being backed by a compelling new claim -- improve your mouth health in just two weeks.

You may already be aware that we've engaged Kelly Ripa to be our new spokesperson for the Colgate Total brand.

Kelly has extremely high appeal among consumers, and our ad with Kelly as the face of Colgate which aired in February tested extremely well.

She will be an integral part of our launch plan for Colgate Total Mouthwash as well.

In other categories, we will be launching spring and summer seasonal hand soaps under the Softsoap brand in both foam and liquid.

Consumers enjoy decorating their homes with these fun designs which provide everyday specialness and variety.

New product activity will, of course, continue as we go through the year.

Turning then to Latin America.

I'm sorry, turning then to Europe and South Pacific.

We're also pleased with the modest growth in this region given the extremely challenging macroeconomic conditions across Europe.

Countries such as Greece, Spain, and Portugal are experiencing negative GDP growth and high unemployment, but we do see a few bright spots.

Germany and the UK, for example, where GDP is growing.

Given this environment, it is critical that we provide the consumer with value-added products that meet their needs, and this has indeed been happening.

A number of new products were referenced in the press release across categories which contributed to our good results in the first quarter.

Our regional market shares are solid.

Our leading toothpaste share of over 33% and manual toothbrush share of over 22%, both on a year-to-date basis, are even with the year-ago period.

Market shares in battery toothbrushes and mouthwash are up year-over-year.

Market shares are also up in underarm protection and in fabric softener where we reached a record 26.4% on a year-to-date basis.

Four new products will be launched in the second quarter.

In toothpaste, we will be launching a number of new products across sub-brands.

In the whitening category we are launching Colgate Max White One Luminous, the toothpaste with smart foam which whitens teeth all around.

Under the Max Fresh brand, we are launching Colgate Max Fresh Acticlean which penetrates between teeth for intense brush of clean.

We told you in the fourth quarter about our first-ever launch in the rechargeable electric tooth brush market.

Colgate Pro Pinnacle was introduced in the UK in September of last year.

This quarter, we've launched it in the Nordic countries and in Germany under the Elmex brand, and we're quite encouraged by our results so far with good support from both the trade and the profession.

GABA continues to perform well, especially in Italy where sales of GABA products are up double-digit year-over-year.

To help continue our strong results, we're launching two new products under the Elmex brand.

Elmex Sensitive professional mouth rinse with effective and lasting relief for tooth sensitivity, and Elmex Erosion toothbrush which provides superior clean while still being gentle on tooth enamel.

In Personal Care, we are launching new body wash products under both the Palmolive and the Sanex brands.

Palmolive Mediterranean Moments, which nourishes your skin and delights your senses, and Sanex [TuGra] that helps restore the skin's natural moisturizing levels.

As you know, home care is an important business for us in Europe, and we will introduce new products in this category as well.

One interesting one leverages the consumer preference for natural and traditional ingredients, Ajax authentic cleaners with freshness of Aleppo soap and sweet almond oil.

So, a lot of activity to support this.

Now, let's turn to Latin America.

We're particularly pleased with the strong organic sales growth in Latin America given the challenges we have been facing in Venezuela.

Market shares are strong across the region.

In addition to increases in manual toothbrushes and mouthwash, our shares are up year-over-year in both underarm protection and bar soaps.

In bar soaps, we are at a record year-to-date share of over 32%, up almost 1.5 points year-over-year, and we are now the market leader in nine countries in the region.

Both our Palmolive and Protex brands have contributed to this strong result.

In the first quarter, we did a relaunch of Colgate Total in Brazil and Mexico and will roll this out to other countries in the region in the balance of the year.

Part of this includes a compelling new marketing campaign based on the fact that Colgate Total 12 continuously protects you from bacteria for up to 12 hours, and we'll have more innovation in Oral Care in the third quarter.

In the second quarter, we have some exciting activity across personal and home care.

In Mexico, we just introduced two new underarm bundles.

The first is for men, Mennen's Speed Stick Neutro Power, which provides protection that doesn't interfere with a man's fragrance.

And, for women, we've launched Lady Speed Stick Pro 5 in 1, which offers five benefits for complete sections, dry, fresh, soft, no irritation, and no white residue.

Our share of the Mexican underarm market is approaching 20%, and increased 120 basis points on a year-to-date basis.

In Brazil, we are launching Palmolive naturals body cleansing luminous sensation soap with hydrating argan oil and oil complex to help soften skin.

Our bar soap share in Brazil increased 110 basis points on a year-to-date basis, which put us behind the market leader by less than 1 point.

This new product should help further boost our market share.

Also in Mexico, we launched Axion Oat and Vitamin E dishwashing liquid which combines the proven performance of Axion with the natural ingredients, oats and vitamin E. Our market-leading share of the dish category is almost 50%, up 290 basis points year-to-date.

Turning then to Greater Asia/Africa.

This part of the world continues to exhibit strong top line momentum with organic sales growth of 10%, the fifth consecutive quarter of double-digit organic sales growth.

Macroeconomic environment across the region is, for the most, part quite buoyant and our categories are growing mid- to high single digits.

Market shares are strong around the region.

In addition to the country's referenced in the press release, our toothpaste shares are up in Russia, South Africa, and Turkey.

In fact, in Turkey, with a year-to-date share of over 30% we have now taken market leadership for the first time.

Shares are strong in toothbrushes as well.

In India, our market share of almost 41% is up 320 basis points year-over-year, further widening our gap with the nearest competitor.

In Russia, our year-to-date toothbrush share is now over 50%, up 160 basis points as a result of successful new product launching.

And, in Turkey, our year-to-date toothbrush share is up 130 basis points to 29.3%.

Our mouthwash business continues to grow nicely as well.

In Russia, our market share is up strongly to almost 26%, driven by the launch of both Colgate Plax Tea and Colgate Optic White.

In China, our mouthwash share is over 33%, up 250 basis points year-over-year, again driven by successful new product activity.

And, we'll continue our new product activity in the second quarter.

Colgate Total pro gum health toothpaste, introduced into the Indian market in the first quarter where our market share is up 110 basis points over 53%, will be launched in China.

Colgate Optic White toothpaste, which has driven share in Thailand, is now being launched in India and Vietnam.

And, in the toothbrush category, we will continue the rollout of Colgate Slim Soft charcoal toothbrush across Asia.

The tapered toothbrush segment is the fastest growing segment in that category.

Charcoal resonates very well with the Asian consumer and is widely used in consumer goods throughout the region for its renowned antibacterial properties.

So, turning to Hill's.

As expected Hill's organic sales growth in the quarter was very modest, and as we told you on our last conference call, our expectation is that this business should return to volume growth in the second half of the year.

Our confidence is buoyed by the excellent early performance of three initiatives here in the US -- a complete relaunch of our Science Diet line, the launch of our naturals product, and the introduction of Hill's Prescription Diet Metabolic.

Sales of our new Science Diet are tracking well, and acceptance and shelving by the two largest US pet retailers are excellent.

We supported this relaunch with media starting at the end of February on national TV, and that media support is continuing in the second quarter, supplemented with Digital Media.

In addition, we will be implementing a sampling program along with a Vets Know Best tour, capitalizing on our strong veterinary endorsements.

As a result, we have seen an increase in consumption at both PetSmart and Petco in recent weeks versus year-ago.

The new Ideal Balance is performing well, and we've achieved 100% distribution of all items in the superstores.

The transition to the natural shelf is taking place and should be completed by the end of this quarter.

As you would expect, this also is being supported by a fully integrated marketing campaign, with TV, digital media, and high impact displays in stores.

Hill's Prescription Diet Metabolic is meeting with success as well, both here in the US and in Canada.

And, in addition, we launched it as Metabolics in Japan where it exceeded budget (inaudible).

This complete line of great tasting dry food, wet food, and treats, insures safe, easy, and healthy weight loss without making the pet parent feel like they are depriving their pet.

Weight problems in dogs and cats are common here and overseas.

Social media has been playing a clear role in driving awareness of the product as well as brand recommendations.

Many veterinary clinics have been advertising it on their websites and Facebook pages with photographs of before and after examples.

So, these launches do bode well for continued strength in the business, particularly as they roll out in other markets.

So, in summary, we are pleased with how we have started off the year.

Our organic sales continue to be strong, and our market shares are healthy around the world.

Our clearly enunciated strategies are being well executed by Colgate people around the world, and in addition, our global growth and efficiency program is on track.

So, while we are mindful that difficult economies in some countries, we think we have the right plans in place, coupled with the strict financial discipline to continue to deliver solid results as we go through the year.

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

(Operator Instructions)

Our first question will come from Alice Longley from Buckingham Research.

Hi, good morning.

My question is about the impact of the devaluation of the Bolivar on Latin American margins?

And then, overall on your bottom line?

So, if you could just tell us how many cents it took off the bottom line -- aside from the one-time charges -- we know what those are.

But, the effect on the bottom line aside from that in terms of cents?

And then, also, margins in Latin America?

Thank you.

Well, thanks for the question, Alice.

The -- I think we framed early-on the impact of the devaluation.

As you say, there is the one-time charge from the remeasurement of the balance sheet, and then we have said that the ongoing quarterly impact of the devaluation on the impact on EPS would be between $0.05 and $0.07 a quarter.

And, that has been the impact in the first quarter.

Now, when we focus on gross margin -- why don't I perhaps take this opportunity to run through our gross profit reconciliation and put it in the context of the full year.

So, for the first quarter, prior-year gross profit of 58.2%, and we benefited this year from 60 basis points of pricing.

No benefit from restructuring thus far.

You will remember, we expect the restructuring benefits this year to come in the second half.

Funding the growth continued to be very, very strong -- 140 basis points of benefit.

The beginning of exactly the same curve that we enjoyed last year in 2012.

A material price negative of 180 basis points.

Now, if you break down that material price negative, within that there is 120 basis points of negative that has to do with the impact of the devaluation in Venezuela.

You pick up 20 basis points essentially of mix, and we end up with the 58.6% margin -- gross margin -- that we have this quarter, up 40 basis points.

And, to put that in a year context, we came in the year saying that we thought our gross margin might expand between 50 and 100 basis points, but we said very clearly in [Cagney] after the devaluation of the Venezuelan currency that we now expected in 2013, our gross margin to expand between 30 and 70 basis points.

And so, that 40-basis-point gain benefit in the first quarter is exactly within that range.

Our next question will come from Dara Mohsenian from Morgan Stanley.

In your emerging markets, business has held up well despite comments from a number of companies that emerging markets are slowing, not just in household products, but across CPG in general.

Are you seeing any consumer spending pressure in emerging markets?

And, particularly in Latin America, giving concerns seem to be cropping up there over a Brazil slowdown and issues spreading potentially out of Venezuela and Argentina?

Can you talk about Latin America, specifically?

And then, why do you think your business has held up better than peers in emerging markets so far?

Yes, Dara, well, we continue to be quite pleased and bullish on the emerging markets, and in our categories, the data we have seen in the first quarter would support that.

If one focuses on Latin America, category growth rates continue to be in the high single digits.

And, if you talk about Brazil, our business in Brazil was up 17% on an organic sales basis.

If you go around the other emerging markets, the category growth rates are increasing very, very nicely, and we see in the greater China region, our organic sales up just under 10%.

In Russia, you see us low double digits in terms of growth.

The Latin American number, you have already seen, and I have mentioned Brazil.

And, even South Africa, was up double digits on an organic basis.

The sentiment -- I'm just back from Southeast Asia -- and when you look at the data and you talk to consumers, one gets the same optimism and confidence in the future that I got the last time I was in that part of the world.

Our market shares likewise in these emerging markets continue to be quite strong.

Brazil, our toothpaste share now up just under 72%.

Our market share in Russia approaching 33%.

Our nearest competitor is flat at 15%.

That 33% is up 1 point.

China, we're at about 35% market share, and our nearest competitor is down under 18%.

We're up 1 point.

They're down 2.5 points.

So, I think both in terms of the consumer, their consumption, and our ability to grow, and then on top of that, our continued share progress, we feel good about those emerging markets.

We will now take a question from John Faucher from JPMorgan.

Thanks.

In terms of looking at the pricing results, a little bit of a dichotomy here.

But, I really wanted to take a look at the North American results where the pricing, came in better despite the fact that volume really sort of accelerated against a difficult comp.

So, I'm wondering -- a lot of the companies -- it seems like we're seeing no elasticity as pricing growth decelerates a little bit.

You're not getting the volume pick-up.

Can you talk about changes in pricing?

And, where you're seeing elasticity net out in your different categories and regions?

Thanks.

Well, John, I thought you had changed companies.

Good to hear you haven't.

To your pricing question.

I think there's been as said, we have and we continue on a journey to make pricing a core competency of our Company so that we can best understand the sensitivities, the elasticities, and how we manage pricing in the mix of all the marketing variables that we are managing around the world.

And, we put a lot of pricing model attention to where we take pricing, what specific variants, what SKUs in those variants, how we take that pricing to try and minimize the impact on volume.

And, I think we're very, very pleased with what we have been able to accomplish, particularly as you say in North America where we have managed to take price without prejudicing the volume growth of the top line.

And, clearly, that is both an objective and hopefully a capability that we can continue to build in the out-years.

Our next question will come from Javier Escalante from Consumer Edge Research.

Hi, everyone.

I would like to touch upon sales.

I would have expected volumes to pick up a little bit more given that you are launching three new lines.

Basically, is it an issue that is because as volume mix that the price points are lower?

And, that's why we are seeing the declining volumes?

And, what gives you the confidence that volumes are going to accelerate given that you have very strong competition in the natural segments?

Thank you.

Thanks, Javier, for the question.

I think the answer -- and, we appreciate everybody's exuberance and enthusiasm that the volume pickup would come sooner.

But, the answer, I think, is the same as the answer that certainly I gave most recently at Cagney, but I think many of us have been giving over the last several months.

The two big initiatives that we have are the relaunch of Science Diet with the more natural profile.

As Bina said in her prepared remarks, that product is now fully in distribution.

Media started at the very, very end of February.

So, essentially March.

And, the sampling and trial program for that business is really commencing now.

To the heart of your question is our response directly to and within the natural segment, and that is captured by the Hill's Ideal Balance line.

Again, as Bina said, we have completed distribution, and the two major retailers -- remember, we have a limited distribution profile for this business -- are PetSmart and Petco.

And, their shelf set adjustments are basically going in place right now, and the media on the Ideal Balance line basically started right now as is the sampling program and the consultants in-store behind the product.

As we said at Cagney, A, our consumer testing -- both the pet parents and the pets -- love the product.

We know the packaging and appetizing engages and communicates, and the support we are getting from the retailers -- the pet stores and the vets behind these two significant initiatives is very strong.

That's what gives us the confidence.

And, to repeat what Bina said, we remain convinced that this business will return to volume growth in the second half of this year.

Now, we'll go to Chris Ferrara with Bank of America for the next question.

Hey, thanks.

Guys, can we talk about that 17% number you just threw out there on Brazil?

That was pretty big.

And, could you maybe break out what the drivers of that were, especially as you lap the first full quarter of Luminous in Brazil and Mexico.

And then, I guess as sort of a follow-on, can you just talk about the pricing environment in Brazil because we've been hearing some stuff.

Obviously, there's a change in tax structure.

The government has been increasingly concerned about inflation.

So, any color on that would be appreciated as well.

Thank you.

Yes.

Again, and I think we have articulated this many, many times on these calls, our focus is on innovation-led growth.

To the extent that we can make that premium, innovation-led growth that the consumer will accept, we do.

That most certainly applies to Brazil in terms of a line extension on the back of the Optic White product, continued innovation in Oral Care, and across our other businesses.

And, you're right, Chris, that is after dealing with the removal of a tax on product which lowered pricing to both retailers and to consumers and created a little bit of temporary disruption in the marketplace for a couple of weeks.

But, it is really engaging with our consumers through marketing where we are using increasingly marketing mix modeling to decide how we best engage with those consumers and deploy our funds accordingly.

And, it is innovation behind the full portfolio of products that we have in Brazil.

And then, of course, the on-the-ground execution by a very experienced management team in Brazil, not just with the modern trade, but all the way through the down trade in that large and complex country.

Ali Dibadj from Bernstein has our next question.

Hey, guys, just had a quick follow-up on pricing and then a real question.

On pricing, it looks like the ratio between kind of your reported pricing as opposed to the mix element which is in your volume, obviously, from innovation and stuff.

But, from a pricing -- the ratio between that and currency in Latin America has almost always been quite close.

But, the past couple quarters has not been that close?

And, wanted just to understand a little bit more, kind of continuing on the theme of pricing, is that really all Venezuela?

Or, are you seeing things from competition or retailers or consumers or some of this macrospheres that kind of put that ratio out of whack?

That's kind of the clarification.

But, the real question to me is, I think you're a good Company to access because you essentially trounced all your peers in terms of top line growth.

But, we're also noticing for you and others that it's just getting tougher to grow.

So, more expensive to grow.

And, I'm trying to understand, how much of that is short term?

So, macro issues in the US, macro issues in Europe versus long-term, secular drivers related to these categories?

Or, related to a tougher competitive environment that will be with us for quite some time?

So, how do you think about this -- both internally and because from the data externally -- it does look like the ROI is getting tougher for everybody.

Well, thanks for the one question, Ali.

Starting with your clarification, is it exclusively Venezuela.

The rest has to do with difference in timing of when we choose to take pricing in Latin America, or in any other emerging market.

So, nothing structural or fundamental there.

I would challenge the secular notion, and I would challenge this inevitable creep of cost of doing business theory.

I would start by saying you all know well that our return on invested capital is fairly elevated, certainly compared to our peer group and to the S&P 500.

But, I guess our philosophy starts with the consumer as it should do with all packaged goods companies and the theory that as marketers we are paid to create innovation that consumers feel they get a value paying for.

And, from our point of view, we seek to make that value a premium for a premium benefit.

We adjust access to our products by sizing and the pricing related to sizing, but we don't and we have never subscribed to the notion that price promotion is a way of sustainably growing business.

We respond to it where we need to, but we have always put a very large premium on innovation and engaging with consumers around that innovation.

What we have been doing over several years is recognize the fact that you can engage with consumers very well and build brand equity very well at the retail level, and using our marketing mix modeling, we are deploying a lot of in-store techniques that maybe we weren't deploying 10 years ago and some of that funding comes from broader commercial spending which you don't see captured in the below-the-line advertising.

So, we are putting increased money in that space as well.

And, the affordability comes from the benefit of premiumization, our sharp focus on funding the growth, and the choice we made in the fourth quarter of last year to reorganize with our global growth and efficiency program to make sure in perhaps a medium-term choppy world, we were generating adequate funding to make sure we could sustain the top line growth of the Company, which on this call we would reaffirm for this year as being between 6% and 7% from an organic point of view.

So, it's essentially a focus on premiumization that the consumer values and a relentless focus on funding the growth.

And now, our global growth and efficiency program to provide the funding that drives top line and also bottom line.

Our next question comes from Wendy Nicholson from Citi Research.

Hi, two small questions, I think.

Number one, Bina, you called out the customer development initiatives.

In Hill's line, I understand what that is because you had all the new product activity going on, but in Asia, specifically, what is that?

Why is it accounted for in SG&A as opposed to gross margin?

And, is that a function of more competition?

And then, just a housekeeping item with the relaunch of Total in Brazil and Mexico, can you just remind us how big Total is as a percentage of your oral care portfolio?

And, when you relaunch Total, how meaningful can it be in terms of incremental market share?

I think you relaunched Total in Europe maybe a year or two ago.

So, is that a big deal?

Or, maybe you can frame that?

Thank you.

Yes.

The issue on customer development in SG&A is increased sales capability on the ground.

In emerging markets, most especially in Asia.

A choice made to make sure we can continue to build world class distribution in those countries and not simply have the product present, but to make sure that we have the product visible and organized on the shelf in the way we would want our brands to be presented.

And, as regards Total, we don't give that level of segment detail.

But, it is a big business, and there is concerted effort behind Total here in the US as a complete equity as we bring the mouthwash to the marketplace in the second quarter.

Our next question will come from Joe Lachky from Wells Fargo Securities.

All right, thanks.

I guess I wanted to kind of take a step back in and get your opinion on how you see the vision for your Company evolving over the long term.

I guess you've got really strong execution in your current markets, and I guess in the near term, I see strong runway penetration, market share opportunities -- riding category growth in your current markets.

But, how long can you ride that trend within your current markets?

I guess the fear being, you have reached saturation in those markets, or there's a slowdown in developing market growth rates.

And then, the second part of that is -- what's the next step beyond that?

And, this may be like a 10-, 15-year-type vision.

But, how do you see the product portfolio evolving?

Are there any new markets to enter?

How do you keep that growth going in the long term?

Thanks, Joe.

This sort of saturation notion is kind of overblown from a theory point of view.

We still have lots of growth opportunity in our existing Oral Care businesses -- penetration in some markets, per capita consumption in other markets, and we intend to mine that vigorously, certainly for the next decade and more.

Around that, we have the opportunity to expand existing businesses that we have that may be pretty nascent as categories.

In some of these emerging markets, think liquid body cleansing, think underarm, that we can bring to these markets at the right time with the distribution prowess we have in these markets and continue to expand our portfolio quite, quite meaningfully.

So, I think when you get below the sort of 20,000-foot theory of it and get into the planning detail of actually making a vision concrete and agreeing what it is we should focus on and get done, we still think there is enormous growth.

And remember, if you take a 25-year view and take category definitions that are oral care, Personal Care, pet nutrition, and home care, within Personal Care, we got into the underarm business by acquiring Mennen.

We got into the liquid skin cleansing business in the US by acquiring Softsoap.

We expanded our footprint in body cleansing in Europe by acquiring Sanex.

So, even within the category definitions we have, once we've taken every one of them global, there is still the opportunity to broaden our representation in segments of categories in which we do business.

Oral Care -- by bringing Total to the US, we've just established a global position in mouthwash, and we're just beginning that journey on powered toothbrushes.

So, there is still, we think, a very bright future for the categories that we have today, well beyond the time frame you mentioned, Joe.

Our next question will come from Jason Gere with RBC Capital Markets.

Good morning.

I guess just going back, and I got the context of your two pillars of growth hitting the 6% and 7% organic sales and obviously returning back to 10% EPS growth.

So, as you see the next wave of restructuring cost savings, how do you insure that you have the right level of reinvestment in there to kind of meet both objectives?

I guess I'm talking a little bit more about the advertising side.

And just, as this quarter you hit kind of that 11% level which I think is closer to the highs that you've had.

Can you just maybe walk through what are some of the factors as you look at that reinvestment rate of the savings that should be coming through and helping you over the next couple of years?

Thanks.

Thanks, Jason.

Well, clearly, we take a very strategic view on how we choose to reinvest that money.

Frankly, we did that before we embarked upon the program, and we will be making together as a management team with the involvement of our Board some choices in terms of where and what the significant aspects of strategic investment will be.

When you bring it down to the notion of advertising investment -- yes, we have taken it up absolutely, and there's a ratio in the first quarter.

And, we said and we stand by the fact that we plan to do that in 2013.

I repeat the point because I think it's important to register it that with the capabilities available to Companies like ours today, both analytically and in-store technique-wise, we are quite consciously doing more and more at the store level to engage with consumers because the ability to do that in a very effective return on investment and executional way is significantly greater than it was 5, 10 years ago.

And so, the investment choices we make when you just talk about advertising will be yes in the traditional advertising engagement areas which you will see below the line.

But also, in the so-called gross-to-net trade spending which kind of comes off the top line but is nonetheless investment funding that we deploy to grow the business.

I think you can rest assured, at least I hope you can rest assured, that as a group here, we will be doing the right thing in terms of global growth and efficiency plus our ongoing funding the growth programs to make sure that we fund the growth while delivering a return.

We'll now go to Bill Chappell from SunTrust Bank.

Hi, Bill.

Thank you, good morning.

Could you talk a bit more about what you're seeing -- especially in Western Europe in terms of consumer trends.

Has it just stayed -- are we bouncing still along the bottom?

Are you seeing any signs of hope or maybe uptick as we move to the back half of the year?

We're seeing a lot of exuberance, Bill, in Europe.

No.

I would say, certainly the way we have planned this year and the way we have thought about our strategic planning over the next five years, we are still assuming low growth in Europe.

We think that's the prudent thing to do.

Low single-digit category growth in our case.

You do, if you want to sort of then go to the next level of detail -- you do see some buoyancy or greater buoyancy.

Obviously, I think in Northern Europe compared to Southern Europe.

We were quite pleased that our Southern European businesses basically performed at the same level that they did in the fourth quarter of last year.

So, we did not see a further deterioration.

But, I would say that we're talking about a low growth environment certainly for the next strategic cycle.

If we are proven wrong and there is greater buoyancy, then that would be terrific.

But, we're not planning on it.

Our next question will come from Joe Altobello with Oppenheimer.

Hey, Joe.

Hey, thanks.

Good morning.

I want to go back to North America for a second because I thought it was particularly impressive.

This quarter, you seemed to hit the trifecta, if you will.

The volumes were up very nicely.

Pricing was very strong, and you also had pretty good margin expansion.

I think you mentioned earlier to a question that pricing is becoming a core competency for you.

But, if you look at volumes, your two-year stacked volumes in North America were as high as I've seen them in quite some time.

So, if you could give us a little more color on what drove the volumes?

Was that pantry loading or trade load?

And, what drove the margins as well?

Thank you.

Well, I think a few things to say.

Number one, and Bina already referenced it, we saw some nice share growth across a broad array of categories which means we were growing faster than the rate of category growth.

That was one thing.

Secondly, the timing of promotional events that we had in the first quarter of this year was different than the first quarter of last year which you may recall was really the expansion of Optic White.

And, thirdly, we have begun to build distribution of the Total mouthwash that we referenced in our remarks.

And, as far as the second quarter is concerned, I'm pleased to say that we have started off maintaining the pace that we had in the first quarter.

So, we feel good about that.

Ian Gordon with S&P Capital IQ has our next question.

Hi.

I wanted to ask about your EPS guidance.

I know it's early.

You only have one quarter under your belt.

You did come in at the high end of the 5.5% to 6.5% growth target for the year.

Currency looks to be a little bit more benign for the rest of the year based on today's rates.

The comparisons look balanced, a tad bit easier.

Hill's should ramp, and you have the restructuring savings starting to flow through.

So, what's the missing piece?

And, why shouldn't we expect something of maybe a little bit north of 6.5% dollar growth?

Ian, I think you have to kind of go back to pre-Venezuela and coming into this year.

When we came into this year, we talked about EPS growth, double digit on a dollar basis.

And, many people at the time frankly, Ian, even with the restructuring savings which are relatively modest this year built in.

People felt there was too much optimism on the top line and questioned our ability to deliver that.

When the Venezuelan devaluation occurred, I think we were quickly very clear publicly about the impact.

Obviously, the one-time balance sheet revaluation, you know well.

And, we said that the EPS impact would be between $0.05 and $0.07 a quarter, and we kind of reaffirmed the math this quarter in saying that that would translate to a narrow range of 5.5% to 6.5% increase.

And, we stand by that for the year.

Now, we'll go to Bill Schmitz from Deutsche Bank.

Hi.

Good morning, Ian.

I have four clarification questions and one real question, just kidding.

So, Latin American margins, do you think they bottomed this quarter?

The reason I ask that is, I think the inventory -- the expensive inventory that was flowing through in dollars probably goes away.

So, is there any reason to believe that this isn't kind of as bad as it gets in terms of Latin American margins?

I think the answer to that, Bill, you know, we have been through these things many, many times before, devals, price controls, and the like.

I think it would be fair to say that our expectation is that we would begin to rebuild margin going forward, yes.

Oh, I apologize, Bill.

I didn't realize I was being paid by the word there.

Our next question will come from Michael Steib from Credit Suisse.

Good morning.

Just a small point for me.

Why was pricing negative in Asia?

It was to do with pricing adjustments, Michael, that we took largely in Africa relative to some uncompetitive market positions.

Our next question will come from Linda Bolton-Weiser from B. Riley.

Hi.

It's our understanding that you may have another major mass toothpaste innovation -- new product break-through type thing coming.

Do you want to give some more information about that?

Our understanding is dentists may start to be educated on it this summer?

And so, when would be the launch -- potential launch of it?

Would be it late this year or next year?

And then, just a clarification on your interest expense line.

It had become an interest income, net income two quarters ago in the fourth quarter.

Going forward, will that now revert to being interest expense and would $5 million to $10 million per quarter be a good rough estimate for that -- of interest expense?

Thanks.

The answer to your second question is yes.

The answer to your first question is, we are always actively pursuing, as I mentioned earlier in talking about the innovation point, innovation that brings real benefit to consumers and adds value.

And, on the assumption we do meet with these professionals in the middle of the year, we'll be glad to have one of them talk to you.

Lauren Lieberman from Barclays has our next question.

Thanks.

Hello.

Wanted you to talk a little bit about Europe, just in terms of margins actually because the margin performance is obviously great.

And so, you continue getting really good cost savings there, leverage on no volume growth.

So, talk about where these savings are coming from?

And, even before you've really gotten going on this latest restructuring program?

Thanks.

Well, the benefits come from a more benign commodity environment.

The benefits come from our traditional funding the growth savings programs.

And obviously, the continued introduction of innovation which we seek to be premium, which is therefore accretive to margin.

And, as you rightly suggest, Lauren, and as Bina mentioned very clearly, I think, in her prepared remarks.

And, as we suggested we might, a lot of the structural work that we will be doing around the world has begun in Europe for obvious reasons.

Our next question comes from Connie Maneaty from BMO Capital.

Good morning.

A question on Venezuela.

Can you help us understand what the new mechanism -- the auction mechanism?

How it's likely to work?

And, what you know about it at this point?

We are -- we continue to work with the government in Venezuela to get approval for [Kadevey] funds for the importation of product and have started the year quite nicely, in fact, in that regard.

The new auction market mechanism that is replacing the Sitme whilst we will work with it, we understand so far that the tranches of opportunity in that market are basically about $2 million.

So, whilst we will look at it, I think in the main we will be staying with the Kadevey process.

Our next question will come from Jon Andersen with William Blair.

Hi, good morning.

Hey, Jon.

Just a quick one, Ian.

On the advertising spend, it was up both absolutely and as a percent of sales in the quarter, so you're presumably approaching about 11% of sales.

Is that a level kind of where you see some plateauing going on and potentially some leverage going forward?

And, the incremental spend that you are doing there, could you talk a little bit about the focus?

Is it more oriented towards new products in developed markets?

Or, more investment behind your emerging markets?

Thanks.

Yes is the answer, Jon.

It really is all of the above.

I mentioned earlier the increasing focus we have on marketing mix modeling in terms of both our engagement marketing with traditional consumers and indeed our trial and awareness-generating advertising for new products in the developed countries.

As you would expect, we are moving some of that investment into digital in terms of it being a strong engagement vehicle.

In the emerging markets, more traditional vehicles continue to remain most both affordable and effective.

And again, as I mentioned earlier, as we think about the advertising going forward, don't forget that we are also putting a focus on what we call commercial spend, which is this trade spending which is allowing us to do programs at retail which are not just engaging and persuasive to consumers, but also help to build our brand equity and loyalty over time.

So, we're managing all of those things.

We do this not on a ratio basis.

I have to say, Jon, we do it from the ground up, market by market, against what activities we have in countries as we get into each planning cycle.

So, the ratio is an output, and the split between the traditional advertising and what we do on trade spending is an output of that planning rather than a set ratio going into the planning.

Our final question will come from Mark Astrachan from Stifel Nicolaus.

Yes, good afternoon.

Trying to get a sense of operating margin progression.

So, it was up a lot in all segments, not including LatAm and pet nutrition.

I think in LatAm, the margins are still down, excluding Venezuela, currency-related devaluations.

Is there something inherently different on the cost front whether wages, inflation, or spending that makes LatAm different from the others?

And also, how should we think about progression in those markets like Europe or North America where margins improved nicely?

As you know, we don't talk about operating margins going forward, Mark.

But, I can say from a gross margin point of view, we stand by that 30 to 70 basis points and the EPS that we have guided to that drives from that.

And, Latin America, I mentioned on the margin roll-forward that within the walk-through on gross margin, there was a negative of 120 basis points year-on-year for the world based on Venezuela, and therefore, Latin America.

And, that said, we still increased our gross margin by 40 basis points.

So, the Latin American gross margin is entirely to do with Venezuela -- entirely.

And, it is our thrust, geography by geography as you know, to expand our gross margin around the world, and then to make choices as to how we invest the funds that flow from that.

So, given that the Venezuela impact on the world was 120 basis points, you can imagine the impact in Latin America.

That does conclude our question-and-answer session for today.

I'd like to turn the call back over to our presenters for any additional or closing remarks.

Thanks for all of you on the call.

Thank you very much for your questions.

And, as always, a big thank you to the Colgate folk around the world who get done what it is we agree we're going to get done.

So, thank you.

That does conclude our conference for today.

Thank you for your participation.

You may now disconnect.