高露潔 (CL) 2013 Q2 法說會逐字稿

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

Today's conference 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 openings remarks I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Bina Thompson.

Please go ahead ma'am.

Thank you, Sarah.

Good morning and welcome to our second-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 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 are delighted with the our second quarter results, which continue the broad momentum we saw in the first quarter.

Our simple financial strategy has again stood us in good stead.

We increased our gross profit margin while at the same time reducing our overhead expenses.

This allowed us to increase our advertising to drive the top line and still increase operating profits, both on a dollar basis and as a per cent to sales.

And of particular note was our 70-basis point increase in advertising as a percentage of net sales versus a year ago period, the largest increase in three years.

Our advertising ratio was up in every division and allowed us to support a very robust innovation program.

As Ian mentioned in the press release, our new product pipeline is full, so that should bode well for the remainder of the year.

You will hear about some exciting upcoming launches as I review the divisions.

In addition to a healthy P&L, our balance sheet is solid and our cash generation strong.

As Ian remarked, our Global Growth and Efficiency Program is proceeding smoothly, as well as our ongoing Funding New Growth program; and both of these initiatives provide substantial savings opportunity so that we can continue to invest in the business.

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

We are very pleased with our continued strong results in this region.

As referenced in the press release, we have good market share progress with increases across several categories.

Of particular note was our launch in May of Colgate Total Advanced Pro-Shield mouthwash.

As we told you last quarter, this has been introduced with a regimen concept and displayed with a companion toothpaste and toothbrush under the same brand name.

Across the country we had record regimen displays in store; and in June, just one month after launch, we had over a 5 share for total mouthwash with an overall mouthwash share of 8.4%.

As you would expect, we had a very robust integrated marketing support plan, which included television, sampling, in-store activity, digital and PR campaigns.

In addition, we implemented a strong professional plan with both large pumps and small patient samples in dentists' offices.

Our field consultants communicated the product benefits such as 12-hour antibacterial protection even after eating and drinking, with clear impactful sales materials.

Our share of Colgate Total toothpaste also benefited from the strong display activity, increasing from 10.5% prelaunch to 11.5% postlaunch.

New product activity is continuing this quarter.

In the toothpaste category, we are launching Colgate Max Fresh Cool Scrub and Colgate Sensitive SmartFoam with Whitening.

Colgate Max Fresh Cool Scrub builds on the strong franchise that the Max Fresh brand holds in the fresh breath segment.

The freshening segment is large and appealing to young consumers, particularly in the 18- to 24-year range.

This new variant has micro scrubbers for a freshness you can feel.

During brushing, bigger silica particles provide a micro scrubbing sensation as they gradually diminish.

The pack itself calls out the benefit with the tagline -- Destroys bad breath bacteria from teeth and tongue.

Our new Sensitivity toothpaste builds on the insight that consumers understand that formulas with foaming technology have the capacity to get to tough-to-reach spaces while brushing to help provide sensitivity relief with the additional benefits of whitening and fresh breath.

Colgate Sensitive SmartFoam provides 30% more foam than our existing sensitivity toothpaste, along with a maximum strength anti-sensitivity ingredient.

It is also formulated with high performance cleaning silica to remove surface stains and help keep teeth whiter.

Additionally, this is an exciting opportunity, as both the premium-priced sensitive and whitening segments are growing faster than the toothpaste category overall.

In toothbrushes, we are very excited about the launch of Colgate's Slim Soft.

This product was first launched in Asia and has garnered strong shares in several markets.

In Hong Kong, for instance, it has a 15.6% year-to-date share, and in Thailand almost 10%.

The toothbrush has 17 times slimmer tip bristles for a deep clean.

The unique bristles provide a six times deeper reach than end rounded regular bristles.

And the higher density bristles provide a unique feel and the handle is flexible and ergonomic.

As we told you in the press release, we recently achieved brand market leadership in manual toothbrushes, and this should help extend that leadership going forward.

Turning then to Europe/South Pacific.

We are pleased with our results in this region, given the very challenging macroeconomic environment.

As you well know, GDP growth rates are low to negative and unemployment is high, particularly in countries such as Spain, Portugal, and Greece.

Consumer confidence is low and consumers are looking for value.

While category growth is slowing, our market shares across Europe are doing well, with increases in toothpaste, toothbrushes, mouthwash, and fabric softener.

Two of our acquired businesses, GABA and Sanex, are also doing very well.

Both now are fully integrated and we continue to gain learnings and innovation ideas from these two high-margin businesses.

In toothpaste, we increased market share year to date in our four biggest countries -- France, Germany, Italy, and the UK.

Pleasingly in the UK, our share read for the last two periods was over 50% despite a highly competitive market.

In manual toothbrushes, we increased share in all but the UK, where, although the share is modestly down on a year to date basis, we reached a record share of 33.6% in the most recent period.

We will continue to offer our consumers innovative products at all price points.

We have some exciting innovation providing added value at higher price points.

Under the Elmex brand we are launching Colgate Elmex Sensitive Gentle Whitening toothpaste, which provides effective protection and gentle care for sensitivity sufferers with the additional whitening benefits.

And a new fabric conditioner, Soupline Perfect Glide, should help continue the good momentum we have seen across the region in this business.

To lessen the chore of ironing, Soupline Perfect Glide has a unique formula with a polymer which allows for easier ironing while delivering an explosion of fresh fragrance.

As I mentioned a moment ago, increasingly the consumer is also looking for value.

To that end, we are now relaunching our base Colgate toothpaste business across the region.

The six variants -- Colgate Cavity Protection, Colgate Triple Action, Colgate Anti-Tartar, Colgate Herbal Original White, and Gums, will all have new modernized designs at affordable price points -- an important initiative for a segment which still represents almost 30% of our business.

Similarly, in personal care, we are launching Palmolive Essential body wash.

This line will be smaller sizes at a lower price, providing the value conscious consumer with the affordable luxury of appealing fragrances, along with the quality assurance of the Palmolive brand.

Latin America.

Latin America continues to deliver solid results with another quarter of strong organic sales growth.

And as elsewhere, new product activity has been an important driver of our business and this is across all price points.

In addition to the market share gains referenced in the press release, our market shares increased in underarm protection and bar soap.

In Brazil, our toothpaste market share was up 80 basis points on a year-to-date basis, to 71.7%, the highest level in 15 years, with the most recent read at 71.9%.

Both higher-priced products such as Colgate Luminous White and value priced products in the Sorriso range, have contributed to the shared gain.

In Mexico, our share is still well over 80% at 81.5% on a year-to-date basis, with the most recent read at 82%.

We are now market leader in manual toothbrushes in every country across the region, including Mexico.

Our share in Mexico is up 220 basis points year to date to 44.2%.

In Brazil we achieved a record 31.7% on a year-to-date basis, up 110 basis points.

We've achieved strong results both in the premium segment in the modern trade as well as in the indirect trade, where we have been driving distribution and visibility in a retail environment which still represents 50% of the market.

In mouthwash our market share across the region is up 30 basis points on a year-to-date basis, and we're now less than 3 points from the market leader, whose share has steadily declined over the last four years.

In Mexico we reached a record 23.6%, up almost 2 full points on a year-to-date basis, with the most recent share at 24.7%.

A new smaller 16-millimeter size has helped to drive per capita consumption and category penetration.

We are continuing with more new product activity in the third quarter.

As you know, across the region, Colgate Luminous White toothpaste has met with great success.

The whitening segment is the fastest-growing and Colgate Luminous White is the number one whitening brand in Latin America.

This month we have launched Colgate Luminous White Advanced in Mexico.

This toothpaste was developed from the insight that many consumers believe only a professional whitening treatment can provide visible results.

It intensifies the whiteness of teeth three shades whiter with a unique formula that contains the same ingredients that dentists use.

At the same time in Brazil, we are relaunching Colgate Luminous White Enamel Shine with whitening accelerators in a gel formula that also delivers a shinier smile.

In the mouthwash category, we are launching a new Colgate Plax Two-in-One in Brazil.

This product delivers clean and fresh breath and actually shows you how it works.

It contains a unique dual liquid formula that is activated by shaking and mixing the two liquids.

Its electrostatic action removes particles from your mouth and its antibacterial action fights bacteria that cause plaque and bad breath.

So when you rinse out you see the product work with what is in the sink.

In the personal care category we are introducing Protex Men Power shower gel and soap in September in Brazil.

This builds on the Protex Men's series launched last year, which is already the number one variant in the rapidly growing men's body cleansing segment.

Both bar soap and shower gel offer 10 times more protection against odor-causing bacteria than ordinary soaps, along with a high impact fragrance, especially developed for the male consumer.

Turning then to greater Asia/Africa.

Excellent momentum continues in this region.

A strong increase in gross margin allowed us to increase advertising substantially behind new products, resulting in strong organic sales and market share increases.

As referenced in the press release, our toothpaste share has increased in many markets.

In India, our market share was up over 100 basis points to a record 54.2% on a year-to-date basis.

We achieved gains both in the value and premium segments of the market.

In China, our market share increased 90 basis points to 34.4% on a year-to-date basis.

In Russia, the launch of Colgate Optic White drove our share to 33.1% on a year-to-date basis, up 130 basis points, with the latest reading at 33.5%.

We continue to grow our market-leading manual toothbrush share in India, up almost 3 points to 41.3% with our latest read at 41.5%.

Recent programs focused on increasing our distribution in the rural areas of this vast market have contributed to this success.

So we will continue to launch new products for the balance of the year to help us continue to deliver solid results.

In the toothpaste category we will be launching Colgate 360-Degree Enamel, an incremental line extension to our Colgate 360-Degree toothpaste range in China, which repairs and protects enamel through the reduction of erosion caused by bacteria.

In the manual toothbrush category we will be launching Colgate 360-Degree Interdental in select markets.

This line extension provides consumers with four times more deeper reach due to its floss tip bristles.

Of course as with other Colgate 360 toothbrushes, it features a wraparound tongue and cheek cleaner.

In mouthwash, in Vietnam and China we will be launching Plax Herbal Salt, which addresses local consumer desires for this key flavor profile while also delivering long-lasting fresh breath and reduced bacteria accumulation in the mouth.

In both these markets our mouthwash share is up strongly on a year-to-date basis, and this new product should help continue the trend.

In shower gels, we are very excited about the launch of Palmolive Gourmet Spa in Russia and Turkey, where we saw increased market share on a year-to-date basis in both markets.

This new range has tempting aromas and wonderfully soft textures, encouraging the consumer to immerse herself in the ultimate indulging escape.

It comes in the following variants -- Enticing Chocolate Veil, enriched with dark chocolate and cocoa bean extract; Tender French Vanilla, with sweet vanilla extract; and Delicious Strawberry Smoothie, infused with strawberry juice.

Lastly, Hill's.

We are particularly encouraged with Hill's performance and the fact that we delivered volume growth one quarter ahead of schedule behind three important initiatives.

Our new product activity across our brands has been very well received by the trade, the profession, and the consumer.

Our first initiative, Ideal Balance, which started shipping in May in the US, has done very well.

The placement in the naturals aisles in the pet superstores has been ahead of plan and should be completed by the end of August.

Year-over-year consumption is up at both Petco and Petsmart, and we've been working very closely with both retailers to drive results.

We have had a full marketing campaign, including TV and digital media, as well as a widespread consumer sampling program.

In addition to the dry and wet dog and cat food, we added canine and feline treats in June to complete the line.

And we are continuing our media investment in the third quarter and will add more high impact in store displays in September.

The second initiative has been the relaunch of our Science Diet line.

At the end of the quarter we added three new cat products and two new dog products -- Adult Grain-Free Cat, Adult Indoor Long Coat Cat, Senior Indoor Age-Defying Cat, Adult Grain-Free Dog, and Senior Small and Toy Breed Age-Defying Dog.

We anticipate that these will be in full distribution by the end of August.

In-store support has included nutrition consultants who explain the particular benefit of each diet to the shopper.

Our third initiative is the launch of Prescription Diet Metabolic, both in the US and overseas.

This unique diet to help achieve weight loss in dogs and cats is doing well globally, exceeding all targets and budgets.

The repeat rates have been excellent and the launch is driving category growth in the US and overseas.

So we will continue to focus on these very important new product initiatives in the third quarter, supported, of course, with a continuation of our comprehensive integrated marketing campaigns.

So in summary, we are very pleased with the continued momentum in our business around the world.

Our new product pipeline is as full as it has ever been and that should help continue to drive sales and market shares in both developed and emerging markets.

Our simple financial strategy and sharply focused initiatives are serving us well.

In addition, our Global Growth and Efficiency program is on track to provide even greater opportunities for investment.

Colgate people around the world are working hard to deliver our results and we look forward to sharing those results with you as we go through the balance of the year.

That is all I had for prepared marks, Sarah.

If we could open up the line to questions.

Certainly.

(Operator Instructions)

Joe Lachky of Wells Fargo Securities.

Thanks, first off on your guidance, the EPS outlook that you mentioned in the press release, just wanted to verify that was solely due to foreign exchange in Venezuela.

Secondarily, along the guidance lines, I just wanted to verify your outlook on organic growth.

You mentioned 6% to 7%, you're at 5.5% year-to-date, I guess you got a little bit easier comps in the second half, but wanted to hear your outlook on that, and then also if you could talk about your 30 to 70 basis points of gross margin improvement that you're expecting.

Thanks for the one question Joe.

To come to the point on guidance, you are absolutely correct.

Indeed we have already seen some notes where folks have ticked that up.

It is entirely due to Venezuela, which is unchanged from what we told you earlier in the year and the additional 1% reduction in the range is due to the foreign exchange volatility and the strengthening of the dollar we saw in the last four to six weeks of the quarter, and is predicated against the current spot rates.

The growth part of your question, I think merits a little bit of perspective.

As you might suppose, we are pleased with the fact that as a Company we have this quarter between 53% and 54% of our worldwide sales in the higher growth emerging markets.

But we also believe that the decisions we took some 30 years ago to focus on the categories in which we do business continue to be a positive factor in the sense that we are marketing products that are everyday use products for people, brushing their teeth, cleaning their bodies, looking after their homes and indeed caring for their pets.

So we think the category choice is durable.

Now when you look around the world, as we have said on many previous calls, we continue to see the US categories grow, low single digits.

We continue to see Europe grow extremely low single digits.

Indeed, some of the categories are flat and some are modestly negative, not new news, and something that we have been factoring into our planning for some time.

When you turn to the emerging markets, notwithstanding the macro news that we have been reading about, our data so far shows that those categories continue to maintain high single digit growth rates, which is very pleasing.

And of course we are focused very, very closely on seeing whether any of that macro common free turns into category pressure for our businesses.

That being said, even with that, we are reaffirming our 6% to 7% organic growth rate for the year.

As Bina said earlier, our new product pipeline already executed in the market, and the ones that Bina mentioned for the balance of the year is extremely strong.

Secondarily, we are encouraged by our market share progress around the world, which obviously gives you incremental growth beyond the category growth.

Third, our Hill's business which we had expectation to turn positive in the second half of the year has indeed done so with a faster start than we were expecting, and we get that benefit for the balance of the year.

And finally, as many of you have already noted, our comparisons in the second half from an organic topline point of view are somewhat easier than they were in the first half of the year.

Finally, on gross profit, let me take this opportunity to run through the second quarter, the gross profit roll forward.

If you start with the 57.9%, which was the second quarter gross profit in the prior year, pricing gave us 40 basis points, funding the growth following our usual pattern where second quarter funding the growth steps up from the first was 210 basis points, actually better than what we delivered in 2012.

Material prices were a headwind of 180 basis points and the combination of that and the pricing gives us the 70 basis point growth that we saw in the second quarter.

And yes, we are very much staying with our gross profit guidance of 30 to 70 basis points and of course extremely pleased with the year to date progress at the higher end of that range.

There is one other thing I should add, relative to the gross margin, and also relative to the earnings guidance because of the currency volatility, and that is, our plans for the balance of the year of course have us offsetting the transaction impact of foreign exchange in order to continue that gross margin progress.

That is the end of the answer.

Bill Schmitz of Deutsche Bank.

Good morning.

Hey, it was a monster operating margin quarter in North America.

Can you just dig a little deeper in what drove that and maybe how sustainable that almost 30% operating margin is here in the home market?

We were indeed very, very pleased with, I assume monster means good.

Yes.

We were very pleased with the progress in the US.

Obviously it traces back as you have already seen, to the gross margin which expanded extremely helpfully, and as we said in the release, that gross margin obviously used to fund advertising investment and indeed fund a little bit of stepped-up depth of promotional activity which most of you have seen as we came towards the end of the quarter.

Which comes nicely back to the top line and then good control of non-variables in the geography.

So certainly, our expectation in our US business is to sustain the growth in our gross margin whether it will be as strong as the first half of the year which indeed was extraordinarily strong.

We will have to see, but our plans in a relatively benign compounded the cost environment with our traditional strong funding the growth program as we look forward sees us with continued strong gross margin progress.

John Faucher from JPMorgan.

Yes.

Thank you very much.

Good morning, Ian.

Obviously you guys are holding in better generally what we're seeing coming out of consumers in Brazil.

Where it looks as though we are getting a stagflation type of environment there.

Can you talk specifically about whether it is stuff you are doing, is it categories where we are seeing your categories just more resilient relative to maybe what we're seeing on the food and beverage side?

Can you talk about the ability, you talked about transactional -- pricing to cover transactional FX, can you talk about the ability to get further pricing through in market?

Thanks.

Yes John.

I guess the headlines would be, and indeed, that was the point I was trying to make in talking about the categories in response to the first question.

We do think there is a difference between an everyday health and wellness, and indeed in Brazil, pet nutrition business to perhaps more discretionary types of categories.

As we even saw during the subprime, you will remember we talked about it, that people stayed with behavior in Brazil and we use Brazil as an example, and they did not trade down.

They stayed, if they were buying one of our premium offerings, as indeed they are buying Optic White today, they stayed with those premium offerings because they sought value in the benefit they were given.

Number one.

Number two, without being too self effacing we believe that the combination of the innovation and the marketing programs that we have in the emerging geographies, Brazil being a very good example, our sizing, our pricing, the way we distribute, the visibility we focus on at retail when we distribute.

The timing of our promotions, all things that sound extremely fundamental and extremely basic, and they are.

But we believe doing them well makes a difference in terms of continuing to reach all of your consumers in the different areas of the country at the different price points that they buy and making sure you keep that consumer connected to you.

And finally, indeed, as we speak, in many markets we have and continue to move with pricing to the degree necessary to offset the transaction impact.

Alice Longley with Buckingham Research.

Hi, I have some more questions about Latin America.

I think you had said in the first quarter that if you were to take Venezuela out your Latin American operating margins were up.

Is that true of the second quarter as well?

And then as a follow-up to your comments about Brazil, can you give us any sense of how much your volume was up there alone and how much pricing you're taking in Brazil?

Thanks.

Alice, in response to your comment, the answer to the first question is the same answer as it was in the first quarter.

So absolutely yes.

The answer to the second question is no.

Ali Dibadj of Bernstein.

Ali, your line is open.

If you could check your mute function or pickup your handset.

Hi, sorry, I'll pick up.

I just wanted to ask a quick follow up question and then get to the real question on Hill's.

You mentioned a few questions ago that you are offsetting the transactional impact of currency by taking pricing.

But if 4.5% to 5.5% all in EPS growth is still double-digit constant currency EPS growth, it would seem that the topline impact of currency is less than the bottom line impact of currency, so I'd love some clarification on that answer you gave a little while ago.

The real question though for me is around Hill's which, to your point, is pleasingly starting to grow the top line again.

But margins were down a couple hundred basis points for the first half of the year, and of course that is some launch investments, that is clearly higher ingredient costs as you're going more natural, but just want to get a sense from you about what you think the run rate Hill's margins should be going forward, and what is the top line growth you expect with that margin?

Thanks.

Well, Ali, and we've, at least around the edges, had this discussion before.

The impact on the top line of the foreign exchange is about 3.5% in the impact on the bottom line is about one percentage.

more than that, for reasons of geographic next and dollars denominated, corporate overhead and factors like that.

So there is a difference.

That is the case there.

Hill's again, I repeat we are extremely pleased.

We think we have the right innovation to build the true naturals entry that we have with Ideal Balance to stabilize and rebuild our Everyday Wellness product in Science Diet, and to continue to advance with clinically proven therapeutic efficacy our prescription product, Prescription Diet.

As we have said a couple of times, but certainly in the first quarter, moving to Ideal Balance and relaunching the Science Diet product was a choiceful investment in formulation, how to be successful and competitive, and regrow the business and that is job number one.

I think we have said that our expectation on the Hill's business is to bring that business back to mid- single digits, organic growth pace, and without getting into the specifics, you can rest assured that there is a very willful, true plan embedded in our strategic planning to rebuild the Hill's gross margin over a period of time.

Olivia Tong from Bank of America Merrill Lynch.

Thanks, good morning.

On margins, and more specifically Latin America and Europe.

You guys started funding the growth, press release was benefiting both regions and other regions as well.

I was wondering if you could talk a little bit more in detail about how big that might be relative to other regions.

I was kind of surprised that you didn't see more of a hit in Lat Am given the FX and that European margins were up given the negative pricing.

And then just following up on European pricing, given your plans behind base Colgate and smaller sizes of Palmolive Essentials, do you expect pricing to remain negative in Europe in the back half of the year?

Thanks.

No, our funding the growth has been effective in most geographies.

Remember the drag in Latin America, as we said in the release, is really Venezuela.

When you look at Europe, the benefit there is indeed commodities and our funding of the growth program, and I think we made the point in Europe, we also saw nice progress on the overhead reduction plan that we have.

So that would answer the question on Europe.

What was the last?

It was European pricing, what you are expecting for the second half.

Europe is a very tough environment and I think it would be fair to say that in that environment the expectation built into our plan continues to show modestly negative pricing in Europe.

I would say that the innovation spread that we have across all price points, which is to say our premium innovation and the value innovation that Bina mentioned is not in any way gross margin dilutive.

Bill Chappell from SunTrust.

Good morning.

General follow-up, a question on Hill's, maybe I don't fully understand why it improved a quarter ahead of expectations.

Because I think you outlined a lot of the initiatives which really didn't kick in until mid or even end of the quarter.

Was it category is rebounding, or were there other things that are really driving it?

Thanks so much.

Yes Bill, it really is that obviously given the time we have waited for this, we wanted to be thoughtful about stating when we would see the turn.

The preliminary plans we had showed activity leading to a result in the third quarter.

The fact of the matter is, working very closely with those two major retailers, Petco and Petsmart, the execution was accomplished slightly faster than planned and with good effect as you see.

And then as Bina mentioned also we have now followed that up with a lot of innovation to follow the base innovation towards the end of the second quarter and into the third quarter to keep that momentum going with continued support from those retail partners.

So it really is that simple, the execution was just accomplished a little bit quicker than we had originally forecast.

Ian Gordon.

Hi, good morning.

I just want to understand the interplay between the volumes and the pricing in North America a little better.

I think it is the first quarter in a year and a half that pricing down but obviously the volumes were great.

So how much of this is consumers responding better to some of that increased promotional activity, or say investments in trial building that are bearing fruit, versus mix, or something else?

Then, what is electrostatic action in toothpaste?

That sounds interesting.

Okay, first of all, great name.

So I will take a long time answering this question Ian.

The answer in North America is exactly as you supposed, which is that it is trial building behind innovation that we have.

Remembering in the US couponing is also included in pricing and that is a very important vehicle in conjunction with retailers to build trial.

And I mentioned given some of the marketplace activity we were facing, we indeed stepped up our promotional activity selectively, and we like, as you say, the balance we got for that price versus the growth.

And of course, we still saw a terrific expansion in gross margin.

We have been saying for quite a long time on these calls that when you think about engaging the consumer, particularly in the developed markets, you can have very strong brand building programs that would be reflected in price and run in retail environments.

And while you have also seen our traditional advertising and promotion increase it is a great way, working with the retailers to build trial for innovation, and you can expect to see that continue out in time.

Electrostatic action is good for you.

Carolyn Levy from CLSA.

Good morning, everybody.

Just wondering if you continue to see such good topline momentum, particularly in the volume mix, whether you would look to reinvest in any profit upside in the fourth quarter behind any big ideas that you are working on?

Or even in the third quarter?

Caroline, we will let you know in October and January.

But, clearly I think the stance we have taken, exactly as Bina said, is to try and execute our financial strategy to the benefit of the business, which is continue to see our gross margin expand, continue to manage our overheads very tightly, and of course, as the Global Growth and Efficiency program works its way forward we will see increased benefit from that, so that we can do precisely that.

Which is to take up our advertising expenditure behind building brands and our overall commercial expenditure behind the same objective.

Michael Stipe from Credit Suisse.

Good morning again, can you give us the actual growth rates for some of the bigger emerging markets, China, India, Brazil, and so forth?

No, I wouldn't get into that level of detail.

I will say you could say for those markets that you just raised, they were all double digit organic growth rates.

Connie Maneaty of BMO capital.

Good morning.

I have a question on Hill's.

Could you comment on the early market share read you have for the combination of Science Diet and Ideal Balance?

And is Science Diet in particular gaining share?

Science Diet is basically flat on market share at this stage.

Ideal Balance is building share.

The real important data, Connie, is going to be in the fourth quarter when we start to get the trial and repeat for both of those products and that will shape our investment stance going forward.

It really is a little bit early given the nature of those businesses to see anything dramatic.

So far the trends are good.

Key for me is going to be trial and repeat and we won't have that until the fourth quarter.

Lauren Lieberman from Barclays.

Thanks, good morning.

Two things, because I wanted to ask you more than one question.

First was, I thought you guys were relaunching Total in some countries in Latin America this quarter.

It wasn't mentioned so I just wanted to know if that happened and the impact it may or may not have had.

The second thing was just on pricing, I know particularly in North America you commented on the choice to increase promotional activity.

Overall, with your focus on pricing analytics, pricing has been a pretty big contributor to the top line last year, Europe, you've done a really great job of getting it to be a bit less negative, and then it dipped down 3% again this quarter.

Maybe tough to look at from such a big picture standpoint, not into each market, but from here is pricing a bit less of a benefit?

Has this pricing analytics work you've done maxed out its potential in terms of incremental contribution to top line or is this quarter a little bit more of a one off?

I would say, first of all let me answer the factual easy question, Total relaunch.

We have a new Total variant called Total Gum Health, which is what is moving around the world and the initial market response has been pretty good but that is still in the process of rolling out.

And to be candid, we simply just didn't mention it, not for any negative reason.

It's still moving, I guess, is the point.

No, absolutely not from the pricing analysis point of view.

We do think this quarter was a one off, particularly in the US given the innovation flow that we had and the trial that we were seeking to build behind the mouthwash that we really just launched, slap bang in the middle of the second quarter.

We are using it very assiduously.

We are obviously using it to help us guide how we take the pricing in the emerging markets to offset the transaction impacts on cost.

So no, it has neither less focus nor less utilization, and it will continue to guide our pricing actions for the balance of this year and of course, into 2014 and beyond.

Javier Escalante of Consumer Edge Research.

Hi, good morning, everyone.

My question is also on pricing, but it has to do with Europe.

It is a little bit of a follow-up on lowering, and it has to do with pricing has been negative actually for a long time.

If you can comment on, number one, whether it is a specific part of the portfolio, I suspect that it may be the household product part of the portfolio.

And if so, would you consider after a couple of years of negative pricing of making some divestitures in that part of the portfolio?

Thank you.

Javier, first of all, let me answer the end of the question which is divestitures, the answer is no.

We think that Europe, particularly now over the last several years has been a very difficult environment with the consumer and indeed with customers who are looking for store traffic.

So in the end from a European point of view, our planning assumes limited growth in that geography for the foreseeable future.

As you may remember, that when we announced the Global Growth and Efficiency Program, and indeed with the plans that you have already seen implemented, there is a very strong bias to getting our structural costs in the right shape in order to get what growth is reasonably available in Europe and deliver a reasonable bottom line.

So what you are going to see, you saw the gross margin this quarter benefit and the focus will be on equally reducing our overheads.

The other point to make in Europe, and again we have said this before, not just for us but for many, there is a bias to activity at the retail level which gets captured in commercial spend, not in the traditional A&P.

You are seeing that too.

We believe that at some stage Europe will come back, but as we have said many times, it is not in our immediate planning horizon, so we are focusing on growth that is reasonable, delivered by commercial spend in totality, while building gross margin and lowering overhead.

And that is going to continue to be our focus in Europe with all of the categories that we compete in today.

(Operator Instructions)

Mark Astrachan of Stifel.

Thanks and good morning, everybody.

Ian, you described the inputted cost environment as benign, I guess that sort of bears out in the continued expectation for 30 to 70 BPs of gross margin expansion.

I guess I'm just curious given the current level of oil, does that at some point flow-through, maybe not this year but next year.

And then maybe just comment a bit on broader sort of input costs, bucket, puts and takes, and if you could just remind what the oil expectations were for the original budget in '13, that would be helpful.

Yes, to answer the second question first.

It hasn't changed, we had 110 in our original budget.

Not a factor this year and given the performance of oil in the world I think we should defer any discussion about 2014 until we are a little bit closer.

Yes, the cost environment is benign as many have seen.

I will make one observation, and that is you will remember three years ago, and before, it used to be the case that when foreign exchange strengthened, commodities went the other way.

We are not seeing that and we haven't seen that for a couple of years.

So while benign, still elevated and no big correction down, in a strengthening foreign exchange environment.

So again, we focus on all of the things, the pricing, the mix, the funding, the growth, and to the extent that Global Growth and Efficiency will benefit our gross margin to offset and continue to build that gross margin.

With that we have no further questions from our telephone audience.

Terrific.

Thanks for being on the call.

And as Bina said earlier, a particular big thank you to all of the Colgate folks who get this done.

And we look forward to talking with everybody at the end of our third quarter.

Ladies and gentleman that does conclude today's conference.

We do thank you all for joining us.