高露潔 (CL) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Colgate-Palmolive Company fourth-quarter and fiscal year-end 2013 earnings conference call.

Today's call is being recorded and is being simulcast live at www.Colgate-Palmolive.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, I would like to turn the call over to the Senior Vice President of Investor Relations, Bina Thompson.

Please go ahead.

Thank you, Vicki.

Good morning 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 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 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 as a percent of sales, operating profit, operating profit margin, net income, and earnings per share on a diluted basis, excluding the impact of certain items described in the press release.

A full reconciliation to the corresponding GAAP measures is included in the press release and is posted in the [full investors] section of our website at www.Colgate-Palmolive.com.

We are very pleased with our strong finish to a strong year.

We exited 2013 with the strongest quarterly organic sales growth for the year at the high end of our targeted range of 5% to 7%.

We enjoyed good gross margin growth and this, combined with a reduction in our fixed expenses as a percent of sales, allowed us to increase advertising absolutely and as a percent of sales while increasing our operating profit as well.

This is, of course, a simple financial strategy that has served us so well over many years.

Cash generation was strong and our balance sheet was solid.

Our savings programs continued to deliver.

Our ongoing Funding the Growth contributed significant savings and, in addition, our global growth and efficiency program is on track both from a cost and savings perspective.

For full year 2013 we realized savings of $40 million after tax and expect that number for 2014 to be between $90 million and $100 million after tax, or about twice as much.

We've made progress in all three areas of the programs: expanding commercial hubs, extending shared (inaudible) services and streamlining global functions, and optimizing global supply chain facilities.

Market shares are strong and growing.

We've maintained our leadership share of the toothpaste category, with strong market share performance virtually everywhere in the world.

Our global manual toothbrush share is up 40 basis points to almost 33% on a year-to-date basis and our global mouthwash share is now at 17%, up 130 basis points on a year-to-date basis.

Our relentless focus on innovation has paid off and we have more in the pipeline for this year and beyond, so let's turn first to North America.

We are pleased with our 3% organic sales growth in the quarter given the sluggish macroeconomic environment which resulted in slower category growth as well as the continued promotional and highly competitive environment.

As referenced in the press release, our shares are strong in a number of categories.

Good cost control and gross margin increases have allowed us to continue to increase advertising support behind those existing and new products.

Our innovation pipeline remains very full and we have some very exciting activities this quarter.

Our progress in manual toothbrushes and mouthwash in the US has been excellent.

We have already told you about our record manual toothbrush share of over 38%.

In mouthwash, both Colgate Optic White and Colgate Total mouthwashes, launched within the last year and a half, have delivered a full-year combined share of 5.6% with the most recent lead at 7%.

Retail support behind Colgate Total Advanced mouthwash has been at record levels.

The growth in the category has been totally driven by this new product and added nicely to retail sales.

Over half of the mouthwash buyers are either new to the category or trading up, which drives incrementality.

And in addition, trial and repeat rates are above previous competitive launches.

As you know, our Colgate Optic White products have been very successful, particularly as we have been able to drive the regimen approach with toothpaste, toothbrush, and mouthwash.

New in the franchise this quarter is the Colgate Optic White manual toothbrush and built-in whitening pen.

This product delivers all the benefits important to a whitening enthusiast: it is effective, affordable, and convenient.

The toothbrush combines stain remover [tips] and polishing bristles, while the pen, which fits in the handle of the brush, uses a breakthrough formula with proprietary silicon adhesives.

Together they deliver whiter teeth in two days.

The superpremium pricing creates a growth opportunity for retailers while still providing affordable whitening for the consumer.

In the personal care category, this quarter we are launching Speed Stick GEAR antiperspirant and deodorant sticks, gels, and body sprays.

This new line of underarm protection is targeted towards the millennial male.

It comes in distinctive premium packaging with preferred masculine fragrances and unique clinically-superior technology.

The Speed Stick GEAR antiperspirant contains Dry Core technologies, which absorbs better for 48-hour protection.

Speed Stick GEAR has been formulated to have excellent adhesion to skin and utilizes a highly-effective active ingredient.

As you expect for such an exciting new product, the launch will be supported with a full integrated marketing campaign including traditional media, digital, and other consumer engagement activities.

Also in the personal care category, we are launching Softsoap Decor Collection liquid hand soaps.

This new product appeals to the shopper who is looking for offerings found at upscale specialty stores at an affordable price more typical of mass retail.

The decor packaging and exquisite fragrances are inspired with specialty and, while more affordable, are still premium priced to our base liquid soap line, which drives trade up and incremental dollars for the retailer.

Initial trade acceptance has been excellent, with full distribution at a majority of accounts.

Turning to Europe South Pacific, the macroeconomic environment continues to be challenging across most of Europe.

Slowdown in the euro area has continued.

While Germany and France reported a positive GDP growth, Spain, Italy, and Greece once again reported sharper decreases.

The unemployment rate remains high at 12.1% in November 2013 even though it has been stable since April.

Despite this, consumer confidence in the euro area shows nascent signs of recovery since the second quarter, which is a modest positive as we enter 2014.

So against this backdrop we are quite pleased with our fourth-quarter performance in this region, with positive organic volume growth of 3% and solid gross margin and operating margin growth.

In addition, as you know, many of our global growth and efficiency programs initiatives had been focused in this part of the world and are already manifesting themselves in a reduction of overhead expenses.

Market shares year-to-date are up in toothpaste, manual and power toothbrushes, mouthwash, deodorants, and fabric softeners.

Our innovation programs throughout 2013 have been critical to our good market share performance and we expect this to continue into 2014 across all our categories.

In oral care we will be launching Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer in select countries this quarter.

As you know, this superior anti-cavity toothpaste was first introduced in Turkey last fall and launched in Brazil late in the fourth quarter.

This leading technology is incorporated in the first and only toothpaste that directly fights sugar acids in plaque, which are the number one cause of cavities.

The patented formula helps deactivate sugar acids before they can harm teeth, while strengthening and restoring the enamel that helps prevent cavity formation.

The initial introductions in the Nordic group of countries, Spain, and Portugal will of course be supported by a full integrated marketing campaign including a public health campaign.

In Europe, as in other parts of the world, the whitening category is large and growing.

This dynamic segment requires continuous innovation and so we are launching Colgate Max White One Optic premium toothpaste in high-impact packaging that offers an instantly-visible whitening effects.

To complement the toothpaste we are also relaunching our Colgate Max White One mouthwash which contains an advanced stain prevention system to seal out stains and seal in natural whitening.

We are very pleased with the progress our Sanex business continues to make.

Year-to-date market shares are up in both shower gel and deodorant, and to help continue this momentum we are continuing the rollout of our new Sanex Dermo shower gels with the Dermo Active 3 Complex, as well as launching a new antiperspirant and a new deodorant.

[But first] is Sanex Dermo No Perfume designed for consumers with very sensitive skin.

The product contains no perfumes, is hypoallergenic, and delivers 24-hour protection.

The second is Sanex Natur Protect Extra Efficacy, containing natural mineral alum and anti-wetness agents which provides protection for 48 hours.

I mentioned earlier the increase in our fabric conditioner shares, up 30 basis points year over year to almost 25%.

This quarter we are rolling out in Europe a premium innovation which has met with success in France, Soupline Perfect Glide, which has a unique formula with a polymer that allows for a perfect glide and an innovative aroma technology that make ironing more pleasant.

As you know, ironing is important but most consumers view it as a chore they don't enjoy.

Turning to Latin America, this region exited 2013 with excellent momentum, delivering the strongest quarterly organic sales growth of the year at 12.5%.

Our leadership continues in toothpaste and manual toothbrushes and our mouthwash share is closely approaching the leading competitor.

Our year-to-date toothpaste market share in Brazil is at a record level of 71.5%.

As you know, we launched Colgate Maximum Cavity Protection plus Neutrazucar in the fourth quarter.

Early reads show to share over 3%, which has added incremental share to our overall business.

And in addition, both Colgate Luminous White and Colgate Total toothpaste premium priced offerings are gaining share.

Our year-to-date toothpaste share in Mexico remained over 80% despite continued competitive promotional activity.

Our business in the traditional trade remains strong and we are building distribution and share in the growing pharmacy channel.

Our year-to-date manual toothbrush share is up 1.5 points across the region with every subsidiary delivering market leadership share gains and holding the number one position.

Both Brazil and Mexico achieved record shares as we continue to offer the consumer a wide range of offerings at all price points.

Across Latin America in mouthwash we have closed the share gap from over 20 points in 2009 to just over 3 points year-to-date.

Innovation has helped this result, as well as strong sampling plans across countries, to maximize category growth and increase consumption.

Year-to-date our share increased over 50 basis points to 36.4%.

In personal care our year-to-date market share increased in both bar soaps and deodorants, and we now lead the bar soap market with a 29.4 share, or 29.7% in the most recent period.

New products in both these category should help us continue to deliver strong results.

And as elsewhere, innovation continues in the first quarter.

We will of course continue the rollout of Colgate Maximum Cavity Protection plus Neutrazucar toothpaste and expect to build on success and learnings from our Brazilian launch.

In addition, we are beginning a comprehensive marketing campaign behind Colgate Total Professional Whitening toothpaste, which promises up to 95% stain removal in two weeks.

A new offering in our Palmolive body cleansing business is Palmolive Naturals Royal Jelly and Yoghurt.

This new line of bar soap, shower gel, and liquid hand soap contains ingredients well known for body cleaning solutions.

Royal jelly is known to nourish the skin while yogurt is known for its properties to soften the skin.

In underarm products this quarter we are launching men's Speed Stick and Lady Speed Stick Stress Defense deodorant.

Stress-related sweat is induced by a different set of glands that are primarily concentrated in the underarm area.

Unlike regular or thermal sweats, that is used by the body as a temperature control mechanism, stress-related sweat comes in unexpected situations.

Lady Speed Stick and men's Speed Stick Stress Defense formulas activate in those specific sweat moments, offering effective sweat protection.

Turning to Asia, this region delivered another strong quarter of organic sales growth, and of particular note, both China and India grew organic sales double digits despite concerns regarding slowing growth in those regions.

Across the region, our year-to-date toothbrush share -- toothpaste share increased 20 basis points.

In India, our share was up 70 basis points to 54.1% and the strong performance was across all price points.

In China, our share increased 30 basis points to almost 34%.

In this market, premium brands have performed particularly well.

Our Colgate Optic White as well as some of the Darlie products, for example.

Our year-to-date manual toothbrush share increased in seven of 10 countries.

Our targeted efforts to increase share in India have paid off with our share now at almost 42%, up 240 basis points on a year-to-date basis.

Our regional mouthwash share continues to increase, up 60 basis points year-to-date to 20.1%, breaking the 20% barrier.

Our most recent share was 23.5%.

China has been a particularly successful market for us.

Innovation in both the Colgate and Darlie equities has helped us achieve almost a 35% share of the market, up 260 basis points year-to-date.

As you expect, we have a robust lineup of new products for this quarter as well.

Our on-the-ground consumer innovation centers have identified some important consumer preferences and beliefs (inaudible) two relevant and exciting bundles.

In China, for instance, charcoal has long been believed to have powerful antibacterial properties.

Accordingly, last year we launched Colgate Slim Soft Charcoal toothbrush, which has been well received.

This quarter we are launching Colgate 360 Charcoal Deep Clean toothpaste along with Colgate 360 Charcoal toothbrush.

The toothpaste addresses the consumer's concerns that dirt can be left in between teeth even after brushing by reducing bacteria build up by 99% even in between teeth.

The companion toothbrush offers charcoal bristles that are slimmer for a better clean.

In the mouthwash category we are launching Colgate Plax Jasmine tea, developed for the consumer who wants to use mouthwash to help keep their breath fresh but who doesn't like a strong and burning mouth feel.

This mouthwash contains jasmine and tea extracts, which provide fresh breath without the burning sensation.

Africa/Eurasia, our winning on-the-ground strategies in this part of the world are resulting in strong performance as well.

Innovation has played a key role in good market share progress.

While our regional toothpaste market share is up 20 basis points on a year-to-date basis, it has increased 50 basis points in Russia to almost 33%, 170 basis points in Turkey to almost 29%, and 300 basis points in South Africa to 50%.

As you know, Turkey was our lead country for our Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer bundle.

And while it is early days, initial shares are already at 2%.

In mouthwash, our regional share is up at almost (technical difficulty) percent and is now the number two brand.

More innovation is planned for this quarter.

Colgate Total Pro interdental toothpaste, Colgate (inaudible) Herbs mouthwash, and Colgate Slim Soft Charcoal toothbrush, just to name a few.

In the personal care category, an interesting new product developed for the African market is Protex African therapy.

As you know, Protex is a premium brand sold in many developing markets with an antibacterial positioning.

This new mini line contains the unique combination of some of Africa's greatest skin secrets.

It helps protect natural, healthy-looking skin and comes in two variants: glycerin and African herbs and cocoa butter and lemon.

Hill's; we are very pleased with Hill's continued solid performance.

This marks the third quarter of volume growth and the strongest organic sales growth in five years.

Also, while gross margin, as expected, was down year over year it increased in the third quarter to the fourth quarter and we expect that trend to continue in 2014.

Our launch in the Hill's Ideal Balance continues to meet with success.

Early trial and repeat results are very promising.

Now that the product is in the natural section of the large-format retailers, the cannibalization of other Hill's brands is at an all-time low and sales of Ideal Balance are growing strong double digits.

Healthy support behind the products will continue in the first half of this year, including nutritional consultants at superstores and eye-catching pallet displays.

Our prescription diet business remains strong and growing.

We have told you on previous calls about Prescription Diet Metabolic.

This breakthrough weight management diet is now sold in over 60 countries and sales are growing at a healthy double-digit rate, driving our global share of the weight category up by almost 2 points year-to-date.

This quarter we will be launching another new Prescription Diet product, c/d Multicare Stress, for the nutritional management of urinary tract health in cats.

Stress is an important contributing factor for some urinary conditions in cats.

Prescription Diet c/d Multicare Stress has been clinically tested to reduce the recurrence of feline idiopathic cystitis, which can arise from stress.

The Q1 launch will be supported by a comprehensive in-clinic communication plan and sampling program with veterinary professionals and their clients.

The feline urinary category is the largest feline therapeutic physician category globally.

So in summary, we are extremely pleased with the way that we finished the year 2013.

Our organic sales growth was strong around the world, our gross profit margin increased, and our market shares are healthy.

Colgate people around the world are all focused on our strategies and priorities, thereby delivering these consistent, strong results.

Our global growth and efficiency program is on track, as are our ongoing Funding the Growth initiative.

Our innovation pipeline is full and we are excited about the many new product initiatives we have just told you about, so we expect this momentum to continue in 2014 and look forward to sharing our progress with you as we go throughout the year.

That's the end of my prepared remarks and now we can turn it over to questions.

(Operator Instructions) Wendy Nicholson, Citi Research.

Good morning.

My first question has to do with currency.

In 2012, if currency was a 400 basis point headline -- pressure on top line, can you tell us what it would have been roughly on EBIT and earnings?

And to the extent currency rates remain where they are now, what are you modeling for 2014?

Again, both on the top and the bottom line.

Thanks.

Thanks, Wendy, and thanks for the question.

I would, though, before answering it, just like to reaffirm how we are thinking about the year 2014.

As we have said before, we have been deploying the strategy that Bina mentioned for some eight years now and we think focusing on that, which you can say is focusing on the fundamentals, is serving us well.

So as we look at 2014, we are thinking and planning for top-line growth to continue in that 5% to 7% organic growth range.

We are looking for our gross margin to expand between 75 and 125 basis points, and that traces to a slightly more benign commodity environment, the continued strength of our Funding the Growth program, the on-plan tracking of our global growth and efficiency program, which will also lower our overhead, allowing us to continue in 2014, as we did in 2013, to increase our advertising absolutely and as a percentage to sales behind the rich and broad range of new products worldwide that Bina mentioned.

Foreign exchange, as we have said before, is -- from a top-line point of view has a lower impact of the profitability point of view.

So the top-line impact in 2014 we have, based on the release we sent out, a hit of 3% and, when you look at the operating impact of that, it is near a 4% to 5% on the bottom line.

And I think we fairly consistently said the bottom-line impact is greater than the top-line impact and that ratio has historically been roughly the same.

I would add that with the confirmation of our comfort with the consensus of external analyst estimates, and many of them, as we saw this morning, have that spot on, you are looking at a dollar EPS increase around 9%.

And I would say that's around 13% on a currency-neutral basis.

That's the way we think about the year.

Just as a follow-up to that, obviously your savings are accelerating, so in theory, hypothetically, suppose the FX impact worsened.

How do you think about the trade-offs between taking some of that $100 million of savings and dropping it to the bottom line, or do you think if FX worsens then the reported earnings growth would slow?

I think, Wendy, in the world we are in we will respond to that when the time comes.

We said in our release that the emerging news from Venezuela, while not yet clear enough to take a view, is not factored in nor any other macroeconomic impact which we cannot yet foresee.

What I would say is that I think, as we have shown in the past, our response and communication on the view we take would be timely and comprehensive.

Terrific, thank you so much.

Ian Gordon, S&P Capital IQ.

Just on the commodities again.

I think you did again repeat that you are expecting a more benign environment to this year, but we have been hearing I think from some other companies that it has become a little bit more of the headwind.

So maybe a little bit of color there.

Maybe it's a good opportunity to sort of give some of the drivers of the gross margin for the fourth quarter and maybe how you are thinking about what the individual components will be for 2014.

Okay, Ian.

Let me start first by doing our now customary walk-through of the fourth quarter and take that as a jumping off point.

So if you take the full quarter of 2012, the start point is 58.6%, and if you then work your way through, pricing gave us nothing.

Restructuring gave us 10 basis points.

Funding the Growth, strong at the end of the year as it customarily is, 290 basis points.

Material prices a headwind of 260, that's a combination of cost and transaction.

A little bit of all other 10 basis points, which gets you to the 59.1% or the increase of 50 basis points.

Now as we look at 2014, I said benign.

Benign for us is around about a 1% increase in raw and packing material costs.

And the way we have thought about oil as an input is about around $110 and I would say it is in that zone today.

The one thing I would stress is that, of course, with the recent foreign exchange impacts we have seen there will be a related increase in transaction costs which we are, of course, absorbing in the plan that we have for 2014, which is going to see our pricing at the higher end of our 1% to 2% pricing target for the year.

Thanks.

Joe Altobello, Oppenheimer & Company.

Thanks, good morning.

I guess since we just mentioned pricing, I will start there.

In terms of the pricing in the quarter, it looked like it was flat overall.

How much of the pricing -- is it easy to tell how much of the pricing that you took in this quarter or the promotion you took in the quarter was to benefit new product launches and how much of that was a response to competitive activity?

Then, secondly, just a follow-up on Hill's, another very good quarter in the fourth quarter.

Have we turned the corner there on profitability and should we see a return to more 2012 levels in terms of margins and EBIT there?

Thanks.

Thanks, Joe.

For us, the mix -- we have a dollar-weighted volume, so mix effect is in the volume growth.

So when you think about pricing, for us what you see across the divisions is pricing up in the emerging markets, obviously beginning to address the transaction impact and pricing in Europe.

And North America beginning to react to the promotional environment we are in correspondingly negative.

I think the good news is that the organic was still 6.5 and that volume is growing strong at 6.5.

And I think very importantly, as we think about our marketing mix modeling, that notwithstanding that position in the fourth quarter our gross margin was still up 50 basis points right in the middle of the guidance we gave there.

So as we think forward and as we have said many, many times, our innovation seeks to deliver premiumization and therefore be accretive to gross margin by developing ideas that consumers believe they get good value for the premium they pay.

On the other hand from a promotional point of view, we don't seek to chase what we think are unsustainable promotional efforts that simply load pantry that will take growth out of future quarters, although we will selectively adjust to defend our market share where we feel we need to.

And Hill's, we are very pleased with the consecutive quarterly performance on Hill's.

We think it traces, as we have said before, to a growing portfolio of very competitive innovation.

In the early periods, catch-up, but I think as Bina went through both on the last call and this call, you are now beginning to see I think some innovative market-leading innovation on the Hill's business.

And as we said on the last call, we expect that innovation profile to continue on Hill's.

Gross margin is a rebuild on Hill's, and we increased gross margin third quarter to fourth.

And again, as Bina said earlier, we expect that to continue into 2014.

So we are pleased with the pace and we plan to continue that momentum in 2014.

That's helpful.

Thanks, Ian.

Dara Mohsenian, Morgan Stanley.

Just one point of clarification.

The comment about the sequential improvement in Hill's margins versus Q4's level; is that as you move throughout the year in 2014, or is that more just looking at Q1 versus Q4?

It's looking at the Q1 versus Q4.

Okay.

Then I was hoping you could walk us through what you are seeing from a macro perspective as you look across the various emerging markets, geographies.

Any changes in consumer spending or impact on your categories and some of this volatility in January, are you seeing any fallout from that?

Thanks.

The data we have from the categories is fourth-quarter data.

It seems to be the topic du jour in emerging markets.

And as we look around our world, and we have had several of our executives traveling the world, I would say we are seeing consistently what we said on the third-quarter call; which if you go around the world is basically to say that our categories -- and I stress we are talking our categories, not the macros or a general industry basket -- our categories continue to grow mid-to high-single digits in those emerging markets which is pleasing.

In the North American environment, our categories are growing around low-single digits, around 2. As Bina said, in the fourth quarter we saw that slow a little bit.

And as we have said before, and it's a view we continue to take on Europe, notwithstanding a certain amount of growing enthusiasm for a macro turnaround, the overall category growth in Europe is essentially flat, with some categories modestly up and other categories down.

And we continue to expect that to be the case for the next several years, which was why when we embarked upon our global growth and efficiency program we said, and you've already seen some of it announced, that the impact would be disproportionate to Europe because we wanted to right size our cost structure against likely more muted category growth in the medium term.

And that's exactly what we are doing.

So I would say the world continues in our businesses to be pretty much the way we saw it in the third quarter and current data shows no overall change to that.

Okay, thanks.

Bill Chapell, SunTrust.

Good morning, thanks.

Ian, just want to make sure on the Max cavity with sugar acid I think the comment was you were moving into Spain, Portugal, and the Nordic countries this quarter.

I'm just trying to understand, I was kind of under the impression you were looking more at developing regions for that first before you moved into developed.

So is that kind of a change?

And maybe you could give kind of an update of what countries you do plan to go into this quarter.

I think Bina mentioned a few of them.

Well, the answer to that, Bill, is we are doing a few things.

I have said before, we have said before that we do think the biggest opportunity is in the emerging markets.

Clearly, we are using Turkey and Brazil to see the pace of growth we can get there.

The European entries is really to see in a fairly simple regulatory environment what sort of marketplace potential that product may have.

As the year unfolds you will continue to see more of the focus on the emerging markets and the only reason we didn't mention it is that we didn't want to reveal, and still don't, when and where those entries would be.

Okay, then just to make sure I understand it.

You go in; is the entry margin accretive?

Is this a higher-margin product than what you are replacing?

We are happy with the margin, Bill, and -- we are happy with the margin.

Let's just leave it at that.

Perfect, thanks so much.

Olivia Tong, Bank of America.

Thanks, good morning.

You -- earlier in the call you batted down some concerns with respect to growth and trade up opportunity in China and India, which was helpful, but are there other markets where you are seeing some pushback?

It certainly sounds like growth in Brazil is balanced with growth in the anti-cavity and Neutrazucar as well as Luminous and Total.

But what about Mexico and other key countries?

I think -- I guess there are two factors here.

Consumers -- and I think this is the duty of a consumer marketing company -- are prepared to buy things that work and deliver a benefit that they see a value in.

And we don't believe that that is limited to certain countries.

We believe that one can develop products that deliver those benefits and that the consumers are prepared to pay for.

And I would say, without being too cliche, that's a global statement.

So premium innovation can work anywhere, and I think it's our duty and our challenge to keep finding ways to make it work.

In certain parts of the world you see promotional activity stepped up as perhaps some people chase market share.

And the view we have taken on these things is that all you are really doing is advancing purchases that that is not a sustainable position to take.

Now as we manage our business planning, we obviously manage a repertoire of activities that includes the premiumization, that includes an intelligent response to the marketplace environment we have.

And very much in those emerging markets, where the downtrade consumer struggles with cash, we put enormous focus on sizing and the pricing that goes with that sizing in order to provide an affordable entry point to those consumers.

Even if on a per-ml basis they are actually paying more for the product, you are meeting their cash outlay needs so it can be accretive from a margin point of view and address the consumer.

So all those three things are in play as we think about our business plans market by market.

Chris Ferrara, Wells Fargo.

Thanks.

I was hoping I could get perspective on Latin American pricing.

I guess so the gap between price and FX, where there's usually some relationship, I guess is almost as wide as it has been ever in the last 20 years.

And each time it has been this wide, it has gone the other way.

It has bounced back.

So you go back to 2002, 1995, you have basically taken pricing to cover the currency later.

So I was just wondering if you can give a little insight into whether there's any difference in the relationship between those two things today relative to those historical periods that would make us think it wouldn't bounce in the future.

And I know Venezuela is a piece of it, maybe some price.

It actually looks more like mix or volume today, but I was wondering if you could just comment on that.

Yes, it's a difficult question to answer crisply, but you would have to say that Venezuela is definitely a piece of it, because that is a constraining factor on pricing given the regulations that are in place today.

And, equally, one has to say Argentina, while intelligent movement can be made, it has not been with the freedom that maybe history would have allowed.

And the second point to make is there is always a lead lag to your ability to take pricing.

And, frankly, in today's world you see such a rapid shift in foreign exchange as opposed to a steady erosion that can be reacted to in a timely fashion that I think, yes, one will see a catch up, but there is a lag to the catch up and Venezuela and Argentina are outliers in that regard from a Latin American point of view.

So I hope that was clear.

That helps.

And I guess just a quick follow-up on Venezuela.

The news you are talking about, just to make sure I have it right, is this basically the announcement that the SICAD rate could be at 11.3 instead of the 6.3 to we've seen?

It is, Chris.

The fact of the matter is there is not enough clarity yet to make a definitive or come to a definitive conclusion as to how that is going to affect the business because you've got translation, you've got historical costs like inventory, and you've got the cost to bring in raw materials and finished goods.

And there is not yet enough definition around all of those things to take of view.

But it is indeed that news that we are referring to.

And, as we said in our release, we are still reviewing and assessing to take a position there.

Nik Modi, RBC Capital Markets.

Thanks, good morning.

Ian, if you could just talk about any early insights from some of the Turkey test market or from Brazil on the anti-cavity product in terms of what's going on the category growth.

Is it trade up?

Any perspective you can share on just the dynamics around that product launch.

First I have to say it is very, very early days and I think getting too excited is never a good thing, ever, in my view.

But I would tell you that from a distribution point of view, I would tell you from a build of market share point of view, and the early trial curve they have been very good in both countries.

We have not yet seen the full impact of the marketing plans.

We've not yet felt the benefit of the sort of public health programs we are putting in place, nor do we have a repeat number, but early indications are growing category, growing share, and certainly a premiumization in that segment.

So we will keep you posted on how things unfold.

Great, thanks for that.

Then just a quick follow-up unrelatedly.

Just from a competitive intensity standpoint -- I'm sorry if I missed this earlier.

I had to hop off for a second.

But as you look across all of your very heavy share markets when you are 70, 80 share are you seeing some of the competitive intensity settle out or stabilize?

I'm just trying to get an understanding of what some of the competitive behaviors look like recently.

I guess I would say, as a general view, there seems to be more promotional activity in the developed world and maybe that is people chasing a greater share of a pie that is not growing so fast, or in the European case not growing at all.

I would say overall in the emerging markets nothing that we would point to to say a dramatic difference in competitive activity.

Some country-to-country changes that we have observed, not enough to conclude a trend.

And I think we are meeting that hopefully intelligently.

As well, we are seeing our share in Brazil up.

We are seeing our share in Mexico hold over 80.

We are seeing our share in Russia over 33.

We are seeing our share in China up to 35 and our share in India over 54.

So I think we are balancing meeting the activity and yet bringing the innovation that provides true growth, both from a category point of view and a market share point of view.

But the big picture answer would be nothing to say; there has been a noticeable trend change.

Great.

Thanks so much, Ian.

Alice Longley, Buckingham Research.

Good morning, a couple of follow-up questions on pricing.

Overall it was flat this quarter and yet you are projecting I think 2% for next year.

So could you specify more where that acceleration is coming?

And also, this is sort of about 2014; the North American organic sales growth was 3%.

Is that something that is reasonable to expect for next year?

And in answering that, can you talk about whether you think you will start gaining share in toothpaste?

Thank you.

Okay, Alice.

Well, the pricing that we will recover in 2014 will, of course, be global pricing, but I think it would be fair to say, given the transaction impact, the bias for that pricing would be more in the emerging markets.

We are pleased with our North American organic growth prospects.

The US market share is one of many market shares that we have around the world.

And as we said on the last call there has been a, shall we say, slightly elevated promotional environment.

Some of which we are choosing to respond to and some of which we have not, and will not, because we don't think it's reasonable.

I do think we will see market share improve over the balance of this year.

But I would make the comment when you are thinking about a global business you are going to have situations from time to time where certain geographies face short-term pressures, but if you take the long-term view in terms of our share, whether it's North America or the world, you see pretty strong progress.

And you have raised toothpaste, as being a mention.

We are up to a 7 now in mouth rinse and we are fully global in that business.

A 7 share in the US and of course our toothbrush leadership share is now over 38%.

So we will do what is right by the business and we believe that will lead to share growth, but we are not going to abandon sensible business principles just to chase market share.

Ian, is the year going to be more second-half weighted for EPS growth this year?

I wouldn't comment on that, Alice.

I wouldn't comment on that.

Okay, thanks.

Ali Dibadj, Bernstein.

Just a first clarification, moving from a 6% EPS growth they delivered in 2013 to the 9% in 2014, I think from the mosaic of your commentary it sounds like it's more really gross margin driven, particularly cost cutting and FX.

So just a clarification there.

Then what I've noticed is that a lot of the questions have to do with this volume price differential.

I know you guys have resisted breaking out volume between true volume and mix, but given that there is just so many new products coming out, it's actually pretty tough for us to figure out what actually is going on in your top line.

So can you give us a sense of quantifying maybe how much of that 10.5 in the emerging markets or just your overall volume number, quote-unquote, is mix versus true volume?

Or how much premiumization you get when you on average put out a new product or just something of that nature?

And why it's tough for you guys, as opposed to every other company, to kind of split out that volume and mix within that number.

To come back to your point of clarification, yes, I would say the broad headline is that is a fair conclusion.

We will see improvement in our gross margin.

We will see improvement in our overhead, driven by the global growth and efficiency program, allowing us to increase absolutely and as a percent of sales our advertising.

And as I said, although it's 9% from a lower point of view, it's 13% from a local currency point of view.

And as far as we are concerned, Ali, the way we have for many, many years explained the top-line growth of our company is we think translatable.

You see what the organic is, you know what the pure SVI is, and organic is organic.

So it's in the numbers.

And we think an ability to deliver 5% to 7% organic growth consistently and by expanding our gross margin, delivering healthy bottom-line growth is a reasonable and sensible model.

I think the direction is clear on it in terms of the growth.

It's just difficult to know how much is actually volume growth versus premiumization, because one could argue one has a different longevity than the other.

So, anyway, I'm not going to win that battle today.

To switch on Hill's, can you give us a sense of what's going on, particularly in Japan?

And also just back to this margin question.

There was a time when the belief was that these margins could go back to historical levels.

I just want to double check that and make sure you still feel that.

And in that answer if you could, the margin degradation that we've seen, how much of that is promotional spend so that could go away versus how much is actually that the ingredient costs on Ideal Balance is very different and that will remain for a while?

Thanks.

Thanks, Ali.

I think first let's take the Hill's business overall and then the Hill's business gross margin in Japan.

I have to say we are pleased with the Hill's progress in a relatively short period of time.

Remember, the US is the largest part of that business by a long way and we believe that we have the portfolio now and the innovation stream to remain competitive, not just in the US but in other parts of the world, going forward.

We have said clearly and the plan we have built was to return the Hill's gross profit over the coming years to historical levels, and that remains the plan.

We have seen the quarter-on-quarter increase third to fourth.

We talked that that would continue into 2014, starting with the first quarter, and therefore that will continue out in time.

And, of course, the innovation we are bringing gives us the opportunity to use the mix to further increase the gross margin.

So the answer on that question is, yes, it is our plan to get back to historical levels.

And we are on-plan and we feel good about that.

Japan, which is not an enormous part of the Hill's business, we have had some market issues from a distribution and a portfolio competitiveness point of view.

And the innovation work that we have done, driven by the US, is being deployed in Japan in 2014 along with some go-to-market changes and we believe that that will correct the business in Japan over the coming little while.

Thanks.

(Operator Instructions) Bill Schmitz, Deutsche Bank.

Good morning.

I don't know if this is purposeful or not, but it seems like regionally when one region starts to sort of show accelerating margins others fall.

(inaudible) the North American margins, for instance, and now they're hovering above 30% but there's been obviously a fallback in Latin America and some other regions.

So is that part of the broader strategy that we want to focus on North American from a cost perspective, from a mix perspective; when that kind of runs its course we're going to move to the next one?

Or is this kind of the natural progression of things?

I would say, Bill, it's the natural progression of things.

We don't sort of rotate businesses across divisions in such a manner.

No is the answer to your question.

So the operating margin in North America at 30%, is that sort of hitting against the natural resistance level of how high margins can go?

Or do you think there still is kind of more room there to get it up?

Then I guess, conversely, obviously the African business is still very much in investment growth phase because it's much sort of earlier on the consumption curve.

Could that be the big upside maybe if that 30% starts stabilizing?

As you know, we don't tend to get into discussions on EBIT because it depends where the timing of innovation by geographies of -- I would simply bring you back to the gross margin.

There our objective is to grow gross margins in all divisions year upon year, and you know that our gross margin in the emerging markets is higher than the developed.

So that will continue to be our plan.

And then, depending on the timing of events, the EBIT margin will be what the EBIT margin will be.

We don't tend to think or talk about lines of resistance on the gross margin.

When we get to the 65, we will have another discussion.

All right, great.

Thanks very much.

Javier Escalante, Consumer Edge Research.

Good morning, everyone.

First a clarification.

What is your current exposure to Venezuela as of the fourth quarter in terms of profit?

My real question has to do again with this pricing topic that had been going on throughout the conference call and has to do with it seems from the outside that you are being conservative in Latin America in terms of pricing and at the same time it looks as if, when we look at Europe, very negative prices.

We don't know whether these are real price costs or these are increases in [trader] spending.

Help us understand why you seem to be investing in terms of pricing in a region like Europe that has very little to offer going forward in terms of growth.

And at the same time you seem to be leaving pricing on the table in Latin America.

At least this is the way that I see it from the outside, thank you.

Well, Javier, let's start with the exposure.

I think from a Venezuela point of view we have been very clear in our Qs as to the exposure that Venezuela represents from a global point of view.

And from an operating margin point of view it is 3%, so that's what Venezuela represents.

I think in response to an earlier question, the question mark around pricing conservatism in Latin America, as I said earlier, Venezuela regulations currently don't permit across-the-board pricing, so we take what we can when we can.

And the same is the case for Argentina.

And then you have the customary lead lag between the deterioration of exchange rates and your ability to price to offset the transaction costs.

In Europe, it's just a practical reality, Javier.

The environment is Europe is basically no growth and that brings pressure from retailers and competitors perhaps who have more of a footprint in Europe than we who want to rest market share.

And so we deploy the same strategies that we deploy and we have seen terrific progress on gross margin from a European point of view.

And, therefore, as we think about marketing mix, we will do more at the store level in Europe than in other parts of the world and that comes in the pricing line and not in the advertising and promotion line.

And if you look at our market share performance in Europe, we think we have got the balance relatively right and that is why -- because our market shares have been going up in Europe from an oral care point of view particularly.

And that is why our focus in Europe is on structural costs so that we can right size the structure to reflect the top line as reality will have it be, and not go chase that top line.

But rather grow more aggressively from an organic point as you have seen in the emerging markets where we are growing double digit.

So it's a case of balancing against the market realities and I guess that's the answer.

Michael Steib, Credit Suisse.

Good morning.

My question relates to geographic mix and what you are factoring in for 2014 [related to] your outlook.

Given you have some very high-margin businesses in Latin America and in parts of Asia, where currencies have been most under pressure, I was just wondering how you are looking at the impact of the geographic mix for 2014.

Michael, actually we are quite pleased as a matter of strategy with our geographic mix.

We still believe that having 53% of our business in the emerging world pays us a dividend from a growth point of view, with categories growing in the mid to high-single digits compared to low single digits in North America and essentially flat in Europe.

So we like that.

And when we released our earnings, and indeed I said earlier on this call we are happy with the focus on our current strategy.

We think it has served us well for the last eight years.

So with the geographic mix we have, we are looking to continue a top-line growth rate of between 5% and 7%, which obviously will be more accelerated in the emerging markets than it will be in the developed markets, just as we have seen this year.

And with our Funding the Growth program and the global growth and efficiency program, be able to provide the funds to invest in advertising, absorb the transaction impact of the foreign exchange changes so far announced, and which many of you had already captured, and still deliver a 9% EPS growth or 13% on a currency neutral basis.

So that's how we think about our split in the world.

Okay, thank you.

Lauren Lieberman, Barclays.

Thanks, good morning.

I just wanted to ask you about the personal care launch actually in North America.

I just couldn't recall the last time you guys talked about a fully-integrated campaign, etc., and new technology in personal care, particularly in North America and in that deodorant business.

So if you could just kind of talk to us about your multi-year goals there, maybe where are -- I am guessing your deodorant shares are in the single digits today.

That would be great, thanks.

They are in the single digits, Lauren.

We are really quite pleased with this Speed Stick GEAR innovation.

It gives us a quality concept, a quality product, and conviction to put meaningful marketing spend behind.

And the trade reaction has been very, very good.

Obviously early days; a category that we are committed to globally and you will see a multi-year plan unfold in the United States.

And, of course, the objective is to get the market share up.

Great.

Okay, thank you.

And just completely unrelated, I just wanted to make sure I read the statement in the press release correctly about currency.

Your current outlook has taken into account some of the dramatic moves that we've seen in emerging market currencies in the last 10 days or so excluding Venezuela.

But all the other kind of craziness out there you have factored into your outlook?

The craziness so far, yes, and the factored it perfectly, perfectly in you know.

Yes, you read it right.

Thank you.

Connie Maneaty, BMO Capital.

Good morning.

Just two questions; one is a follow-up on FX.

You know, if we exclude -- (technical difficulty) is that better?

It is now, but whatever you said after 'if we conclude' I didn't get.

Okay.

So if we exclude the special cases that are Venezuela and Argentina from FX -- there is so much fear these days of the contagion of all the currencies falling.

Do you think that's realistic or does your experience, since there was the Asian contagion, tell you differently about the current environment?

To be candid, Connie, I think you're asking the wrong person.

The notion of contagion of emerging market currencies is not an area of expertise that I would have, so I wouldn't care to forecast.

Are your -- are there people that you consult about this?

I am just wondering if this is a media construct or if it's something you are seriously dealing with.

My experience over the last five years with foreign exchange is that everybody knows after the fact, but coming into any year projections, which usually have a broad array of differing opinions, are usually wrong.

So we have taken multiple opinions and you can get the answer to the question that you want.

We would rather react -- obviously, one plans.

It's not that one doesn't plan, but the people coming into the year predicting Turkey, predicting Ukraine, events in Thailand.

As we have said multiple times in prior years, so many of the things that happen in our world these days even some of the best minds don't know about until after they have happened.

So we do run models and we do have discussions and we do take points of view, but it's something that we wouldn't care to predict.

Okay, that's helpful.

Just one entirely different question.

What does your market research tell you the appeal is of highly-flavored toothpaste such as mint chocolate and vanilla mint that are coming on the market next month?

And would you be playing in those categories?

Well, I haven't tried -- I like mint and I like chocolate mint in ice cream.

I must say I have not tried the product I think you are referring to, Connie.

We have seen in different parts of the world attempts to come with, shall we say, very differentiated, nontraditional toothpaste flavors, whether they be fruits or other things.

And so we will be monitoring, as we have done in other cases, with interest the performance, but I guess, rather like our view on foreign exchange, we have no definitive answer to that question either.

Okay, thanks very much.

Caroline Levy, CLSA.

Good morning, Ian and Bina.

Actually it's good afternoon I guess.

Just a couple of things.

Again, on the North American margin, which is the highest in the world, which is a little different from some multinationals and you said the gross margin is higher upside.

But do you see upside to your North American EBIT margin over time?

Do you see steady growth there?

Again, Caroline, you may have missed my prior answer.

We don't comment on EBIT projections for the Company.

You can rest assured that our focus continues to be -- to get the gross margin up, as you said, and with the global growth and efficiency program to lower our overheads.

That, therefore, provides one the opportunity to invest some of those funds and bring other of those funds freed up to the bottom line.

And we will make those choices as we go forward.

Got it.

And in funding the growth is there any geographic skew to that to where those savings happen?

It depends from year to year, Caroline.

Generally, they are pretty broad based, both by geography and by category.

Some years you have a particular initiative that is powerful in one particular category or for one particular geography, but usually they are pretty broad-based.

Great.

My final question would just be on GDP growth and demand for toothpaste.

It would be intuitive that you would be less sensitive to swings in demand in other categories, but if China's GDP growth goes from 9 to 5, God forbid, but if it is 5 would you expect that you would still be growing your business just because of the lack of penetration of toothpaste usage?

Caroline, it's interesting.

I would say over many years we have not seen a very strong correlation between modest slowdowns in GDP and the purchasing of our products.

If we look, as I said earlier, at the emerging markets, even in Brazil with the GDP slow down, our categories are still growing mid to high-single digits.

And I think that is a combination of the still emerging middle class, our ability to increase penetration, our ability to educate to increase usage, and our ability to trade up intelligently consumers in the business.

So whilst one can't say they are completely decoupled, there is no empirical evidence, at least on our data, that it directly affects our categories.

Thank you so much.

That is very helpful.

John Faucher, JPMorgan.

Thanks.

I will try to keep this quick.

The 13% currency-neutral earnings guidance is very impressive, particularly given the difficult is out there.

Was that in line with what you were thinking before in October when you guys first gave guidance, or had things changed to maybe try to offset some of the incredible impact?

Thanks.

It was entirely driven, John, by the foreign exchange slide that started in the middle of January.

So when we were looking at the world in the fourth quarter, we genuinely were thinking and planning for double digit in dollar terms.

And as I said earlier, and many people externally, to your point, in the notes we had seen already reflected those exchange movements.

Excluding Venezuela, as we discussed earlier.

And so therefore that change came subsequent to the way we were thinking about the year and indeed talking about the year when we last spoke in October.

That's great.

Ian, I guess my question was was 13% always the number on the currency-neutral basis or did that actually move up a little bit?

It probably moved up slightly, John.

Okay, great.

Thank you very much.

Jon Anderson, William Blair.

I guess most of the questions that could have been asked have already been asked, but I will focus on online shopping.

I wanted to know how meaningful that channel is for you today.

Is it growing faster than other parts of the business?

I guess the second part would be what is your strategy and approach to the online channel?

Are there advantages there that you are looking to take advantage of: lower cost, better margins, better targeting of consumers?

Just any thoughts on that would be helpful, thanks.

Obviously it's a much in the press area and we are today delivering our toothpaste using drones to people in Manhattan.

That was a joke, Jon, or an attempt at a joke.

It is a high-growth area, but it is still an extremely small part of our business today.

We participate with all of the major online shopping portals, whether they be linked to a brick-and-mortar retailer or whether they be stand-alone, both here, in Europe, and in China.

For some businesses we see the potential as greater.

Take Hill's where you have fairly large bags of pet nutrition product in an urban area in Europe, we see greater potential for online.

So we have a multipoint strategy that is an awful lot of we call them test-and-learns to see how we can engage and connect with the consumer.

So we are experimenting broadly, but it is still not a meaningful part of our business, albeit with some potential on Hill's in Europe.

Thanks, Ian.

I will wait for the drones.

Jason English, Goldman Sachs.

Thanks for squeezing me in.

So I had a question on pricing.

No, just kidding, I think we've beat that horse enough.

Actually most of the questions have been asked, so I just wanted to turn to the balance sheet really quickly.

You leverage ratio is incredibly low.

What prevents you from taking on a little bit more leverage, whether it be to buy growth, invest in growth, or return some cash to shareholders?

I think, Jason -- it's funny, I think about the year leading into the subprime and the questions were remarkably similar.

Why did you leverage up and do something?

Our general thinking on this space is that -- you've seen our debt move up a little bit, although it's still very low, 7.5% of our market cap, with all of our ratios in a good place.

I guess the view we tend to take is that we like to keep our powder dry should an acquisition candidate present itself.

As we think about 2014, obviously we have not yet taken a decision.

Our Board has not yet taken a decision on our dividend.

You know we do that earlier -- a little bit later in this year, but you can imagine that our dividends would grow in line with earnings.

This year our share buyback was around $1.5 billion and we are thinking in the same range for 2014, unless that appropriate acquisition candidate presents itself.

And that is rather if we were to prioritize where beyond dividend we would see the money going on the sense that it is strategically of value to the Company.

The problem is, as you know, that an M&A strategy or an execution of an M&A opportunity is often a long and arduous and very unpredictable process, so they cannot be done at will.

Of course, during the years of the restructuring program we've seen our CapEx increase as we are putting in place some significant projects for the future.

And, bluntly, that's the profile we would like to keep and plan to keep going forward.

So are you actively pursuing M&A or are those comments just meant to reflect your willingness were the right asset to come to market?

It depends what you mean by pursue, Jason.

I don't think you would have to do an awful lot of detail work to know the kinds of companies, r businesses that are attractive to people in the consumer products space.

GABA was a multi-year journey, so I think the most appropriate way to answer the question is to say that were the right opportunity to present itself, we would be actively -- we would actively consider it, obviously at the right valuation.

Great.

Thanks a lot, guys.

That concludes our question-and-answer session.

I would like to turn it back to Ian for any additional or closing remarks.

Thanks for the extensive list of questions and thanks for taking an interest in the performance of the Company.

We will, of course, keep you updated across the year and, as is now customary, an especially big thanks to all of the Colgate folk around the world who make these results happen.

Talk to you soon.

Thank you very much.

That does conclude our conference for today.

I would like to thank everyone for your participation and have a good day.