高露潔 (CL) 2014 Q1 法說會逐字稿

Good day, and welcome to today's Colgate-Palmolive Company first-quarter 2014 earnings conference call.

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

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

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

Please go ahead, ma'am.

Thank you, Nancy, and good morning, everybody.

And welcome to our first-quarter 2014 earnings conference call.

With me this morning are Ian Cook, President, Chairman 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'll discuss organic sales growth, which is net sales growth excluding foreign exchange, acquisitions, and divestitures.

And we will also discuss gross profit, gross profit margin, SG&A as a percent of net sales, operating profit, operating profit margin, net income, and earnings per share on a diluted basis, including the impact of the 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're delighted with our results for the first quarter.

As we exited 2013, we said we were excited about continuing our momentum and that has indeed happened.

Organic sales growth was at the high end of our target range of 5% to 7%, on top of strong growth of [6%] in the prior year and was a good balance between volume and price.

In fact, our pricing increases of 1.5% was again the highest level of pricing performance in any quarter last year and we expect this good performance to continue.

In light of precipitous declines of currency versus the dollar during the quarter, we're pleased that our gross profit margin was even with last year's levels.

While we had forecasted an improvement year over year, lack of growth was primarily due to the transaction costs associated with the aforementioned currency headwinds.

However, our Funding the Growth program is as robust as it has ever been and, as you know, an integral part of our Company culture.

So, as we are able to take pricing as we go through the year to offset the sudden currency moves, we expect to see our gross margin improve each quarter.

We're particularly pleased about the savings being generated from our Global Growth and Efficiency Program.

As we told you when we announced the program in the fourth quarter of 2012, we felt it would serve us well as we entered turbulent times -- and indeed it has.

We also said the bulk of the savings would be reflected in overhead expenses and, in the first quarter, we delivered a 30-basis-point reduction in overhead spending, which allowed us to increase our advertising efforts as a percent of net sales to support what continues to be a very robust pipeline of innovation around the world.

Our balance sheet is solid, with strong cash generation as well as excellent working capital control.

So, a good start to the year, which bodes well for the remainder of 2014.

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

We're particularly pleased with the solid organic sales growth in North America.

This growth of 3.5% was against 5.5% in the year-ago quarter, which was the strongest quarter for 2013.

A full array of new products across categories contributed to the results.

And, as referenced in the press release, we grew our market shares in manual toothbrushes, mouthwash, dish liquid, liquid cleaners, and fabric conditioners.

Colgate Optic White toothpaste is continuing to grow share from 2013 behind new products, strong marketing campaigns, and more impactful claims.

For February, we began to ship an uber-premium price toothpaste line, expanding on our original Optic White whitening toothpaste.

Optic White Platinum Whiten and Protect, a new product from the line, adds stain prevention technology to the whitening power of the original Optic White formula to help maintain whiter teeth.

In addition, we re-launched Optic White Dual Action as Optic White Platinum White and Radiant, which contains extra polishing brighteners to add shine.

An impactful media, print, and shopper campaign to support the Optic White Platinum launch, emphasizes whiter teeth in just one day by using the entire Optic White regimen, including the Colgate Optic White Toothbrush and Built-In Whitening Pen.

Along with these new toothpastes, we introduced Colgate Optic White mouthwash with WhiteSeal Technology.

The new formula combines stain prevention with the whitening power of Colgate's original Optic White mouthwash, along with a significantly enhanced taste profile.

The launch of Colgate Optic White Toothbrush and Built-In Whitening Pen, which we told you about last quarter, has been very well received.

In March, it achieved an 8.1 share and has been driving almost the entire manual toothbrush category growth year to date.

And, as you would expect, we've continued strong commercial support planned for the remainder of the year.

Regimen approach has served us well with our Colgate Total franchise.

Colgate Total mouthwash, launched in May of last year behind record retail support, has been driving overall category growth.

Trial and repeat levels are outpacing other competitive launches contributing to an overall mouthwash share of over 6% on a year-to-date basis, up from the year-ago period.

We've also re-invigorated the graphics on our Colgate Total toothpaste line and have increased our professional marketing efforts with dental office sampling and detailing aids, as well as advertising in dental and scientific journals.

As I said, our market share in dish liquid was up in the quarter.

Driving this, in part, was the launch of Palmolive Dish & Sink, which helps eliminate odors to freshen the air around the sink as you do the dishes.

A strong marketing campaign only began in April, but we saw excellent results right after our launch.

As you know, our business in the Hispanic market is very strong.

And a number of years ago, we launched Suavitel fabric conditioner, the leading brand in Mexico, in the US.

The first quarter of this year we launched a new variant, Suavitel Fast Dry, with a breakthrough patent-pending formula that softens clothes and contains moisture-wicking polymers that allow fabric to quickly shed water so that clothes dry 30% faster.

This has contributed to an all-time high national fabric conditioner share of 17.5% in March, with over 1% coming just from this new product.

More new product activity is expected for the third quarter of this year, which you will hear about soon.

Turning then to Europe/South Pacific.

We're very pleased with the organic sales growth of 1.5% in this region, the strongest growth in five quarters.

Innovation played a key role in the results.

And, from a macro economic, standpoint we are cautiously optimistic.

While Southern Europe still remains a challenge, it appears that Northern Europe is showing modest signs of recovery.

And our market shares increased in many Oral Care categories, up in toothpaste, battery brushes, and electric toothbrushes.

We're very pleased with the launch in Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer, the biggest innovation against cavities since the introduction of fluoride more than 50 years ago -- and we're off to a good start.

After only six weeks in market in Denmark, we've achieved a 3.8 share; after two weeks in Norway, a 3.2 share; and after two weeks in Portugal, a full point.

And in Australia, our latest four-week share is 5.4%.

We will continue to roll out this product across the region.

We told you last quarter about the launch of Colgate Max White One Optic toothpaste.

This quarter, we have re-launched our Colgate Max White One mouthwash, with an advanced stain-prevention system to seal out the stains and to seal in the natural whiteness.

And, as you would expect, this is being supported by a full integrated marketing campaign in synergy with the toothpaste.

Also launching this quarter is Colgate Slim Soft Charcoal toothbrush, first developed in Asia, which has 17 times slimmer tip bristles with charcoal, for better cleaning between the teeth and along the gum line.

An interesting opportunity for us in the personal care category is the entry into the kids' body wash category, where we currently have no offering.

This sub-category is growing around 8%, outpacing the overall category growth of 2%.

And this bundle, to be launched in the second quarter, using playful graphics to appeal to children and a mild natural formula with a pediatrician-approved claim, to appeal to their parents.

Seasonal launch, expected to provide additional distribution, is Palmolive Sensacao do Brazil.

This line of shower gels seizes on Europeans' passion for football and a resulting interest in Brazilian culture, heightened around this summer's World Cup.

A combination of unique fragrances, natural ingredients, and attractive graphics (inaudible).

Our Home Care business in Europe is strong with leading brands such as Ajax and Soupline.

Under the Ajax brand, we are launching Ajax All Usage Gel, one cleaner to clean your entire house.

The formula has a concentrated efficacy and the bottle has a versatile press [dose] cap.

Turning to Latin America.

Momentum continues across the region with another quarter of double-digit organic growth.

This [solid] innovation has allowed us to maintain our strong leading share in toothpaste and toothbrushes.

And our mouthwash market share was up half a point year to date behind successful launches such as Plax Tea Fresh, and Plax 2 in 1.

Market share [continues to do] well in fabric conditioner, hand dish, and liquid cleaners.

In Brazil, our year-to-date toothpaste share remains over 71%.

As you know, this was one of the lead countries for our launch of Colgate Maximum Cavity Protection, Neutrazucar toothpaste.

Shipments started in October of last year and our 2014 share year to date is 2.2%, with the most recent [we see] at 3%.

Our leading Brazilian toothbrush share reached a record 33.1% on a year-to-date basis, fueled by good performance in our premium end of the business.

Our Brazilian bar-soap business achieved a record market leading share of 26.5% on a year-to-date basis.

New products in both the Palmolive and Protex lines have helped achieve this result.

In Mexico, we saw a standout performance in our underarm protection business, with our year-to-date share increasing 30 basis points to 19.6%, the highest in almost a decade.

We told you about the launch of men's Speed Stick [Stress] deodorant last quarter and we have more innovations slated in the second quarter.

In fact, new product activity is primed for the second quarter across categories throughout Latin America.

Building on the insight that many consumers think about toothpaste as taking care of their teeth and not the rest of the mouth, we've launched a new integrated marketing campaign to support Colgate Total, which explains its benefit of protecting all areas of the mouth to give 100% confidence.

Whitening category, we are launching Colgate Luminous White Advanced toothpaste, with the benefit of three shades whiter teeth with the same whitening ingredient (inaudible).

Therefore, we will continue to launch Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer toothpaste (inaudible).

Personal Care, we're launching Protex Omega-3 bar soaps, liquid soaps, and shower gels.

Its formula, with moisturizers, help keep your family's skin healthier, while eliminating 99.9% of bacteria.

As well, we will be introducing Lady Speed Stick (inaudible) plus Vitamin E deodorant.

Its formula, with vitamin E and mother-of-pearl extracts, helps show your natural skin tone, while [calming] sweat.

And, in the home-care category, we have taken an idea from a Palmolive launch in the US market.

Latin America, using the Axion equity for hand dishwashing liquid, we launched Axion [by odors].

Residue from dishes and sponges can cause bad odors and this new product eliminates the bacteria that may cause these odors.

Turning then to Asia.

Organic sales growth in Asia continues to be robust, increasing 7.5% in the quarter.

New products supported by an increase in advertising have driven the top-line growth and a market share gain.

And across the region, we increased our market shares in manual toothbrushes, mouthwash, and shampoo.

In India, our toothpaste market share is up 60 basis points to 53.8% on a year-to-date basis, even in the face of heightened competition.

Our toothbrush shares there are up as well, up 140 basis points to 44.5% year to date.

Strong communication and trade plans have helped drive these results.

In China, we remain the market leader in toothpaste by a wide margin, at over 34% year to date.

Our Chinese toothbrush shares increased as well, up 70 basis points to over 26% year to date.

Malaysia was our lead market in Asia for the launch of Colgate Maximum Cavity Protection plus Sugar Active Neutralizer toothpaste.

That new product, introduced in February of this year as well as other premium bundles, helped lift our toothpaste share 60 basis points to 73.4% on a year-to-date basis.

In the second quarter, we will be rolling out into new markets some of the innovation that has already helped drive growth elsewhere in the region.

Colgate Total Charcoal Deep Clean toothpaste, Colgate 360 Charcoal toothbrush, and Colgate Slim Soft Dual Action toothbrush.

Africa/Eurasia.

Organic sales growth continues to be robust in this region.

As mentioned in the press release, some of the strength came from Russia even in the face of all the turmoil in that country.

Our innovation in this region continues to drive growth, as elsewhere.

In the toothpaste category, innovation in Russia has helped us to maintain our market-leading share of over 32% year to date.

Colgate Altai Herbs toothpaste was launched there recently.

Altai is a region of Russian known for its herbal remedies.

As the companion product we also launched Colgate Altai Herbs mouthwash, which has driven our year-to-date mouthwash market share up almost 2 full points to 27.6%.

Our shower gel market share across this region is up over 1.5 points year to date.

In Russia and Turkey, where we launched Palmolive Gourmet Star, our year-to-date market shares are up 2 and 3.6 points, respectively, to 23.1% and 39.1%.

You may recall this line of shower gels is highly experiential, with chocolate, vanilla, and strawberry fragrances.

In South Africa, Palmolive Thermal Spa skin renewal shower gel has contributed to a 3-point share increase to 27.1% on a year-to-date basis.

And our innovation continues in the second quarter.

In toothpaste we will be launching Colgate Optic White Instant with Optical Brighteners for a whiter smile and instantly visible whiter teeth.

I mentioned earlier the launch of Colgate Altai Herbs toothpaste and mouthwash in Russia where the Altai region is well known for its herbal ingredients.

Capitalizing on the success of this launch, we will be launching Palmolive Altai Herbs bar soap, liquid hand soap, and shower gel.

This mini line of body cleansing is inspired by Altai authentic recipes and its formulas contain natural extracts of herbs to revive body and spirit.

Also in Russia, in the underarm category, we will be launching Lady Speed Stick Altai Herbs Freshness, an antiperspirant in sprays, stick, and roll-ons that give your skin a superior feeling of natural purity and long-lasting freshness to keep you confident and active.

Hill's.

We're very pleased with the continued solid results in our Hill's business both domestically and overseas.

An important driver here in the US, as you know, has been the launch of Hill's Ideal Balance and that continues to meet with success.

Consumption at the superstores is strong and growing, up 50% year to date over the prior year, and has been helped by a wide array of innovation in the naturals category.

In February, we launched 11 new dry variants, 9 wet, and 3 treats in both dog and cat.

For dog, Ideal Balance Slim and Healthy, and Ideal Balance Active.

For cats, Ideal Balance Indoors, Ideal Balance Hairball, and Ideal Balance Slim and Healthy.

To support this innovation, this quarter we will continue with not only media but in-store support in the superstores with impactful palette displays, as well as coupons offered by brand ambassadors and nutritional consultants.

Our Hill's Science Diet business is strong as well.

An interesting new marketing campaign is being implemented, as we speak, at PetSmart -- Paws for Health.

Based on the shopper insight that pet parents know they don't take their pets to the vet as often they should, but it is important to them to do what they can to ensure their pet has a longer, healthier life, in-store consultants educate pet parents about the importance of preventative care for their pet and drive awareness and provide trial sizes of Hill's Science Diet products in the life-care product grouping.

Our Hill's Prescription Diet business is also doing well.

We've told you about our Hill's Prescription Diet metabolic for weight control.

That has been met with terrific acceptance.

We will continue the momentum on the business with in-clinic activities, testimonial campaigns to drive that endorsement, and sampling and new client starter kits.

As you know, the science behind our weight control is uniquely innovative.

As mentioned above, we've leveraged it with our Ideal Balance line and have launched weight control products in the Science Diet line as well.

And our robust new product program will continue throughout the year.

We will be launching Hill's Ideal Balance throughout Europe where the naturals category is just beginning.

Another exciting innovation, referenced in our press release, is Hill's Prescription Diet stews, a breakthrough in wet-food technology.

The proprietary processing technique and natural ingredients produce a therapeutic food for dogs and cats, with delicious appearance and superior efficacy.

So, in summary, we're very pleased with the way 2014 has started out.

The momentum we saw as we exited 2013 has continued in all regions of the world.

Our new product pipeline is full across all categories.

And our ongoing savings programs, as well as our Global Growth and Efficiency Program, are providing funds to support that robust innovation.

And as we implement our Global Growth and Efficiency Program, our people are becoming even more focused on winning on the ground each and every day.

We look forward to sharing our progress with you as we go forward throughout the year.

And now, Nancy, I would like to turn the call over to you to start the Q&A session.

Thank you.

Today's question-and-answer session will be conducted electronically for the telephone audience.

(Operator Instructions).

And we'll pause for just a moment to allow everyone an opportunity to signal.

Dara Mohsenian, Morgan Stanley.

Good morning.

First, just a clarification.

Bina you mentioned you expected gross margin improvement each quarter this year.

Are still expecting 75 to 125 basis points for the full-year?

And then real question is, your toothpaste and toothbrush market share momentum looked like it slowed this quarter.

The toothpaste year-over-year share change was the worst we've seen recently.

So, I was just hoping for more detail on what's driving that performance?

Particularly, which geographies?

And your view on if the share losses will continue going forward, or if that's more temporary factors in Q1?

Okay, Dara, let me, before I get to the gross margin, let me put the gross margin position in sort of a broader context and underscore a couple of the points that Bina's already made.

First we are very pleased with the first quarters topline performance, and we would reaffirm our target range of organic growth for the year at between 5% and 7%.

We think that is going to be a very strong range, particularly as our categories remain range bound in Europe, growing at between 1% and 2%, and similarly so in North America.

And in our emerging markets, we see category growth rates slowing slightly from 6% to 8% range, previously, to now 5% to 7%.

And the things we think will continue to drive that organic rate of growth are innovation, and of course the advertising, which was up absolutely and as a percent of sales this quarter.

And we expect it to be up absolutely and as a percentage to sales for the year.

Now very importantly of course, Dara, as you correctly point out, is the gross margin and what our expectations are for gross margin during the year.

We are still comfortable with the gross margin expansion of between 75 and 125 basis points.

But obviously, given recent foreign exchange volatility, which we have to react to and are, we would say that our margin expansion will be at the lower end of that range more in a 70 to 100 basis points band.

Our funding the growth program remains strong.

And I think some were a little bit questioning our ability to take pricing in Latin America in the fourth quarter.

And I think you see in the first quarter what is the usual sequence in these events, which is there is a lead lag between the foreign exchange impact.

Particularly when it is as precipitous as we saw in this first quarter and you will see pricing continue across the balance of the year.

And all of that led us to reiterate our EPS guidance of 4% to 5% on a dollar basis for this year, or double-digit currency neutral.

And on reading and some of the earlier notes this morning, let me just walk through that reiteration.

I think most of you will remember that in our release, at the end of January when we announced our fourth quarter results, we expressed growth of EPS in line with the consensus of external analyst estimates at that time.

And then in February, February 18 to be precise, we made our disclosure and announcement on Venezuela and indicated from that prior position that the Venezuela impact would be between $0.11 and $0.14 to EPS on the year with the first quarter at $0.03 to $0.04.

And then of course today we disclosed the first quarter was $0.03 and we expect the rate going forward to be at the same 3 pennies per quarter, $0.12 on the year consistent with the prior range.

And at that 4% to 5% the dollar and double-digit currency neutral rate.

To come to market share, a couple of comments on toothpaste.

First of all the shares that we talk about are dollar-weighted.

That's the way we collect the data and aggregate it.

And in Venezuela, we have an extremely elevated market share.

We're still trying to find the three Venezuelan's that don't brush with our toothpaste.

So given the currency moves in Venezuela, about one third of the share decline that you highlighted, Dara, the 1.3 points, is simply mathematical to do with that dollar weighting.

The other two geographies of an operating nature are the US and Mexico.

As we have said before and we said that our innovation and some adjustments to our marketing program, to meet the competitive promotional activity we saw in both of those markets, would be taken.

And they have been taken.

And I think in the US some of you had already commented on the more recent consumption and share data that the toothpaste progress for Colgate is good.

We continue to see that in the near-term, weekly data and we expect that to continue going forward.

Same actions have been taken in Mexico and we expect the same forward progress to strengthen our share in the 80% range.

And in addition in Mexico we have just, this month, introduced the superior anti-cavity toothpaste, which has been a highlighted, has done very well everywhere we have launched it.

Toothbrushes are affected by the same Venezuela calculation.

Indeed, the modest 30 basis points decline you highlighted, Dara, is entirely driven by the Venezuela mathematical calculation.

All of our divisions are either flat to up in market share, with the exception of Africa Eurasia, where we are responding to, in South Africa and Russia specifically, at local market activity which we fully expect to be reversed over time.

So, no we do not expect or plan for those share positions to continue as you laid them out.

(Operator Instructions) Steve Powers, UBS.

Hi, Ian, thanks.

I guess it was another solid quarter as you say of organic growth, 6.5% overall and especially 10% in the emerging markets.

How do you think about that relative to some of the outsize inflation that we're seeing in certain markets, especially in Latin America?

If you agree with that characterization especially Argentina, Venezuela, for example, how do you estimate that is adding to your organic growth?

Or conversely, do believe it's really not that additive given the degree of volume and mix of trade-off in those same markets?

Thanks.

I would say if you look at the underpinning volume in Latin America, for example, we view that as very healthy.

When you talk about outsize inflation in Venezuela, remember that is true from a macro point of view, but by law in Venezuela we are extremely restricted on our ability to take pricing across most of our business.

So I think we're very pleased with the progress.

We view it to be real, substantive and we see it continuing.

Wendy Nicholson, Citi.

Hi, good morning.

I don't want to beat a dead horse on this pricing in Latin America thing, but that's my question, too.

And the question is historically when there's been currency pressure in Latin America the pricing you've been able to take on an annual basis, I get that there's a lag, but on an annual basis it's pretty much close to a one-for-one offset.

And my question is if you look at the 6% pricing you got in the first quarter versus the 16% currency headwind, how much of that is Venezuela, how much of that is just timing?

I mean if we're going to see, let's take call it, a mid-teens currency headwind in Latin America, can you take anywhere close to that pricing ex-Venezuela?

Because I think everybody' just nervous that maybe the competitive dynamic is preventing you from taking as much pricing.

If you could answer that, that would be great.

Okay well the answer is no it's not driven by competitive.

As I said, when we posted just over 2% pricing in the fourth quarter, I think that question was raised.

Are you now limited in terms of your ability to take pricing?

And the answer is, no we're not.

And I think the first quarter demonstrated that in quite a healthy way.

Remembering that we're not able in the first quarter, given the move of some the exchanges, to take the pricing as quickly as the exchange takes the cost up for transaction reasons.

And in Venezuela you frankly have to take Venezuela out of the equation because for the majority of our business we are unable, by law, to take pricing.

But we have demonstrated in the past, and I think with Venezuela to one side, as far as the rest of Latin America is concerned we have demonstrated an ability to price to offset the foreign exchange.

Indeed in the more recent term, the Brazilian exchange has turned a wee bit positive.

But our plan would be, as it has been in the past, to be able to offset the transaction impact of foreign exchange with pricing and funding the growth.

Caroline Levy, CLSA.

Actually, again, I'm so sorry, but it's sort of around this issue.

I'm looking at Asia and Eurasia where the currency impact looked substantially worse than, certainly, we were expecting.

And there was a deterioration towards the end of the quarter.

Do you expect to be able to get pricing in those markets as you move through the year?

The answer is yes.

The answer is yes.

We will be able to take pricing in those markets.

One has to say exactly as you said, Caroline, that the precipitous nature of the currency moves in some of those geographies -- I come back to everyone's estimation of the year.

I'm not sure I saw anybody planning on the Crimea and the impact of Crimea on the Russian ruble.

So some of those moves were really quite precipitous.

But we have the capability to take pricing.

We have done so in some geographies already and we have plans and indeed are right now taking pricing in some of those markets to address the headwind of transactions.

So, we continue to have pricing capability.

There is just a natural lead lag in terms of how quickly you can practically respond, particularly when the foreign exchanges move so quickly.

And I think in the world that we are in, our ability to plan for a gross margin expansion of between 75 and 100 basis points, attests to that capability.

Chris Ferrara, Wells Fargo.

Hey, thanks.

Hey, Ian.

I guess I wanted ask you about the slowdown you just cited in developing emerging markets.

And a point, it's not a huge deal considering what we've seen elsewhere.

But can you talk a little bit about, is that isolated to any specific geographies?

And what you think is driving that specifically, besides maybe the obvious sort of macro situation and maybe it's just that.

And then also, why do you think you can gain more share than you have been and sustain that topline growth rate in the face of a slower market relative to say what you thought a couple quarters ago?

I guess, Chris we're talking about fine differences here.

We wanted to indicate that indeed we have seen a little bit of a slowdown.

Other comments I've read from others suggest sharper than we have seen certainly in our businesses.

I think it traces to the macros finally in these cases.

There's nothing untoward that we have seen so far, in terms of consumer behavior.

And I think our 5% to 7% range fits very nicely, even with that slow down.

So I don't think it puts any more pressure on our desire, need, or ability to build market share.

John Faucher, JPMorgan.

Thank you.

Ian, in looking at your -- how recorded topline growth will track over the course of the year and given the seasonality of the business, it's a little tough, given the first quarter performance to get to the low end of the range from a gross margin standpoint.

So can you walk us through sort of sequentially how we should think about this progressing through the year?

And sort of what's the big changes are from Q1 to the balance of the year?

Is it just more efficacy from the additional pricing?

What have you?

Thanks.

Okay.

I can't resist, John, I thought you were one that was questioning whether we could deliver the gross margin expansion.

Let me start -- you can come back at me at the end.

Let me start with the traditional roll forward, just so we have that as a starting point, and then I will try and answer your question from there.

Obviously it's flat, so the start point was the same 58.6 as it is this year.

We picked up half a point from pricing.

We picked up 1.4 from our funding the growth and a little bit of restructuring.

Material prices was a headwind of 2. A large part of that, as we have already discussed was transaction.

There was a modest ten bps from other leading us to the 58.6.

So I would save the three main buckets of progress for the year quite obviously are pricing, where we expect to get more pricing and therefore more contribution to the gross profit.

Our funding the growth along with a little bit from restructuring.

And you know that our funding the growth tends to build over the year.

And that would be the second major aspect of building our gross margin.

And by talking about 75 to 100, all I was trying to do was to frame coming off the high-end of the range.

We are not suggesting a 75 increase in gross margin.

Olivia Tong, Bank of America Merrill Lynch

Thank you, appreciate it.

One quick question on housekeeping.

Is it fair to assume the net interest expense will be similar to Q, the Q1 rate going forward, or whether any anomalies to call our this quarter?

And then on Hill's.

I noticed that the margin was up for the first time in the last five quarters.

And in the Press Release you did cite a number of puts and takes, but one of them was lower ad spend.

So was this just a function of comping against heightened spending a as year ago as you prepped for the new line?

Or is there a shift in timing of spending?

Or do you think there's just not a need to spend as much behind Pet as you did before?

And if that's the case, does the changing of hands for Iams change your thought process in anyway on that?

Thank you.

Changing of Paws I guess for Iams.

On your house keeping question on net interest, the net interest expense we think will go up on the year.

We'll probably be in the 35% to 40% range for the year, largely due to changes in our capital structure as we have taken on some longer-term debt at very attractive rates planning ahead to a world where rates are likely to increase.

So yes, but planned for as part of readjusting our capital structure.

Hill's is timing.

Bina talked about some of the innovation on the Hill's business and the spending will readjust.

First quarter was strong last year because the timing of the innovation was earlier.

So no we're very committed to our Hill's innovation flow, which is very strong and frankly doing very well in market.

Ali Dibadj, Bernstein.

Hey.

Just a quick clarification and then a core question.

The clarification is, Ian I wanted try to give you the opportunity of setting Venezuela to the side, and just if you could tell us what volume and organic growth would have been and Latin America, Ex-venezuela?

And then the other question.

So you say EPS growth of 4% to 5%, in fact I think you've been saying that since February at least, for the year, is still above consensus.

And I know you guys and the background your team does a really good job at taking all of our models and looking at it.

And I'm trying to understand if you guys have a perspective on where you think consensus is too high?

Is it just currencies, or are other things that you'd like us to be pointed to?

Yes, well thanks for the opportunity to separate Lat-Am growth from Venezuela, but I shall politely decline that.

We don't break it out in that way.

I would say that we think -- if you think about where Venezuela was three, four years ago, as you well know, it is a substantially smaller portion of our Corporation than it was then.

And the Latin American growth we think is very, very strong overall.

In terms of the second point, Ali, yes you're right the 4% to 5% as we tried to re-emphasize at the beginning of the call, has been where we have been.

And there is nothing in that reiteration of guidance for the year that reflects anything other than foreign-exchange.

And I would clarify and say that is the foreign-exchange that analysts reacted to in January of the year with the Venezuela change, which by the way I think makes our Venezuelan reporting more conservative than some who have stayed at the 630 rate.

And the remains double-digit in terms of the EPS growth in local currency terms.

And in fact for the year, looking forward after Venezuela, we see the currency impact for the year at around 5% which was pretty much where we had it beforehand.

So there's no incremental currency, it merely reflects actions taken through February of this year.

So it is entirely currency-related.

There's nothing else.

Bill Schmitz, Deutsche Bank.

Good morning.

So the cash balance is massive, it 's sort of like 2x what you've done historically.

Are you -- what's the plan with all of that cash, because you certainly don't need it?

Working capital's getting better.

You're super cash generative.

I know you talked about rates going up and wanting to lock in some fixed rate debt, but is there a use for all that cash?

And then the second part of the question is -- well not even the second part of the same question -- but a second question is.

Is there a plan or a way to get Venezuela profitable again?

I know it lost money this quarter, but is there anything you could do either structurally or strategically to get that turned positive again?

Thanks.

Yes the cash balance entirely timing, entirely timing.

It's related to when we took the debt.

It'll be washed out as we go through the year.

Debt and cash will get back in balance.

Net debt will end up in the same place.

So nothing strategic, merely timing.

With Venezuela it is, as you say modestly, it was very modest, negative for Venezuela in the first quarter.

And obviously we are in very constructive dialogue with the government at this time about the need for relaxation of the pricing laws and for some pricing in order to make business in Venezuela profitable again.

And we're hopeful that those discussions will lead to a productive outcome.

And that outcome, of course, which has been our usual model in the rest of Latin America, allows one to offset the gross margin pressure and see that translate through on the bottom line.

So those are issues.

You know, of course, that the first quarter was hit particularly by the historical one-time hit, and that will come out across the balance of the year anyway.

So we'll be in a better position than we were in the first quarter, but a step change would be driven by pricing.

Bill Chapelle, SunTrust.

Good morning, thanks.

The question, or the comment on the sugar -- I always get the name wrong -- but the cavity protection toothpaste that you're rolling out.

The comment that you're moving more throughout Europe and maybe even Australia, are their plans at least in the near-term to go to UK, Germany, France some of the bigger countries?

Maybe in the next quarter or two?

And is it contributing to the overall European growth at this point, or is it still really too small?

To answer the last part -- actually don't have to get the name right, Bill you just have to buy it.

Well, I can't yet.

That's true.

Travel.

In terms of Europe, it is too early.

We can say that in countries like Brazil, Turkey, Australia, as Bina said, it has added to share nicely.

We are expanding in Mexico, as we've said.

You will see continued expansion across Europe and some of the other emerging markets you could expect across the balance of the year.

So we'll be moving quite broadly with this product.

The reaction seems, so far, quite positive.

Michael Steib, Credit Suisse.

Good morning, my question relates to raw material costs.

I notice that in most regions there were essentially a headwind to margins in the quarter, except in Europe where there were a tailwind.

I wonder is that all due to currencies, or are there other differences for example in the portfolio composition as well?

And then related to that, do you expect a similar headwind from raw material costs for the remainder of the year?

Well let me react to both.

I would say what we saw in the first quarter was indeed largely driven by foreign exchange, which is why we saw such a positive progress in Europe.

I think framing raw materials overall, we're expecting for the year raw and packing materials to increase by between 1% and 2% for the year.

That's raw and packing for the year.

And, as I had mentioned earlier, our ability to deliver the gross margin expansions that we are planning is going to be driven by pricing which we have already, to a certain extent.

And will deliver, going forward to offset that foreign-exchange impact on raw packing materials.

Javier Escalante, Consumer Edge Research.

Hello, good morning, everyone.

I have a couple of questions, one on the restructuring.

It seems like it was a big chunk this first quarter, about 40% of what you planned for the year.

Does it mean that you are taking a faster pace than originally plan, in order to navigate these issues of currency?

And the other question has to do with Hill's.

Certainly very good performance.

To what extent it has to do with the changes in planogram that PetSmart did?

Should we continue to see that for at least another quarter, where we're going to see a strong growth from Hill's?

Thank you.

Thanks, Javier.

No, there's nothing particular about restructuring in terms of it's just timing.

Our full-year, full program ranges remain the same both at the cost and the benefit end.

We don't manhandle the restructuring to try and address foreign-exchange issues.

I think the point we made when we announced it was it would simply give us some agility and flexibility knowing that given the volatility of foreign exchanges and therefore cost, quarters might be a little bit lumpy.

Indeed on Hill's you are correct, Javier in US.

We had some quite meaningful planogram resets, which have been positive which underpin the increase that Bina talked about a little bit earlier.

And we continue to fell good about seeing our Hill's business go forward mid-single digits organic as we have spoken before.

And the reasons -- I mean the planograms reset is good, but what gets you the planograms reset is the quality of the innovation and trial generation that you can create for that innovation.

And as we have said before, we think we have a very rich innovation pipeline now which is moving to the market.

Alec Patterson, AGI.

Morning.

So just quickly on the 75 and 100 basis points, I think I'm crystallizing this into it's predominantly a move to the lower end because of currency.

In other words the other components, pricing that you've been planning all along, commodity costs that are basically a dollar commodity-based, raw and pack, and then anything from funding the growth of productivity haven't changed?

Correct.

Correct.

Jason English, Goldman Sachs.

Good morning, folks.

Thank you for allowing the question.

Two quick ones.

First a quick housekeeping question, can you quantify how much the advanced customer shipments in Japan contribute to Pet growth this quarter?

And then the other question is back here to home, North America.

We've been seeing solid growth both out of the measured data, as well as clearly in your reported results today.

When we slice and dice the measured data, around 70% of the growth's been coming from mouthwash.

Market share up year-on-year, but running stagnant or flatline sequentially at 6.

Two months from now you'll start rolling over that 7% share that you got on the initial surge trial building.

So how should we think about growth on a go forward?

What are the initiatives that can maybe get mouthwash another leg higher, or that can kick some other categories into higher growth mode to drive more contribution for them?

Thanks.

Thanks, Jason.

On mouthwash.

I talked about the toothpaste change in momentum, obviously the toothbrush business share up over 41 is terrific.

That of course is the second largest category in oral care.

Mouthwash, we're pleased where we are.

Two things will my continue to grow our business in mouthwash.

Number one, innovation and the variance that come with that innovation, which we have seen.

We will continue to see.

The second is interesting in the US.

There's always packaging sizes in terms of retail environments and consumer adjusting habits.

You will see more of that as the year unfolds.

And most importantly trial generating devices.

We know the repeat rate of the business is high.

We know that it takes over two years to build your tromb curve and we will continue to be putting money behind that.

So we have a great product, we can add to the product and we will be focusing on building trial.

In terms of Japan, no we don't break out at the country level.

Suffice to say on Japan, I think it was Ali on the last call was questioning the trajectory of that business.

We've had some folks in Japan only a couple of weeks ago going through a thorough review of that business and there is confidence.

I would express notwithstanding the pull forward that we have our Japanese business now for Hill's on a solid footing and a positive underlying trajectory.

And we will see that in the coming quarters.

And that does conclude today's question-and-answer session.

I'd like to turn the conference back to the speakers for any additional or closing remarks.

Thanks, Nancy.

Well thanks all of you for your interest in the Company and your single questions.

And thank you to the Colgate world for delivering the results that allow the questions.

That does conclude today's presentation.

Thank you for your participation.