高露潔 (CL) 2014 Q3 法說會逐字稿

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

This call is being recorded and is being simulcast live at www.colgatepalmolive.com.

Today's conference call will include forward-looking statements.

These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance.

Actual events or results may differ materially from these statements.

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 statement on forward-looking statements.

The 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, which is net sales growth excluding foreign exchange, acquisitions and divestitures.

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, excluding the impact of the items described in the press release.

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

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

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

Please go ahead, Bina.

Thanks, Rochelle, and good morning and welcome to our third-quarter 2014 earnings release conference call.

With me this morning our Ian Cook, Chairman, President and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; and Elaine Paik, Treasurer.

And we're pleased to have reported another quarter of solid, organic sales growth.

As we all know, business conditions around the world are challenging.

We, as others, have seen slowing growth in the emerging markets and continued heightened competitive activity in the developed markets.

The dollar has continued to strengthen in the pace of economic uncertainty worldwide, and any economic recovery in the developed markets is muted and tentative at best.

However, we think our focus strategies still service well and are well understood by all are people, who intent on winning on the ground.

Innovation is as important as ever and you will hear not only how new products have helped increase market shares but about more new products slated to the balance of the year.

While a strong dollar, along with higher material prices, has resulted in a modest growth margin decline in the quarter, we continue to believe we will see gross margin expansion over the long term.

Our funding-the-growth program is as robust as ever and is expected to deliver full-year savings at or above our goal.

And while our reported advertising is down as a percent of sales, if you look at the total bucket of commercial spend it is up both absolutely and as a percent of sales as impactful and trial generating in-stores activities have supported our robust new product activity.

Our Global Growth and Efficiency Program is proceeding smoothly.

As you saw in this morning's press release, we've expanded the program to take advantage of additional savings opportunities, which we expect will begin to be realized towards the end of 2015 or early 2016.

And we're seen some encouraging trends in the markets of China and Brazil.

While both these regions declined through the third quarter as a whole, we saw a reversal toward the end of the quarter which we believe should bode well going forward.

As I said, a challenging environment, but we think we're well-positioned to meet these challenges going forward.

Turning then to North America, organic sales growth accelerated in North America from the second quarter and market shares are solid.

Our excellent performance in manual toothbrushes was highlighted in the press release.

One of the drivers was Colgate Optic White toothbrush and built-in whitening pen.

This new product has generated good trial and strong repeat rates, ahead of not only our Colgate Optic White manual toothbrush but a competing brush as well.

In the quarter, another significant launch was Colgate Enamel Health toothpaste and Colgate 360-degree Enamel Health toothbrush.

While it's early days, results of the toothpaste have been very good.

Our national share at the end of September was over 2% and this result exceeded both historical competitive launches as well as competitive launches in the third quarter.

Importantly, the launch has added incremental share.

Our overall US toothpaste share is now 35.8% for the past four weeks, up a full point versus the year-ago period.

This 35.8% share is also ahead of our year-to-date share of 35%.

Since the second quarter, consumption growth has been ahead of category growth.

In fact, for the past four weeks, consumption was up 7.6% versus the category growth of around 2.5%.

Our relaunch of our Colgate Total Advance whitening toothpaste has been accompanied by the launch of Colgate Total Lasting White mouthwash to take advantage of the power of a complete regimen.

Colgate Total Lasting White mouthwash has an innovative formula that helps remineralize tooth enamel, prevent stains and fight tartar and has no burn of alcohol.

Our overall mouthwash share in the US is now at 6.5% year to date, up 120 basis points.

to continue this momentum, we're launching Colgate Kids mouthwash.

This is an opportunity to reinvigorate the kids mouthwash segment with a brand mothers trust.

Distribution of the product is building at key retailers as we speak.

Of note also is our share in fabric conditioners.

The Suavitel brand is, as you know, largely sold in Hispanic markets and has now reached a record 18% share of the general market year to date, up 130 basis points.

Innovation such as Suavitel Fast Dry has contributed to this success.

Turning then to Europe/South Pacific, this region delivered solid results.

Organic sales have increased every quarter this year and this despite ongoing macro economic pressures.

Innovation continues to be an important driver of our performance.

As you know, one of the key elements in our global growth and efficiency programs is the formation of hubs and much of the hubbing to date has occurred in Europe.

As of July, all European hubs have been implemented, Central Europe West, Central Europe East, Southern Europe, UK, Nordic and Western Europe.

These streamlined operations should further position us to effectively win on the ground.

Our oral care market shares are strong.

In toothpaste, our regional share is at 35.3% year to date, up almost a full point from the year-ago period, with the most recent reading at 35.4%.

The results were broad-based with increases in virtually every hub.

Original manual toothbrush shares are up a full point year to date to 23.5%, with the most recent reading at 23.8%.

Mouthwash is at 17.9% year to date, up from 17.8% in the year-ago period.

Our Sanex business is also performing well across its categories, with share increases in body wash, liquid hand soap, bar soap and under-arm protection.

This year, we relaunched our Sanex body wash, which contains the advanced Dermo Active 3 complex to deliver the three key benefits to keep skin healthy, protection, deep moisturization and pH balance.

This has helped to strengthen Sanex's credentials in moisturization and elevate the product's quality perception.

We talked last quarter about the rollout of Colgate Maximum Cavity Protection plus sugar acid neutralizer, hereafter to be referred to as Colgate Maximum Cavity Protection and that has continued with the launch of the product in France in September.

Italy is scheduled for October and Central Europe East for November to complete the rollout.

A notable performance is in the UK, where the market share is almost 4% in the latest period.

Also in the UK, we entered the electric toothbrush market two years ago.

The initial offering, the Colgate Pro Clinical C350 was at the higher priced end of the market, so this month we're launching a lower-priced version, Colgate Pro Clinical C250.

Around 75% of the market is priced at this price point, so this launch should make us more competitive in the marketplace.

Turning then to Latin America, business is strong across the region and, as referenced in the press release, we continue to maintain strong leadership positions in toothpaste and manual toothbrushes.

As elsewhere, the regional rollout of Colgate Maximum Cavity Protection is meeting with success.

In Brazil, where it has been in market for about a year, it has achieved at 2.2% share year to date.

In Mexico, where was more recently launched in April, it has achieved the year-to-date share of 1%, with the most recent period at almost 2 points.

the product has now been launched in virtually every country with only Peru, Ecuador, Bolivia and the Caribbean region remaining.

Other toothpaste innovations, such as Colgate Total Breath Health and Colgate Luminous White Instant, which we described to you last quarter, are also being rolled out throughout the region.

Compelling innovation in manual toothbrushes has resulted in record-high leading shares in Brazil, Chile, Puerto Rico, Uruguay and Paraguay.

In bar soaps, our market share is up 40 basis points to almost 30% year to date.

Across the region, Protex and Palmolive hold the number one and two positions, respectively.

A steady stream of innovation in this category has helped increase market shares.

Our recent relaunch is Palmolive Naturals daily exfoliation with oats and brown sugar.

Consumers know that it is important to exfoliate the skin.

It's formula, with brown sugar and natural oats, provides a gentle exfoliation for beautiful and smooth skin.

Turning then to Asia, as noted earlier, we've experienced slowing category growth in inventory correction in China, which has affected overall growth despite a very strong performance in other markets.

However, this situation appears to be improving as we said it would on our last call.

Despite the external challenges, we've continued with our innovation program.

As elsewhere, Colgate Maximum Cavity Protection toothpaste is meeting with success.

Launched in Malaysia in February of this year, it has now reached almost 4 full share points in the most recent period and has added incremental share.

Our toothpaste share is now at 73.5% year to date.

In India, where our share is up 30 basis points to 54.6% year to date our May launch of Colgate Maximum Cavity Production toothpaste has already achieved almost 0.5 share point in most recent period.

And across the region our manual toothbrush share is up 50 basis points to 30.4 year to date.

In India, our key brand, Colgate SuperFlexi, has driven the overall toothpaste -- brush share up 210 basis points to 43.7% year to date, with the most recent share at 43.9%, consolidating our leading position.

And in mouthwash, our regional share is up 140 basis points to almost 22% year to date.

Looking forward, we have more innovation to come.

One interesting new product planned for launch in China in the fourth quarter is Colgate 360 Degree Gold Charcoal toothbrush.

As you know, some consumers are very interested in charcoal as an ingredient, but a new trend, which has also emerged with the Chinese consumer, is gold.

This toothbrush, in addition to having gold-colored bristles and charcoal-infused bristles, will also have an antibacterial component within the bristles.

In addition, the product should be very impactful on the shelf with its black gold packaging.

Also in the region, we're very excited about our recent acquisition in Myanmar of the Laser toothpaste business.

Together with Colgate's 20% share, the added 35% share of Laser gives us a strong leadership position in this rapidly evolving country.

Turning then to Africa/Eurasia, business remains healthy in this part of the world and we were particularly pleased with the solid volume growth in both Russia and the Ukraine despite all the political turmoil in that part of the world.

Regional toothpaste shares year to date are at 32%, even with the year-ago period, but our most recent reading is at 32.3% and we see good momentum building behind our continued stream of innovation.

Colgate Maximum Cavity Protection toothpaste, launched in South Africa a year ago, is just now beginning to be rolled out throughout the rest of the region.

In toothbrushes, we've had excellent results in South Africa, where the share is up 3 points to 37.7% year to date, with the most recent read at 38.3%.

Similarly in Turkey, where our year-to-date share is 28.4%.

We've seen share momentum in the two most recent period with share reads of 28.9% for May/June and 30.5% for July/August.

Our regional mouthwash share is up 50 basis points to just over 20% year to date, positioning us as the number two mouthwash brand across Africa/Eurasia.

In Russia we continue to benefit from the launch earlier this year of Colgate Plax Altai Herbs.

Our share is up 220 basis points to 27.7% year to date.

Results for the shower gel category are strong, fueled by our Palmolive Gourmet Spa line.

Our year-to-date share is at 22%, up 160 basis points, with almost every country contributed to the positive share in momentum.

As elsewhere around the world, innovation will continue.

Colgate Total Pro Whitening Toothpaste, which provides 12-hour protection for a healthier mouth and whiter teeth, now selling in Russia, Ukraine and Turkey, will be rolled out to additional countries in the region in the fourth quarter and next year.

Another pan-regional launch starting this quarter will be Colgate Total Mouthwash, which should help build on already strong mouthwash business.

And in the personal care category, we will extend our very successful Palmolive Gourmet Spa shower gel line into liquid hand soaps.

Finally, Hill's.

The Hill's business is solid as new product activity across our brand has delivered good results.

Hill's Ideal Balance is now selling virtually everywhere in the world.

Here in the US, both of the dog and cat wet and dry products have been well supported by the superstores.

In those channels in the quarter, consumption of Hill's Ideal Balance was up almost 40% versus year-ago period.

The launch is going well in Europe as well and is being supported by a fully integrated marketing campaign.

Our Hill's Science Diet business in the US is being supported by a Healthy Pets, Happier Lives national campaign, which is focused on preventative care to drive our new life care portfolio of diets.

For the year-to-date period, our consumption is up 15% in our two largest retailers.

In the weight category, both the Hill's Prescription Diet Metabolic line and the Hill's Science Diet Perfect Weight line are doing well, and next quarter we will be adding a new variant, Hill's Science Diet Perfect Weight for small and toy breed dogs, the fastest-growing pet population.

The recent global launch of hills Prescription Diet c/d Multicare Urinary Stress feline, supported by an expensive sampling program and in-clinics feeding trials, is also helping drive Hill's therapeutic business.

And finally, we're really excited about our latest innovation, Hill's Ideal Balance Crafted, expected to launch next quarter.

Capitalizing on the growing trend of the humanization of pets, this super-premium price product offers authentic ingredients prepared the right way, with care, and is crafted in smaller batches to help lock in the flavor.

The unique ingredients, such as salmon, fresh vegetables, chickpeas, buckwheat, trout and herbs are customized for dogs and cats.

The compelling packaging reinforces the project's attributes.

So in summary, we're pleased that our businesses continue to grow around the world.

Our focused strategies are serving us well.

Our new product pipeline is as full as ever and a broad array of new product launched globally have helped increase our leadership shares in many markets.

We are providing our Colgate leaders worldwide with the tools to keep winning on the ground.

We look forward to sharing our results with you as we move to the end of the year.

And now, Rochelle, we'll turn it over to questions if we could, please.

Thank you.

(Operator Instructions)

Dara Mohsenian, Morgan Stanley.

Good morning.

So, first just a clarity question.

What level of organic sales growth and FX impact is implied in your 2015 earnings guidance?

The real question is, in Brazil and China, clearly weak in the quarter, obviously Bina highlighted that trends improved at the end of the quarter, but we had heard some hope I think last quarter that Q3 trend would improve, which didn't play out as much.

I just was hoping for a bit of this state of the union on what's causing pressure in Brazil and China, if those factors kind of linger going forward and how much visibility you have here that your business has bottomed in those markets?

Thanks.

Thanks, Dara.

Let me take a little bit of a step back on the world and our categories and include China and Brazil in those comments and then take it forward to 2015.

Let me start with the developed world, where I guess we have been saying for a time that our category growth rates are in the 1% to 2% range, with Europe being at the lower end of that range and the US now creeping up to the higher end of that range, and that hasn't really changed.

When you then turn to the emerging markets, as we have said on the last couple of calls, we came into the year from a 2013 where the growth rates were between 6% and 8% and said that the growth rates were now likely to be between 5% and 7%.

On the last call, we said that those growth rates had decelerated to the lower end of that range and what we have seen is that during the third quarter that has continued to be the case.

In other words, those headwinds have not reversed.

Now, very specific to China, on the last call, we described and explained how the combination of the deceleration in consumer consumption led to a destocking of the extended distribution system in China through distributors and wholesalers, but we thought that would correct itself in response to a question, if I recall, within 60 to 90 days, and somebody said, Well, does that mean the China business will come back from a Colgate volume point of view towards the end of the third quarter?

Now, many of us have just come back from an extended trip to Asia, and I'm pleased to say that is precisely what has happened.

In other words, while China, for the quarter, remains modestly negative, what we saw in terms of independent offtake data is consumption at about mid-single-digits and the destocking working itself through the system, so as we finished the quarter, our volume was now servicing again that mid-single-digit rate of consumption.

And at this point, we would say we expect that to continue.

Brazil is China redux, except a little bit later.

I think, frankly, we were planning for a recovery following the World Cup and that didn't occur.

The category growth rates repeated what we saw in China and the inventory destocking also compounded against that reduced consumer consumption level.

Again, as Bina has said, we have begun to see that come back in Brazil with the category growth rates now in the mid-single-digits, but it started a little bit later in Brazil so it will be a little bit into the fourth quarter before it fully comes back.

Pleasingly, in both cases, the consumption, which is to say what consumers are buying, continues to be at that mid-single-digit level.

So for 2014, we think it prudent to say with all of that in the mix, that our view on organic topline growth is now broader.

We're saying between 4% and 7% for the year, because we think that's prudent and as we've said on the release, we really have just started our 2015 budgeting process but based on the information we have today, we think it would be prudent to likewise say that our organic growth range for 2015 will be in that 4% to 7% range.

Chris Ferrara, Wells Fargo.

Thanks.

I guess in, taking that 2015 commentary to EPS, it sounds like, based on where spot rates are today, I think your 2015 EPS preliminary outlook sounds like it would imply healthy double-digit EPS growth into 2015.

I guess ,correct that if it's wrong and if it's not, can you just talk about why you feel that level of confidence, especially with some of the macro trends that are going on out there?

Well, in fact, Chris, thanks the question, the EPS growth rate for next year, we have tried to be quite specific in guiding to mid- to high-single digits in dollar terms, not double digits, and that reflects the recent foreign exchange deterioration which, as you know, was very sharp and towards the end of the third quarter.

When one goes through the various investor notes that have been written about the Business, many people have come to a like conclusion in terms of what they see dollar EPS growth being.

So, as we said in the release, we're expecting another year of growth and having been asked the question, we would frame it as 4% to 7% organic.

We talk about expansion of the gross margin and as we go through our budget process, you would imagine that our target continues to be that 50 to 100 basis point expansion and mid- to high-single-digit EPS growth in dollar terms.

And that's the way we're framing and approaching 2015.

Wendy Nicholson, Citi.

Hi.

Could you talk a little bit more about the non-China markets in Asia?

Because if I'm not mistaken, I think China's only kind of 20%, 25% of that region and for the overall organic sales growth to be up only 1%, it still sounds like there's real weakness in other markets.

I know you called out India as being strong, actually, so what else is dragging down the numbers?

The Philippines or Malaysia?

What else is big enough to move the needle there?

Thanks.

You know, that part of the world is heavily influenced by China and India and when Bina said India was strong, India was strong, and the Southeast Asian countries generally performed very, very well during the quarter.

So it really is China and the correction of that Chinese business back to, I stress, this underlying mid-single-digit consumption rate for consumers.

Jason English, Goldman Sachs.

Hey, good morning, folks.

Hey, Jason.

Again a couple questions on what's going on in a few markets.

Let's pick up where you left off in the last one, on India.

India is strong.

I guess the question is, what's strong in India?

When we look at some of the Nielsen data out of India, it shows volume decelerating throughout the quarter, or at least into July, August now reaching almost down 6% for the category for toothpaste, specifically.

So I guess, where is the offset?

Or is it just potentially a problem with the data?

And then secondly, we've heard Nestle, we've heard Unilever, talk about some of the pricing problems or challenges throughout Europe.

You've got another quarter reported here of negative price on promotion, so maybe you can comment a little bit more on what you're seeing in terms of the competitive dynamics and pricing environment throughout Europe?

Well, let's take India first.

Without getting into specifics, we have seen consistent double-digit growth in India every quarter this year.

We continue to build our market share on toothpaste and on toothbrushes, our leadership market shares.

I would also add, by the way, with that independent study that happens every year in India, for the fourth straight year, Colgate was voted the most trusted brand in any category in India, which gives you a sense of the consumer loyalty and affection for the brand.

One thing we've been doing for a while in India is expanding the strength of our distribution in the rural areas and I would venture to say, Jason, that when you start getting to that level of distribution, without in any way impugning Nielsen or other data sources, the quality of the data becomes perhaps a little bit suspect.

In Europe, actually we were pleased with Europe.

There is no question that pricing has become, for some retailers in some cases, competitor and other, an approach, a tactic, I guess, to try and build overall growth.

So we were pleased to see the volume growth we had in Europe and, indeed, the modest organic growth, along with good-size margin, gross margin expansion, delivering good financial results there.

As Bina said in her comments, and I think we have taken this view for some time now in Europe, I think we're clear-eyed about the growth rates that can be expected there and we have put an extraordinary focus on reorganizing our European business to make it structurally efficient against a flat-line growth rate.

And I think we're seeing the benefits of that and we're also seeing market shares improve, as Bina mentioned in her prepared remarks.

So this hubbing that we have moved to in Europe is working very well for us against one of the objectives we had, which was to strengthen our executional capability on the ground.

Bill Schmitz, Deutsche Bank.

Hi, good morning.

Can you just talk about the Colgate total growth in the quarter and if this triclosan nonsense is done?

And then I do have a follow-up.

It was done, Bill, until you raised it.

No one's listening to me, I promise.

The share is flat.

You may have seen Javier's note where they ran an independent survey, I think with 2,500 people, which basically suggested that the awareness was vanishingly low; in fact, lower than other ingredients in toothpaste products.

And obviously, as you would imagine, we have like tracking data which shows the same thing.

So, it is a nonissue.

Your follow-on?

I just wanted ask you, is the destocking all done globally now?

Do you think the US is really pulling out?

From the data points, it seemed like the US is really starting to accelerate in the last month or so.

Let's not get too excited.

I think the US is showing modest acceleration, but these things have tended to be lumpy.

I tried to imply that in my remarks on category growth that we are indeed seeing the US upshift toward the higher end of that 2% range.

On the destocking, given the vastness of the two geographies and the indirect nature of the distribution, China, which we talked about in the second quarter, we believe on the data we see is done, was done, by the end of the third quarter.

Brazil is on the way to being done and that will be completed during the fourth quarter.

They're on another spot, so they're destocking.

Ali Dibadj, Bernstein.

I want to get a better sense of why you believe they can go back to double-digit dollar-based earnings growth long term?

Because you haven't done in the past five years or so, including this year.

I guess another way to ask a question is, what do you need to get back to that target?

And if your answer is macro and FX, then how should we all think about your level of defensiveness, and indeed the whole industry's level of defensiveness, and macro insensitivity versus history?

Wow.

I haven't finished [Paquesi's] book yet, so I'm not sure how to answer the question.

I think, Ali, the way to think about it, perhaps, would be on a relative basis.

I mean, I think for the last several years, we have seen things happening in our world that have been truly unusual and volatile events, many of them having implications both in terms of consumer purchasing behavior and fundamentally foreign exchange as people run from risk to perceived safety and they impact companies severely in the short term.

So while we return to a better macro environment and a more stable foreign exchange environment, I guess the way to think about it is on a relative basis.

Steve Powers, UBS.

Hi there.

Thanks.

Going back to China and Brazil, I guess one question on China/Brazil and then sort of an unrelated question, if you'll entertain it, on Venezuela.

First on the volume declines in China and Brazil, are you able to parse out at all how much of those declines were true unit declines versus negative mix and tradedown?

Because I can see how the unit volumes could reaccelerate substantially and sustainably with inventory rebalancing, but a trading down trend or less trade off, anyway, might be harder to overcome without macro relief.

And then on Venezuela, it would seem that -- sorry?

Go on.

On Venezuela, it would seem that you're now running the risk of operating at a loss, maybe a material loss in that market with this latest devaluation, although I note in your Q you've got some price relief that's come through, which is good.

So I'm trying to balance those two things out.

Will Venezuela now be running at a loss?

And if so, can you frame for us how far you're willing to go in incurring losses in that market?

Because it's hard to see how things get better before they get worse, at least from a currency perspective.

To answer the Venezuela question first, Steve, we're not running at a loss.

I think Venezuela is about 3% of the Company sales and about 1% of the Company's operating profit, and as you rightly observed, I think we mentioned on the last call that we felt we had been in very constructive discussion with the government relative to pricing and, indeed, we were granted pricing basically across our portfolio in Venezuela, which won't actually move to the marketplace meaningfully until the fourth quarter and will modestly improve our position there.

So, indeed, we view that as a positive and certainly we'll not see Venezuela in a loss-making position.

In China and Brazil, we run a dollar-weighted volume anyway.

From our reporting point of view, when we look at the information we have from independent trade surveys, we can track that -- whether you look at volume or value, the destocking, as I said earlier, in China is now through and we are back to meeting consumption with our shipments.

And in Brazil it is, in like fashion, working its way through the system and will be completed in the fourth quarter.

It really was the distribution system catching up to the succession of consumer slowdowns, but that consumer consumption now seems set mid-single-digits and now our shipments are coming back to that.

Olivia Tong, Bank of America Merrill Lynch.

Hi, good morning.

Can you talk about what 's driving that 50 to 100 basis point gross margin acceleration next year when, presumably, FX and raw materials are still a drag, at least in the first half, and it sounds like incremental savings don't start kicking in until later in the year?

And then maybe this is an opportunity to also give the gross margin bridge for this quarter.

Thank you.

I was wondering when somebody would do that.

The -- okay, let's start with the gross profit roll forward.

Last year, it was 59.

In this quarter, we pick up a 50 basis-point benefit from pricing between the restructuring program and our Funding the Growth savings, we pick up 230 basis points, essentially in line with last year.

Material prices sequentially worsened from the 2.5 basis points negative -- 2.5 point negative in the second quarter to 3, and you've got 20 basis points of mix, et cetera, and that brings you to the current year at 58.6, 40 basis points down.

Now, if we take that and look forward, first thing to say, our Funding the Growth program remains strong.

Secondly, our restructuring program remains strong.

Third, given the timing of pricing that we took in the third quarter and the Venezuelan price increases we are now realizing in the fourth quarter, we expect pricing to be a more significant component of offsetting the material price headwinds.

Looking forward, again, we have not finished our budgeting process, but in terms of some of the underlying commodity costs, one would say that there are emerging signs of weakness and one would also say that in terms of oil, even though there is a lead lag before you get the full benefit of that, we have gone into our budget with a $100 assumption and we know where oil sits today.

So it will be a combination of the Funding the Growth, where material prices really end up after we have been through the diligence of our budgeting and pricing.

Caroline Levy, CLSA.

Good morning.

Thank you very much.

I wonder if you could elaborate a little bit on Europe.

There's been some upheaval in the retail environment there.

Is there any risk of inventories getting stuck in the system there?

And what are the risks you still see going forward in Europe?

I think the risks are pretty much out there for all to see.

I'm not sure retailers specific will be an issue.

I think I know the retailer to whom you are referring, but we have, in those kinds of environments, all sorts of checks and balances in terms of inventory against consumption.

And I think it highly unlikely that such a situation would arise in the European environment.

Connie Maneaty, BMO.

Good morning.

A follow-up on Venezuela.

Is the pricing you are getting in the fourth quarter, do you view it as a one-time event or do you think the ability to price to offset inflation is coming back?

And then, because of the pricing, will the impact of the devaluation in 2015, assuming rates stay the same, be lower than the $0.03 you're expecting the in fourth quarter?

We -- I will offer nothing on 2015, Connie.

We really have not got that far at all.

And all I can say about the pricing we have received is the government provided specific direction as to the categories that we were permitted to take pricing in and indeed what the level would be by category and by size within that category.

So I think it would be perhaps naive to assume that that would allow companies to take pricing as they wish and I think any future pricing would be, likewise, a similar discussion with the government.

So I don't necessarily view it as a one-time, but I don't view it as opening the door to companies taking pricing at will.

Alice Longley, Buckingham Research.

Hi, good morning.

I have a couple follow-up questions on China.

You said that demand is growing mid-single-digits and I guess you expect your shipments to start growing at that amount, at that rate, starting now.

Does that include online sales?

Could you also tell us what percentage of your sales are now are online and give us some sense of how quickly that's shifting?

Also, how much of that growth is price?

And then finally, I'm just wondering if the shift to online could be one of the reasons that there was an inventory issue?

Maybe there was too much inventory in one channel versus this other channel that's growing faster?

Thank you.

So, to respond, Alice, thanks for the question, yes, the consumer offtake has returned to that mid-single-digits level; and yes, our sales are now servicing that level of consumption, so we saw that in the last month of the quarter and it would be fair to say that's what we expect going forward.

Relative to online, I know in some categories in China, online is a large and fast growth segment, or retail environment, but in our business is not so.

We are represented, but the amount of business done online in our categories is de minimis and I don't think would have in any way affected the trade destocking.

As we look forward to 2015 in terms of the balance between pricing and volume for a country, again, we haven't finished our budgeting process and I probably wouldn't say, anyway.

Lauren Lieberman, Barclays.

Thanks, good morning.

Hey, Lauren.

Was wondering if you could talk a little bit about the advertising and commercial investment mix?

Because Bina pointed out in the prepared remarks that the total basket of spending was still up even though advertising was down.

So what is your, I guess, plan for that over the next couple of quarters?

Was this in somewhat reactionary to the more competitive environment in the US?

But is it really -- is that the same around the world?

There's a bit more in-store promotion going on versus advertising?

What were some of those decisions made and how -- I guess not permanent, but how sticky do you think they'll prove to be?

I -- if I sort of take a 20,000 view around the world -- 20,000-foot view around the world, we have seen in many markets competitors reduce their advertising weight in market and shift spending to price promotion or coupon-driven promotion, perhaps in the quest for short-term volumes.

You have no choice at some level but to respond to that.

So part of it is that.

Part of it, as we have said for a long time, and we must find a way of being more articulate about it, but part of it is structural in terms of the way you engage with consumers.

With the techniques we have today in store engagement, the shopper marketing we talk about with consumers, which often comes out of trade spending, can be a very effective way of building trial for a product.

So some of it is a conscious shift to techniques that we know work when you can target particular consumers in different retail environments.

And as we think forward, our preferred view, as we have said before as well, is that we believe in driving growth, particularly when markets are growing less fast through innovation and innovation supported by advertising that generates (technical difficulty) not price promotion and therefore our planning assumption, or our thinking, going forward is that we would see that traditional below the line advertising come back, but we would not let ourselves become disadvantaged tactically as time unfolds.

But our preferred model is innovation-led advertising supported with quality execution on the ground that makes your product irresistible in store.

By your product, I mean our products.

Javier Escalante, Consumer Edge Research.

Good morning, everyone.

Ian, a little bit of a follow-up to Lauren's question with regards to trade spending and couponing and all that?

Do you think that are you getting, now that you shifted more toward trade spending, are you getting the volume lift that you hoped or not?

And if you did, are we going to see more of flattish advertising versus trade spending?

And related to that, also to what extent, what other issues do you see to that market share gains have slowed, either because Unilever is no longer losing that much share in toothpaste and Proctor is more aggressive in some of the key markets like China and Brazil?

Thank you.

Yes.

Where to start?

I think it's fair to say that the adjustments we made, and I think we talked at the beginning of the year about Mexico and the US, as Bina has commented, have been effective in rebuilding our market share.

That was something we believed we had to do in the face of the competitive activity.

We don't see that as a permanent strategy and I would come back and say innovation-led advertising supported but irresistible in-store is the way we would think about prioritizing our spending.

In terms of the share discussion, you'd kind of have to go around the world.

Suffice to say, you mentioned China.

I would say in China we have approaching a 34% market share in China and both our principal multi-national competitors are seeing share decline.

And so from an aggression point of view, honestly, we aren't seeing it and we're certainly not seeing it in the market share.

So it's a market-by-market thing and in Mexico and the US it was an adjustment we made, but if you take the world, our preferred approach is innovation, advertising-supported, irresistible in-store.

Mark Astrakhan, Stifel.

Morning, Ian.

I wanted to talk about your expectations for 4% to 7% sales growth for 2015 in the context of lapping China and Brazil destocking and now the commentary about pricing coming in Venezuela?

It would seem a bit like growth should be better relative to this year.

I guess that they're both sort of the same, but how much of that is conservatism, how much of it is an assumption about category growth somewhere going up, going down?

Maybe just any other color you could give sort of on the underlying expectations for next year would be helpful.

4% to 7%, Mark, allows it to get better.

But I think, just based on everything you see in the world today, it seemed prudent to widen that range a little because who knows what next year brings?

I think when we speak again after our fourth quarter and we will have been through our budgeting process, we will be in a far better position to perhaps give a sharper guidance at that time.

So, I think this brings the call to a close.

I thank you all for joining us.

Thank you very much for the interest in the Company and the questions you always have.

Thank you again to all those Colgate people who may be listening.

We value the work you do.

Goodbye.

And that does conclude today's call.

We thank you for your participation.