高露潔 (CL) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Colgate-Palmolive Company fourth quarter and full-year 2014 earnings conference call.

This conference is being recorded and is being simulcast live, at the www.colgatepalmolive.com.

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

These statements are made on the basis of our views and inceptions 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.

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

We will also discuss gross profit, gross profit margin, SG&A, 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'd like to turn the call over to the Senior Vice President of Investor Relations, Bina Thompson.

Please go ahead, Bina.

Thanks, Kathy, and good morning, everybody, 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.

We're pleased to exit 2014 with organic sales up 6% as compared to the fourth quarter of 2013, which was the strongest quarter of last year.

Our market shares are strong around the world, as you will hear in a moment.

As always, innovation has been critical to our success, and we're excited about our pipeline looking forward to 2015 and beyond.

In many markets, macroeconomic challenges persist.

And of course, foreign exchange has been and will continue to be a considerable headwind, as translation alone is projected to impact EPS in 2015 over 10% at current foreign exchange rates.

That makes us even more pleased to be able to deliver continued organic sales growth and positive results on the bottom line.

While our gross margin was down in the quarter, due to very significant transaction costs, we believe that we'll see an improving trend as we move through 2015, with a more benign raw material cost environment and pricing taken to offset the impact of rising transaction costs related to foreign exchange.

Our Funding the Growth program is as robust as ever, and our Global Growth and Efficiency Program is on track.

Savings generated in 2014 related to the Global Growth and Efficiency Program were over $100 million after-tax and above the top end of our projected range.

Overhead expenses are down in the quarter, due to tight controls in all divisions and savings from our Global Growth and Efficiency Program.

Our total commercial spending also increased in support of both existing and new products.

We think we're well poised to meet the challenges we face as we enter 2015.

We believe our strong balance sheet and solid cash generation should keep us in good stead.

So turning to North America, we're very pleased with our progress here.

Innovation is contributing to organic sales growth and we have more planned for this year.

In the fourth quarter, in the US, our market share increased year-to-date in toothpaste and manual toothbrushes, and was even with the prior year in mouthwash.

Results are strong across our portfolio in Toothpaste.

Our Colgate Total toothpaste share remains over 10%, supported by a graphics refresh, a relaunch of Colgate Total Advanced Whitening, and a boost provided by our companion, Colgate Total Lasting White mouthwash.

The Colgate Optic White franchise is also doing well as the super premium line is driving incrementality with its year-to-date toothpaste share up from 5.3% to 5.6%.

And as you know, we also launched Colgate Enamel Health toothpaste and toothbrushes in the second half of 2014.

It's off to a strong start, and our overall toothpaste share is up 1.4% in the three months after its launch, as compared to the three months prior.

In the Mouthwash category, our year-to-date share is up more than a full point, while our two major competitors' full-year shares declined, with excellent results from Colgate Total Lasting White mouthwash.

Our fabric conditioner business continues to perform well.

Both for the full year and the quarter, our market share is up over a full point to a new record, close to 20% of the overall market.

And as you know, these products are primarily sold in Hispanic markets.

And as you'd expect, we have more innovation slated for 2015, with a full grid planned for the first quarter.

In Toothpaste, we're launching Colgate Optic White ExpressWhite Toothpaste.

This innovation provides whiter teeth in just three days simply by brushing, with best results after four weeks of brushing, as directed.

It's Colgate's fastest whitening toothpaste and is enamel safe for daily use.

In the Mouthwash category, we're launching Colgate Total Gum Health Mouthwash.

It provides advanced gum protection for 45% stronger, healthier gums versus a non-antibacterial mouthwash.

It fights plaque between teeth and along the gum line, and kills 99% of germs on contact with 12-hour protection against bacteria that cause gingivitis.

In the Toothbrush category, we are launching Colgate Sensitive Toothbrush Plus Sensitivity Relief pens, using the same innovative pen application technology that has been so successful in the whitening segment.

The pen utilizes our patented Pro-Argin technology to deliver sensitivity relief 24/7 with continued use, and goes right to the source of the pain.

To rekindle momentum in them Dish Liquid category, we're launching the premium priced Palmolive Multi-surface, which is specially formulated to kill bacteria on dishes and hard, non-porous kitchen surfaces.

And on the value side, we're launching Ajax All-in-One dish liquid, which has a new formula with 10% more cleaning ingredients than before.

And to further our success in the Fabric Conditioner category, we're launching Suavitel Fragrance Pearls, with a proprietary scent system which provides five times longer lasting fragrance compared with using detergent alone, as well as Suavitel Fast Dry dryer sheets, which helps clothes dry 30% faster than using detergent alone.

Turning then to Europe/South Pacific, we enjoyed another quarter of organic sales growth in this region, with a slight acceleration in volume from the third quarter.

Our commercial hubbing activities, part of our Global Growth and Efficiency Programs, are now complete and were implemented with very little disruption.

In fact, in the quarter, virtually all new hubs delivered positive organic sales growth.

Innovation is critical in this part of the world and it continues to contribute to market share growth in a number of our categories.

Our market shares across Europe are up year-to-date in Toothpaste, Manual Toothbrush, Battery Toothbrush, Mouthwash, Liquid Hand Soap, and Dish Liquid.

Of note, all categories of our Sanex business have grown market share year-to-date, Shower Gel, Liquid Hand Soap and Underarm Protection.

Our launch of Colgate Maximum Cavity Protection Plus Sugar Acid Neutralizer is now complete across the region, with excellent share results in a number of markets.

One of our first launched markets, Denmark, posted a 4.1% share in the most recent period; and two larger, more recent launch markets, the UK and France, have already achieved 1.5% and 2% shares, respectively, in the most recent period.

Building on this success, in 2015 we will continue full marketing support for the toothpaste, along with a further rollout of a companion toothbrush and mouthwash.

As I just mentioned, our Sanex business is performing well and leads some exciting new product activity to support further growth.

Launching in the first quarter is Sanex Advances, Sanex's first body care regimen developed with leading dermatologists.

Available in three different formulations, the regimen will include a body lotion and hand cream to complement of the body wash and deodorant.

This is Sanex's first entry into the hand and body lotion category.

The Sanex Advanced Dermo Repair bundle for dry skin with minor damage contains active restore complex and allantoin to restore pH balance and moisturization.

The Sanex Advanced Atopi Derm bundle for extra dry atopic skin contains skin identical lipids and emollients to help restore the skin's protective barrier, soothe itchiness and control hypersensitivity, helping the skin to keep functioning normally.

The Sanex Advanced Hydrate 24H bundle for very dry, dehydrated skin uses a [ceragly] active technology in the shower gel and lotion, which has a pseudo-ceramide and glycerin to maintain the skin's protective barriers by locking in the moisture.

And in addition, we'll be launching Sanex in Poland, a new geography which will provide incremental new business for us.

Turning then to Latin America, business across this region is solid.

Organic sales growth accelerated from the prior two quarters in 2014; and while volume increased a modest 1% versus the year-ago period, this was on top of a very strong increase of 10% in the fourth quarter of 2013.

Toothpaste shares are strong across the region.

In Mexico, our most recent share is 80.8%, up 80 basis points from the year-ago period.

Colgate Maximum Cavity Protection has achieved a 2% share in the most recent period.

In Brazil in December, our Toothpaste share reached 72.1% for the month, the highest share in the past 18 years.

This is in spite of a lot of competitive activity.

Our Manual Toothbrush business is performing well.

In Mexico, we achieved a record share of 45% in the latest reading, while for the first time, our major competitor dropped below a 40% share.

Growth was across all retail environments, self-service stores, pharmacies and the indirect trade.

We reached a record year-to-date share in Brazil, as well, with good growth in the super premium segment, with a 32.4% share of the market, the number one position.

In Bar Soaps, we've strengthened our leadership position across the region, up half a point on a year-to-date basis, to 29.7%, with the most recent read at 29.9%.

Innovation in both the Palmolive and Protex equities has contributed to this success.

In the Home Care category, our year-to-date regional market shares have increased in f=Fabric Conditioners, up 50 basis points to 51.6%, and in Liquid Cleaners, up 70 basis points to 36.3%.

And we have more exciting new products planned for 2015 across all our categories.

In the first quarter specifically, we're excited about a new sub category in the Protex body cleansing category, feminine intimate wash.

Protex is a brand that's recognized as an expert in skin protection, and this positioning should transfer readily into the intimate care soap sub category.

It will be launched with a fully integrated marketing campaign, including a product website and endorsements from a well-known journalist.

Primary placement in-store will be on the intimate shelf, with secondary placements on the soap shelf to attract attention from loyal Protex users.

Turning then to Asia, we're pleased with the acceleration of organic sales growth in this region, as we indicated would happened last quarter.

And as referenced in the press release, we saw good Toothpaste market share gains in a number of countries.

In India, our market share has increased to 54.4%, up 30 basis points on a year-to-date basis.

Colgate Active Salt Toothpaste, developed especially for this market where salt connotes antibacterial efficacy, increased 70 basis points, to over a 5% share.

In Malaysia, our year-to-date share is up 30 basis points, to just over 73%.

The Anti-cavity segment now comprises almost 27% of the market.

And Colgate Maximum Cavity Protection toothpaste, launched last February, has a 3.2% share year-to-date, with a most recent read of 4%.

In Manual Toothbrushes, our regional share increased 20 basis points year-to-date, to 30.2%, with 8 out of 10 countries reporting stable positive growth.

In India, our share reached a record 43.2%, up 120 basis points on a year-to-date basis.

Innovation under the Colgate Slim Soft equity has been particularly successful.

And our regional Mouthwash share increased 120 basis points year-to-date, to 23.1%, with the most recent period at 24.6%.

Looking forward, in Toothpaste, we will be relaunching both our base sensitivity line, as well as the Colgate Sensitive Pro Relief line.

In addition, we will be adding Colgate Sensitive Pro Relief Repair and Prevent.

This new product has a unique calcium and amino acid complex which repairs the root cause of sensitivity, preventing the pain from returning.

In India, we will be launching Colgate Active Salt with Neem.

The Neem tree in India is known for its antibacterial properties.

In certain markets, we will also introduce a line of kids' toothpaste for children aged 2 to 5, a segment currently somewhat underdeveloped, which presents a great incremental opportunity.

New in the Mouthwash category will be Colgate Plax's Bamboo Charcoal.

And as you know, charcoal is also widely viewed as an ingredient to fight bacteria.

Turning then to Africa/Eurasia, this region continues to deliver strong organic sales growth, despite some macroeconomic challenges in countries, such as Russia.

Our regional toothpaste share is up 10 basis points, to 32.4% year-to-date.

And despite difficulties in Russia and the Ukraine, our year-to-date share is up 10 basis points, to 32.9% in Russia, and up 170 basis points in the Ukraine, to 28.2%.

We've also seen good share increases across sub-Saharan Africa and North Africa.

In Manual Toothbrushes, Colgate 360 and Colgate Slim Soft have helped increase our share in Turkey, up 30 basis points year-to-date, to 28.7%.

In South Africa, we are up 380 basis points year-to-date, to over 38% of the market.

And across the region, our Mouthwash share is up 30 basis points year-to-date, approaching 20%.

Colgate is the number 2 mouthwash brand in Africa/Eurasia.

And you may recall, we told you about a new product in Russia, Colgate Altai Herbs Mouthwash.

That has contributed to a 210 basis point increase in our Russia mouthwash share, to 27.5% year-to-date.

We also have a good market leading shower gel business in this region.

Our year-to-date share is up 120 basis points, to almost 22%.

Russia, Turkey and South Africa have all reached record shares.

We've told you on previous calls about our Palmolive Gourmet Spa line, with enticing coffee, chocolate, vanilla and peach fragrances.

That innovation has been one of the drivers of the excellent share performance.

And innovation this quarter continues.

To support our relaunch of our Colgate Total Toothpaste portfolio, we have initiated a new integrated marketing campaign around the idea of the incredible mouth.

The idea is that Colgate knows that your mouth is incredible, unique, which is why Colgate developed Colgate Total to protect 100% of your mouth, not only your teeth.

To continue the momentum in our Shower Gel business, we're launching Palmolive Taiga Freshness for Men.

You may recall, we've had great success with Colgate Altai Herbs products, toothpaste, mouthwash and body cleansing.

Altai is a region in Russia known for its herbs, which are believed to have curative properties.

Similarly, Taiga is a northern forest characterized by pines, spruces, and marshes covering much of northern Eurasia.

This new product offers the freshness and cleanliness of the legendary Taiga in your shower.

Finally, Hill's.

We're pleased with Hill's continued good organic sales growth of 4% in the quarter, particularly when compared to a strong 7% growth in the year-ago quarter.

Innovation has driven good results across our Science Diet, Prescription Diet and Ideal Balance portfolios.

For the Science Diet portfolio, nutritional consultant shopper engagement at super stores and sampling of our new soft savory treats here in the US has helped to drive sales.

In Europe, Hill's Science Plan Perfect Weight has been supported with secondary displays in-store, an in-store weighing area, and on-shelf dynamic screens to explain the product benefits.

Here in the US, Hill's Ideal Balance has gained share in both the wellness and natural segments, and consumption of the product in super stores was up strongly versus the year-ago period.

In Europe, the product has gained excellent trade acceptance in the UK and Germany, two large pet food markets, and received support with promotional activities and secondary placement.

And our Prescription Diet metabolic line continues to meet with success.

To build on that, this quarter we're launching Prescription Diet Metabolic Plus.

32 million pets have obesity-related concurrent conditions.

This is the first and only dual efficacy therapeutic pet nutrition food.

It will be available for weight loss plus mobility for dogs, and weight loss plus urinary stress for cats.

The product will be available in both dry and stew format.

And we're also very excited about the new global packaging redesign across the Prescription Diet range.

With more consumer-friendly packaging and new better tasting formulas, the bundle is designed to create a stronger emotional connection, strengthen our leadership and innovation credentials, and improve taste perception.

That's rolling out across the US, Canada, and some of the high-growth markets in the first quarter of 2015, and Europe in the second quarter.

So in summary, we believe our solid results for the quarter are a good indication that we have an effective strategy, and we believe that this consistent strategy has stood us well for many years.

You know it well.

Staying close to the customer and consumer, innovating everywhere, becoming more effective and efficient, and ongoing leadership development.

We believe our executives on the ground have the tools to make the right decisions, balancing price and volume, supporting innovation in-store and out, increasing market share, all this is winning on the ground.

We and our competition alike are faced with choppy times, volatile swings in currency, and macroeconomic challenges in many parts of the world.

So we believe it's the simple, consistent focus, well understood by every Colgate person, that makes the difference.

And now I'd like to turn it over to Q&A.

Kathy?

(Operator Instructions)

Steve Powers, UBS.

Hello, Bina, Ian.

Good morning.

Just a few little things to kick things off, if we could.

First, could you just start off by providing the gross margin bridge for Q4, and maybe talk a little bit about how those drivers are expected to trend into 2015?

Any changes in margin improvement or organic growth expectations for the year versus last quarter's outlook would be great.

And then maybe, Julian, could you also provide a little update on volume and sales trends in China and Brazil, specifically?

It looks like things improved, as expected, in China, but you were still battling through some inventory issues in Brazil.

Just curious if that's a fair read and expectations on how you expect momentum to trend from here.

Thanks.

I think as Bina said at the end of her prepared remarks, I guess we live in a world these days where focus is really important.

But so is agility.

And I think you saw in the fourth quarter the agility, and the balance, I guess, between volume and price, as our 6% was composed of volume growth in all divisions and pricing increases largely in the developing world.

So if we take that to the gross profit roll forward, and you go back to the prior-year gross profit, 59.1%, we benefited from 1.4 points of pricing, as you can see, a step up from the prior three quarters.

Between our funding the growth and restructuring, we had something like 280 basis points of benefit, and then faced a headwind in terms of material prices of some 4.3 points, of which 2 points for the quarter was transaction.

And then there were 20 basis points negative of some other minor changes, which gets you to the 58.8% gross margin.

Interestingly, although we are where we are, if you were to go back to the October conversation we had and our expectation for the fourth quarter for gross margin to be even with prior year, if you just stripped out the exchange deterioration since our October call, in fact, for this quarter our gross margin would have been at prior-year level.

What we managed to do by moving quickly on pricing was to offset the dollar impact of the foreign exchange, but not yet the ratio impact.

So that's 2014.

When you go forward into 2015, I guess you've got a few things in terms of our view on gross margin.

Our view on gross margin for 2015 is that we will expand it between 50 and 100 basis points on the year.

Now that is going to progress through the year, from the first to the fourth quarter.

We get a benefit in 2015, of course, from the current oil prices, which we expect to work through towards the end of the first half next year, and of course, commodity materials, which our forecasts would say are more or less flat year on year.

And these are benefits we haven't seen in prior years.

We will continue, and indeed already have, take pricing, particularly in those emerging markets where we have to meet the transaction impact of foreign exchange, because that's what translates into the operating earnings.

We will, of course, be focused on our funding-the-growth programs, which again should benefit in 2015 from a more benign cost environment and, of course, we have our restructuring program.

So as we begin 2015, we feel good with the expansion target of plus 50 to 100 basis points on gross margin, stepping its way up through the year.

Now when you come back to the top line of the Company, I think the fourth quarter played out organically pretty much the way we expected it.

We see the destocking in China behind us.

And that's why we see the 6% organic there, and indeed organic growth in the country itself.

In terms of Brazil, we said that we would still be working through the destocking in the fourth quarter that, that would be completed in the fourth quarter, and then we would move into 2015; and indeed, that has been the case.

But if you step back and kind of take a look at, where is the consumer?

We continue to see, for our categories, that in North America, category growth -- and again, I'm talking our categories -- is between 1% and 2%.

As we said on the last call, it is edging wildly up to the upper end of that 1% to 2% range.

Europe continues to be moribund, between 0% and 1%.

And across the emerging markets, we continue to feel comfortable with the mid-single digit local currency value growth rates for our categories.

So that's the environment we see in 2015, with China and Brazil now behind us.

Dara Mohsenian, Morgan Stanley.

Hello.

Good morning.

Pricing accelerated pretty significantly sequentially in Q4 and was a big driver of the organic sales growth acceleration in both emerging markets and globally.

So I just wanted to get an update on your view of the competitive environment here and your ability to sustain that level of pricing going forward, with lower oil costs and flat commodities overall, or even get more pricing with some of the incremental FX pressures you're seeing.

And then also in Q4, on a related note, how much of the Latin American price increase was related to Venezuela and Argentina?

Thanks.

I think we have demonstrated fairly consistently an ability to deliver pricing to offset the transaction impact of foreign exchange.

I think we demonstrated that in the fourth quarter, and we expect to continue to price as we have already done in some parts of the world.

So pricing will be a factor in growth and in our gross margin expansion plans for 2015.

And we believe, as we indeed already have, that we will be able to realize that.

And I go back to the fourth quarter and say there was a fairly meaningful step up in pricing in those emerging markets, and yet we still had a balance between volume growth and pricing growth.

Now when you turn to Latin America, the need for pricing again is driven by foreign exchange.

And if you look at Latin America overall, we took pricing in the fourth quarter and you see pricing up literally across the geography, from Mexico through Central America, our Andean group, Venezuela, Brazil, and the Southern cove.

So we took pricing across the board.

In Venezuela, as we told you on the last call, we, along with our two principal multinational competitors and the large local player down there, on price-controlled categories, got approval to increase pricing.

And so we, along with everyone else, increased pricing in Venezuela.

And that will roll forward into 2015.

But again, you look at Asia, you look at Africa/Eurasia, we're taking pricing in all parts of the world that are affected by foreign exchange.

Chris Ferrera, Wells Fargo.

Good morning.

Ian, just to follow-up on that.

Look, I can appreciate that you don't want to break out exactly what Venezuela pricing is.

But I think the question on a lot of people's minds is just with the Lat Am segment pricing and the resilience of volume even on a tough was very impressive.

It was very impressive.

But I think what we're all trying to figure out is as it relates to the sustainability of it, was Venezuela and Argentina a disproportionate driver of that?

In other words, can we feel comfortable with the assumption that you guys were able to hold volume very well across the segment broadly and the numbers aren't necessarily skewed by Venezuela and Argentina.

Clearly, we got more pricing in Venezuela, because we had had no pricing for an extended period of years.

So the answer there is clearly yes, as it was for everybody else that we compete with in that country.

I think the more pertinent question is our ability to maintain that pricing and continue to increase that pricing going forward.

And our view is that, yes, we can.

And again, I come back to the fourth quarter, having taken pricing, we did see volume growth in all of our divisions.

Now of course, that step up in Venezuelan pricing will ease off as we work our way through 2015, because Venezuela is much more episodic than many of the other markets.

So the answer is yes.

And again, back to the consumer behavior, we continue to see our categories hold in, in the emerging markets, at mid-single digits.

And remember, as you will see when we file our K, for us, 2014, Venezuela continues to represent about 3% of the Company's worldwide sales and only about 1% of the operating margin.

Olivia Tong, Bank of America Merrill Lynch.

Good morning.

Thanks.

I want to ask you about consumer consumption levels.

Do you think that the current growth rates that you're posting are in line with where consumer consumption is right now?

And on top of that, how do you think about your levels of -- your inventory levels at retail?

And then I also want to touch a little bit on the elasticity of demand in your categories.

Because in the past, you said that consumers understand pricing due to FX.

But at what point does that equation start to potentially break down?

Because this quarter, you obviously saw a big acceleration in price and volume really didn't decelerate all that much.

But, can you help us understand the analytics to make sure you don't potentially go overboard on pricing?

And what do you consider too much?

If volume actually decelerates to the point where you're seeing negatives, would you consider that to go too far?

And clearly, I'm thinking specifically about Latin America.

Thanks so much.

Yes.

Well, clearly, Olivia, as I'm sure all other companies do, we do considerable work to balance even the short-term volume impact of the pricing we take.

I come back and say we saw volume growth in all of our emerging markets, even with the stepped-up pricing we took in the fourth quarter.

So we think we have a handle on it.

And we think -- again, remember the types of products we are selling -- that we can take the pricing necessary to offset the foreign exchange impacts and continue to remain that balance between volume and price.

And indeed volume slows a little bit when you take the pricing, but then that balance comes back.

Look, on retail inventory, you may remember, we were the first to talk about the destocking in China.

And I think we've tried to be very transparent about what we saw unfolding in the marketplaces.

The China destocking is behind us, and I said on the last call that we expected Brazil to work through in the fourth quarter, and it has done.

We track not only retail inventory, we track inventory with all of our distributors country by country, and we have parameters that actually relate back to the return on invested capital the distributor gets, in terms of the inventory levels that they would hold.

So we have a very clear view on that inventory, and we have a very sharp focus on making sure that it is not, at least by our actions, out of balance.

What we saw in Brazil and China was a marketplace destocking because of the slowdown in the category.

So I think you can feel confident that we have very much control on that inventory.

And remember, as we talked about when we went through those sub-prime years, in difficult times, products in our categories, if you will, become the simple luxuries that consumers can afford.

So the behavior of using these products does not go away when times get slightly tougher.

John Faucher, JPMorgan.

Hello, Ian.

How are you?

Good, good.

Thanks.

Excellent.

So just wanted to follow up on some of the guidance commentary in terms of, I think you said that -- or Bina said, rather -- that the 10% is the translation number.

So can you talk a little bit about -- the transaction piece is a little bit different now, given what we've seen in terms of the move in the euro and some of the other more developed market currencies, which obviously are negative.

So can you talk about how much of the transaction piece maybe you're not going to cover?

And can you get pricing in developed markets to cover some of this transactional piece?

Is that a possibility even, or is that something where you basically say, you know what, we're going to have to eat that impact, given where the market is right now?

Thanks.

Thanks, John.

Let me just complete, though, what Bina said.

So when you think about foreign exchange as a headwind, yes, the translation impact is 10% on the bottom line.

On the top line, we see it going to be about 7% to 7.5% on the year.

So that just gives you the breadth of that.

In terms of the transaction impact, that is bedded into our guidance on gross margin being up 50 to 100 basis points.

The transaction impact, whether it's the balance sheet aspect of payables in the short term or the more substantive foreign exchange impact on raw materials or imported finished goods in the medium term, that hits the gross margin squarely.

And if you don't recover that, you can't deliver an operating return.

So all of our guidance is assuming our ability to offset that transaction impact.

Now remember, offsetting that transaction impact is not just a function of list price increases in any given marketplace.

It can be benefited from mix.

It can be benefited from different types of promotional activity that elevate the ASP.

We have the benefit of our funding-the-growth program.

We have the benefit of the global growth and restructuring program that we have underway.

And as I said at the beginning, the benefit of a more benign commodity environment, especially in the area of oil.

Now if you look at Europe and North America, list price increases are difficult to accomplish.

But you saw in Europe a terrific margin expansion this year.

So there, it's going to be some of the other techniques that I think are going to continue to drive gross margin, most especially our funding-the-growth efforts, the Global Growth and Efficiency Program, and what we can do with our promotional efficiencies as we go forward, rather than list price increases.

But that's the way we planned the year, John.

Joe Altobello, Raymond James.

Thank you.

Good morning.

Just want to shift gears a bit to SG&A, and wanted to put the 50 basis points of overhead savings in some context.

Because it seems like it's a bit of an outlier compared to the last few quarters.

First, what was the FX impact on SG&A in the quarter, and how sustainable is the 50 basis points you saw in the fourth quarter?

And how should we think about advertising next year?

It came down about 60 basis points.

In 2014, it was down both absolutely and as a percentage of sales.

So I'm curious to how you're thinking about that, as you're shifting dollars from advertising to promotion in 2015?

Thanks.

Yes.

Let me start with the advertising, Joe.

So as we have said for quite a considerable time, the advertising is a combination of what we all grew up with, which is the traditional media and promotion, and we have always balanced that, in terms of the traditional, with the in-store activity that we undertake during the year.

So if you look at the balance, in fact, in the quarter, our total commercial investment was up, as it was for the year.

Interestingly, many of our competitors in many large markets around the world eased back on their traditional advertising spend.

So in many of those markets, actually, our competitive pressure was actually strengthened.

Now as we think about 2015, in terms of that traditional bucket of advertising and promotion, we're planning for that to increase absolutely and as a percentage to sales; and as we have always done, we will continue to balance that as the year unfolds.

So we feel very much that the advertising is where we need it to be.

And I think candidly, Joe, when you look at the results in the fourth quarter, we got a 6% organic growth rate and delivered a pretty robust bottom line.

And of course, it's that kind of sustainable top- and bottom-line growth that we are focused on.

You know, relative to the overhead, ForEx isn't much of an impact.

We continue to expect to make progress in terms of overheads, because the Global Growth and Efficiency Program is largely focused in that area, rather than gross margin this time around.

And again, as Bina said, we were ahead of delivery of that program in 2014.

And we will continue to make progress in 2015.

Bill Schmitz, Deutsche Bank.

Good morning, Ian.

So I'm just trying to figure out the organic top-line guide.

You gave market growth rates.

Is that going to be your growth rate, as well?

Because if I weight 45% developed, 55% emerging and assume that developed piece is 1% to 2% and the emerging is 5% to 6%, that gets you a 3% to 5% range.

Is that the right way to think about it, or do you think you're going continue to gain market share and grow faster than the markets?

We've been quite pleased with our market share progress, Joe -- Joe, Bill, everyone's Joe -- and obviously, we have some new businesses that we're entering, whether it's the intimate product, whether it's new markets with Sanex, and indeed, some of the new geographies we have around the world, like Nigeria, like Iran, like stepping up our position in Bangladesh.

But we continue to be comfortable with that 4% to 7% range that we have talked about, which we think adequately reflects the volatility that is in our world.

If you take 2013 as a year, a full year, we came in about 6%.

If you look at 2014 now as a full year, we came in organic growth about 5%.

So we think that 4% to 7% range remains reasonable, and indeed, that is what we are planning against.

And I'm sorry about the name slip up.

Michael Steib, Credit Suisse.

Good morning, Ian.

My question relates to the US environment, really.

You said that US category growth is edging towards the upper end of the 1% to 2% range, yet pricing in your categories continues to be down due to the promotional activities.

Given the commodity cost tailwind, even if it's marginal, that you're going to experience next year, do you see that promotional environment remain at broadly similar levels going forward, or should it intensify from here?

Well, I think, Michael, that our assumption is that it will continue pretty much as it has been.

When you look at 2014, you might say that some of the, shall we say, naked pricing pressure has come off.

But we definitely saw in the North American environment couponing, both in terms of the number of coupons dropped -- and you know that's a large part of US promotional activity and works its way through the income statement and price -- but couponing volume and couponing values both stepped up substantially in 2014, and we expect that will continue in 2015.

Now, in part, coupons create trial for new products, so that's quite healthy.

So you'll see some bumps, I guess, quarter by quarter because of that.

So we're assuming that competitive environment in our categories, at least, will continue as we've seen it, perhaps with more emphasis towards couponing.

Connie Maneaty, BMO Capital.

Good morning.

I was hoping that you would discuss some metrics that have improved in the areas where you've completed the move to your new hubbing.

Okay.

I think the new areas really -- well, back up.

We have had hubbing operations in parts of our world for a long period of time.

And I think we talked about that relative to Latin America, when I talked about the groups we had there and the activity we took there.

The next big tranche, if you will, of hubbing has been Europe.

And in that environment, we have both accomplished and delivered the savings and the efficiency that we were looking for.

And now the market level activity begins, and the next leg of that journey now will be to get the accrued benefits of having hubs now work with shared service centers.

And I guess, frankly, most importantly of all with that focus and the ability to sharpen our investment behind the businesses, as you saw in the release, and in being as commentary, market shares in our principal categories are up.

And that, in a slow-growth European environment, is ultimately what underpins, I think, our ability to continue to deliver organic growth in that part of the world.

Which when you think about why we prioritize Europe first, from the global growth and efficiency point of view, was the objective of the exercise.

Bill Chappell, SunTrust.

Good morning.

Thank you.

Ian, can you help us walk through as we look at oil dropping to where it did in the fourth quarter, how that works through your P&L over the next 12 months, in terms of be it diesel or just straight oil or resin, and maybe percentages, if you can?

Will we see 50% of the benefit by the first half, or do we really not see it until the second half?

Just trying to get a gauge of how it really influences the business and how long it takes to influence the business.

Yes.

Well, as you've heard from many, there is a lead lag.

Things in life have a way of going up quicker than they come down.

If you take oil, the most immediate benefit you get tends to be in freight, because that prices quite quickly.

And so we got a little bit of benefit in the fourth quarter, very modest, and we expect that to benefit us starting in this quarter in 2015.

When you talk about the flow-through benefits of the resin impact and the other material impacts, that will start to benefit us towards the end of the first half, partly related to it working through the system, partly related to our own inventory levels.

You have to work those through before you get the benefit.

Which is why we make the point that as we build to that 50 to 100 basis points gross margin improvement, it is going to build across the year, because the commodity benefits will really start flowing in, in the second quarter.

Bill Astrachan, Stifel.

Hello, Mark (laughter).

Hello, Ian and everybody.

Good morning.

Wanted just to ask a follow-up to that last question.

Where are you budgeting oil for 2015?

And then just shifting gears, could you talk a bit about your thoughts on the share gains that you've seen from some of your Euro-based competitors over the last 3 to 5 years?

And your views on bending off some sort of incremental spend that they're going to have, given current exchange rates, as well as potentially reversing some of those share gains that you've had?

Or broadly, how do you think about a more able-bodied competitive landscape from some of those companies?

Yes.

We, in terms of oil, we actually budgeted oil at about $60.

So obviously, if it stays at the current level, we will pick up a little bit more.

We'll have to see how all of that works through across the year.

In terms of European-based competitors, if you mean from a foreign exchange point of view, we're all managing in a world and we all have different parts of the world and we all have growth ambitions in those different parts of the world.

We have, we think, been quite responsible with the benefit of the Global Growth and Efficiency Program in Europe in making sure that our commercial investments, including traditional advertising and promotion, are appropriate for both the European category growth rates and the competitors we meet in Europe.

If we see things change, and we think we need to be more responsive, back to this notion of agility and balance, we will take the appropriate action.

But right now, we're quite comfortable with our European growth and with our investments stance there relative to both the categories and our competitors.

Ali Dibadj, Bernstein.

Hello, guys.

How are you?

So just a couple quick follow-ups.

One is -- and I'm sorry, you might have said this, but I had to jump off for a second -- if you could quantify actually in the end the Venezuela impact on your growth rate?

Because even if it's 3% of sales, and you said price mix, as best as we can tell, you put that together, it might be 1.5 to 2 points of your 6-point growth.

So if you have quantified that, I apologize, but if you could say that again.

And I do want to go back to the ad spend being down 8% to below 10% for you, which is something I haven't seen since 2009.

And to your point, I don't think it's unique to you guys.

A lot of the companies in the sector are trying to, to your point, balance the above the line versus the below the line ad spend, and the risk to the brand.

And so I'm trying to get a sense from you -- because that doesn't show up in one quarter, right -- so the risk to the brand as you go forward and how do you think about that gross to net versus pure ad-spend spend and what the right balance is.

Yes.

Well, no, even if you did drop off, Ali, we didn't provide that information on Venezuela, and we won't now.

But the point I did make relative to Venezuela, indeed Latin America, is it that we took pricing across Latin America in the fourth quarter.

In the case of Venezuela, yes, it was episodic, as we said in the third quarter it would be, because we hadn't had pricing for several years.

That same episodic benefit also benefited our principal multinational competitors, who got the same government approvals on key categories for them at exactly the same time we got ours.

And indeed, the local competitor was granted pricing, as well.

So everybody benefited from pricing in Venezuela.

But the point to make is we took pricing across the board.

And in an environment where everybody was getting pricing, our global growth rate was indeed 6%.

In terms of the advertising, yes, you're right.

One has to be conscious about the brand health, as we call it.

I will say that the kind of model that perhaps many of us grew up with, where what was accounted for in trade spending was inherently bad and only the so-called below-the-line spending was good -- I think those days are gone.

I think one's ability -- take Hispanic consumers in the US that you can reach with in-store activity that may have a component of price, but might be much more driven by a coupon that is regionally dropped to high population areas -- these kind of techniques are now available, and they weren't available before.

And you can measure them, you can execute them.

Retailers can handle different configurations to put them at work with the consumer.

But coming back to the brands, we do tracking work.

And our tracking work around the world shows that if you take our oral care business around the world, the health is very, very good of those brands.

So by all means, we track it.

Sometimes from a short-term point of view, if couponing or other activity steps up, you have no option, at least in part, to participate.

But I think we've been one of the loudest voices, at least, I hope so, in saying that we much prefer to compete in an environment of innovation with marketing support than price promotion.

But we don't see weakness in brand health.

That is something, of course, we have and will continue to track.

Lauren Lieberman, Barclays.

Thanks.

Good morning.

Just two things, one was to follow up on this conversation about in-store spend versus traditional advertising.

Is it fair then to summarize the environment you're seeing right now to say that in the regions where you've had more in-store spend, more promotion, it's not necessarily because of negative flare-ups in the competitive environment, it's a little bit more choiceful on how to best reach the consumer for a given activity that you guys have slated?

Or, is there in fact a step up in the negative promotional environment currently?

I would say it is more the former, Lauren.

And these are techniques, with our Colgate business planning and so on, that we have learned to be efficient with, so it's choiceful.

But I also have to say, take an environment like the United States, there's no question that, that couponing environment has become more competitive, and we have correspondingly become more competitive in that environment.

But if I took an overall stance, I would say, as we have been saying for a time, that it is choiceful with techniques that we think not only reach the consumer, but actually strengthen the equity of our brands over time.

Javier Escalante, Consumer Edge Research.

Good morning, everyone.

My question has to do with the 2012 restructuring program that was expanded to the savings target to $390 million.

It seems to me that only a third of the savings have been accrued up to now.

So I would like to understand how much of savings will accelerate in the next couple of years in order to hit the $390 million target, and if you could help us understand what kind of activities are going to happen?

Is this more hubbing, like the one that you did in Europe, or is it manufacturing facilities being up and up in Asia?

Help us understand physically what activities are going to take place that are going to help the savings to ramp up in the next, these two years.

Okay?

Thank you.

Yes.

Well, the first thing to say, Javier, the program is very much on track.

Indeed, as Bina said, our performance in 2014 was up.

If you look at our so far savings against the total, we're running about half accrued.

So it's not a third.

And if you look at the activity going forward, yes, it is in the same areas that we had very much spoken to in the beginning.

So it is the hubbing.

It is what we are doing with our facilities, and it is the expanded use of the Colgate business service centers.

And we're very excited by it, because we think, as we have now seen in Europe, not only does it bring you the immediate-term savings, but it makes you operate smarter and faster and in a more efficient manner.

So we like it not just as a Global Growth and Efficiency Program, but because we think it ultimately gets us organizationally to a better place, from an operating point of view.

Caroline Levy, CLSA.

Good morning, Ian and Bina.

Thanks.

I've got a question about Russia and another on Mexico.

On Russia, I guess Proctor described it as pretty chaotic.

And I'm just wondering how much of your pricing you were able to take in the fourth quarter and how much you think you still need to take and whether you think demand will drop off quite meaningfully?

And secondly, on Mexico, both Kimberly and Proctor have had very difficult years trading in Mexico and they, to some extent, blamed the higher consumer tax.

Are you seeing any slowdown in demand, or did you see any slowdown, do you see any pick up?

What's going on in Mexico for you guys?

Mexico hasn't changed for us.

We certainly didn't see a 20% decline there, nor did we see a 20% decline in China.

So no, that environment hasn't really changed for us.

Russia for us is still a relatively modest part of our business, between 1% and 2%.

Chaotic may be overstating it, but it is indeed difficult.

And it is likely to become more difficult.

We have lived this before, at the end of the 1980s.

And indeed, the senior executive that lived it then is living it again now.

And so that we know the actions to take from a structural cost point of view, and we're taking those actions.

And of course, we are taking pricing and we are transferring funds, and we are watching closely distributors and wholesalers.

So we are very much managing Russia from a containment point of view.

But we are very close to our businesses, so we believe we have a good handle on it.

And interestingly, shares are up.

So maybe cold, but they're up.

Jason English, Goldman Sachs.

All right.

Thank you guys for squeezing me.

You even got the name right.

I've got a couple of follow-up questions.

Good question, Joe.

There we go.

All right.

Now it seems right.

One on the promotional dynamics.

On P&G's conference call, they referenced expectation of getting 400 basis points of margin gains constant currency, or even currency loaded, out of Brazil and India.

Hard to see how they get that without pulling some of the money they've put in the market back out.

So are you seeing the promotional intensity ease in those markets?

And then secondly, gross margins.

I just wanted to walk through a little bit more, more deeply on the answer to the question earlier.

You're signaling neutral commodities, maybe even a little bit of favorability with oil, steady hold the line on price, continued productivity.

You do the math on that, even if you assume that transactional headwinds become more substantial than they were this quarter, it's still hard not to see a path to at least 150 basis points of gross margin expansion.

So what am I missing there?

About 50 basis points, I think (laughter).

If you take India and the promotional intensity, actually, India, from Proctor's point of view, was never particularly intense in our categories.

If you look at India, Bina talked about the market share, we're approaching 55% and the competitor in question has about a 0.7 share.

And our business there continues to be quite strong.

In terms of Brazil, I would say, yes, the promotional intensity has dropped off a little bit in Brazil, which is a good thing.

On gross margin, Jason -- and I'm sorry with the glib response -- but the gross margin is really one of phasing.

Because as I tried to explain earlier, we think that gross margin expansion is very much going to build across the year, because although we see the headline lowering of commodity costs and certainly oil, the work through of that from our inventory point of view to its effect on resins, bottles, et cetera, will take some time to be seen.

And on the flip side, the transaction impact, when ForEx goes against you, that hits you straight away, whether it's the stuff you have to pay in your payables, whether it's the dollar denominated raw materials that replaced that which you are now having to pay for.

So that's immediate.

And the win back on the gross margin takes a little bit more time.

So I do think we'll end next year in a strengthened position gross margin wise, but it really is all to do with phasing.

So, I believe these were all the questions we have?

Yes, sir.

Okay.

So thanks very much for catching up with us today, and a special thank you to all the Colgate folk that make it happen.

Bye-bye.

And with that, ladies and gentlemen, that does conclude today's call.

We'd like to thank you for your participation.