高露潔 (CL) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Colgate-Palmolive Company's second-quarter 2015 earnings conference call.

This call is being recorded and is being simulcast at 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.

For information about certain factors that could cause such differences, investors should consult our reports filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions risk factors and cautionary statements on forward-looking statements.

This conference call will also include a discussion of non-GAAP financial measures which differ from our results prepared in accordance with GAAP.

We will discuss organic sales growth, 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 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

Thank you, Jessica.

Good morning, everybody, and welcome to our second-quarter 2015 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 very pleased with the continued strong organic sales growth in our business across all divisions.

In fact, the pace of such growth has accelerated nearly everywhere.

Innovation continues to play an important role and our successful array of new products across categories has resulted in strong and growing market shares.

As Ian said in the press release, our robust organic sales growth is particularly notable in the face of challenging macro-economic conditions in many markets.

However, foreign exchange continues to be an even more significant headwind and that is continuing into the third quarter.

As you know, we're diligent in taking pricing to offset currency-related transaction costs, and are pleased that even with the pricing we have taken there is still a good balance with volume.

Our savings programs are delivering excellent results, both our ongoing funding the Growth initiatives, as well as our Global Growth and Efficiency Program.

Cash generation is solid and our working capital is low, down year over year.

So we think we're making good progress in 2015 and have good plans in place to keep up the momentum.

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

We're pleased with the solid organic sales growth in North America this quarter, an acceleration from the first quarter 2015 growth, driven by a solid volume increase of 3%.

And as mentioned in the press release, US market shares are strong across many categories.

Innovation continues to play a critical role, although we also see strength in the base business.

For instance, Colgate Total toothpaste continues to maintain a market share of around 10%.

In the first quarter we launched Colgate Total Mouthwash for Gum Health, which allowed us to drive the regimen concept in store with a claim of 45% stronger healthier gums versus non-antibacterial mouthwash.

The mouthwash is off to a great start, it's the number one new item at a major US retailer.

In toothbrushes, our newest addition to the Colgate 360-degree line is Colgate 360-degree Optic White Platinum.

This has been incremental to the line.

Colgate 360-degree has come from a 13% share for full-year 2011 to a 19.3% share of the total category year to date.

And as we said in the press release, our leadership manual toothbrush share is now well over 40% at 41.4%.

We're particularly pleased with the performance of our Tom's of Maine business.

Sales are growing healthy double-digits with its strongest growth in our top 10 retailers.

With the expansion of our shopper marketing initiatives, we achieved our first-ever end-aisle displays in many customers during our well-executed April Earth Month integrated marketing campaign.

Our new Tom's baby line is off to a very encouraging start, with wide acceptance across retail channels.

The line is receiving positive online consumer reviews and the body lotion and hair/body wash products are within the top SKUs, ranking and selling ahead of many other big and established baby brands.

The fastest growing segment within fabric conditioners is scent boosters.

We launched Suavitel Fragrance Pearls in-wash scent boosters in March of this year, with a claim of five times longer lasting fragrance versus detergent alone.

Distribution continues to build within major accounts and our year-to-date share in the overall category is at 18.7%, up 70 basis points, with our second-quarter share at a record 19.5%.

Looking ahead, in the third quarter, we'll be launching Colgate Total Daily Repair toothpaste, which helps reverse early damage for better oral health and goes beyond promoting traditional benefits to a new consumer-relevant space.

It's the best testing Colgate Total concept ever and as you can imagine, we'll be backed by a full support plan, including TV, PR, and social media, professional and multi-cultural outreach and of course, in-store shopper activity.

As you know, in the second half of 2014 we launched Colgate Enamel Health toothpaste.

In the first quarter of this year, we added Colgate Enamel Health Multi-Protection toothpaste to the enamel footprint.

And now in the third quarter, we're adding Colgate Enamel Health mouthwash to provide a complete regimen solution.

This new mouthwash helps replenish natural calcium, reverses enamel softening and helps prevent cavities, all with a great tasting flavor.

Finally, in the kids segment we're launching the first ever regimen portfolio with Minions branding across the toothpaste, toothbrush and mouthwash categories.

turning then to Europe/South Pacific.

We're please with the acceleration in organic sales growth in this region from the first quarter.

Continued innovation has contributed to the results.

Consequently, our regional year-to-date market shares are up in toothpaste, manual toothbrushes, mouth rinse, body wash, liquid hand soap, underarm protection and fabric conditioner.

The regional launch of our premium-priced Colgate Max White One Optic toothpaste has been incremental to our share in the whitening category and has helped to increase overall toothpaste share in France, Italy, and Spain.

in addition, in France, a strong integrated marketing campaign has helped grow our Elmex Sensitive toothpaste business in the mass channel.

Growth in our manual toothbrush business has been driven by innovation and excellent in-store execution.

The favorable gap between us and our nearest competitor has widened over the last five years from just 70 basis points to almost 7 full points on a year-to-date basis.

Across Europe our manual toothbrush share is up 150 basis points to 24.6% year to date.

And in Australia our share is up 170 basis points to 63.3% year to date, with the most recent lead at 63.8%.

And we told you last quarter about an exciting new innovation in personal care, Sanex Advanced.

This is off to a very good start.

The line of body washes and underarm deodorants has been incremental to the business.

And in the last month, our body wash share has met or exceeded our goal in France, Spain, and Belgium.

Innovation continues in the second half of 2015.

In the toothpaste category we're just now launching Colgate Sensitive Pro-Relief Repair & Prevent toothpaste.

This premium-priced offering repairs sensitive areas of the teeth and prevents further sensitivity for instant and lasting relief.

An extensive shopper marketing program will support a complete relaunch of our Colgate 360-degree manual toothbrushes which provide superior cleaning for a whole mouth clean versus an ordinary flat trim toothbrush.

This premium-priced line, which includes Colgate 360-degree Expert White and Colgate 360-degree for Men, should help continue the excellent momentum we've seen in this category.

In our body wash business we'll be launching Palmolive Gourmet body washes, a line of creamy body butter washes with fragrant ingredients, including vanilla, chocolate, and peach, which have already been very successful in the Africa, Eurasia division.

Moving on to Latin America, we're pleased with the continued strong organic sales growth in this region.

Two of our largest subsidiaries in the region, Mexico and Brazil, delivered solid performance.

And of particular note was Brazil, where organic sales growth accelerated nicely from the first quarter.

Market shares for Latin America increased year to date in toothpaste, shampoo, liquid cleaners, dishwashing liquid and fabric conditioners.

Our regional toothpaste share is at 75.7% year to date, up 70 basis points, and the highest level in four years, despite competitive entries during that time period.

In Brazil, our year-to-date share is up 40 basis points, to almost 72%, while in Mexico our year-to-date share increased 70 basis points to 81%.

Our home care business in Mexico is extremely strong.

Dish liquid shares are at 52.2% year to date, up almost 3 points.

Liquid cleaner shares are at 33.5% year to date, up 80 basis points.

And fabric conditioner shares are at 48.6% year to date, up almost 2 points.

In the dish category, the launch of Axion Complete exceeded expectations.

And our very successful Thank You Mom campaign behind Suavitel, our leading fabric conditioner, helped to further strengthen that brand equity.

Our innovation pace will continue in the second half.

Colgate Luminous White Advanced toothpaste will be rolled out throughout the region.

This is Colgate's most advanced whitening toothpaste available in Latin America.

It intensifies the white of your teeth three shades whiter with a unique formula that uses the same ingredient dentists use.

Accompanying the toothpaste will be relaunches of Colgate Luminous White mouthwash and toothbrush.

In the personal care category we will be expanding the distribution of Protex Complete 12, a range of bar soaps, liquid hand soaps and body wash that provides long-lasting antibacterial protection and offers 12 times more protection than non-antibacterial bar soap.

And in home care, we'll be introducing a rinse-free formula to our base Suavitel fabric conditioner business, currently available only in premium offerings, which should further enhance our strong number-one position.

Moving to Asia, we're pleased with the acceleration of organic sales growth in Asia from the first quarter.

In particular, our business in China is performing well and back to solid growth.

As we said in the press release, we maintain our strong leadership in toothpaste across the region.

In India, our year-to-date share is stable at 54.8%, with the most recent read at 55.1%.

And in China we hold the number-one position at almost 34% year to date.

Our toothbrush business in the Philippines is strong and growing in the premium and super-premium segments.

Our year-to-date share is at a record 57.4%, up 70 basis points, with the most recent read at 58.3%.

Our Colgate 360-degree charcoal gold toothbrush, first launched in China, has been successful in this market as well.

Our regional share in mouthwash is at a record 23.5% year to date, up 60 basis points, with particularly strong performance in the Philippines and Hong Kong.

And as elsewhere, more new products are planned for balance of the year.

In China we will be re-launching our base Colgate anti-cavity toothpaste in both the whitening and all-around anti-cavity segment.

Elsewhere in the region, we're excited about our Colgate Total Charcoal Deep Clean toothpaste gel, which has a unique antibacterial formula that reduces bacteria on 100% of your mouth's surfaces, and provides 12-hour protection for a healthier mouth.

In toothbrushes, we're introducing a line extension of our Colgate natural essences toothbrush, which has-lotus infused bristles.

In addition, across the region, we're launching Colgate Kids Spiderman and Barbie toothbrushes with 0.01-millimeter slim tip bristles.

Africa/Eurasia.

As elsewhere, significant currency headwinds affected our financial results in this division.

The good organic sales growth of 4% was price-driven, as we took pricing actions to help offset transaction costs.

However, with negative 21.5% foreign exchange across the division, we couldn't recoup all the losses.

So it's encouraging that our local businesses are doing well and our market shares are generally solid.

Our regional toothpaste share is up 100 basis points to 32.9% year to date, with our most recent read at 33%.

Notably, our share in Russia increased 2 full points to 33.6% year to date, with the most recent read at a record high 34.1%.

Both Colgate Total and Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer toothpaste have performed very well.

Colgate Maximum Cavity Protection was launched in early 2015 and has already reached almost a full share point nationally and has garnered 1.2 share points in the modern trade.

In Turkey, our share increased 120 basis points to 26.6% year to date.

And in South Africa, our share was up 60 basis points to 50.3% year to date.

Our toothbrush share is up in 15 of 16 countries, which represent over 99% of our toothbrush business in the division.

In Russia, incremental listings in the country's largest retailer have contributed to a year-to-date share increase of 240 basis points to 47.2%, with the most recent read at 47.7%.

And in Turkey, our very successful Colgate Slim Soft toothbrush has helped grow our share by 150 basis points to 28.3% year to date.

Our regional bar soap share is up 290 basis points to 22.6% year to date, driven by gains in our two top markets, South Africa and Russia.

More innovation is planned for the second half of the year.

We will be refreshing both our base business sensitive toothpaste, as well as launching our premium Colgate Optic White toothpaste with new and more impactful graphics.

In South Africa, where we have a strong Protex business, we will introduce Protex Complete 12 bar soap, which provides 12 times more germ protection and offers long-lasting anti-germ action.

And finally Hill's.

We're pleased with Hill's strong organic sales performance in the quarter.

The business is on track and innovation is driving both the domestic and international business.

Our unique weight loss product, Prescription Diet Metabolic canine and feline food is gaining share globally.

We recently introduced a stew product along with the dry and that has accelerated growth in the wet segment.

The product comes in a new global packaging design and has been supported with a global testimonial campaign, as well as print and online media.

Adding to this successful innovation in April of this year, was Prescription Diet Metabolic Plus Mobility canine food and Metabolic Plus Urinary feline food.

These new foods, which are nutritionally formulated for concurrent health conditions, have been the primary focus of our 2015 vet conferences.

Another global success in the prescription diet line has been the upgrade of k/d formula for kidney care diet in cats.

Cats with renal conditions typically suffer a loss of appetite, so it's difficult to get them to eat the food which will help improve their condition.

This product contains our new EAT technology, enhanced appetite trigger, which improves appetite while helping to both preserve lean muscle mass and increase energy.

The feedback from vets has been excellent and we've received excellent testimonials from clients and the veterinary healthcare teams.

As you'd expect, we have more innovation planned for the balance of the year.

To keep the momentum in our prescription diet business, in the third quarter in the US we're beginning to roll out a Prescription Diet i/d Sensitive, the first product in the GI segment for food sensitivities, free of wheat, gluten, lactose, and soy protein.

A trial program and pet parent guide helped veterinarians and pet parents to see the difference this food makes.

These are part of a complete IMC bundle with trade ads, printed and e-detailers, as well as in-clinic seminars.

A new product in our Science Diet line is Urinary Hairball Control feline food, the only wellness food that addresses the two most common conditions in healthy cats.

The launch this month in the US is supported through the PetSmart store associate feeding program as well as from Petco's Whole Pet Specialists.

In summary, we are pleased with the way 2015 is progressing, particularly in light of the macro-economic challenges that we and others face around the world.

We're committed to investing in the business in order to drive solid organic sales growth and global market shares.

We will continue to focus on brand-building innovation as well as our worldwide productivity programs.

Colgate people around the world are implementing our effective strategies, which we expect will allow us to continue to deliver solid results.

And we look forward to sharing these results as we go through the balance of the year.

And now, Jessica, that's the end of my prepared remarks.

I'd like to turn it over to questions.

(Operator Instructions)

Jason English, Goldman Sachs.

Good morning, folks, thanks for the question.

Bina, you closed out your prepared remarks talking about continuing to focus on driving solid sales growth and market shares.

Certainly as you ran through the market performance, it's indeed impressive.

But through the belly of the P&L, particularly at gross profit, the leakage of cost inflation, which I know includes FX and I suspect is predominantly FX-related, remains sizable.

How do you wrestle with the balance of getting more price to cover some of that?

Even if it comes at the expense of some near-term market share versus continuing drive the market share?

And do you think you're at the right balance right now or should you be leaning more towards price?

Thanks for question, Jason.

We didn't rehearse this but it's a perfect lead-in to some remarks I was wanting to make to put the gross profit in context, tell you to exactly your question, how we're thinking about that balance over the rest of the year.

And then probably I'll go through the gross margin roll forward to save time somebody else asking the question.

I think to begin with, it goes without saying that 2015 is a volatile year, and characterized as we all know by economic challenges in many parts of the world.

And I think very specifically, as Bina mentioned, a continued strengthening of the US dollar, which accelerated across the second quarter and in fact has continued to strengthen with the current rates we're seeing into the third.

And so as you put it, we are very well pleased with the continued strong, in fact accelerating, organic growth in our business.

And we see that overall having a healthy balance between volume and pricing, which is a balance one tries to maintain.

Indeed as we look across each of our four business categories, we see a healthy balance between volume and price.

And I would say at this stage, that we are still expecting top-line organic growth for the full year to be in the 4% to 7% range.

When you step back from that and say what is making that work, we think it's three things.

Our innovation is clearly working, and it is broad and it is lined up well for the future.

We believe, as we have said before, that our commercial programs, which is a combination of traditional advertising and trade spending, are effective.

And that together the strength of our innovation and the effectiveness of those commercial programs are seeing market shares growing quite broadly.

So in sum, our strategy is delivering strong brand-led growth and double-digit EPS increases on a currency-neutral basis.

As you rightly say, our gross margin in the quarter was pressured more than expected despite the fact that we realized good pricing that, as you will see when I go through the gross margin roll forward, we had good continued delivery of strong funding the growth and restructuring savings.

Indeed we offset year to date, the dollar impact of the cost increases so far this year.

But in the second quarter specifically, we faced three unanticipated negative impacts on our material costs.

Obviously, we expected a meaningful impact from foreign exchange transaction costs, but we did incur the incremental costs of the faster-than-forecast foreign exchange deterioration.

We saw, in several high-inflation emerging markets, including Venezuela, an increase in local material costs in the quarter.

And finally, while not a significant factor in the overall gross margin decline, we did see additional material cost increases in Venezuela due to a slowdown in dollars received at the official rate.

Now, what to do over the balance of the year?

As you would expect, our planned response is additional pricing.

And as I said on the last call, as we think about pricing, we try and maintain this balance between volume and price.

In some situations, Africa/Eurasia has been mentioned where the exchange impact is so significant we take extremely aggressive action, and indeed concede volume to get price and stabilize the business.

In other parts of the world, we seek to maintain a balance.

But regardless of approach, additional pricing is planned for the balance of the year.

Clearly, we will redouble our focus on funding the growth and we intend to take full advantage of generally weakening commodity materials pricing, which on the last call we said would really begin to benefit towards the end of the second quarter.

So those are our three responses.

We believe we have planned them in a way that will allow us the maintenance of the top-line growth in that 4% to 7% range.

And now our thinking for the year will see a sequential improvement in gross margin across the balance of the year, and for the full year an increase of 10 to 30 basis points.

So let me go from that to the gross profit roll forward.

So if we take the second quarter, we start with the prior year at 58.8.

We pick up a one point benefit from pricing.

We pick up 2.2 points of favorable from funding the growth and the modest contribution from restructuring.

And we take a negative impact of 3.5 points of material prices, which trace back to the unexpected impacts I just referenced, 20 basis points of other, which gets you to the 58.3 in the quarter, the 50 basis points decline.

So that's how we're thinking about it.

And as you rightly say, one is trying always to find a good balance between the top line growth and the recovery of the ratio in gross margin and we think we have that in the plan for the balance of the year.

Thanks for the question.

Steve Powers, UBS.

Great, thank you.

A question on Venezuela, actually in following up on some of the things you just mentioned.

Clearly it's a topic that comes up every time you visit with us in one form or another.

You obviously continue to account for C-P Venezuela at the SICAD rate.

Many others have either shifted to SIMADI or else chosen to de-consolidate, as we saw from P&G this morning.

I know there are legal and accounting guidelines that dictate the appropriate treatment of Venezuela, but I'm wondering how much discretion there is on those matters.

Because at some level it feels like taking the hit, so to speak, and moving on would provide some benefit, especially if your access to dollars is decelerating, as you mentioned in response to Jason's question.

Yes, I wasn't necessarily expecting it as the second question, but I think we were expecting a remark or two on Venezuela.

I think the first thing I would say in terms of the breadth of information that we provide on Venezuela, we have, I think, over time been providing increasing disclosure in our Qs and Ks, and I think you will find that continues to be the case when you read the Q on this quarter.

As you know, or may know, or you will now know, for the first six months of this year, Venezuela represented about 4% of our revenue and 2% of base business operating profit for the six months ended in June.

And we do provide in the Q the detail of the net monetary assets that we hold of just over $600 million, and the non-monetary assets we hold of just under $300 million that could be subject to impairment.

We also provide information as to the effect on that if we had to go to the SIMADI rate, which would see us with a charge of about $340 million after tax or $0.37 per diluted share.

And that would also likely lead to an impairment of our non-monetary assets.

And we also provide, as we have done for some time, Colgate's total investment in Venezuela, which is about $1 billion dollars.

The reason we continue to manage Venezuela the way we do, first of all, we have for 2014 and into 2015, been receiving dollars and are able to operate our business, even though as you say, that has become a little bit more volatile in the second quarter.

Second, each company has its own facts and circumstances and we still understand that our dividends would be remitted at the SICAD rate and therefore that's why we translate the business at that.

And of course, we moved to the SICAD away from the official rate so it is a little bit more conservative.

But as you rightly indicate, Venezuela is a period-to-period assessment.

You will see in our Q that our conclusion at the end of the second quarter is that we will maintain the translation rate we have, and that we will continue to consolidate that business.

And we will, specific to our facts and circumstances as we always do, to continue to revisit that quarter upon quarter.

Bill Schmitz, Deutsche Bank.

Hi, Bina and Ian, good morning.

How easy they forget.

(laughter) Can you talk about structurally how you view advertising?

Because it seems like your market shares aren't impacted at all by the pullback and maybe it's like a share of voice issue.

Because other guys are pulling back as well.

Structurally, could the advertising ratio be lower going forward because it's not having much of an impact on your market share trends?

I'll resist repeating the last man standing comment, Bill.

In terms of advertising, as I have said before, we build our programs from the ground up.

And we're very much focused on what it takes to maintain awareness of our base business, build awareness of new innovations, and build trial and garner repeat, given the quality of our products for the new products that we bring to the marketplace.

As you rightly say or suggest, and we have seen and we talked about it on the last call, we have seen many competitors in several significant markets around the world, substantially pull back on traditional advertising.

And therefore we can accomplish our strategic objectives and not lose competitive presence on the ground.

And as we've tried to express before, a lot of what you can do at the retail level today is far more sophisticated and strategic than maybe 10 years ago.

We make no apology for choosing to construct our marketing programs with good reliance on both.

We talk about integrated marketing communications.

And we talk about reaching consumers at all touch points, which of course does, yes, include traditional television and digital, but also includes the retail, dental professional, veterinary professional environments that shape their purchasing decisions.

I would not project seeing our advertising levels decline meaningfully.

In fact as we think about this year we expect to be up on a local currency basis and probably at about the same level as last year on a ratio basis.

But we'll obviously, again as we go forward, look at what it takes to build the engagement with our consumers to keep growing market share and therefore our brands and therefore the top line of the Company.

Great, thanks.

And can I just ask you, are you shipping to consumption now in most of the markets?

So is stocking largely done?

Thank you for the one question.

(laughter) It's a short one.

In China as we said on the last call, in fact the consumption was mid single-digits.

We suggested, I think, that the second quarter was off to a good start in China and that we expected to be back to consumption.

You, I think, can see that in the Asia numbers.

China is back to consumption.

And as Bina mentioned, we saw a bounce-back in Brazil.

And when we look at our categories in Latin America, including Brazil, the growth rates of the categories is around that mid single-digit level.

So we would say that's the expected environment going forward.

In fact, to comment for the emerging markets, mid single-digits.

For the US, about 2% on average, although the spread is 1% to 3% depending on the categories.

And Europe at the same zero to 2% range bound level it's been in for some time.

Thank you.

Chris Ferrara, Wells Fargo.

Thank you, good morning.

Hey, Chris.

Ian, I guess that's a perfect transition to Brazil.

The last time we were talking about Brazil, intra-quarter and last quarter's call, you weren't particularly optimistic about it.

The recovery there, though, you grew volumes, you said organic was up nicely.

Can you talk about what's changed?

Has it been the category growth rates?

It doesn't look like it was an acceleration of share, based on what you said.

I'd love any commentary you can offer up there.

Our share is up.

Bina talked about the year to date, the latest period is over 72.

But as I said last time, who's looking?

I think fundamentally, Chris, it has to do with the category.

I think we were prudent the last time we spoke, because the country was in a state of short-term dislocation.

And in fact I had just come back from Brazil and so felt it up close and personal, and we thought it was better to take a prudent stance for the balance of the year until we saw the category growth rates come through.

I would say that has now stabilized.

We expected to provide an update at the end of the second quarter, and we're able to do so.

And I think we can say that the underlying consumer consumption now in our categories in Brazil is back to that broad mid single-digit growth rate.

So it traces specifically to the category growth.

Thank you.

Bill Chappell, SunTrust Robinson Humphrey.

Thanks, good morning.

Hey, Bill.

Going back to Latin America, I just wanted to -- and maybe I can't do the algebra -- but on unit growth it looks like it was flat, excluding the acquisitions year over year.

And it said it was partially hurt by Venezuela.

Would it have been up meaningfully without Venezuela?

And do you expect unit growth to bounce back as we move through the year?

Again, I think we were very pleased with the organic growth.

To save [Vali] the trouble when he comes home, we don't break out Venezuela.

But our volume growth in Latin America we see as coming back.

But we were quite happy with the tradeoff we made to price relative to volume in this quarter, to an earlier question.

The volume ex-Venezuela was indeed more positive than you see for the division, about by a multiple.

Did we lose everybody?

Your line is still open.

Do we have no more questions?

Mr. Chappell, your line is still open.

Oh, I'm sorry.

So just to clarify.

You do expect unit growth and Venezuela did wipe away all of the unit growth this quarter?

Venezuela depressed the division unit growth, yes.

Okay, but even with incremental price increases, unit growth should bounce back going forward?

Yes.

Perfect, thank you.

Caroline Levy, CLSA.

Thank you so much, good morning.

Could you dig in a little bit on Russia where P&G had really, really awful June results, I believe.

I think down 57% or something, just very difficult times.

And also comment generally on whether some of your foreign competitors are behaving differently, given they don't have the dollar currency issues you have.

I really don't want to start getting into detail by country.

But suffice it to say, we did not have the decline in Russia that some others are quoting.

Our market shares in Russia are strong and growing.

And we, of course, have taken some fairly significant pricing across that division, but very specifically to Russia, given the foreign exchange impact.

Actually our toothbrush there in Russia is up 2 points.

It's back to the opening remarks really.

And that is, yes, we are taking pricing as we need to.

We're focusing on funding the growth.

We're focusing on the global growth and efficiency program.

But we're also focusing on building our brands and building our market shares.

And I would say the progress in Russia fits that model.

And on foreign competitors are you seeing them enter any markets anew or do anything differently, the ones who don't have a dollar exposure?

I think most everybody is hurt a little bit by the Russian circumstance.

We certainly don't see any irrational behavior the other way, no.

Sorry, I didn't mean specific to Russia, I meant in general.

Oh.

Again, you see pockets of increased activity, you see pockets of decreased activity.

I would characterize the global landscape as business as usual.

Thank you.

Ali Dibadj, Bernstein.

Hey, guys.

Ali, don't shout at me.

(laughter) Do I shout?

No, no, no.

You were listening to the previous call?

I was reading the transcript.

State the truth, that's all I try to do.

So on advertising spend, it's the fifth quarter in a row where we're seeing it down.

What we see, at least, understand the gross to net, but what we see in particular is down is Latin America and Africa/Eurasia.

I can't pretend to say that if you decline -- reduce advertising spend in those regions you'll get an immediate response.

But you did see flat volume in Latin America, understanding on the price mix that you got-- or the price parts you got.

Africa/Eurasia was down 3, which is some of the worst we've seen.

And I get the share of voice comments.

Our share of voice isn't lower, it's actually higher, and that's where we're gaining share.

As you've seen, your brethren are feeling quite some pain as well.

But what happens to the category?

What's the category responsibility?

Maybe share of voice is not the right metric because the category itself should be, could be, growing a little bit faster going forward.

I wanted to get your thoughts on that a little bit.

And I know it's only one question, a clarification on the gross margin that you described earlier on, if you would, please.

The gross margin guidance is down to like 80 basis points at the high end.

But you're at this negative low single-digit EPS growth number.

I'm trying to get a better understanding of what the offsets are to stay in that low single-digits.

Or is it worse low single-digit when you describe it for the year?

Thanks very much.

Well, the first question is a very broad question.

To be clear, I'm not saying that our share of voice is necessarily higher by market.

I'm saying that if you use that as the measure of consumer engagement, which is a questionable hypothesis, even though it gives you a number, we have remained competitive.

And back to the comment we made earlier, our objective is to make sure we have brand awareness of our base business and build trial for new businesses.

And we believe the spend levels we have do that.

If you look at the category rates of growth, I would argue that growing categories is a lot more complicated than simply media pressure.

Obviously in our advertising we do the educational work, but sometimes perhaps we don't talk about it enough or people don't focus on it enough.

But how you go to market, the depth of distribution you build, the sizing pricing you have in your portfolio, indeed the price points you have in your portfolio, amplified by price, both at the low end and the high end creates access points for people to come into and stay in a category.

And we put an awful lot of pressure and effort to making sure we construct our portfolio the right way in order to keep the category penetration up and keep the growth rates of the categories at healthy levels.

And all of that you see in the portfolio choices we make, the sizing pricing choices we make, the distribution gains we get right down to the furthest rural areas.

And that is very much a driver on sustaining category growth.

Now it's a very big discussion, Ali, and I'm not trying to trivialize it.

I'm just trying to suggest there are more factors that come to bear than just advertising.

And then to come to your second point.

And some of you have already started to indicate this, so let me try and respond to the question and be clear.

As we said in our release, at current spot rates, we continue to expect a low single-digit earnings per share decline on a dollar basis, excluding of course, the restructuring and the other charges we highlighted in the release.

To be clear, low single-digit earnings decline range, dollar earnings decline range, is minus 1% to minus 3%.

And in as much as we have seen continued significant deterioration in foreign exchange rates over the course of the second quarter, and since we last spoke, we would expect to be at the more negative end of that range, which would still reflect a double-digit increase on a currency-neutral basis.

Thanks for being clear.

John Faucher, JPMorgan.

Thanks, good morning, everyone.

Ian, if you look at the gross margin reconciliation that you did, obviously a huge hit on the raw materials standpoint.

You talked about raw materials beginning to trend more favorably in June, I think you said in your commentary.

So as we look at the transactional piece of that versus the general, let's say, dollar base raw material inflation, how should we see those things changing as we look out over the next 6 to 12 months and that starts to flow in?

Can you give us some direction in terms of how much of that transactional piece you'll be able to offset with the more favorable moves in the underlying raw material rates?

Thanks.

I think depending on your view on foreign exchange, we've just given you our view on foreign exchange.

That, unfortunately, is likely to continue.

The benefit will come in the material costs, the commodity costs, over the balance of the year and the increased pricing that we will be taking.

So it's really, if I give a general view, that's really the way it breaks down.

Got it.

I was looking for a little bit more of a directional view in terms of excluding the FX, excluding the productivity, just how big can the swing in the raw material benefit be even, if it's just directional over the next several quarters?

That was the detail I didn't want to, and still don't want to, give.

Okay, thank you.

Olivia Tong, Bank of America.

Thanks.

First following up on John's question, the gross margin outlook, while down from prior expectations, implies a fairly big acceleration in the second half and you mentioned plans for more pricing, so that's part of it.

But can you talk through some of the other key drivers, like funding the growth and some of the cost savings programs that will help drive that meaningful improvement in the back half margins?

Olivia, clearly, well, it really is a combination of the factors that I raised before, which is more pricing, more funding the growth, more favorable underlying commodity pricing, and maybe a little bit of global growth and efficiency as well.

And then you've maybe got the mix aspect of our business that could provide a factor as well.

But the real drivers will be pricing, will be funding the growth, underlying commodity costs and maybe a touch from global growth and efficiency, as we have seen before.

Thanks.

And then on North America, why does there seem to be more volatility on pricing in North America than all you other regions?

Because it was up last quarter, and then it reversed to be down this quarter.

So what's driving difference?

The biggest single difference, Olivia, is couponing.

Couponing is a very effective trial mechanism in the US, used more in the US than any other geography around the world, and of course goes into trade spending.

Bina mentioned some of the new products that we have been introducing and we have obviously been trying to build trial of those new products, and therefore you invest in couponing and you see it in the volume growth of the business.

So you're always going to see North America as a little bit more lumpy quarter on quarter because of that difference in the go-to-market.

Thank you.

Mark Astrachan, Stifel Nicolaus.

Thanks and good morning, everybody.

Hey, Mark.

I wanted to ask as you go around the world, which geographies are you seeing the most impact from local regional competition?

How do you think about changes in go-to-market strategy to compensate, if any?

Any thoughts or current updates on a different way of actually going to market.

How are you embracing internet where applicable and so forth?

I would say local competitors are a factor around the world.

I guess they've been often discussed by several folks in China.

Certainly we see them in Latin America.

And you know, your best way of responding and the way we try to respond, is to understand the consumer and make sure that the innovation we're providing is competitive against the benefit or the product offering the local competitor is providing.

And then secondly, when you mentioned go-to-market, it is often the case with the local competitor that they have a particular infrastructure that can build down-trade distribution and a lot of activity, again at retail level, and you just need to be effective in making sure that your products are available at equal weight to that competitor, and that you have the same degree of activity at retail level to compete with them.

China is an interesting example where our market share over the last several years has gone up from 29% to 34%.

One of our principal competitors has come down from 25% to under 14%, and another has come down from 12% to high single-digit.

And the local competitor has really taken the difference.

So without making one example a predictor for the world, I think it demonstrates we have managed to defend and continue to grow our business quite well.

But it comes down to product offering and the strength of your go-to-market, particularly down trade and particularly activity at retail.

Javier Escalante, Consumer Edge Research.

Good morning, everyone, Ian, Bina.

Hey, Javier.

Quick question with regards to Hill's.

Very good number, the 7%.

It seems like the growth, at least in your 10Q, you say that the Prescription Diet category more like the veterinary side of the business, was the most meaningful contribution.

I had expected, because last year we had this problem with the PetSmart specialty stores outlet, that it would be the other way around.

If you can explain the dynamics of the pet food market with the entry of these Blue Buffalo as a publicly-traded company, are they promoting more?

What is happening in the specialty stores?

And how sustainable this growth is in the veterinarian channel?

Thank you.

I guess the simple answer is they both grew.

And the reason for the growth was driven by innovation, both on the prescription diet line and the science diet line.

The appearance of Blue Buffalo in the pet super stores is not a new thing.

They have been there for a long while.

And our presence in those stores, our activities in those stores, has not been affected.

So we saw very good growth.

And as we have tried to say several times on calls, one of the big differences we were striving for was a stream of innovation on Hill's so that it was not episodic but that we had a flow of innovation, both on science diet business and the prescription diet business.

And we think we have that.

Who couldn't love innovation that has enhanced appetite trigger built into it?

I bet the pets go for that.

It's driven by innovation.

Where Blue Buffalo will be new is in the more therapeutic side of the business.

They have announced two entries in only two segments, one is derm, one the gastrointestinal.

You'll remember from Bina's remarks that we are going to market with a very compelling gastrointestinal product right now with the prescription diet line.

So I come back to the innovation.

We think it's strong, and we think it will see us well with our very elevated share with the vets, which as you rightly say, continued to grow in the second quarter.

We think we're well positioned with both, Javier.

Lauren Lieberman, Barclays.

Great, thank you.

Hey, Laura.

Hello.

A couple things, one is it was very clear mathematically that the SG&A has to be the plug with the lower gross margin outlook.

I was wondering if that is really sourced from the restructuring savings, if it's an acceleration, what you're tapping into to be able to offset some of the gross margin impact.

And then the second thing was, is it reasonable to assume that some of the gross margin impact is just a timing issue?

Like the pricing that will coming through to the balance of the year.

As you get into 2016, we'll make up some of this incremental pressure you're seeing in commodities because of the FX.

Could you repeat the second question, Lauren?

Yes, sorry.

I realized as I was talking, I was getting really unclear.

The transactional impact on commodity costs, which I think is what you were saying in Venezuela, is the timing of the pricing the issue?

That it's not that you're not going to price to recover this incremental pressure, it's just you can't get it in fast enough to cover the impact this year.

But as you go into next year, it starts to catch up.

Correct.

We've always had this situation.

I tried to say earlier in response to a question, in some cases, Russia would be a classic example where a crisis emerges, you take very aggressive pricing and accept the fallout on the volume just to stabilize the business.

In other cases you simply can't take pricing quickly enough and intelligently manage the balance between volume price and therefore the top-line growth in response to transaction which hits you the minute the exchange slides.

So our pricing benefit from that will be progressive over the balance of the year, and you're correct, will continue into 2016.

So as we look at the balance of the year, yes, it is to do with the global growth and efficiency program.

And as I said, advertising will be broadly in line with last year.

You may recall the last time we spoke, from a ratio point of view, you may recall the last time we spoke we talked about it being up.

So heavily led by global growth and efficiency and I think you could say a moderation.

Again, we still think by our share and our top-line delivery, competitive but a moderation in the advertising over the back half.

Ian Simpson, [Sockchen].

Thank you very much.

We've seen increased commodity volatility and also increased currency volatility of late.

And you've talked about how your attitudes to pricing and trade has been changed in response to that.

Have you seen anything unusual from any of your global competitors in how they prioritize the balance of their spending?

Is the landscape moving more towards trade spend or advertising?

Or if you could give us some color on the dynamics there.

Thank you very much.

First of all, it's a great name.

But in response to the question, as we answered a previous question, I would say from a global point of view, no substantial difference.

If you go country by country around the world, you see different approaches from different competitors that you have to react to, but no overarching strategy that sees a significant change, no.

That was our final question.

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

No, thank you very much, Jessica.

Thank you all who joined the call and your interest in the Company.

And as we always say at this time, thank you especially to the Colgate people who make it all happen.

Bye, bye.

This does conclude today's conference.

Thank you for your participation.