高露潔 (CL) 2015 Q3 法說會逐字稿

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

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

Today's conference will include forward-looking statements.

These statements are made on the basis of the Company's views and assumptions as of this time, and are not guarantees of future performance.

Actually events or results may differ materially from these statements.

So for information about certain factors that could cause such differences, investors should consult the Company's reports filed with the Securities and Exchange Commission, and available on Colgate's 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 the Company's results prepared in accordance with GAAP.

Colgate will discuss organic sales growth, which is net sales growth, excluding foreign exchange, acquisitions and divestitures.

The Company 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 of the corresponding GAAP measures is included in the press release, and is posted in the for investors section of Colgate's website, at www.colgatepalmolive.com.

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

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

Please go ahead, Bina.

Thank you, Kelly, and good morning everybody, and welcome to our third quarter 2015 earnings conference call.

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

We're pleased with the continued solid organic sales growth.

Of course, negative foreign exchange continues to be a major challenge.

But as you'll hear, our market shares are strong and growing, one of the best indications of the health of a business.

Happily, gross profit margin increased in the quarter as a result of our funding the growth initiatives, pricing actions, and our global growth and efficiency program.

Worldwide, our overhead costs are down on a dollar basis.

Now while reported advertising was down on a dollar basis, we think we're getting good results from the dollars we spend, both in-store and out.

Digital advertising is growing.

In fact, as an example, in Latin America, we are increasing our investment in digital to better reach our younger audiences, as well as to drive engagement.

And as we focused on developing strategic collaborations with partners such as Google and Facebook, we're better able to measure the results of our investment.

Marketing mixed model studies from several countries across Latin America show an ROI for digital investment that is 3 to 4 times higher than TV, confirming this shift is right to drive our business.

Our balance sheet remains solid, and we're making very good progress on working capital.

So let's get right into the divisions, starting with North America.

Innovation continues to fuel our success in North America.

As mentioned in the press release, our market shares are up year to date toothpaste, manual toothbrushes, mouthwash, liquid hand soap, body wash and fabric conditioners.

And this was true on a quarter-over-quarter comparison, as well.

At the same time, we've seen a decline in private label shares in many of our categories, indicating the consumer's preference for branded products and the strength of our equities.

In the toothpaste category, the launch of Colgate Total Daily Repair, supported by an engaging media campaign and strong in-store shopper materials, has added incremental share to the baseline products.

In the whitening segment, we offer a full range of products, toothpaste, toothbrushes and mouthwash.

Our Colgate Optic White toothpaste has grown share from 2.4% in the third quarter of 2011 to a 5.7% share in the most recent quarter.

Colgate Enamel Health has also seen good growth momentum, increasing a full share point, quarter over quarter.

Another exciting opportunity is the sensitivity segment, where we are strong a number two player.

That segment has seen a compound growth of 7.7% over the last four years, versus 2.8% for toothpaste overall.

In the mouthwash category, where our share is up year to date 20 basis points, both Colgate Total for gum health and Colgate Enamel Health mouthwash are picking up momentum.

Our Colgate Total for gum health variant is the number one new item in a leading retailer, and receiving full support in-store.

In liquid hand soaps, our year-to-date share is up almost a full point, to a leading 30.6%, while private label products have declined almost two full points year to date, the lowest level in at least five years.

Premium offerings such as SoftSoap fragrant foaming collection and decor collection foaming hand soap, offer distinctive benefits.

Similarly, SoftSoap Fresh & Glow body wash, with real extracts, with a unique formula giving you healthy looking skin that glows, launched earlier this year, has increased our share in that category by almost a full point, year to date.

Fabric conditioner has also continued to perform well.

Suavitel fragrance pearls in-wash scent boosters, which provide five times longer-lasting fragrance versus detergent alone, which we told you about last quarter, has helped increase our national share almost a full point year to date, now approaching 20% of the market.

More trial-focused programs are expected to drive further growth in the fourth quarter.

Now as you would expect, our new product grid is well populated, and we will share with you some more exciting innovations slated for early 2016 on future calls.

Turning then to Europe/South Pacific.

Our business there is showing encouraging signs of recovery, with innovation playing a critical role.

Our market shares are up year to date in toothpaste, manual toothbrushes, body wash, shower gels, underarm protection and fabric conditioners.

In toothpaste, we're very excited about the early successes of our launch of Colgate Max White Expert White toothpaste, the latest premium offering in this fast-growing segment.

Launched in the UK in June, it achieved a 2.7% share in August, and was named the best new toiletries launch for 2015 by one of our larger drug retailers.

Two products under the Elmex brand, developed specifically for the pharmacy channel, Elmex Sensitive Professional and Elmex Anti-Cavities Professional, have driven our pharmacy share in France to a leadership position of 26.3%, year to date.

And now ahead of the nearest competitor by 150 basis points.

In manual toothbrushes, our leading market share in Europe is up 130 basis points year to date, to 24.6%, with our nearest competitor down to 17.4%.

Driving these excellent results has been the relaunch across the region of our Colgate 360 Degree manual toothbrush line.

Priced at the super-premium tier, these brushes deliver superior cleaning, for a whole-mouth clean, and have been supported by a full shopper program.

We're also very encouraged by our launch of Sanex Advanced range of body washes, underarm protection and body and hand lotion.

This innovation brings dermatological expertise for skin-specific needs to a third growth pillar for Sanex, leading the brand towards a more professional approach en masse.

Early results are excellent.

Since launch, Sanex is the fastest growing brand in both body washes and underarm.

And in our top markets of France, Spain and the UK, our market shares are up in both categories.

In fabric conditioners, our market shares are up 20 basis points year to date, to 24%, across the European region, with the most recent read at 24.5%.

Contributing to this success is Soupline Fruity Sensations, with a striking look and feel, and new, different and long-lasting fragrances.

More innovation as planned across our categories for the rest of this year and into 2016.

Specifically, in oral care, we will be launching the Colgate expert White toothbrush and built-in whitening pen.

As you know, that product form has helped drive our manual toothbrush share to record highs here in the US.

In toothpaste, we will be launching Colgate Total Proof.

This innovation uses breakthrough color change technology that turns the white paste into a blue foam while brushing, giving consumers the confidence of the ultimate clean feeling.

Turning then to Latin America, business across the region is solid, and as elsewhere, innovation has driven market share increases.

Our regional market shares are up year to date in toothpaste, manual toothbrushes, mouthwash, toilet soap, liquid soap, shampoo, hand, dish and liquid cleaners.

And even in the face of some economic uncertainties in countries such as Brazil, our category still shows solid local currency growth.

Our regional toothpaste share is up 2 full points year to date, to 78.2%.

In Brazil, our market share is up 50 basis points year to date, to 72%, the highest share in over 20 years, and in the face of continued heightened competitive activity.

Colgate Total 12 re-launched in August, with a positioning of, protects 100% of the surfaces of the mouth, now has an 18.5% share in the most recent period.

In Mexico, our share is up 1 point year to date, to 81.3%, with the most recent read at 81.6%, while our major competitor shows continued share decline.

Contributing to this success is our premium-priced Luminous White Advanced, Colgate's most advanced whitening toothpaste, formulated to intensify the whiteness of your teeth by three shades.

In manual toothbrushes, our market share is up 230 basis points year to date, to 45.4%, with the most recent read at 49.8%.

In Mexico, we recently re-introduced our Colgate 360 Degree line, with a new packaging structure, with premium finishing and improved benefit communication.

Whole mouth clean, with 151% more bad breath bacteria removal.

As a result, the Colgate 360 Degree equity is up 110 basis points year to date, reaching a record 11.1% share.

Our leading year to date bar soap share is at 30.8%, with the most recent read at 32%.

Record high shares were achieved in Mexico, Colombia and Guatemala.

And our two equities, Protex and Palmolive, continue to hold the number one and two positions across the region.

In Mexico, where we have a strong home care business, our results are excellent across the three sub-categories, hand dish, liquid cleaners and fabric conditioners.

Our market shares are up, on a year to date basis, 230, 40 and 150 basis points respectively, to 52.6%, 33.5% and 48.4%.

So looking ahead, to further boost our leading manual toothbrush share, we are now in the process of launching Colgate Slim Soft White, with 17 times slimmer tip spiral bristles, which provide both whitening and deep ye gentle cleaning.

An innovation launching now in fabric conditioners is Suavitel Goodbye Rinse, the market-leading Suavitel, with an improved no-rinse formula.

And as you would expect, more innovation is planned for 2016, to continue the momentum in this region.

Turning then to Asia, we're pleased with the strength of the business, particularly in our two largest markets, China and India, which both delivered good volume growth.

Category growth rates remain mid-single-digit in China, while in India, our categories are growing, as well.

In India, our year-to-date toothpaste share is at almost 55% on a national basis, and close to 59% in rural markets.

Our market-leading manual toothbrush share is 43.6% year to date, and our launch of Colgate Sensitive Pro Relief enamel repair toothpaste, while in its early days, is doing well.

Our Colgate 360 Degree Charcoal Bold toothbrush, launched earlier in other Asian markets, is now contributing to the results in India.

This successful innovation, with antibacterial bristles, provide a whole mouth clean, and has achieved strong shares across the region in the most recent period.

1.4% in Hong Kong, 2.5% in the Philippines, 1.3% in Taiwan, and almost 1% in Malaysia, and has been incremental in each market.

More innovation is slated for this quarter and beyond.

In China, we'll be launching two new products developed to appeal to local consumer preferences.

Colgate Power White Lemon Salt toothpaste, for freshness and whitening experience with a lemon and sea salt flavor, and Colgate 360 Degree Gold Ginseng gum care toothpaste, which contains ginseng essence, and enhances the gums' power of defense.

Two popular Colgate Total variants, Charcoal Deep Clean and Pro Gum, will now be available in a gel format, in addition to the paste.

And in Thailand, in the personal care category, we're launching products for both men and women.

For men, Protex Men 3-in-1, an all-in-one body cleansing solution with antibacterial protection.

And for women, Protex Intimate, with antibacterial protection for long-lasting freshness and a well-being sensation every day.

Africa/Eurasia.

As you know, several of our larger markets in the Africa/Eurasia region have been facing major currency headwinds.

Despite the pricing actions we've taken to combat the currency headwinds, our organic sales growth is holding at mid-single digits.

Market shares are increasing, and successful innovation is fueling our growth.

Our regional toothpaste share is up a full point year to date, to almost 33%.

In Russia, our share is up 230 basis points year to date, to 34.2%, hitting a record share of 35.1% in the most recent period.

We recently launched Colgate Maximum Cavity Protection with sugar acid neutralizer, which has already reached a 0.7% share year to date, and contributed to the share gain.

In South Africa, our share grew 150 basis point year to date, to 50.2%, driven by a new marketing campaign behind Colgate Total.

In toothbrushes, our share declined in only one country, and was up in the majority of our markets.

In Russia, where we achieved incremental listings in Russia's number one retailer, our toothbrush share grew 270 basis points year to date, to 48.1%, with the most recent read at 49.4%.

And in Turkey, our share grew ten basis points year to date, to 28.6%, with the most recent read at 29.7%.

And in South Africa, our share was up 30 basis points year to date, to 38.2%, with the most recent read at 38.6%.

Our bar soap business continued with strong momentum in our two biggest markets, Russia and South Africa.

The recent introduction of Protex Man Power contributed to a regional share gain of 150 basis points year to date, to almost 24%.

More innovation is slated for this quarter.

Across the region, we will be re-launching our base Colgate Sensitive toothpaste, and our line of Plax mouthwash.

In the personal care category, we will be launching a body wash occupying the new energizing segment for men's body wash, Palmolive Men's Citrus Crush.

It invites the consumer to experience an intense, invigorating shower, with bergamot and grapefruit ingredients, sourced from the purest substances of nature, and the sparkling citrus fragrance to spoil the senses.

And Hill's.

Hill's delivered another solid quarter of organic sales growth, with a good balance of volume and price.

Here in the US, super-store retail consumption showed a good increase.

Innovation across Hill's Prescription Diet and Hill's Science Diet, as well as volume growth in our Ideal Balance brand, contributed to our good results.

Our Prescription Diet Metabolic Canine and Feline foods continued to gain share around the world.

Our new stews form has accelerated our growth in the wet segment.

We continue to receive endorsement from key thought leaders.

And the global rollout this year of Prescription Diet Metabolic Plus breakthrough dual efficacy food, with nutrition clinically proven to address obesity and concurrent conditions, has added to the momentum of the business.

It is now selling in 38 countries, and has benefited from extensive sampling to drive awareness and trial.

Our ongoing global integrated marketing campaign includes professional print, online media, in-clinic seminars, and recommendation tools and testimonial videos, to showcase efficacy.

In our wellness business, one of our newer launches, Hill's Science Diet Urinary and Hairball Control, is meeting with excellent results.

The only wellness food that addresses the two most common conditions in healthy cats, it was among the top three wet variants in the US market during the first three months after its launch, and has a very high star rating on Amazon.com.

It has been the product focus for our nutritional consultants at PetSmart and Petco, and has received good in-store activation feedback.

Building on our success in the US, it has just been launched in Europe.

And as we look into 2016, there's more exciting innovation news, which we will discuss with you on future calls.

So in summary, we're pleased with the continued solid organic sales growth and market share gains around the world.

Our innovation pipeline is as full as ever, and our savings programs are on track.

Colgate people around the world continue to focus on our four strategic initiatives, delivering consistent results.

So we look forward to sharing our results with you, as we finish the year.

And now, Kelly, I should like to turn it over for questions.

Thank you.

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

(Operator Instructions)

Dara Mohsenian, Morgan Stanley.

Good morning, guys.

Hey, Dara.

So first, Ian, just a detail question.

I think last quarter, you had indicated local currency advertising would be roughly flat, year over year, as a percent of sales in 2015.

Is that still the case?

How are you thinking about that line item?

And then the real question on that front is, it's now been six quarters in a row where A&P has been down substantially as a percent of sales.

I know you've indicated before it's been funneled back into promotion, which has been effective, given the market share performance.

But the level of pullback in A&P in really striking, relative to your traditional -- traditionally, the way you've run the business.

So I guess what gives you confidence this won't come back to bite you in the long run, in terms of lower demand going forward, particularly given the macro situation out there right now?

Yes, thanks, Dara.

As you might imagine, not an unexpected question.

And in answering it, as you did, let's take a little bit broader perspective, and then come back to your specific question.

So the world we're dealing in today, in terms of our categories -- so I'm talking Colgate businesses now, in the categories in which we do business, not the macroeconomic scene.

We have a world where our categories are growing between 0% and 2% in the developed world, in Europe, at the low end of that, and in the US at the upper end of that 0% to 2% growth.

In the emerging markets, through this call, the growth rates in our categories continue to be mid-single-digits, generally.

And our objective, business objective, in that arena has been to have a sustainable rate of growth organically, in that 4% to 7% range that we mentioned at the beginning of the year, which we think we continue into the third quarter.

And we continue to talk about 4% to 7% for the year.

And indeed, as we think about 2016, we began our budgeting process with the same ambition next year.

And the way you get that consistent rate of growth is by building your brands.

And you build your brands, as measured in market share.

And as we choose investment vehicles to build those brands, you're focusing on trial and repeat purchase of our new innovation and our existing businesses.

And don't forget, in many of these emerging markets, consumer behavior is challenged by local category conditions in those markets, and in-store engagement can be more persuasive than what we were all educated as being proper advertising investment.

So we balance, and like to think we invest smartly in traditional media, the traditional television, magazine, radio sampling devices that would be in that advertising number.

With an increasing shift, as Bina pointed out, to digital, digital being both lower cost and a better rate of return.

And frankly, I think Latin America, where millennials are now the predominant parent generation, a better way of engaging with that target group.

And then as you indicated, Dara, the in-store work that we do, that in these volatile times, can be particularly powerful.

Now all of that said, as we think about going forward, and we begin our process for the budget in 2016, even though we haven't yet fully begun that process, if we look at the array of innovation we have over the next three years, starting in 2016, I think it would be safe to say that our expectation would be that our traditional advertising ratios would be up in 2016.

Okay.

And is that on a local currency basis, or that's overall Company?

And also, can you give us a sense of where you lead 2015, in terms of the ad ratio?

The ad ratio will be -- according to our current plans for 2015, will be up, quarter on quarter, for the balance of the year.

And now I'm talking income statement, so I'm talking dollar.

And if you think about 2016, I think at this stage, the expectation would be dollar.

And of course, therefore, local currency, given what I think most believe will be an improving -- or at least a less bad foreign-exchange environment.

Okay, thank you.

Thank you.

Wendy Nicholson, Citigroup.

Hi.

First of all, Bina, you talked about the Brazilian competitive environment as still being fairly intense.

But can you talk a little more qualitatively?

Is that more price-based competition?

Is there more advertising?

Is there more innovation?

Just fighting for shelf on space?

Or just -- I know your shares are good, but directionally, what are you seeing there?

And then just separately, housekeeping on Hill's.

Can you remind us what the split is, US versus international sales now, for Hill's?

And maybe in the quarter, how sales performance differed by region?

Thank you.

Yes.

The Brazil -- I don't actually recall Bina's language.

But frankly, the Brazilian environment hasn't become particularly more competitive than historically.

It continues to be a competitive marketplace, to be sure.

But again, back to my answer to Dara, we -- with the programs we have and the innovation we have, we see our market share is continuing to grow.

And at 72, as Bina said, it's the highest in the last 20 years, with our principal competitors both down.

So frankly, at this stage, whatever the threats are in the marketplace, we seem to be meeting them.

If we turn to your second question, which was around Hill's, I think it would be fair to say, in broad terms, that Hill's is about a 50/50 US/domestic international business split.

And the trends internationally versus in the US, in terms of growth for Hill's, similar?

Similar.

Yes.

The innovation moves from the US around the world.

And I'm pleased to say, things like Metabolic and Metabolic plus are having similar impacts wherever we take them.

So yes.

Terrific, thank you.

Thank you.

Caroline Levy, CLSA.

Great, and I'm sorry, I hopped on a little late.

But I'm wondering if you addressed Venezuela, and the decision not to take it to worst-case scenario in the earnings?

Unless I missed something there?

No, you didn't, Caroline.

And I'm sure many of you have not yet had the chance to get to our Q, which was posted earlier this morning.

But as you well know from the financial literature, and the decisions that one makes in this space, any decision that we would take to de-consolidate would be driven by our inability, on an ongoing basis, to get dollars.

Or if we faced additional restrictions on our ability to make local operating decisions on the ground.

Clearly, these are things that we revisit, quarter upon quarter.

And we duly did so for this quarter, Caroline.

But based on our facts and circumstances, and the assessment we made, we have chosen to keep reporting Venezuela this quarter.

And of course, that is a subject that we will revisit, period as period, as time goes on.

And of the 12% pricing in Latin America, then, can you say how much is Venezuela?

Remember, the government-approved pricing that we got in Venezuela, which I think was around 70% plus, 74%, if I remember correctly, that was in the fourth quarter of last year.

So obviously, you have the rollover effect.

There is some pricing, obviously, we get for the non-regulated businesses.

But I would tell you that we are getting pricing, across Latin America, from Mexico down to Argentina.

Thank you very much.

Ali Dibadj, Bernstein.

Hey guys.

Hey Ali.

Hey.

I wanted to ask again about why you are confident you are striking the right balance, in terms of volume versus margins, for the long-term?

And so, take -- maybe in two dimensions.

One, take as the move more and more to in-store promotions, in-store displays.

Doesn't that suggest that the consumer is making more and more decisions at the shelf?

And that has been a trend going on for a while?

It seems like it's accelerating.

So does that reduce you -- essentially, competitive advantage over the long-term?

Because it's -- I think it's tough to really differentiate yourself as much in store as one could to do through traditional media as an example.

Perhaps online, although I would say that the ROI there is still pretty iffy, because there's no long-term history.

So how do you balance that?

Is that -- are you setting yourself up in a tougher situation by pushing more in store for the long-term, given you are trying to differentiate your brand?

Very good and deep question, Ali, as usual.

The answer is, it's not either/or.

And I think if you were to go back to, again, the days when many of us made our marketing bones, in-store activity was pretty rudimentary.

There was a cardboard display stuck at the end of the shelf, with the $0.99 off flag on it, hardly brand building in nature.

And that is why everybody has this aversion, if you will, to in-store investment, versus the supposed quality of the engagement we get from the traditional media.

Understanding that that world today is so fragmented that it is less precise than perhaps many of us believed historically.

So no, obviously, you don't find yourself in a place where all of your engagement with consumer happens at the retail level.

But with the data available to us today, with the techniques available to us today, with some of the in-store engagement materials available to us today, which are brand and benefit and therapy, open brackets.

Colgate-specific, including, sometimes, the coloring of the shelves that house oral care products at retail, that is a wonderful environment to get consumers to make that final decision, particularly if they are in a stressed, highly devalued geography.

You still have the advertising -- and we can debate traditional versus digital -- that is making the awareness connection, and seeking to provoke the trial.

But you miss everything, if you don't engage with the consumer when they come to that store, to make sure the trial engendered is for your product.

So yes, it is a balance.

So it is not a journey to everything at retail, but I think that historical perceptions of what you can do at retail, and frankly a prejudice that says what you do do at retail is by definition not brand building, I'm afraid is a little bit old-school.

So besides that I am old, and I am old-school, do you --

As am I, by the way.

But do you think -- So I understand engaging at shelf.

You guys have seen it, you guys have done it very well.

The Brazilian side (inaudible) show.

I struggle with that being not -- that being differentiated.

So feeling that that's probably easier to copy, with a little bit of spend in-store, with a little bit of more discussion with the merchant in-store, than really good copy, right?

And whether that be digital or not.

And it sounds like you don't even think that's the case.

It's not as copy-able in-store?

No, Ali, again, take Latin America.

Think about our market share, and think about how much of that shelf we have.

Then think about Red, then think about a program that may take a local dentist, with an incentive to go to a store and buy Colgate, that is hitting you in the face with a therapeutic health message.

So you're coming in provoked by the dentist, and Colgate is engaging you at shelf.

A competitor can spend more money.

They're not going to get that presence at retail.

So I would argue it is differentiating, and the presence you have at retail, with the market shares we have in our specific categories, come back to the more fragmented media market, you can argue, which is more likely to get the consumer's attention.

Having said that, I am still old-school.

And I agree with you, good copy is a very important part of our marketing mix.

But it's a marketing mix, I would argue.

It is not simply more of the store, but everything on media.

Things are much more balanced.

Okay, thanks.

Bill Schmitz, Deutsche Bank.

Hi, Ian, and good morning.

Hey, Bill.

Have you thought about doing something inorganic?

It's been a while since you guys have looked at acquisitions, and it seems like the industry is clearly changing very rapidly.

There's obviously a lot of activist interest, there is this big focus of cost cutting.

And it seems like you're pretty deeply penetrated, especially in oral care.

So is there anything out there that you guys would think about, at this juncture, that would maybe better leverage some of your distribution infrastructure?

Yes, it's clearly a very good question, Bill.

And obviously, were I to answer it, I would have to kill you.

(laughter) The -- so I think the headline would be, I think we're very thoughtful, and we're very strategic about acquisition.

You have seen that, I think, in those things that we have acquired.

We're always strategically open to the right acquisition at the right time.

As you know, these things are a little bit a process of serendipity, however much you woo and pursue.

And then we are also very disciplined on valuation.

You have to live with what you buy, for the betterment of the Company over the long haul.

So I think my answer would be, we're as interested in acquisitions as we were in Sanex and Gerber and Tom's, and the Laser brand in Myanmar.

And if more were to become available, and the price was right, you'd see us as interested going forward as we have been over our recent past.

But I wouldn't make it a tilting point, now versus previously.

Okay, great.

Can I just ask a follow-up?

You may.

Okay, thank you.

I'm asking you to read the tea leaves here.

But are there any signs that we're bottoming in emerging markets?

I know the category growth rates are still fairly healthy, but almost all of it is driven by price and mix.

If you look at some of the -- like the scan volume data, it's flat to up very slightly.

So most of that's inflationary pricing, with the absence of a local competitor.

So do you have any thoughts on when we really start to see consumption come back?

I think, in terms of critical consumption, first of all, some of these markets are growing in volume terms, so it's not everywhere.

But you're right.

When pricing is very aggressive, needs as must from a dollar point of view, that tends to depress volume in the short haul.

So without being glib, I think my answer would be, once the necessary wave of pricing is behind us and everybody else that's taking pricing, I think you can expect the balance between price and volume to move back more onto the volume side of the equation.

When exactly that will be is difficult to tell.

I would certainly say it will be no earlier than next year.

Okay, great.

Thanks so much.

Jason English, Goldman Sachs.

Hey, Jason.

Hey, good morning.

Thank you for the question.

I want to come back to the investment questions against the consumer.

You're -- so a two-part question.

One, it sounds like you believe we're in an environment where shifting more to trade makes sense, given the shopper marketing components, and the ways of engaging the consumer there.

And digital, of course, is playing a larger role.

With that said, is it fair to assume that the measurable A&P line in your income statement, we should expect that ratio to sales to remain lower than it has been historically?

And secondly, as you move to trade, and you move to essentially a contra-revenue line item that we can't see in the P&L, it becomes a little hard to measure, for us to see.

So can you give us a sense of, if we were able to group both trade and measurable A&P together, and look at that as a percentage of sales, how that may be changing, year to date, versus prior year?

Yes.

The latter is difficult to do, Jason, because one comes off gross, and the other is measured against net.

So what I can tell you is that what you are calling trade spending is up this year.

But to come back to you more fundamental question, a few things.

Number one, this notion of shopper marketing is not a third quarter 2015 comment.

We have been trying to make this point unsuccessfully for the last two to three years, for the reasons I detailed a little bit earlier.

We believe, well done, it is part of building brands.

Number two, you're right, digital, I think, will become an important way to target and reach different consumer groups, going forward.

And that carries with it a different dollar to the traditional media.

But no, I would not take the notion that forever, going forward, our traditional media to sales percentage, the one you do see, will be lower and stay lower.

That, as I said earlier, in response to a question, I think will be driven by the innovation spread that we have.

And as I said earlier, even though we haven't finished the budget process -- actually, we haven't even started the budget process.

But when you look at our innovation grid for the next three years, starting in 2016, I think, my expectation would be, that you will see that ratio had head back up a little bit in 2016.

So it will move around, I'm just trying to assert that there's no good and bad, it's all in the marketing mix.

And they are all legitimate ways of engaging with consumers.

And particularly in volatile times, with high devaluations, that closure, if you will, with the consumer on sale, in those highly de-val'd emerging markets, happens in that retail environment.

Thank you.

So can you help me understand why it is hard to give us a sense of the trade spend number?

You know the number.

Instead of dividing it by gross, you could just divide it by net, to give us the ratio.

Am I oversimplifying it, by thinking about it that way?

No, no you are not.

We haven't done that.

Let us think about that.

We could do that.

It is then a created number.

Sure.

Okay, thank you very much.

Olivia Tong, Bank of America Merrill Lynch.

Great, thanks.

Hi, Olivia.

How are you?

So just on advertising, you mentioned it should go up next year.

But do you think this level was abnormally low, and you'll see a big move upwards next year?

Or is the plan for up, but not materially so, in 2016?

And what are you seeing in terms of the -- a decision on promo versus advertising from your major competitors?

Because I ask in the context of Proctor shifting some of their -- trying to realize more margin, potentially, at the detriment of sales in some cases?

Thanks.

First of all, I have tried to explain the third quarter this year.

It is a quarter; I wouldn't obsess about it.

I don't think it's abnormally low, and therefore, as we approach our 2016 budget, we're saying, we need to get it back up to X or Y level.

I do believe, we do believe, that with the richness of innovation we have, the expectation will be that it will be up.

How much it will be up?

We will know when we finish our budgeted process.

Now, as you look around the world -- and something I elected not to say, lest one sounds defensive.

But as you go around the world, in many parts of the world, you continue to see many of our multinational competitors pull back on traditional advertising quite substantially.

And in many of our key markets, even if you take the old-fashioned measure of share of voice, we remain, just on the face of it, quite competitive.

Now, we have seen some corroborating signals of certain businesses exited by competitors, in order to realize price.

You see that public information in India, and you see that in the marketplace.

But if we take the breadth of our business, there's nothing I would point to, to say the shape of the promotional environment that we're in has meaningfully changed.

Got it.

If I can just move to restructuring?

Are you pushing harder on the initiatives you've already outlined?

Or these new areas that you'll be exploring?

And will this result in more saving starting in 2016?

Or is it just an extension to another year of savings?

And as you think about reinvestment versus dropping to the bottom line, are there any shifts there, in terms of how you think about this new tranche of restructuring savings?

So let's take a step back, Olivia.

Clearly, when we began this program, which, by the way, is a lot shorter than many of our competitors.

But when we began the program, we had three key areas.

And we said, at the beginning, that it was a global growth and efficiency program, and that it was a journey.

So we were establishing hubs, and we were establishing business service centers.

And we were transferring -- lifting and shifting, if you will -- capabilities to the new structure that we were building, that was supported by SAP across our Company.

So this gives us the opportunity to transform, a little bit, what we are doing with the new structure that we are creating, and do it in a time-bound window of 2017, rather than extending it over a longer period.

So it is very definitely still within the three areas that we defined at the beginning of the restructuring, no new areas.

It is definitely one more year.

And as we said in the release, we'll be coming back to you, early in the new year, with fleshed-out ranges of costs for the program and savings.

So on that one, we'll be back to you in the New Year.

Thank you.

Steve Powers, UBS.

Great, thanks.

I guess two cleanups, on topics already discussed.

Ian, on Venezuela, acknowledging every situation is different, is it fair to assess at least the likelihood of de-consolidation rising on the margin?

It feels that way from the outside, just want to get your perspective on that.

And then second, back to the restructuring that Olivia asked about.

Is there -- should we be thinking about more opportunity in this next wave building on the hubbing thread, shared services?

Or the -- is there a focus area, within the three, that is going to be of added weight?

Or maybe -- I'm just trying to get a sense for where the incremental focus will go, in terms of focus stream or geography?

Thanks.

Yes.

On your Venezuela comment, all I can say, Steve, is that this is something we revisit quarter by quarter, based on the facts and circumstances that present themselves in each of the quarters.

And we will continue to do that.

So I really and specifically do not want to shade how we are thinking about it.

We will be resolutely objective, and make whatever decisions we think are appropriate, based on the facts and circumstances at the time.

Now when you turn to the restructuring, I would say simplistically -- and we will be back with richer commentary next year.

I would say, specifically what we're talking about are activities that will be more transformational in how we use the hubs we have created, and how we use the service centers we have created, more fulsomely.

And I'd hold it there, at this stage.

So it is greater utilization around the basic structures that we will have fully established by next year.

Okay, great.

We shall stay tuned.

Thank you.

Chris Ferrara, Wells Fargo.

Chris?

Please check your mute button.

Sorry about that.

I thought it was something I said.

(laughter) No.

The SG&A, excluding advertising in the quarter, looks like it picked up maybe by 100 basis points, year on year, or so.

Can you go through a little bit what might have driven that?

Is that some of the shift in store?

Are there certain promotional activities (multiple speakers)?

No, no, Chris, that is straightforward leverage.

Our overheads, our dollar overheads, were actually down year on year, with the benefits we're getting from the restructuring program.

But there is a lot of overhead that is dollar-denominated.

And when you have the downward pressure of 13% foreign exchange on the top line, you end up with a leverage negative, and it is entirely traceable to that negative leverage.

Okay.

I guess, then, the follow-up to that would be, why didn't we see it nearly to that extent last quarter, when it was probably a pretty similar dynamic around the top line drivers?

I don't know.

The only other mix in it is the mix of countries.

So it may have been a country mix issue.

We'll have to get back to you on that.

I don't have the answer at my fingertips.

Okay, thank you.

Sure.

Javier Escalante, Consumer Edge Research.

Good morning, everyone.

Actually, my clarification has to do with Chris'.

Because it seems like headquartered expenses run the highest, since the [dolphin and nine].

And I was surprised, because of the hubbing.

Is this ForEx?

Or something else going on in that line?

And I do have a question with regards to commercial spending and category growth, if I can?

Thank you.

The -- what do you call it -- corporate overhead is flat.

So as I answered before, on this quarter, it's definitely leverage.

And your question on spending is?

I know basically in the past, and we know that the fact that the market shares are up across the board in oral care, it shouldn't be a huge change.

But essentially in the past, when advertising has been down, there have been commentary regarding aggregate commercial spending, which includes trade spending.

And trade spending is typically a magnitude 2 to 3 times advertising.

So could you tell us whether the aggregate of commercial spending is up or not?

And in the case of category, you mentioned that the category has like bottomed out -- this is in reference to Bill Schmitz's question.

So my -- could you clarify whether -- is it that the category, we're seeing negative mix because of the price increases?

Or actual volumes have slowed down?

Because it seems it's, considering that all the market share gains, all the pricing that you are taking in oral care, that organic sales could have been better.

So sorry for the too many questions.

Thank you.

The oral care organic sales were better than the Company average, number one.

Number two, in terms of total spending, you're right.

The trade spending as a ratio is a multiple of over 3 times the traditional advertising spending.

And relative to the category growth rates, Bill's question was to do with volume.

And my answer to the question, this balance between volume and price.

And he was asking whether the volume was bottoming out, and would come back.

And I think the answer we gave was, you would expect that balance to come back, once the higher pricing that has been taken had worked its way through, and that we didn't expect that to be earlier than 2016.

But if I may, so the question that I have is, based on your assessment, are you seeing, when you talk about volumes, there is this interplay between mix and actual tonnage, if you will?

So my question is whether, because of the price increases, you are seeing negative mix within Colgate's portfolio?

Thank you.

And the answer is, we're not going to get into that level of detail.

Okay.

Joe Altobello, Raymond James.

Thanks, hey, good morning, Ian.

Hey, Joe.

Just had a question on pricing in Latin America.

It sounds like, in your answer to Javier, that you are waiting on some of your competitors to match on the price increases you guys have taken.

I'm just curious, when you talk about your competitors in Latin America, are they mostly local competitors who don't have the same currency headwinds that you guys are facing right now?

Or are they more multi-nationals who do have the same currency headwinds?

We have both.

The local tend to be more country specific, Columbia and Mexico.

So they tend to be both.

And if I said it, then I apologize, I didn't mean to say it.

We're not waiting on anybody.

We have been taking pricing in Latin America.

And I would further say, when you look at the breakdown of raw materials in today's world, many of those raw materials are dollar-denominated.

So even the local competitor is going to be hit with the local currency transaction impact of raw materials coming into the country.

So I would say that the incentive to price is fairly elevated, across the board.

Okay, that was my question, yes.

I was trying to get to when they would follow your lead, essentially, on the pricing side.

So -- and then on the follow-up, in terms of advertising spending -- I know we've beating this to death a little bit here.

But can you give us a sense for what US advertising did in the quarter, year over year?

Thanks.

No, we don't -- again, we're not going to get into that level of country-by-country detail.

Okay.

Thank you.

Lauren Lieberman, Barclays.

Thanks, good morning.

I was hoping you could talk a little bit about Europe.

Actually, this is -- with organic sales being down this quarter, it is actually the first time we've seen that in quite a while.

So big deceleration in volume.

And my understanding is, there has been quite a bit of premium-based innovation going into markets -- surprised to see volume, which we know is volume and mix, be so light.

So if you could talk a little bit about Europe, it would be great.

Thank you.

Yes, I think when you look at the European environment, obviously, it is our lowest-growth area of the world.

I think the good news is that, although pricing has been consistently negative in Europe, if you look at the three quarters this year, it has become positively less negative.

Unfortunately, we had the volume negative in the third quarter.

And I would say, we would say that that is going to come back.

And we're certainly planning for positive, organic growth, going forward.

Were there any particular big buckets of product launch disappointment?

It's a pretty significant change in trend, on volume.

Yes, the only thing I would comment to, Lauren, is that we had a situation in our Europe West grouping, which is essentially our Germanic grouping.

Which had to do with the transfer to a new distribution center, which disrupted the shipments of that operation specifically in the quarter.

So I think -- I know Europe was in part affected by that, on the volume side, which we see A, is a one-time, and B, already corrected and coming back in the fourth quarter.

But it did have an effect beyond the usual market travails in Europe.

Okay, that's helpful.

And then just similarly on Latin America, it's pretty rare to see volume go negative.

Look, I understand the pricing environment, obviously, and the volumes have been light.

But it is rare to see volume go negative.

So just thoughts on what comes next there?

Understanding shares have been solid, and market growth, you said, is stuck in the mid-single-digits?

Yes, I -- again, you're right, it has to do with the pricing.

You can see that the pricing, of course, is more elevated than the prior two quarters in Latin America.

And we took strong pricing in Brazil, which had an impact on volume.

And usually the way that works is that, as I said earlier, once the pricing works its way through, then the volume comes back.

The categories are still growing mid-single-digits, so we hope things stay to the normal cycle of events.

Okay, thank you.

And then just so the call doesn't end without anyone asking, could you share the gross margin bridge for the quarter?

It would be great.

No.

(laughter) Then my model breaks down.

The -- okay, so third quarter, the prior-year gross profit was 58.6%.

We got 140 basis points positive from pricing.

Between our funding, the growth savings and the restructuring, we got favorable 270 basis points.

So funding the growth, continuing to do very well on material pricing, there was a headwind of 390 basis points.

And so the offset of the resulting 120 basis points negative, to the 140 on pricing, gets you the plus 20.

And meaningfully, over half of the 390 basis points negative was to do with the transaction impact of foreign exchange.

Okay, thank you so much.

John Faucher, JPMorgan.

Hey John.

Good morning, Ian -- or I guess it's afternoon now, so I will try to keep this quick.

One clarification, which is, I think you said that Venezuela pricing was up 74%.

And if I look at that, that would be pretty much all of the Latin America pricing.

No, John, sorry.

What I said was, the official price increase that we were granted was 74% in the fourth quarter of last year.

So -- on some businesses.

So that is (multiple speakers).

Okay, some -- okay.

Yes.

Got it, okay.

That is what I thought; I just wanted to make sure.

And then, as we look out -- and I know you guys don't want to get into quarterly stuff here.

But as we look at it, is it more difficult comparison, as we look into the fourth quarter.

Just sequentially, do you feel like more of the pricing flows through?

Or again, not looking for specific guidance.

But it seems like the lower end of your 4% to 7% range is probably the right way to be, for the fourth quarter.

Is that the right way to think about it?

I'm not sure I would go all the way there, John.

I think we're comfortable with the 4% to 7% range.

I think your sense of pricing is right.

We still have a recovery to move the gross margin.

Because to get to flat on the year, we have to be, as you will calculate from the squeeze, we have to be up on the quarter.

So it will be within our range.

I think we're thinking, if you take the nine months, it would be around there.

Okay.

Excellent.

Thank you very much.

Alex Paterson, AGI.

Hey, Alex.

Hi, Ian.

So just a couple of quick ones.

In the -- especially pet channel, have you seen much in the way of a deflationary impact, due to lower commodity costs, which seem to be impacting the mass channel?

Has that flowed into that channel for you?

And then secondly, just curious about the cash you've been building, and the cash sources.

Are you able to repatriate, like you've being able to do in the past, the cash generation, especially in emerging markets, back to the US?

Or is most of that locked into those markets?

On the first, again without being glib, the answer is a simple no.

Particularly in our segment of the pet nutrition business, which tends to be the more premium end.

So we have not seen it creep into speciality.

Cash repatriation, Venezuela is Venezuela.

Absent Venezuela, it's the same as it has always been.

So we have the ability to repatriate.

Sometimes timing is variable, country by country, but no change from prior.

Okay, great.

Thank you.

Sure.

Mark Astrachan, Stifel.

Hello, Mark.

Hello, Ian.

So going back to the advertising, I guess the effectiveness of digital would seem to vary by category, for various reasons.

So I'm curious, assuming if there some truth to that, are there specific categories in which ad spend is still up, year on year?

Or up greater than it appears to be?

And maybe talk directionally about it, category by category, if you can?

Yes.

I probably could, but I'm not going to, I don't think, Mark, because we're not going to get into that level of detail.

I would say to your general point on digital, it's less category specific, although the category may be linked to the user.

It's more, which user you're trying to get to, and how they access.

We just went through an extensive review, for example, in Latin America.

The majority of viewers, millennials, they happen to be a growing majority of parents.

They happen to do an awful lot on Facebook, and they happen to be avid viewers of YouTube videos.

So if you want to connect with that group, then the best way to get your advertising message to that group is YouTube videos, and to do so in a way that is purpose-driven.

So if you were to Google all of that, you would see some pretty interesting work, from our point of view.

But it tends to be more driven by the viewer than it does by the category.

Got it.

Thank you.

Okay.

Good -- sorry, is that it?

That is.

Okay, then thank you all for your questions.

And thanks to all the Colgate people around the world that deliver the results.

Thank you, everybody.

That does conclude today's conference.

We thank you for your participation.