寶潔 (PG) 2004 Q1 法說會逐字稿

Good day and welcome to the Gillette Company's first quarter 2004 earnings results conference call.

[OPERATOR INSTRUCTIONS].

At this time, for opening remarks and introductions I would like to turn the call over to Mr. Chris Jakubik, Vice President of Investor Relations, please go ahead.

Good morning, thanks for joining us on our conference call.

I am Chris Jakubik, Vice President of Investor Relations.

With me are Chuck Cramb, our Chief Financial Officer, John Manfredi, Senior Vice President, Corporate Affairs and Eric Kraus, Vice President Corporate Communications.

As usual, I will start with the housekeeping.

During this call, we may make forward-looking statements about the company's performance.

These statements are based on how we see things today.

So they contain an element of uncertainty.

Actual results may differ materially due to risks and uncertainties, but we can assume no obligation to update these statements.

Please refer to the cautionary statements contained in the company's 10-K and 10-Q filings for more detailed explanation of the inherent limitations in such forward-looking statements.

With that out of the way, let's look at the quarter and what we see ahead for the year.

It was a solid quarter all around.

We achieved record results from a combination of strong sales, cost savings, and manufacturing efficiencies.

As Jim Kilts noted in the press release, all the pieces are coming together.

We had strong trade and consumer acceptance of new products in nearly every one of our core categories.

This led to improved margins through a significantly favorable mix of premium products.

Looking ahead, we expect the impact of new products to continue.

In fact, we believe 2004 will be one of the strongest new product years in our history.

Among the highlights will be the launch of M3 Power and a number of new offerings in our Oral Care line.

A solid Q1 performance was also achieved in our international markets.

We had currency benefits from a weak dollar.

On the cost and capability side, benefits from the work we have been doing over the past two years are really clicking in.

Our innovative marketing intelligence or IMI initiatives are also paying off with greater productivity from the marketing dollars we're spending.

And a combination of lower year-over-year functional excellence costs and ongoing savings created a very favorable overhead expense trend.

Manufacturing efficiencies also helped to deliver higher gross margins.

So Q1 was just about a perfect combination of factors.

Many positives, very few drags, and some favorable timing of certain costs.

Obviously, no consumer products company can sustain that type of growth rate.

And for Gillette, for the first half of 2004 will see the benefits from our strong new products programs.

But those benefits will work against comparisons in the second half as shipments fall below consumption.

And currency comparisons will get tougher as the year progresses.

We do, however, expect to see the continued consistent annual growth that will result in top-tier performances versus the peer group over time.

Now, before we get into the details of the quarter, one comment on comparisons.

We have reclassified freight from SG&A to Cost of goods sold in both years.

We've done this because our bench markings show that this is more consistent with our peer group.

With that, let's look at the numbers.

On a reported basis, net sales for the first quarter were $2.2 billion.

That's 13% above the first quarter of 2003.

Foreign exchange added 7% to sales growth, with most currencies strong versus the US dollar, especially in Europe.

Pricing was up 1%.

Blade razor price increases more than offset lower prices from Duracell's price deal realignment in North America.

And volume mix was up a healthy 5%.

We saw strength along product lines and geographically.

I already mentioned strong trade and consumer demand for new products across most product lines.

But we also had improving demand in Latin America, continuing momentum in Europe, and ongoing strength in Amea region.

Moving to gross profit, Q1 gross profit margin was up 220 bases points to 60.7% from 58.5% last year.

And it's important to note that most of the gain came from favorable product mix.

We had significant strength in higher-margin premium products within blade razor, oral care and Braun and those businesses units accounted for 72% of Q1 sales.

Manufacturing savings also contributed, including lower procurement costs.

And this was most prominent in the results of Duracell and personal care.

That brings us to marketing.

Our advertising investment was up by over 40% in the quarter to 10.6% of sales.

We expect to hold at about that range for the balance of the year to support our strong new product pipeline.

But longer term, we still think 9% of sales is the right range.

Moving to overhead and other expense, lower year-over-year costs were due to the timing of programs and savings were greater as past cost reduction efforts began to come through.

As a result, Q1 overhead dropped from 26.9% of sales in Q1 2003 to 22% in Q1 this year.

And finally, at the bottom line, net income was up 43% for the quarter to $376 million.

It was enhanced by our lower tax rate, which fell one point to 29% from 30% last year.

For the full year 2004 we now expect our effective tax rate to remain at around the 29% level.

And in terms of earnings per share, our first quarter diluted earnings per share rose 48% to $0.37, that's up from $0.25 the prior year.

And EPS growth outpaced net income growth as a result of our share repurchase activities.

Average diluted shares outstanding were down 2% versus Q1 2003.

Now, let's turn to the businesses, starting with blades and razors.

First quarter blade razor sales were up 16% and favorable exchange contributed 8 percentage points of that.

As you saw on the release, it was a very active quarter.

We have launched Venus Divine and Sensor 3 System both with strong trade demand.

We also had a very strong performance globally.

The value share increased by at least a half point in all regions outside North America.

This was driven by the fact that we are tailoring our efforts for each key market and region.

A couple of examples, we just launched Presto Barber Excel, our new premium disposable for Latin American markets.

Presto Barber Excel contributed to our third consecutive quarter of global value share increase in the disposable segment.

And we recently launched Vector-Plus into India.

Vector-Plus is our latest new product for lower priced entry-level systems in developing markets.

It helped us grow share in India by 2 1/2 points and drive value growth of 17%.

And Vector-Plus will be launching into China in July.

As for the bottom line in the quarter, we achieved a 26% increase in blade razor profit and a 310 basis point increase in margin to 40.2%.

And favorable product mix was the key driver.

Looking forward, we believe the big story in 2004 will continue to be consumer demand for and trade-up to our premium products in markets around the world.

We expect our blade razor business to continue to show strong underlying momentum highlighted, as I noted, by the introduction of new products like M3 Power coming out in late May.

Moving on to Duracell, sales rose 8% in reported dollars with currency gains accounting for 6% of the increase.

Sales growth was driven by stronger year-over-year category growth in Europe, Latin America, and Amea and the addition of the Nanfu battery company in China.

These gains were partially offset by lower sales in North America due to comparisons against Q2 2003.

You'll recall we had a spike in demand then from homeland security concerns.

Duracell's profit from operations rose 90% to $74 million and margin increased 780 basis points from a year ago to 17.9%.

There were a number of drivers.

Sales growth supported by a strong double digit increase in advertising, manufacturing and sourcing cost savings, lower overhead costs, and lower promotional and free sale activity versus the prior year.

In the marketplace, we achieved our objective of maintaining our dollar share in Q1.

Duracell was able to hold dollar share in North America despite some challenges.

Challenges that included heightened competition and promotional activity from price brands and private label, expanded distribution of carbon zinc products and a troubling increase in BOGOs or buy one, get one free promotions from both value and premium brands.

For instance, Energizer ran BOGOs during Q1 at a number of major retailers.

And Rayovac, which already gives away 50% of its product free, also ran a significant number of BOGOs during the quarter.

The escalation of this activity across all segments of the category is disappointing and concerning.

So we're guarded about our ability to sustain dollar share at current price gaps versus price brands and private label.

We have made tactical adjustments to our promotional programs.

The question is whether this will be enough.

And as we said in today's press release, time will tell.

Moving to Oral Care.

Sales were up 7% based on favorable exchange.

We were strong in manual brushes globally behind our top of the line Cross Action Vitalizer and Premium Advantage and Exceed products.

We also had ongoing gains behind the Cross-Action battery power brush but these gains were more than offset by difficult comparisons with Q1 2003.

In Q1 2003 we had the North American pipeline fill of the Cross-Action Vitalizer manual brush and Cross-Action power battery brush.

In the marketplace, we extended our number one global position in the total brushing category during Q1.

Our leading global value share for the latest 52-week period was up 1.3 points to 34.2%.

Once again, the highest share point gain among all global competitors.

First quarter profit from operations in Oral Care grew 12% to $55 million and margin increased 110 basis points to 17.6%.

Here our product mix improved for three reasons, less battery product in the sales mix, a larger percentage of power toothbrush refills, and improved mix within manual.

For the rest of 2004, we expect product mix to continue to improve as we introduce other premium new products.

Next is Braun, where net sales grew 21% with currency gains amounting to 10% of the increase.

Q1's strong performance was driven by two factors, good results in the Amea region, particularly Russia and Turkey, and second, Braun's improved year-over-year performance in the important European dry shaver market.

Finally, in personal care, reported sales in the quarter were up 14%.

With the impact of exchange counting for 7% of the increase.

The launch of three new initiatives helped first quarter sales.

We introduced Gillette complete skin care in North America.

We launched the new side activated Right Guard cool spray in Europe and our leading female antiperspirant-deodorant Soft and Dry was repackaged and re-launched and it gained new distribution in Mexico.

Now, before we take your questions I want you to take you through some highlights of the balance sheet and cash flow.

By the end of the first quarter, our working capital increased.

We did see a reduction in receivables with day sales outstanding down 13 days from a year ago from 47 days to 34 days.

But that was offset by an increase in inventories with days inventory on hand increasing 123 days versus 108 days in last year's first quarter.

This was due to the timing of new product launches and the building of safety stock inventory.

The safety stock inventory will go to support our European factory and distribution center realignment program.

Capital expenditures were $91 million.

Up from 48 million last year and that's on track to come in around our targeted 7% of sales in 2004.

All of that led to another quarter of strong free cash flow generation.

As defined in our earnings release, we generated $432 million of free cash flow in Q1.

Equal to 19% of sales.

We used that free cash flow to repurchase Gillette stock and to pay down debt.

Under our share repurchase program, we bought 5 million shares for $188 million.

The average price was $37.65 and at the end of the first quarter, we had 46 million shares remaining under current authorizations.

Finally, debt less cash and equivalents was down approximately $226 million from the end of 2003.

So that's our story for the first quarter of 2004.

It was a great quarter and we think it's an indication of more good things to come.

Product innovation is driving top line growth across the company and across our categories.

Our regressive cost reduction efforts are continuing to deliver, with more gains ahead of us.

We continue to accelerate our investment in our brands and improve the quality of our advertising.

And our free cash flow remains strong.

Again, all the pieces are coming together.

Now, we'd be happy to take any questions you might have and I'll turn the call over to the operator who will explain the procedure for signaling if you do have questions.

Thank you.

[OPERATOR INSTRUCTIONS]

And we'll take our first question from Wendy Nicholson with Smith Barney.

Hi, good morning.

My first question has to do with kind of the functional excellence spending, and I know you're not breaking that out specifically on a quarter-by-quarter basis but I'm trying to get a sense for the shifting of earnings, maybe, from the back half into the first half.

You talked about that being a function of new product timing but is some of that the function of some of that sort of restructuring expense that may be pushed to the back half?

Sure, Wendy.

Actually, the breakout for functional excellence you will find in the 10-Q.

You had year-over-year in the first quarter about a $35 million swing in unmatched functional excellence expense.

So as we look at it, you know, the magnitude of the gains you saw in Q1 in the overhead area would not be representative of what to expect for the year.

And functional excellence costs will accelerate during the year.

You said $35 million swing.

In other words if last first quarter was 44, this year it was nine.

Not quite that much, Chris.

No, it was about seven -- I think.

Yes, it was about 7 this year.

$7 million in the first quarter, so that's one of the big things that helped you with your margin expansion.

Yes.

OK, fine.

But the full year's on track to still be about $100 million in spending?

Yes, give or take, give or take.

OK.

Because I guess that feeds into my second question.

Just of in terms, of again, the pulling forward of some earnings, I mean, sounds like functional excellence is one of the big things but in addition, you know, in terms of some of the businesses I think that came in with a higher profit margin than we had expected specifically, Duracell, obviously there's a wild card in terms of what you do on the spending side, but I'm wondering how permanent some of those cost-cuttings are going to appear to be.

I mean, has SSI turned out to be that incremental to that business or are we seeing just something, you know, artificially profitable right now?

Wendy, there are a combination of things there and you're right to say that the benefit that impacts all of our businesses from the functional excellence, I'm going to call it spending pattern, will distort it a little bit as we move forward.

However, the SSI savings are there for real.

They're very significant particularly in Duracell and in personal care.

As we look through the end of the year I think the only frame of reference that you should put on top of that is we did say from a total year point of view that our spending on functional excellence would be crossed over by gains or cost savings be excess of it.

So we would expect a net gain from functional excellence in the year.

In 2004.

And does that change at all with the plan to spend money in the fourth quarter on the European manufacturing realignment if you added that in, would it offset that gain?

Well, no, the cost for the European realignment, as we said on our last call, it will still be about 2 to 3 cents in cost for the next three years.

Each year for the next year.

And that shows up in '04 in the fourth quarter, correct?

No, Wendy that will be through the year.

OK, thank you very much.

And we'll take our next question from Bill Chappell with SunTrust Robinson Humphries.

Good morning.

Just a little more update on the Braun business.

Trying to understand, I mean, has that business, I know it had some problems over the past couple quarters just with the various economies that it was key sell in.

Has that bounced back that much or is there anything going on there in particular?

There are two things there, Bill.

In terms of the sales, we've had strong female and male shaver sales in key markets, so that has helped both in terms of sales and product mix.

The other thing is on a year-over-year basis we did have some unmatched one-time costs in 2003 from the perspective of warranty and pension.

Just as a follow-up, on the share count, I don't have access to the Q yet, what was the share count or were the share repurchases just kind of matching some options that were exercised?

No, we repurchased 5 million shares in the quarter.

The share count was 1.05 billion on a basic basis and 1.12 billion on a fully diluted basis.

Great, thank you.

We'll take our next question from Andrew McQuilling from UBS.

Thanks very much.

Wow, what a quarter.

Question about the blade sales business.

How much of this 8% sales growth adjusted for exchange was just the pipelining of Venus and Sensor 3?

Andrew, as you look at the sales gains in the quarter, you know, part of it was, as I mentioned, about eight percentage points was due to exchange and then the rest would have been a combination of price increases, pipeline fill, and ongoing trade-up and strong demand in international markets.

Pipeline, I'm thinking 2%, am I close? 3%?

Yes, in that range, in that range.

OK.

Terrific.

Oh, man.

How to think about -- actually maybe just a question about your IMI initiatives.

Can you talk a little bit more about that?

Certainly.

And that's where -- what you're seeing from the IMI initiatives is really two things.

One is that we're getting a great return on our investment.

Much more productivity out of the dollars we're spending and secondly, greater confidence to spend more.

For instance, we had underinvested internationally for some time and those markets are responding very well to better marketing as well as the improved quality.

We've got some world-class ad campaigns out there right now.

So that's what IMI's really all about.

Maybe just one more.

If you can talk about -- can you talk about new oral care initiatives for calendar '04?

Certainly.

We'll be having, on the brushing side, two new rechargeable products coming out.

One is an extension of the oscillating and another one is going to be a sonic-powered brush.

We'll have new -- new products coming out in -- on a manual side as well.

We haven't talked too much about that.

We are going to be having our Brush-ups product come out in June.

And the Hummingbird product's already out there.

I don't know if you've seeing the -- seen the advertising.

Terrific.

And I guess that's enough for me.

Thank you.

And we'll go next to Lauren Lieberman with Credit Suisse First Boston.

Great, thank you.

First question was on -- was really thinking about the pipeline fill on new products and then combining that with the fact that there would be really no advertising against those sales or promotions.

So how much did that help margins this quarter, is that a fair way to be thinking about some of the improvements?

No, it would not have been material at all.

You know, we would have had, you know, as soon as the products ship we start accruing the advertising against them.

So it would not have been material.

Would the same go for promotions?

Yes, pretty much.

I don't think there's any - -- when you look at the margins and the ratios, I don't think there's any material distortions.

OK, great.

And then on mix of blades and razors, I also -- I mean, I understand the shift towards more premium products, but what about the mix between blades versus razors?

I would have thought more of the pipeline fill was on the razor side, not the blade side so you wouldn't have seen quite as much of a positive this quarter.

Let me explain the mix factor in blade razors.

Really from three directions.

First of all, as we look the at numbers, blades are growing faster than razors in the quarter.

Europe was more prominent in the business mix and the blade sales are following the Turbo launch from last year.

And then you're also getting just ongoing trade-up and the related mix shift to premium systems and premium disposables.

OK.

And is the reason that Europe-based manufacturing was a negative this quarter because it's really the time when we anniversaried of the big increase last year.

I''m sorry.

I didn't quite follow the question.

Sorry.

Last year you spoke about and actually last quarter, also, that Europe-based manufacturing costs were a pretty big negative for you guys.

Have we anniversaried that now?

I think what you're ref -- referring to is the impact of currency on our manufacturing costs coming out of Europe?

Correct.

Yes, that's -- that's an ongoing impact on the business.

Mostly it affects Braun and oral care, too -- to a more significant extent.

Year-over-year the impact has left then because it's now been a full year of that effect?

No, you still have -- as goes the currency translation, so goes the impact from -- on the manufacturing side.

OK.

So when you still had a pretty significant bump from currency but you know, I think you're right.

On a go-forward basis, you know, currency was still a positive in the quarter.

But you look at, you know, our Q1 average on the euro was 125, the euro's now 118.

So, on a go forward basis not only does the euro seem to be weakening a bit but the comparisons on the euro get much tougher beginning right in the second quarter.

Great thank you.

One last thing.

Wanted to know if you could give some color on the Rembrandt acquisition, strategic rationale behind that and your plans for the business.

Oh, sure.

I mean, for us, Rembrandt is an entry into the super premium niche of the whitening category and we get some excellent technology that we can leverage into potential new products over time.

What I would tell you, though, is that we have no intention to compete head-to-head with Colgate or P&G in the chemical part of the oral category.

In the chemical part.

But if you're in super premium -

Well, that's a super premium niche.

We don't really -- we have no intention of going mainstream.

And what we mean by the chemical part or, you know, pastes, rinses, etc.

Rembrandt, where it competes, I mean, you can see it on the shelf; the pricing is very much super premium.

It's a very small niche.

And, you know we're happy to play just there.

We're not going to affect P&G's or Colgate's business.

OK.

Great, thank you.

OK.

Our next question from Amy Chasen with Goldman Sachs.

OK.

Chuck, I'm sorry to ask you this question every single quarter.

I mean, do you DSO's numbers, I just don't know what to do with them.

They're just so good, can you just talk a little bit about what's going on there?

I understand on the inventory side there's some, you know, short-term reasons for the increase but, I mean, the decline in DSO's is just -- it continues to be unbelievably strong.

It is.

And I have to say that I -- I was more than pleasantly surprised by this quarter's results.

We've gone back and looked at it in terms of our geographic mix, our product line mix, and our trade channel mix, and everything there ran a little bit favorable to my model.

And the other big thing is past-dues.

We only had 1% past-dues in terms of our receivables balance.

Which means collection efficiency has significantly improved over, well, over the last couple years to a point right now our -- these numbers are just tremendous.

So I mean, Chuck, then are you finally at the point where you're saying you know what, maybe these levels are sustainable?

No, because I think you have to look at -- we're talking about 34, 35 days right now.

It doesn't take much of a swing in terms of either a country, a product line or a trade channel change to change this configuration somewhat.

We are looking back again at that 40-45 day window, though, and saying gee, should it be at the low end of that consistently.

At least.

Yes, ma'am.

OK.

You know, in the press release there's this comment and Chris, you echoed this about the U.S. battery category still being unstable and I guess I'm a little bit surprised that you are quite as cautious as you are given that both Rayovac and Energizer are less so.

And at least from the data that we can see it actually looks like things are getting a little bit better and stabilizing so can you flesh that out a little bit more and can you also within the context of that talk about the European competitive environment?

It seems that may be accelerating a bit?

First of all, in North America, what's going on, what we see going on is a five-way battle at the low end of the category.

You've got Rayovac, Panasonic, Kodak, Private Label and some cheap carbon zinc all battling it out at the low end and we've also seen, as I mentioned, somewhat disturbing increase in BOGO activity or buy one, get one free.

So we've been making our tactical adjustments to our promotional programs.

But as I said, we'll have to see whether that will be enough.

What you are still seeing within the scanner data is the fact that our price deal realignment has been a success.

You're seeing that the percentage sold on promotion is down significantly.

And our share is stable.

But the question is whether that -- you know, the tactical adjustments we make vis-a-vis other -- you know, what competitors are doing is going to be enough on a go forward basis.

Can I ask you on Panasonic and Kodak, they have periodically tried to come into the market over the past 10 years or whatever.

I mean, are you seeing them make more headway and have more success than they did historically or is this a short-term kind of fly-by-night kind of thing?

They've been a constant which you know, it goes on and off in terms of, you know, what sort of competitiveness level they are at or how much they want to spend.

So I don't know if anything has really changed there.

But I think the key takeaway is that low-end segment has gotten much more competitive, you know, amongst themselves.

OK.

And then on Europe?

Europe we've seen a good -- you know, some strong demand coming through, from a category perspective.

It has remained competitive.

And it's -- you know, again, it's been sporadic in terms of how competitive the different players are.

Energizer has stepped up its competitiveness, you know, in terms of discounting, etc. in Europe over the past two years.

And in Europe are you also seeing that competitiveness on the low-end or is it more on the high-end?

I think it's both.

OK.

Just one more question on the gross margin.

You mentioned in your comments that the vast majority of the gross margin increase was benefiting from mix.

But then right after that you said that cost savings was significant too.

Can you break that out for us, you know, how much of the 220 basis point increase was mix versus cost savings?

Yeah, I wouldn't be able to.

What you do have are, you know, you did have some manufacturing efficiencies that showed up particularly at Duracell and personal care.

However, in the other three businesses, as I mentioned, which made up 72% of our sales in the quarter, it was mix.

So I think, you know, in terms of the gross margin increase, it was dominated by improved mix.

OK.

Great.

Thank you.

We'll take our next question from Alec Patterson from RCM.

Good morning.

Just wanted to get a handle on two things.

One, try to sort through the pipeline effect.

Can you give a -- of retail take away and sales growth in U.S. and Europe in blades and batteries.

Secondly, somewhat dovetailing with that, I guess I was kind of struck by the geographic mix of sales growth, currency neutral, where in your seemingly higher value markets of North America and Europe it was flat and extremely strong elsewhere.

Is that a comp issue, anything else that's going on there in?

Sure Alec.

Let me hit the last question first in terms of North America and Europe being relatively flat.

What was going on there was in North America, you did have some strong pipeline fill in blade and razor.

However, that was offset with comparisons last year where you had the spike in demand in batteries, and we had the pipeline fill of the, in oral care of the battery-powered toothbrush and the manual Cross Action Vitalizer.

So, you know, that was what was going on in North America.

In Europe, you were comparing against the pipeline fill of Mach3 Turbo.

So that was a dampening effect on the growth rate.

In terms of consumer takeaway it was pretty healthy all the way around.

Other than in batteries where, you know, year-over-year the category was down roughly 9% in dollars.

But, for instance, the blade razor business, the category there was up 4.5, 5% in North America.

The category was.

Yes.

And you guys were -

We were up much stronger than that.

For two reasons.

One was the pipeline fill, the other was pricing.

And -- and in the ongoing, you know, trade up and -- and consumer takeaway.

I'm sorry, Chris, you're saying retail take away was category wise about 4 to 5% U.S. and you guys at retail takeaway were above that?

Well, no, our shipments would have been above that.

Right.

Because of the pipeline fill.

Correct.

I understand.

That's why I'm trying to get a sense of retail takeaway to get a sense of pipeline versus consumption.

I'll have to get back to you on that to kind of rip through the detail.

OK.

But the category was 4 to 5 in U.S?

Yes.

OK.

All right, thanks.

We'll go next to John Sasher with JP Morgan.

Yes, good morning.

Quick question on advertising to sales.

Obviously up dramatically despite the strong sales growth.

And was wondering as we map this out through the year, you know, what do you think -- do you continue to see massive year-over-year increases especially given the sort of deceleration in top line growth that you were talking about earlier.

And then also longer term is there some sort of target we should look at a couple years back where we say this is the right level of business.

We've given a target of 3 to 5% top line growth.

On advertising.

Oh, I'm sorry about that, Yes.

On advertising, 9% is sort of the ongoing long-term range that we gave out at Cagney.

At 2004 we'll be at a higher level to support a very active new product pipeline that's happening across all categories.

Yes, we would plan this year to -- as the year progresses to be at about the level of rate of advertising spent that you saw in the first quarter which is the 10.5.

That's a bit of a step up from the 9%, and part of it's driven from the breadth of products across all of our product lines which will be supported in advertising.

But in terms of as we think about, we've said hey, this looks like about the right spend rate for sales for this year.

OK, great, thanks.

We'll take our next question from Joe Atobello from CIBC World Markets.

Good morning.

Chris, quick question, not sure you gave the number out but what's the price gap for Duracell versus private label today?

Today?

Say around 50%.

So similar to where it was last conference call, I believe?

Right, right.

I'm sorry, go ahead.

No, yes, you're right.

Next question is, you know, obviously your strategy thus far has been to emphasize advertising over trade promotion and you've done a good job of maintaining share with that.

Is that sustainable going forward?

We'll have to see.

You know, that's -- that's the multimillion dollar question.

And you know, we have -- you know, part of -- you know, the price deal realignment, you know, we're sticking to the integrity of that program, you know, less promotion, more advertising, and, you know, making tactical adjustments or refining the promotional element of our price deal realignment initiative and that's what we're saying today is it's been effective to date.

We'll have to see, you know, time will tell whether further steps are necessary in order to maintain a dollar share.

And is there a specific time in your head that you'd have to make that decision or it's kind of a wait and see?

No, it's ongoing analysis, it's something we look at with every set of data that comes in, add into the equation.

OK.

And just a last question.

North America blade share, did you give that out?

North American blade share.

We did not.

I'd have to get back to you on that.

OK.

Great.

Thanks.

We'll take our next question from Connie Meneti from Prudential Equity.

Hi, couple of questions.

Can you explain how Duracell maintains share if the other guys were giving batteries away?

I think it's -- it's a testament to what our -- what our Duracell people and commercial operations people can do with the dollars they're given.

So, you know, we've been making the tactical adjustments to the promotional programs and that's been effective so far.

What percentage is North American Duracell of total Duracell sales these days?

North American Duracell -- no, yes, we have not given that out to date.

But would be -

You like 55%?

It's less than half.

Less than half?

OK.

As I understand that earnings growth can't continue at this rate obviously but as we look into the second half and you talk about the gross rate -- growth rate moderating don't you mean particularly the third quarter because your fourth quarter comps are the easiest in the year.

Are you talking specifically blade razor?

No, I'm talking about overall company.

Overall company.

Yes, I mean, it's -- I don't want to get that precise, but what we're trying to do is get across, you know, what the flow of the business is going to be.

Clearly, you know, the strong retail demand for the new products we've seen in the first quarter plus the fact that we're going to have a number of new products including M3 Power come out in the second quarter.

The natural flow of things is such that, you know, you pipeline fill and then some of that comes out over time from the trade because you're shipping ahead of consumption and gearing them up for the launch.

So I think the best thing I can do is just tell you, look, we put out a target of 3 to 5% top line growth on a consistent basis.

That's organic, it's constant currency.

And that's -- that's a good range to use for modeling purposes.

OK.

Because it just doesn't make sense that the -- that the fourth quarter -- because last year's fourth quarter, you have to admit, was pretty bizarre.

And it's just -- it's just not likely that the comps get a whole lot worse once you move into the fourth quarter.

Yes.

You know, I want to sort of -

That's not -

Don't want to give details but you know, we explained what happened last fourth quarter because of the ship in the third quarter, you know, for the programs.

So I think it's best to look at the full year.

And, you know, take into consideration what we're telling you about what the flow is going to be first half versus second half.

OK, many thanks.

We'll go next to Andrew Shore with Deutsche Bank.

Good morning.

Chris, couple things.

First, it seems like for the past two to three quarters Duracell has done a good job maintaining its market share.

Yet for the past two to three quarters you've really espoused some bellicose commentary.

Is this competitive posturing?

Is this like the U.S.

Army in Fallujah right now or really already predetermined what you're going to do and I have a follow-up?

No, we're trying to be very upfront with you in terms of what we're seeing going on in the marketplace.

And what we're doing about it.

So as we said the tactical adjustments we've been making to our promotional programs have been effective, you know, together with the rest of the price deal realignment program and the higher advertising spending, the more effective advertising we've got.

To be quite honest, time will tell.

We said we want to maintain our dollar share, that's our objective.

We're not going to lead you in terms of what we may or may not do.

But that's our objective and we've been making adjustments to what's been -- what's been happening out in the marketplace.

All right.

And then in terms of full year for Venus Divine and Sensor 3 systems is it fair to assume that full year run rate is about 200 million combined if you assume that the pipeline was $18 to $20 million for a month and you annualize that?

Yes.

I don't have that.

I really don't.

And I don't think it's -- it's not something that we would generally give out in terms of, you know, by product line.

OK.

And then the final question is a question that I ask consistently and that is what your definition of consistentcy with up 16 and up 48?

Well, look we don't manage the business to meet quarterly estimates.

We manage the business for the long-term health and growth of the franchise.

We're looking for consistent growth on an annual basis.

And we feel pretty good about our prospects with, you know, with regard to that.

OK.

Thanks.

And we'll go next to Chris Ferrara with Merrill Lynch.

On the new products pipeline, obviously 04's going to be a huge year.

Should we look at this as sort of an indicator that there's going to be an even greater emphasis than in the past on new products going forward and also will we see sort of a more regular schedule of new product launches rather than a glut in one or two quarters going forward?

I can't speak to timing but what I can tell you is that our new product pipeline is very strong.

And it's much more broad across our business units than I think has been in the past.

So you're seeing much more - both in the way of, you know, new products but also product news.

And that has been an initiative of, a priority since Jim Kilts got here.

And on Latin America and the Amea region, I guess, can you talk a little bit about what the new product activity was in those regions and how much of that contributed to the huge sort of local currency growth there?

It's a combination of new products.

In Latin America you had the Presto Barber Excel, which is our new premium disposable for the Latin American market.

That certainly helped sales.

However, in both - you know, in a lot of the developing markets, similar to what you're seeing with other companies, we are seeing improving trends in demand on a local basis.

So I think in those markets it's probably even more of the local demand as opposed to the new product activity.

Broadly, I mean, you wouldn't characterize those as new product driven with those high growth rates, it's more so -

Yes, well, it's -- it's not only - you know, it's demand from the perspective of more volume but also, in our case, it's trade-up.

So you're getting improved mix coming through and those two factors, yes, would outweigh the new product activity.

Got it.

And also you talked about the impact of timing, I guess, on some savings programs, I think you mentioned it earlier, was that just the IFI or was there something else going on there as well?

The timing we were talking about had to do with the timing of the cost recognition for those initiatives.

I mean, what we were saying, I think, is that the first quarter was a bit light versus the annual run rate that we would expect.

So we would spend more quarterly in the next three quarters than we did in the first.

Right, but that was just related to IFI and not others?

That related to IFI yes because it was significantly down year over year on the quarter.

Got it.

Thank you very much.

We'll take our next question from Ann Gillin from Lehman Brothers.

Thanks, I think actually Chris just asked my question and I just wanted to clarify, for Latin America and Amea, is there a way of looking at what consumption levels were across your portfolio?

That's something I'd have to get back to you on, Ann.

I don't have what the -- the category growth rates were in those markets for the quarter.

Particularly we get that information on a bit of a lag.

We don't get it so anything we can get on consumption would be fabulous.

Fair snuff.

The second question.

You know, I know a lot was in print about Jim's plans or - or Coke's plans but I was wondering if you could talk a little, Chuck, about the compensation committee's role for succession since I think a lot of folks have not been aware of actually that's become a mandate of the compensation committee in the last two years.

Well, we - our board does take an active role in succession planning.

The company does have a succession plan in place.

It is obviously kept at a confidential level within the board but it's something that that committee takes extremely seriously as part of its role as members of the board of directors.

So it's - you know, there's nothing more I can talk about than to say it's there, it's a well thought out plan, and, you know, the triggers are there if they ever had to do something.

Great.

Pretty happy with our management team.

So everything seems pretty good.

Great.

Thank you.

And we'll take our final question from Jim Baker from Newberger Berman.

Yes, good morning.

Could you just -- I'm sure there's more of this in the 10-Q could you explain the non-cash charge of $16 million that was another expense this quarter?

Sure, I'd love to.

It's our accounting, or the world's accounting.

Basically, it's the cumulative translation adjustments.

When you translate a balance sheet, you have the CTA account, which takes the movement in the balance sheet.

Yes.

As long as you have an entity that's in existence, it stays there.

When you - we liquidated a couple of entities that had a loss in CTA.

Having liquidated them we had to move the loss up to the earnings statement.

And it's just as simple as that; it's an accounting shift out of CTA and into earnings.

Thank you very much.

Sure.

And this does conclude today's question and answer session.

At this time I would like to turn the call back over to our speakers for any additional or closing remarks.

OK.

Thanks very much.