寶潔 (PG) 2005 Q1 法說會逐字稿

Good day and welcome to the Gillette Company's first quarter 2005 earnings result conference call.

Today's call is being recorded.

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

Please go ahead, sir.

Thank you and good morning.

Thanks for joining us on the conference call.

I'm 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.

I want to start off by apologizing, we had a small technical glitch this morning that held up the earnings release from hitting the wires, but I trust that you've had enough time to look things over.

So let's get right into it.

As you know, 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 a more detailed explanation of the inherent limitations in such forward-looking statements.

These comments might also be considered soliciting material in connection with the proposed merger of Gillette and Procter & Gamble.

Please refer to the registration statement on form S-4 filed with the SEC for important information in connection with this transaction.

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

It was another outstanding quarter all around, with the business firing on all of the four key growth drivers that we outlined at CAGNY.

First, consumption trends in our Advantage growth categories remain strong and are being driven by our premium products and strong marketing initiatives.

Second, our technology leadership is delivering exciting new products to markets around the world.

That includes new products that were introduced in major markets in 2004 that are now being rolled out to the rest of the world.

Products like M3 Power and Oral B Sonic Complete.

It also includes entirely new products for 2005, like the Venus Disposable and Tag Body Spray.

Third, our various trade-up ladders are working and they're taking consumers to better performing products at the premium end.

And it's paying off for Gillette in the form of category leading growth across our core franchises and an improved mix of more profitable products.

And finally, evidence of our constant turnaround mentality is showing up across the P&L, especially in the way that we're keeping cost pressures in check and in further cost savings activities that we're just now implementing.

Overall, our momentum is solid coming into 2005 and we expect to deliver continued consistent annual growth, that growth that will sustain our track record of top tier performance versus the peer group over time.

That's the big picture.

Now let's dive into the numbers.

On a reported basis, net sales in the first quarter were $2.6 billion.

That's 17% above the first quarter of 2004.

Foreign exchange accounted for 3 percentage points of the sales growth, with strength in the Euro and pound sterling against the US dollar the main two contributors.

Pricing was flat because the benefits of price increases in blade razor were tempered by a shift in mix towards larger pack sizes at Duracell.

And volume mix was up a very healthy 14%.

Solid growth was seen along product lines and geographically.

Overall, there were three important drivers.

The first driver was solid North American and European results and this was due to a combination of new product pipeline shipments, the ongoing success of new products that were introduced over the past twelve months, and accelerating consumption in the battery category.

Second was strong trade-up and increasing consumption in emerging markets, especially in our AMEE region.

And third was a shift in the calendar versus 2004.

It resulted in five extra calendar days in Q1 2005 versus Q1 2004, which provided some benefit in the quarter.

As a side note, this shift in the calendar will also affect our fourth quarter.

Q4 2005 will have six fewer days than Q4 2004.

Moving to gross profit.

Q1 gross profit margin was down 250 basis points to 58.2% from 60.7% last year.

Ongoing manufacturing efficiencies were offset by unfavorable razor versus blade mix in the blade razor business, manufacturing realignment costs at Duracell and Braun and higher currency based European manufacturing costs, especially for Braun.

That brings us to marketing.

Our advertising investment was up by 14% in the quarter.

But it was relatively flat as a percent of sales versus last year at 10.3%.

We expect to hold at about that range for the balance of the year.

At the overhead and other expense line, we continue to benefit as our cost reduction efforts are leveraged against solid organic growth.

As a result, Q1 overhead dropped from 21.9% of sales in Q1 2004 to 19.9% in Q1 this year.

And finally, at the bottom line.

Net income was up 19% for the quarter to $449 million.

It was enhanced by our lower tax rate, which fell 1 point to 28% from 29% last year.

We expect our tax rate for the remainder of 2005 to be approximately 28%.

However, the rate would increase if a decision is made to repatriate significant foreign earnings under the American Jobs Creation Act beyond what we announced in Q4 2004.

In terms of earnings per share, our first quarter diluted earnings per share rose 22% to $0.45.

That's up from $0.37 the prior year.

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

Average diluted shares outstanding were down 1% versus Q1 2004.

Now let's turn to the businesses.

We'll start with blades and razors, which again displayed strong business momentum and the potential for trade-up around the world in what is clearly an advantage growth category.

First quarter blade razor sales were up 13%; favorable exchange contributed 3 percentage points of that.

The strong constant currency growth was driven by new product introductions and by growth in all key segments of our trade-up ladder.

During the quarter we launched M3 Power in the rest of Europe and Australia, with very strong trade demands.

Venus Disposable began shipping into North America and Europe in February.

And M3 Power Nitro was introduced in North America in March.

Overall, M3 Power has continued to grow the Mach3 franchise.

M3 Power is now the top-selling razor in the world, with a 20% share.

In fact, Mach3's share of the global blade razor category grew 1.5 points to 33% versus the prior year.

In developing markets, entry level systems and higher marketing spend are driving stepped up growth.

And we've seen market share gains in Russia, Turkey and India of 1.3 points and 6 points, respectively.

As for the bottom line in the quarter, we achieved a 12% increase in blade razor profit.

Driving the gains were sales growth from new products and price increases, ongoing trade-up to premium systems, entry level systems and premium disposables in all markets and flat overhead costs.

These gains were offset by unfavorable razor versus blade mix.

Looking forward, second quarter comparisons will run up against the very strong pipeline shipments from last year's launch of M3 Power in North America.

However, we expect a solid year with a strong consumer off-take from trade-up in both developed and developing markets.

Moving onto Duracell and some surprisingly strong numbers.

Sales growth of 12% in reported dollars with currency gains accounting for only 3 points of the increase.

Duracell sales growth was largely driven by accelerating category growth in most regions of the world.

For instance, growth in Asia was driven by two factors.

One was the ongoing underlying trade-up to alkaline from zinc.

The other was higher consumption of AAA batteries due to growth in MP3 players and other small-sized electronic devices.

In Europe, strong performances in the U.K., France, Italy and Spain were likewise driven by growth in AAA battery demand and trade-up to alkaline.

And in North America, Duracell benefited from a strong post holiday shopping season along with gains in plan-a-gram space and feature support at key retailers.

Duracell's profit from operations rose 23% to $91 million.

And margin increased 180 basis points from a year ago to 19.7%.

There were a number of drivers.

Sales growth and favorable mix to AAA batteries in Europe and Asia, manufacturing and sourcing related savings, and lower overhead costs.

These were partially offset by costs related to the planned closure of our Lexington plant of $20 million or more than $0.01 a share impact.

While Duracell's Q1 performance was strong, the balance of the year will be challenging for four reasons.

First, in Q3 we'll be up against the spike in demand from the 2004 hurricane season.

Second, we expect to incur an incremental $36 million in costs related to the closure of our Lexington plant throughout the rest of 2005.

Third, raw material cost increases, primarily zinc, steel and indium will increasingly be a factor as the year progresses and we continue to look for alternatives to offset these cost pressures.

One offset to our raw material exposure will be a recently announced price increase of between 6 and 7% across our North American alkaline battery line that will be effective August 15th.

The fourth and final reason is that we remain committed to defending our market share and managing our price gaps versus competition and this could result in incremental costs as the year unfolds.

Let's move on to Oral Care, which posted another quarter of big growth in Q1.

Net sales were up 31%, favorable exchange contributed only 3 points of growth and the unmatched sales from the 2004 acquisitions of Rembrandt and Zooth added 7 points to sales growth.

In the marketplace, we had gains in all key segments.

In manual toothbrushes growth was driven by a trade-up to CrossAction Vitalizer and Advantage Arctica in developed markets and to Advantage and Exceed in developing markets.

Our manual brush performance is even more impressive considering that Colgate has continued a program of BOGOs and free tooth paste giveaways throughout Latin America.

In the rechargeable toothbrush segment growth is being driven by the premium end, meaning our Oral B Professional Care 8000 and Sonic Complete Premium rechargeable toothbrushes as well as refills.

And it's led to continued growth in North America and a very solid rebound in the European rechargeable toothbrush category.

Also contributing to the strong growth were our beyond brushing efforts.

Here we launched Brush-Ups into Europe and our Oral B Rembrandt Whitening Strips into select European markets and Australia.

In terms of Oral Care profits, first quarter profit from operations in Oral Care grew 53% and margin increased 270 basis points to 20.3%.

Here higher sales from new products and improved product mix were partially offset by costs related to the recall of CrossAction Power and currency related increases in European based manufacturing costs.

For the rest of 2005 we expect product mix to continue to improve as we introduce other premium new products.

Next is Braun, another business benefiting from strong new product development.

Net sales grew 18% with currency gains amounting to 3 points of the increase.

There were three key drivers of sales growth in the quarter.

One was new product introductions.

They included the cruZer, Ute (ph) Shaver, which continued its rollout in Europe and Japan, the Silk and Soft female shaver into Europe, and the Tassimo Coffee System, which went into the U.K. and Switzerland during the quarter.

The second driver was strong double-digit growth in developing markets, like Russia, Turkey and China, with strength in both household appliances and hair removal.

And third were ongoing gains in male and female hair removal.

Here, the Braun Activator premium dry shaver and the Silk Epil female epilator were the main contributors.

While these factors delivered solid net sales growth and market share gains, profit growth was tempered.

Tempered by currency related increases in European based manufacturing costs and higher costs related to manufacturing realignment and the closure of a plant.

As a result, profit was held to $5 million.

Finally, Personal Care, which delivered double-digit growth in all regions and improved product mix.

Here reported sales in the quarter were up 22% with the impact of exchange accounting for 3 points of the increase.

Growth was driven by new product introductions, ongoing trade-up in Europe and market expansion in Russia, Turkey and Poland.

Three factors are worth highlighting here.

First, new product introductions in Q1 included Tag Body Spray into North America in February.

Mach3 premium shave gel into Europe and Asia in January and North America in March and Power Stripe Dry into North America in February.

Second, gains in Europe and AMEE are being driven by our ongoing foam to gel trade-up initiatives in shave preps.

In fact, Gillette shave preps gained 2.7 points of value share in Europe in the latest reading to 39.6%, the highest value share achieved in Europe in five years.

And third, the success of Gillette Complete Skin Care continued, driving our share of male skin care up 4 points to 23% in the U.S.

Personal Care profits more than doubled to $28 million and margin grew 490 basis points to 10.9%.

There were several drivers, including manufacturing savings, including savings in materials, flat overhead costs, improved mix from new products and trade-up from foams to gels and a double-digit increase in advertising activity.

Beyond our business unit results you'll also notice that our unallocated expenses went up significantly in the quarter.

This was due to an incremental $11 million, or about $0.01 a share, in costs related to the proposed merger with Procter & Gamble.

Before we take your questions, let's go over some highlights of the balance sheet and cash flow.

First, our working capital metrics improved versus Q1 last year.

In receivables, days sales outstanding decreased five days from a year ago, from 34 days to 29 days.

Inventories improved as well with days inventory on hand down to 115 days versus 117 days in last year's first quarter.

However, from a cash flow perspective working capital changes during Q1 this year versus the end of 2004 resulted in a net use of cash.

This is because of the exceptionally low levels of working capital we achieved by the end of 2004.

Capital expenditures were an incremental use of cash as well, at $128 million up from 91 million last year.

And CapEx is on track to come in around our targeted 7% of sales this year.

Despite the changes in working capital and CapEx, we did have another quarter of strong free cash flow generation.

As defined in our earnings release, we generated $263 million of free cash flow in Q1.

That's equal to 10% of net sales.

We did not repurchase any stock during the quarter due to customary limitations imposed as a result of the proposed merger with P&G.

So at the end of the first quarter, we still had 26.2 million shares remaining under current authorizations.

As a result, debt less cash, cash equivalents and short-term investments was down approximately $290 million from the end of 2004.

So, that's the first quarter of 2005.

It was a great quarter and we think it's an indication that our four key growth drivers will sustain our momentum.

Our advantage growth category dynamics remain intact and continue to strengthen.

Our broad base of successful new products is being sustained by our technology leadership.

Our trade-up capabilities are delivering incremental category growth and continue to enhance an already strong profit profile.

And the benefits of our constant turnaround mentality continue to show up within the P&L and serve as a contrasting element versus those peers facing cost pressures without such benefits.

In short, all the pieces are working 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 a question.

Thank you, sir. [OPERATOR INSTRUCTIONS] We'll take our first question from Wendy Nicholson with Smith Barney.

Hi, my question has to do on Duracell.

It sounds like you're being fairly cautious in terms of your outlook for the rest of the year.

But it looks to me like most of those issues are U.S. issues and if half the business is outside the U.S., and what drove that part of the business was sort of category stuff, category trade-up and all of that, I'm not sure why at least that 50% of the business doesn't continue to grow really well this year?

Well, Wendy, there's a couple of things I think you're asking.

One is what we see in North America, what we're seeing elsewhere.

Let me start with the international.

I think it's just as competitive internationally and we have to continue to mind our price gaps in every market out there.

In addition to that, our cost increases -- our raw material costs are going up and that's something that affects not only the North American business, but also internationally, so it's not something that's just North America related in general.

Now in terms of North America, I think the point I'd make there is that yes, our costs are going up.

We did announce a price increase.

But the fact is we don't know how much others might deal back pricing in the form of promotion.

And keep in mind that priority number one for Duracell continues to be maintaining market share and doing whatever it takes to maintain market share.

Do you have any plans to take a price increase outside the U.S.?

We've been developing plans for some time in response to higher commodity costs.

We've announced something in North America.

We have not announced anything outside of North America as of yet.

And can you talk about your share trends in -- broadly speaking in a couple of the bigger non U.S. markets?

Is it a pattern or a trend that's similar to what we're seeing in the U.S?

Or are there particular areas of pressure for you?

I don't think there's one area of pressure that stands out from the rest.

I think it's a pretty competitive market all around the world and it's something that we've been working very hard in terms of maintaining our market share in different markets through, I guess, the principals that we've operated with in North America, meaning better marketing, the trusted everywhere campaign.

We're getting much better advertising in other markets, much better in-market execution and that's been helping us maintain our share.

I think the encouraging thing that we've been seeing, as I mentioned in opening comments, is the trade-up from zinc to alkaline and more recently the surge in demand of AAA batteries.

And then my last question is on the buyback.

We saw less of a buyback in the first quarter than I had expected.

Is your plan over the next couple of quarters, I know you're precluded from buying back some stock in the second quarter specifically, but is your plan to continue to buy back stock as we go through the year or is it better to just build up cash and hand that over to Procter?

We're so limited in terms of what we can buy back because of our own natural blackout periods as well as the blackout periods that go along with the merger deal that it's difficult to say that we have any kind of a specific game plan.

When and if we can be active, we will, but it's going to be marginal because we're restricted to a level of share purchase on a per diem basis.

It's the average of the last 90 days prior to the announcement of the merger.

And during that last 90 days we were in our own blackouts because of the year-end closing.

So, there may be some but it's really going to be extremely limited.

Okay, fine.

Thanks very much.

Moving next to Bill Pecoriello with Morgan Stanley.

Morning, Chris, could you help us on the five extra days in the quarter.

Would that be top and bottom-line impact in the 7% to 8% range, just in terms of the math on that?

That sounds like a lot.

What you're looking at is the five days were calendar days not necessarily shipping days.

And really, it's a difficult number to -- there's no precision in developing a number like that because you've got to separate out the effect of the extra days versus the timing or phasing of shipments and promotional programs.

So it's imprecise, but our best estimate, if you just look at purely the extra shipping days, you come up with around 4 points of incremental growth.

In fact, a little bit less than 4 points.

So in the context of relative to the 17% growth that we derived, it was a small factor and it was much more -- the quarter was much more driven by the solid volume gains and trade-up across the core categories and within all our regions.

Great.

And then on the charges, you had detailed the 20 million on the battery plant and 11 million in merger costs.

Any other charges that you can detail for us?

You'd mentioned the Braun realignment.

The Braun realignment costs would have been less than $0.01 in nature.

And I think the only other thing that I mentioned was within Oral Care with some costs related to the recall of our entry level power brushes.

That would have been just less than $0.01 as well.

Great.

And then just finally, can you help us out on Blade Razor North America shipments versus take away?

I know you were shipping out the Venus Disposable, but also you were lapping load-ins from year ago.

How did that differ in the quarter?

As we look at it, we're at very healthy levels of trade inventory all around.

Obviously there was a little bit of pipeline build related to the Venus Disposable but small within the context of the business.

Great.

Thank you very much.

We'll take our next question from Bill Chappell with SunTrust Robinson Humphrey.

Good morning.

Just a quick question.

Is there any update in terms of kind of the next generation blade razor?

I imagine as you're looking towards the holidays, if it was to come up by then, you would have some type of announcement.

And second, maybe talk a little bit about the trends on the disposable side.

Are you continuing to kind of gain share there and what you're seeing going forward?

On disposables?

Yes.

First of all, our next generation system, Bill, we'll be able to tell you guys as soon as we tell our retail customers.

So I've got nothing to announce today, that's for sure.

And on the disposables, specifically, we've done pretty well in terms of maintaining share within that segment.

The Sensor 3 Disposable has -- since it's entered, it's been able to maintain about roughly an eighth share within that segment, so we're pleased with our performance there.

And we're pretty excited about the initial reaction to the Venus Disposable coming out.

Stay tuned to that one, but I think you'll see some little upside from it.

On the Venus Disposable is there -- there have been some concerns that maybe it cannibalizes, since it's the same brand, same thing as the regular Venus.

Are you seeing any of that or do you worry about that?

We tend not to see a lot of trading between disposables and systems within shaving and that applies to both the male and the female sides of the businesses.

So, we're not really concerned with that.

And quite frankly, if you look at the price point and the premium level of the Venus Disposable, it's a pretty significant premium to the rest of the disposables line and actually brings you within the range of a system.

Quite frankly, we don't see it as being an issue going forward.

Okay, great.

Thank you.

Moving next to Amy Chasen with Goldman Sachs.

Hi.

I want to know, in the press release there's a comment that P&G will help you do certain things that you couldn't do on your own.

I'm just wondering what would be on the top of that priority list?

Well, certain things that we wouldn't be able to do on our own.

I guess the top of that -- one of those things and one of the things that both AG and Jim have talked about are what we can do in terms of accelerating the growth and the development of our businesses in developing markets and we've used China as a very good example where their, P&G's, reach is significantly greater than ours and it would take us years and years to build that type of infrastructure.

And you need that infrastructure to drive the trade-up within that market.

So, I guess what's on the top of that list, that's certainly one of the things.

So you're obviously reporting really good growth in your developing markets.

Have you sort of geared that up in anticipation of the deal or are those end markets just doing better than you thought?

No, those ends markets come from a focus on those markets, continuing to trade up consumers to our premium, more premium end products from what they're using today.

But if you look at it, it's solid growth on a percentage-wise basis off a smaller base than what it could ultimately be.

Okay.

Can you just separately talk about in general across all your businesses, the tone of business in Western Europe?

We've just been hearing throughout this earnings season very weak results from a lot of companies and yet your reported total Europe sales were strong and I'm wondering what just Western Europe would have looked out if you strip out central and eastern Europe?

Sure, Amy, that's a great question because our results do stand out in Western Europe in particular.

We're seeing all the same sorts of things that you're hearing, particularly with consumer confidence, et cetera, et cetera.

But when you look at our European numbers, yes, they look great and it's because our innovation, our marketing, our retailer partnerships and, quite frankly, it's just brilliant in-market execution all coming together.

If you look on the innovation side, we've got M3 Power out there.

We've got new products in Oral B. And we've got products like Tassimo.

On the marketing side we're getting great benefit, great traction behind our use of David Beckham.

And then when you look at our execution at retail, that's what's really helped turn around both the rechargeable toothbrush segment and it's also driving our foam to gel trade-up initiative in Personal Care.

So those are the types of factors that are working in our business.

What you're seeing in other people's businesses, you're going to have to ask them.

Amy, if you listen to Chris in terms of the examples he gave, I think what's really powerful there is that every one of our product lines is performing basically the same factors.

So it's really a good performance.

Can you just tell us approximately what the sales would have been up just in Western Europe?

Just in Western Europe, I wouldn't have that breakdown in front of me so -- I would venture to say it would have been double-digit.

Okay.

Following up on the battery pricing, you're pretty cautious and you're sort of saying, well, if we're going to leave some cushion because we may have to increase promotional spend.

And yet the indications from both Energizer and Rayovac are that they really need this price increase.

They're really committed to realizing it.

Nobody is really indicating that they're going to deal with that.

Obviously remains to be seen, we don't know for sure.

But there's just no indication of that.

So I'm just wondering why you're being quite so cautious and maybe not a little bit more up beat about the price increase?

Amy, we don't like to speculate on what may or may not happen, but I think it's -- it has to be a realistic assessment on a going in basis.

And, like I said, as I mentioned to Wendy, priority number one in that business is to maintain our market share.

And a significant factor in maintaining our market share is the price gaps that we have on a debt net basis with the rest of the market.

How are your price gaps now?

Are you happy with them?

They're still at historic highs, so we'll have to see how it plays out, but quite frankly we've been able to handle that level of price gap because of the other things that we've been executing against, the trusted everywhere campaign, better in-market execution at retail.

It's a lot of different factors and if those things don't work any more, then obviously we're going to have to look at the other levers that we have at our disposal.

But we will maintain market share.

Okay.

Thanks.

Moving next to Bill Schmitz with Deutsche Bank.

Good morning.

Can you walk us through the gross margin decline?

I know there were some charges in there and you said the mix from Blades and Razors.

But can we get a little bit more detail on that 250 basis point decline?

Bill, we don't really break it down to that level, particularly when we talk about adverse mix of razors versus blades.

You can imagine that the gross margin was therefore down within the Blade Razor business.

But, I'm not going to break out how much within that business, just as a matter of practice.

The manufacturing realignment costs, we've quantified for you.

And then the other factor --

(inaudible) cost to get sold?

Yes.

And then you have the higher European manufacturing cost due to currency and the fact that we export out of Europe was certainly a factor.

The only other thing I would add is that when you look at our results, first quarter this year versus first quarter last year, you also had a shift in the business mix which would have put some pressure on the gross margin as well, meaning less Blade Razor -- less of the Blade Razor business within the overall mix of the Company's results.

Did that number come in in line with what you were expecting?

Yes, pretty much after you put in the factory realignment costs, very definitely.

Great.

In terms of the incremental CapEx and the reaffirmation of the number for the year, what are you spending that CapEx on?

That's a combination of supportive new products and the -- the European realignment in Blade Razor.

We've got a greenfield development in Poland for a new Blade Razor plant and a distribution center.

So that's causing a bit of uptick in the CapEx.

Because you committed $200 million to south Boston, right?

Yes.

Over a period of years, yes.

It sounds like a new blade launch to me.

And then just very briefly, are you still going -- are you committed to the Braun appliance business?

I'm surprised you launched -- I know it's a small piece, but, that's going to be for sale for a long time and now you're launching new coffee systems underneath it?

Is that a long-term business for you?

I would think so.

We have objectives in that business.

It helps support the rest of the Braun line and what we've said is that it will deliver a positive return on its cost of capital and that's what our objective is and the Coffee-On-Demand launch certainly helps us head towards that direction.

Is it positive at a cost to capital perspective now?

Not at the moment.

Thank you very much.

RCM's Alec Patterson is up next.

Chris, I was just hoping to get maybe a little more insight on, in particular, the European trends from a retail takeaway perspective.

I think you were suggesting that ex the extra days, Europe X foreign exchange would be up sort of high single-digits on a shipment basis.

What are you seeing at retail takeaway?

Well, in line with that, I think aside from new product launches in select markets, shipments were in line with consumption in all our businesses for the quarter.

So as I mentioned earlier, our trade inventory levels are very healthy.

And your share position, are the categories growing as rapidly or are you taking share?

We have been taking share and that's really because of a lot of the new product initiatives.

I mentioned a couple of things, you've got M3 Power, obviously our share is growing behind M3 Power in the Blade Razor business.

In Oral Care our share in -- on the manual side is very healthy.

On the power side it's improving and we are driving a rebound in the rechargeable segment within Oral Care.

Within Personal Care our foam to gel trade-up initiative is driving market share gains as well.

And within Braun, same sort of thing where you've got some very good new products, both on a dry shaving side and the household appliance side driving share gains.

So it's a combination of category growth and share gain.

Okay.

So no reason to think that pipelining has over played the quarter results and that we have to worry about that going forward?

No, no.

The one thing I would mention is that when you get to the second quarter, the comparison is going to be difficult because of the North American pipeline that we built last year behind M3 Power.

As you anniversary that, that's certainly going to provide some pressure.

Okay.

And lastly on the pricing on batteries in the U.S., is the game plan to put a price increase in effect so it's on the shelf August 15th or do you start shipping with a higher price point on August 15th?

It's a price increase in terms of on invoice, in terms of what we sell at wholesale.

We don't control the price at -- on the retail shelf.

I'm trying to capture the timing.

Okay, great.

Thanks.

Ann Gillin with Lehman Brothers is up next.

Thanks much.

If I could just follow up on the battery price question from Alec.

Is there a reason that you didn't do it August 1st, like, I think, that's Energizer's time frame?

No, like I said, we've been developing plans for some time in response to the higher commodity cost and that's the date that our commercial operations people felt most appropriate.

It was something developed on our own.

They have been working against a 90 day program, anyway, to get there.

Okay.

And then -- but it is still envisioned for kind of the back to school season?

Well, timing wise, yes, that's when it did work out.

I love the fact that you're breaking out price and mix, price separately this quarter in the details.

So thanks much -- .

It's typical that we move that into the sheets that we post on the web.

It's something that's always in the 10-Q though.

Okay.

I appreciate getting it before the call.

I'm just wondering if you can comment a little bit here on Duracell?

Just because I know that you're expressing some caution and I'm just wondering if you can kind of talk us through the down 3% pricing that you saw this quarter?

Sure.

Well, the biggest factor is something that's been ongoing in terms of larger pack sizes.

And I think the other factor was that we did have a difference in timing year-over-year on promotion within the drug channel.

But, those are the two biggest factors.

And why wouldn't the difference in pack sizes be more mix?

Because -- the way it's calculated, I'll have to get back to you on the way it's exactly calculated, but the pack size factor within Duracell shows up as a net impact to pricing.

Okay.

Just switching gears.

I thought that we'd start to see some easing of the comparison on the cost base in Europe or at least some hoped for easing going forward.

Can you talk that through a little bit because of the currency impact you already -- ?

You're talking about the currency impact.

Yes, that you already were starting to absorb that year ago.

We're starting to absorb it.

I think the difference, though, on the Euros still about 5%, three months versus three months.

And we are a significant export, net exporter of goods out of Europe so that's what you're seeing.

But it has been mitigated versus what we've seen in previous quarters.

And it is slowing then?

It is slowing.

Great.

And just last question, of course I'm sorry if I missed it earlier.

Did you quantify the cost of the Braun closure in the results?

No, we didn't.

It's less than $0.01.

Okay, thank you.

We'll hear next from John Faucher with J.P. Morgan.

Good morning.

Chris, I was wondering if you could clarify your add to sales guidance for the year because it sounded as though you said it was going to be roughly in line with the first quarter, which would put it down as a percentage of sales year-over-year which sounds different than what Jim had explained to me a couple of months ago, where he said he thought it was going to be up for the year as a percentage of sales.

I didn't -- I didn't pick that up in terms of Jim's comments.

I'll have to circle back to you on that.

But it's been our expectation, and certainly the way the accounting works, is that 10.3% that we came in at this year, this first quarter is our best estimate for the year.

Okay.

Thank you.

Moving on to Joe Attobello with CIBC World Markets.

Thanks, good morning.

Chris, quickly on Duracell, you guys have been at the 20% or plus EBIT margin level for a few quarters now.

Chris, if that is a sustainable level, particularly with your competitors taking up pricing and you guys taking up pricing as well?

We'll have to see.

It's a rather open question, Joe.

I think I -- trying to get the point across is that we don't know if others are going to deal back the pricing, if there's going to be much of a net benefit.

We know our costs are going up, but we don't know the degree of benefit we would get from the price increase.

And there's other factors as well.

When you look at the comparisons, particularly the third quarter where I think we -- third quarter of last year where we had a 27% margin because of the spike in demand.

I would not expect us to repeat that level.

So clearly on a go forward basis, there's -- there's a number of factors that need to work themselves out.

Okay.

And then separately, on the acquisition with Procter, have you guys made any decisions in terms of headcount reduction or is there anything like that?

Or is it still pretty early at this point?

It's too early at this point.

And the only thing is what Procter & Gamble has announced, which is of our combined workforce roughly 4%.

But that's of a combined workforce.

Okay.

Great.

Thank you.

We'll hear next from Lauren Lieberman, Credit Suisse Asset Management.

Ms. Lieberman your line is open.

Great, thank you.

One quick question still on batteries, if no one has asked this yet.

Any comments on the upcoming launch of Panasonic Oxyride and is that one of the reasons for your conservatism going forward in that business?

No.

The nickel oxy hydroxide product, it's a technology we've been evaluating for some time.

We don't see it as a substitute for general purpose alkaline batteries because it does not perform as well as alkaline batteries in everyday lower drain devices.

It's more of a niche technology like lithium batteries.

It will sell at a premium price and, quite frankly, provide peak performance in only high drain devices like digital cameras.

That's pretty different from what my understanding of it is, actually.

Reviews I've read say that it makes flashlights brighter and sound faster and that it's actually going to be selling for a lower price point than regular alkalines.

That's not what we've been hearing.

We'll have to compare notes a little bit later.

But, it's our understanding that it's going to come in at a premium price to alkaline and all the testing that we've done with that chemistry shows that it does not perform as well as alkaline in lower drain devices.

Sorry, just one more thing on this.

With the chemistry -- you're saying -- are you testing out the technology, that type of technology, in your own labs or are you actually testing out the Panasonic product?

Both.

Okay.

And then just one other thing on Venus.

I've noticed a lot of very heavy discounting.

I've seen Venus -- Venus Divine, a razor and one blade combination for $3.99.

We ought to buy some.

I haven't seen that, but certainly with --

On Broadway.

On Broadway.

We'll have to go check that out.

What we've seen, we haven't seen any significant pressure in pricing within Venus or Venus Divine.

You will have things out there like what you just mentioned which is called a one-up which can come in at a lower price point to drive trial of the razor handle.

And that's why you only put one blade in there instead of two.

But that sort of price point I'd have to double-check.

So it's not ferrying out inventories to make room for Venus Vibrants?

No, I wouldn't think so.

Again, I'd have to check.

I wouldn't want to speculate in terms of what's happening in any specific retailer at any point in time.

But what I could tell you is that as we see the results coming in, we're not seeing that level of price pressure at all.

Okay.

Thank you.

That concludes the question and answer session today.

At this time, Mr. Jakubik, I'll turn the conference back over to you for any additional or closing remarks.

Thanks very much.

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