Colgate-Palmolive Company (CL)

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Colgate-Palmolive Company (CL)

Q4 2008 Earnings Call Transcript

January 29, 2009 11:00 am ET


Bina Thompson – VP of IR

Ian Cook – Chairman, President and CEO


Alice Longley – Buckingham Research

Ali Dibadj – Sanford Bernstein

Lauren Lieberman – Barclays

John Faucher – JP Morgan

Bill Schmitz – Deutsche Bank

Chris Ferrara – Banc of America

Wendy Nicholson – Citi Investment Research

Andrew Sawyer – Goldman Sachs

Joe Altobello – Oppenheimer

Linda Bolton-Weiser – Caris

Connie Maneaty – BMO Capital Markets

Alec Patterson – RCM



Good day and welcome to today's Colgate-Palmolive Company Fourth Quarter and Year-end 2008 Earnings Conference Call. Today's call is being recorded and is being simulcast live at Just as a reminder there may be a slight delay before the question-and-answer session begins due to the Web simulcast.

At this time, for opening remarks, I would like to turn the conference over to the Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead, ma’am.

Bina Thompson

Thank you, James, good morning, everybody, and welcome to our fourth quarter earnings release conference call. With me this morning are Ian Cook, Chairman and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Ed Filusch, Treasurer.

This conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from those statements. For information about certain factors that could cause such differences, investors should consult our Annual Report on 10-K filed with the Securities and Exchange Commission and available on our Website including the information set forth under the caption ‘Risk Factors and Cautionary Statements and Forward-looking Statements.’ We will discuss our results and expectations excluding charges relating to eh 2004 Restructuring Program and certain other items pertaining to the 12 months ended 2007. In addition, we will also discuss organic sales growth, which is sales excluding the impact of foreign exchange, acquisitions, and divestitures.

A full reconciliation of these measures with their corresponding GAAP measures is included in the press release and the Company's financial statements, and is posted on the ‘Investor Relations’ page of our website at And we will be glad to answer any questions you may have, including or excluding these items, as you wish.

We are very pleased that we finished the year 2008 with good momentum and market shares up around the world. Organic sales increased 9% for the third quarter in a row and we expect similar organic growth in 2009. Of particular note, our organic sales in Latin America, which grew 17.5%, the highest growth rate for the year. As you know, part of this is due to a very disciplined program of price increases in every region of the world, which has helped us offset to a certain extent increases in raw material costs.

Our gross margin declined as a result of the continuation of an unprecedented increase in raw material cost as well the foreign exchange impact of the stronger dollar. We, like other companies in our industry, are beginning to see signs of lower input cost, which bodes well for 2009. In addition, our ongoing effort to become more efficient is paying in reduced overhead costs, which were down almost a full point on a percent of sales basis.

Advertising decreased in the quarter as media costs and levels of spending declined. Importantly, spending remained competitive in most markets and the good market share performance around the world continues.

Speaking of market shares, I just want to spend a moment on private label. There has been some concern that in these tough economic times the consumer will trade down to lower-priced products including private label. And with the exception of Western Europe where private label in some commoditized categories has always been a more significant factor, worldwide private label penetration is in the low-to mid-single percentage, and has not grown meaningfully in a majority of our categories.

For instance, here in the U.S., toothpaste private label is at about half of 1% and essentially non-existent in the emerging markets of Latin America and Greater Asia. Even in Europe, private label penetration of toothpaste is under 5%. And in addition, within our toothpaste portfolio, we continue to see the consumer trade up to added value products like Colgate Total, which provide a real added benefit.

Our new product activity throughout 2008 was robust and the pipeline for new products in 2009 is as full as it has ever been. And you’ll hear more about some exciting new products as we go through the divisions.

Our balance sheet is very strong as it always has been and we are very pleased that our inventory and receivable days are down from the year-ago period. In fact, inventory days are at their lowest level in eight quarters and receivables days are at the lowest level in 15 years. Further, from a liquidity standpoint, we are in very good shape with continued access to capital as we need it and at very favorable rates. So, good performance as we exit 2008.

Clearly the year 2009 presents challenges to every one. There is headwinds from currency and a tenuous macroeconomic climate around the world. But we think we have the programs in place and the history of managing through difficult times to again deliver very solid results this year on both the top and bottom line.

So, let’s turn the divisions starting with North America. Volume in North America decline 3.5% while organic sales grew 3%. You know, of course, that we took significant price increases in the U.S. in the second half of 2008, which temporarily affected volumes. You may recall we saw the same phenomenon in our Hill’s business earlier in the year. And you will hear in a moment about some exciting new products, which should help further drive volume in North America in the first quarter.

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