Colgate-Palmolive Company (CL)

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Colgate-Palmolive Co. (CL)

Q1 2009 Earnings Call

April 30, 2009 11:00 AM ET

Executives

Bina Thompson - Vice President of Investor Relations

Ian M. Cook - Chairman, President and Chief Executive Officer

Analysts

Bill Pecoriello - Consumer Edge Research

Ali Dibadj - Sanford C. Bernstein & Company

Bill Chappell - Suntrust Robinson Humphrey

Andrew Sawyer - Goldman Sachs

Wendy Nicholson - Citi

Chris Ferrara - Bank of America-Merrill Lynch

Alice Longley - Buckingham Research

William Schmitz - Deutsche Bank

John Faucher - J.P. Morgan

Linda Weiser - Caris & Company

Lauren Lieberman - Barclays Capital

Alec Patterson - RCM

Connie Maneaty - BMO Capital Markets

Jason Gere - RBC Capital Markets

Presentation

Operator

Good day, and welcome to today's Colgate-Palmolive Company First Quarter 2009 Earnings Conference Calls. Today's call is being recorded and is being simulcast live at www.colgate.com. Just a reminder, there maybe a slight delay before the Q&A session begins due to the web simulcast.

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

Bina Thompson

Thank you, Tania, and good morning everybody. And welcome to our first quarter 2009 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 captions Risk Factors and Cautionary Statements on forward-looking statements.

We will discuss organic sales growth, which is sales excluding the impact of foreign exchange, acquisition and divestitures. And we will also discuss our results and expectations, excluding charges relating to the 2004 restructuring program which was completed last year. 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 www.colgate.com. We'll be glad to answer any questions you may have including or excluding these items, as you wish.

We're very pleased to have begun this year continuing the momentum with which we exited 2008, particularly in the current global environment. Organic sales growth again increased high single-digits and as expected foreign currency was a significant headwind.

As we told you, we would, we took price increases in overseas markets to offset transaction losses which resulted in less volume growth than previously anticipated. This volume decline was more notable in our health business to cover ongoing commodity cost factors. There is, of course, a delicate balance between volume and price. As you will hear when we review the decisions, we volume in all divisions to rebound somewhat as we go through the year.

Gross margin increased 20 basis points, which was very encouraging. As we told you last quarter and as we mentioned in the press release, we expect to increases to build as we go through the year. While we have come to the end of our full year restructuring in business building programs, our ongoing funding in the growth programs continued to deliver meaningful savings throughout the P&L.

Our advertising was down on a dollar and percentage sales basis due to a number of factors. Overall, media rates have declined in many markets, and in certain instances competitor's spending has been reduced. This has allowed us to remain competitive in our spending as witnessed by solid market shares around the world.

In additions, in certain key markets, we have shifted away from media to more in-store activities were appropriate. As the consumer is more cautious to value in this current environment, in-store activity communicating our value proposition is even more important than ever.

You may recall that in the fourth quarter, our overhead expenses were down as a percent of sales, an indication of our ongoing focus on becoming more efficient. As you know, in the first quarter due to market conditions, our pension costs increased as did those of our competition. Excluding the increased pension costs, our overhead expenses were down 50 basis points in the prior year. And of course, diluted EPS increased 8% inline with expectation.

Importantly, in these very challenging macro economic times, we are staying even closer to consumers to understand how they are reacting to a changing environment. In addition, we are conducting more in-home visits, learning some online communities and conducting consumer surveys. And we found that while shopping behaviors may be changing, buying smaller sizes more frequently for example, trading down by consumers does not had a significant impact on our business.

Likewise, private label its still not a significant factor in most of our categories. In fact, excluding Europe, where private labels has always had more of a presence, private label is under 5% in every category but mouthwash and liquid soap.

Worldwide private label market share in two space, including Europe, is about 1.5%, down 10 basis points from the year ago period. As you know, we have portfolio of value-added products with altering at every price points, which allows us to remain competitive in both developed and high growth markets. The new product innovations which has fueled our growth and market shares this quarter follow that portfolio strategy. Our balance sheet and liquidity are solid, and as you read in our press release, cash from operations was up as strong 21%.

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