Colgate-Palmolive Company (CL)

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Colgate-Palmolive Company (CL)

Q2 2009 Earnings Call Transcript

July 30, 2009 11:00 am ET

Executives

Bina Thompson - VP, IR

Ian Cook - Chairman, President and CEO

Analysts

Bill Chappell - Suntrust Robinson Humphrey

Bill Schmitz - Deutsche Bank

Ali Dibadj - Sanford Bernstein

Wendy Nicholson - Citi

Chris Ferrara - Merrill Lynch

Joe Altobello - Oppenheimer

Andrew Sawyer - Goldman Sachs

John Faucher - J.P. Morgan

Lauren Lieberman - Barclays

Jason Gere - RBC Capital Markets

Linda Weiser - Caris

Alec Patterson - RCM

Connie Maneaty - BMO Capital Markets

Nik Modi - UBS

Victoria Collin - Atlantic Equities

Alice Longley - Buckingham Research

Presentation

Operator

Good day, everyone. And welcome to today’s Colgate-Palmolive Company second quarter 2009 earnings conference call. Today’s call is being recorded and is being simulcast live at www.colgate.com. 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, Sharla, and good morning. And welcome to our second quarter earnings release conference call. With me this morning are Ian Cook, Chairman, President, and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and, Ed Filusch, Treasurer.

This conference call will include forward-looking statements. And 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 these statements. For information about certain factors that could cause such differences, investors should consult our annual report on Form 10-K filed with the Securities and Exchange Commission and available on our Web site, including the information set forth under the captions, “Risk Factors and Cautionary Statement on Forward-Looking Statements.”

We will discuss organic sales growth, which is sales excluding the impact of foreign exchange, acquisitions, 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 are pleased with our strong results in the second quarter. Of particular note is our outstanding progress in gross margin, excellent bottom line performance, and continued healthy organic sales growth. As you know, building gross margin momentum is a critical part of our financial strategy, as is having the appropriate balance between pricing and volume.

As you've seen, we have been able to successfully implement price increases through last year and into the first half of this year. With the easing of raw material costs increases and what appears to be a stabilization of currency movement, we feel pricing is where it should be and would expect to shift the focus back more to volume as we move through the rest of the year. And you will hear, as we go through the divisions, about some specific initiatives we have in place to generate volume growth.

One important driver volume is advertising. As we stated on our previous call, advertising in the second quarter increased from first quarter levels. And we expect that to continue in the third and the fourth quarter as well. And as we also have previously discussed, this will be a combination of media and our increasing focus on effective in-store activities. We plan to fund that advertising through gross margin increases and overhead costs control.

And as you’ve seen, those things are happening and to continue to happen to the balance of the year. Gross margin increases are expected to be at least at second quarter levels in the third and fourth quarter. Now it's important to note that our funding the growth program continues to deliver excellent savings and we expect to see similar benefits in the second half of the year. This gives us further confidence in our ability to increase gross margin.

In short, our financial strategy, which you know very well, is working. Our market shares in key countries around the world are increasing and our pipeline of innovation is as full as it has ever been with value added offerings at every price point.

Now I'd just like to spend a moment on volume. As you saw in our geographic sales analysis attached to the press release, volumes for our Colgate businesses was positive in the quarter. Volume increases for our Colgate businesses should improve through the balance of the year. And more importantly, we expect Hill’s volume to improve substantially and we will review that in more detail when we discuss the Hill’s business.

Not only do we have strong profitability, our balance sheet is strong as well, including our key financial ratios, which are moving in the right direction. The second quarter delivered another quarter of strong cash generation. Our working capital declined year-over-year, and our return-on-capital reached 36.5%, up from 32.7% in the first six months of 2008.

So let's turn to the division starting with North America, and we're delighted to see that the North American business is healthy with good volume growth, organic sales growth and market share growth. In fact, in the US alone, volume increased 3.5% with organic sales growing 4%. Further more in the US, consumption is strong, up almost 5% on a volume basis. Our growth is outpacing category growth, which is reflected in good market share increases. In the quarter, our share were stable or up in 11 of 14 categories.

New products, obviously, are critical to our success. One of our newest innovations, Colgate Wisp, a disposable mini brush, is also a good start with strong market shares as referenced in the press release. Importantly, early trial and repeat numbers are ahead of the norm for the toothbrush category. Early display support was excellent and consumer communication included a wide variety of touch points, including terrific publicity, with the product being featured on the Today Show and other televisions shows.

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