Colgate-Palmolive Company (CL)

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Colgate-Palmolive (CL)

Q2 2014 Earnings Call

July 31, 2014 11:00 am ET

Executives

Bina H. Thompson - Former Senior Vice President of Investor Relations

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

Analysts

Wendy Nicholson - Citigroup Inc, Research Division

Jason English - Goldman Sachs Group Inc., Research Division

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

William Schmitz - Deutsche Bank AG, Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Olivia Tong - BofA Merrill Lynch, Research Division

Michael Steib - Crédit Suisse AG, Research Division

Brian Doyle - CLSA Limited, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Lauren R. Lieberman - Barclays Capital, Research Division

Javier Escalante - Consumer Edge Research, LLC

Stephen Powers - UBS Investment Bank, Research Division

Alec Patterson

Mark S. Astrachan - Stifel, Nicolaus & Company, Incorporated, Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Colgate-Palmolive Company Second Quarter 2014 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com.

Today's conference call will include forward-looking statements. These statements are made on the basis of the company's 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 the company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission and available on the company's website, including the information set forth under the captions Risk Factors and Cautionary Statement on Forward-looking Statements.

This conference call will also include a discussion of non-GAAP financial measures, which differ from the company's results prepared in accordance with GAAP. The company will discuss organic sales growth, which is net sales growth, excluding foreign exchange, acquisitions and divestitures. The company will also discuss gross profit, gross profit margin, SG&A as a percent of net sales, operating profit, operating profit margin, net income and earnings per share on a diluted basis, excluding the impact of these items described in the press release. A full reconciliation with the corresponding GAAP measures is included in the press release and is posted in the For Investors section of the company's website at www.colgatepalmolive.com.

Just as a reminder, there will be a slight delay before the question-and-answer session begins due to the web simulcast.

Now for the opening remarks, I'd like to turn the call over to the Senior Vice President of Investor Relations, Bina Thompson. Please go ahead, Bina.

Bina H. Thompson

Thank you, Angela. Good morning, and welcome to our second quarter 2014 earnings conference call. With me this morning are Ian Cook, President, Chairman and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; and Elaine Paik, Treasurer.

We're happy to report another quarter of good organic sales growth with every division participating. Consistent with other companies in our industry, we are facing increased macroeconomic pressure in certain areas of the world. Category growth has slowed somewhat in geographies such as Asia, a factor which we actually referenced last quarter. On the other hand, we see some encouraging signs of slow recovery in some European markets. Competition remains healthy and promotional battles continue. However, our new product pipeline is as full as ever and our commercial investment behind our launches has increased worldwide, a careful balance between media spending and in-store activity, and this has resulted in solid market shares, many categories and geographies and showing positive trends in the most recent periods.

Our Global Growth and Efficiency Program is on track and savings from that are supplementing our ongoing Funding the Growth initiatives, which are as healthy as ever. Both of these contributed to our 20 basis point increase in gross margin.

Offsetting these savings were increases in raw and packaging material costs, as well as continued foreign currency transaction pressure.

Our 3 business service centers around the world are now up and running, in Warsaw, Mexico City and Mumbai. The hubbing activities are complete in Europe and are well underway elsewhere in the world, which will make us even more nimble and effective winning on the ground. And of course, our balance sheet is strong and cash generation is solid.

So let's turn to the divisions, starting with North America. Organic sales growth in North America was modest. The volume growth of 2.5% was of course on top of the very robust increase in the year-ago quarter of 6%, reflecting the initial launch of Colgate Total Mouthwash. We have an exciting innovation launching as we speak, which I'll discuss in a moment.

Pleasingly, versus the second quarter of 2013, our 2014 second quarter shares increased in toothpaste, toothbrushes, deodorants, body wash and fabric conditioners, and our mouthwash shares have steadied at about 6.5%.

Trial and repeat numbers for Colgate Total Mouthwash are above previous recent competitive launches and the product has been instrumental in driving overall category growth.

Our recent launch of Suavitel Fast Dry fabric conditioner has also met with success. Our quarterly national share is at a record 18.6%, up 170 basis points versus the second quarter of 2013. And this is a product which is largely sold in Hispanic markets, where it holds a 36.2% share on a year-to-date basis, fast closing the gap between us and the leading competitor.

So looking ahead, our latest toothpaste innovation here in the U.S. is Colgate enamel health toothpaste. The enamel strengthening segment is the fastest-growing in the toothpaste category, with 54% of consumers concerned about enamel. This new product replenishes natural calcium and other minerals back into weakened enamel, filling in rough spots while at the same time, polishing the enamel surface so germs are less likely to stick on the teeth. The formula has an active fluoride system, along with gentle on enamel silica and the product comes in 2 variance, whitening and sensitivity relief. In addition, the impact for packaging is interactive with a touch-and-feel demo showing acid soft in rough enamel and healthy smooth enamel. So as you would imagine, we have a very robust integrated marketing campaign planned, including television, print, public relations, professional, digital, social, mobile and in-store activities.

Read the rest of this transcript for free on seekingalpha.com