Colgate-Palmolive Company (CL)

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Colgate-Palmoliv (CL)

Q4 2010 Earnings Call

January 27, 2011 11:00 am ET

Executives

Ian Cook - Chairman, Chief Executive Officer and President

Bina Thompson - Vice President of Investor Relations

Analysts

Constance Maneaty - BMO Capital Markets U.S.

Lauren Lieberman - Barclays Capital

William Chappell - SunTrust Robinson Humphrey Capital Markets

Alice Longley - Buckingham Research Group, Inc.

John Faucher - JP Morgan Chase & Co

Mark Astrachan - Stifel, Nicolaus & Co., Inc.

Ali Dibadj - Bernstein Research

Jason Gere - RBC Capital Markets, LLC

William Schmitz - Deutsche Bank AG

Douglas Lane - Jefferies & Company, Inc.

Timothy Conder - Wells Fargo Securities, LLC

John McMillin - Prudential Equity

Jon Andersen - William Blair & Company L.L.C.

Alec Patterson - RCM

Andrew Sawyer - Goldman Sachs Group Inc.

Caroline Levy - Credit Agricole Securities (USA) Inc.

Nik Modi - UBS Investment Bank

John San Marco - Janney Montgomery Scott LLC

Henry Capellan

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Good day, and welcome to today's Colgate-Palmolive Company's Fourth Quarter and Fiscal Year-end 2010 Earnings Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I'd like to turn the call over to Senior Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Bina Thompson

Thank you, Katie. Good morning, everybody, and welcome to our Fourth Quarter and Full Year 2010 Earnings Release Conference Call. With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, Vice Chairman; Dennis Hickey, CFO; and Elaine Paik, 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 these statements. For information about certain factors that could cause such differences, investors should consult to our most recent Annual Report on Form 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'll discuss our results and outlook, excluding the one-time charge of $271 million related to the transition to hyper inflationary accounting in Venezuela as of January 1, 2010, and the fourth quarter items described in the press release. We will also discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures.

A full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the Investor Relations section of our website at www.colgate.com. And we'll be glad to answer any questions you may have, including or excluding these items as you wish.

As we get started this morning, I want to put our fourth quarter in a more strategic context and share our thoughts going forward. You'll see, as I review the divisions, that our market shares are very healthy around the world, and especially in the emerging markets, which represent over half of our business. We continue to perform well, given the current competitive and economic challenges, and are committed to investing in growing our business and expanding our strong market share position.

As you read in the press release, the fourth quarter included multiple unusual items, all of which are offsetting in net income and earnings per share. We had the sale of brands in Latin America and the savings from a non-recurring tax project. While our tax rate each year benefits from global tax strategies, this initiative capitalize on a highly unique set of events and circumstances related to the combination of both Venezuela being considered hyperinflationary effective January 1, 2010, and the subsequent devaluation on January 8, 2010. By re-organizing the U.S. tax status as CP Venezuela, we were able to capitalize on these unique events and realized a one-time non-recurring tax benefit.

These projects have allowed for a one-time charge resulting from the termination benefits related to ongoing overhead reduction initiatives. This charge will allow for savings to be generated in 2011 and beyond, which will be used to reinvest behind our business. Excluding these items, operating profit was down 5% mostly due to the Venezuelan devaluation, and we've added a new Table 9, which reconciles our tax rate to 32.5%.

And while our fourth quarter volume was below our longer-term targets, namely as a result of a sluggish growth in the developed world, our expectation is that we will return to the mid-single-digit range for 2011. We're pleased with our strong innovation stream plan for the year. And although the year has just begun, we're encouraged by the results so far.

The decline in gross margin of 40 basis points in the fourth quarter was due almost exclusively to the continued increase in commodity costs that we and others in the industry began to face in the second half of 2010. Going forward, we expect to be able to offset those cost increases. We have begun to implement price increases, particularly in the emerging markets. In addition, our Funding the Growth program remains very strong and is getting broader. We've talked to you before about SKU rationalization and formula harmonization, among other programs, and we see meaningful opportunities for savings in this area. For 2011, we expect margin to increase sequentially throughout the year.

We also expect to achieve savings in our overhead expenses reflected in SG&A. For instance, savings from indirect materials now represent almost half of our total procurement savings, and we see more opportunities here. Areas such as media production, merchandising, outside market and clinical research, just to name a few. In addition, as you read in the press release, in the fourth quarter, we funded some overhead reduction initiatives at Hill's and in Europe with the gain on the sale of non-core brands.

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