Colgate-Palmolive Company (CL)

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Colgate-Palmolive (CL)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET

Executives

Ian Cook - Chairman, Chief Executive Officer and President

Bina Thompson - Vice President of Investor Relations

Analysts

Javier Escalante - Weeden & Co., LP

Dara Mohsenian - Morgan Stanley

Lauren DeSanto

Constance Maneaty - BMO Capital Markets U.S.

Lauren Lieberman - Barclays Capital

John Faucher - JP Morgan Chase & Co

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

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

Joseph Altobello - Oppenheimer & Co. Inc.

William Chappell - SunTrust Robinson Humphrey, Inc.

Jason Gere - RBC Capital Markets, LLC

William Schmitz - Deutsche Bank AG

Douglas Lane - Jefferies & Company, Inc.

Wendy Nicholson - Citigroup Inc

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

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Bolton Weiser - Oppenheimer

Joe Lachky

Christopher Ferrara - BofA Merrill Lynch

John San Marco - Janney Montgomery Scott LLC

Presentation

Operator

Good day, and welcome to today's Colgate-Palmolive Co. First Quarter 2011 Earnings Conference Call. Today's call is being recorded and is being simulcast live at www.colgate.com. [Operator Instructions] At this time, for opening remarks, I would like to turn the call over to Senior Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Bina Thompson

Thank you, Lisa. Good morning, everybody, and welcome to our First Quarter 2011 Earnings Conference Call. With me today are Ian Cook, Chairman, President and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; 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 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 will 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.

We're pleased with our results as we begin 2011. As you are aware, global business conditions remain challenging with sluggish category growth rates in the developed world and steeply rising commodity costs everywhere. Despite that, our volume and organic sales growth are accelerating and our global market shares are up on a year-to-date basis in toothpaste, manual toothbrushes, bar soaps, shampoos, household cleaners and fabric conditioners with balanced market share results across division.

Our advertising investment have also increased from the fourth quarter of 2010 to support our innovations and that is expected to further increase as the pace of new product launches quickens through the balance of the year.

Our volume growth of 2% is on top of the increase of 6% in the first quarter of 2010. We still expect full year volume growth to be in the 4% to 5% range as comparisons ease for the remainder of the year. You'll hear about new products launched and planned as we go through the division. The pipeline is as full as it has ever been.

Due to the severe rise in commodity costs, our gross margin declined year-over-year as compared with a 170 basis point increase in the year ago period. And we expect our gross margin to remain around our first quarter levels for the remainder of the year as we anticipate the current cost environment to be largely offset by another year of very strong fund in the gross savings and appropriate price increases.

Looking forward to the remainder of the year, we should also benefit from a more favorable currency tailwind that originally anticipated in the beginning of the year. And as you know, we announced the acquisition of the Sanex business a little over a month ago along with the divestiture of our laundry detergent brands in Colombia. Those transactions are still under review by the respective competition authorities in Europe and Colombia, but we're excited about the acquisition as it fits precisely when our strategy is focusing on higher growth and margin brands around the world. As we previously told you, these transactions are expected to have an accretive effect on a combined basis of approximately 4% on total company earnings in 2011, due entirely to the one-time gain on the detergent business sales and a positive effect on earnings in 2012 of approximately 1% from growth and efficiencies n the Sanex business.

As referenced in the press release, organic sales growth in the emerging market is solid and we expect that to continue. Encouragingly, we are beginning to see signs of improvement in developed markets, particularly Europe, which should bode well for the remainder of the year.

Our balance sheet remains solid and cash flow is strong, which allowed us to continue our share repurchase program as well as to announce a dividend increase of 9% effective in this quarter. Working capital levels remain low and our return on capital is at 38.1%, up over 1 point from the year end 2010.

So let's turn to the division, starting in North America, business in this region remains challenging. Category growth rates has slowed somewhat from last year and competitive promotional activity is still high. So we're pleased that our all outlet toothpaste market share is up on a year-to-date basis, maintaining market leadership.

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