Good day and welcome to today's Colgate-Palmolive company first quarter 2008 Earnings Call. This 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 questions and answers 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 ma’am.

Thanks Matt. Good morning everybody and welcome to our first quarter earnings release conference call. With me this morning are Ian Cook, President and CEO, Steve Patrick, CFO, Dennis Hickey, Corporate Controller and Ed. Filusch, Treasurer. We will discuss the results for the first quarter this morning excluding charges relating to the 2004 restructuring program and certain other items in the first quarter for 2007. The reported GAAP results with reconciliation to the results, excluding the restructuring charges and other items in the first quarter of 2007 are included in the press release and accompanying financial statements and are posted on the Investor Relations page of our website at www.colgate.com. Comments about expectation will also exclude restructuring charges. But during the Q&A, we will answer any questions including or excluding these items as you wish. We were very pleased with our first quarter results, particularly given some of the external pressures that both we and our competition have been facing, a slowdown in the US economy and worldwide increases in raw materials and commodity costs. We continue to see that our global strategies with which you are all familiar are working. Getting closer to the consumer, our customer and the profession and effectiveness in the efficiency in everything we do, innovation everywhere and a focus on developing our leaders of today and more importantly tomorrow. We are delighted that a very strong top line has allowed us to continue increase advertising by a meaningful amount, while at the same time delivering earning per share ahead of our and your expectations. Advertising was up both absolutely (inaudible) of sales. And that, along with our strong new product program has resulted in increased market share in many categories around the world. And as you would expect, the competition of our top line…

(Operator Instructions) And we will go first to John Faucher with JP Morgan.

Yes. Thank you very much. Bina, you talked about the discrepancy in the gross margin performance sort of the Hill's versus rest of the company, two questions to follow up on that. Is that the type of split we should expect going forward? And then also can you highlight how things trended in the quarter, because obviously it didn't seem though that you guys were as concerned about this level of cost pressure earlier in the quarter? Thanks.

John, good morning, its Ian. Thanks for the question. Let me just say a couple things before I come directly to that two part question. First, to underscore that we are actually very pleased with that performance in the first quarter, good sales growth, good profitability growth, both market share increases in major countries around the world, and as I say with that top line growth, 5.5% volume with 3% pricing on top. Second thing to say, we continue to be very comfortable with the strategy that we have been deploying over the last four years now focusing on building that connection with the consumers supported by innovation with a continued focus on effectiveness and efficiency and of course developing the leadership of the company. Turning to the gross profit, let met talk first to the quarter then to the year and give you some thoughts on 2009. So the quarter John, when we last spoke in February at conference call Cagney . As I said at the time, we had gotten off to a strong start for the year from a sales point of view and we are comfortable we would be ahead of forecast. The Colgate gross profit had expanded quite nicely. The Hill's gross profit was modestly down, but within our forecasted estimate. Two things as the quarter unfolded hit us very hard. Pets and orals prices grew very quickly on an impacted our core business to the tune of about 500 basis points. More importantly, as you said John, the agro costs on our Hill's business grew significantly beyond what we had forecast by some 30% and we ended up with a drag on the gross profits at Hill's of over 400 basis points, between 400 and 500, which took the gross profit for that business…

We go to Wendy Nicholson with Citi Investment Research.

Hi, I guess I am just frankly in a state of shock that only three months have passed and yet the gross margin expansion target has changed so entirely. And I guess my shock comes from the fact that even when you guys have been in tough years like 2004, 2005 you still manage to expand your gross margin. So I guess on the forecast for flat gross margins this year, this doesn't sound right to me. I mean do you think there was a problem internally where you guys were caught sort of flatfooted on your forecasting? Do you think you have been too slow just figure out how much more pricing you need to take? You have taken a ton of pricing in health but do you think that you need to take it in the US, but we just can't because the consumer is kind of weak? It strikes me as though not Colgate like to see such a big miss relative to what you told us three months ago. And I guess then my second question is what you think is going to happen this year from an operating margin perspective because if your volumes only continue to grow in the mid single digits and let’s suppose currency doesn't continue to give you the same kind of benefit that you have, I don't know how you re consensus estimates for 13% earnings growth?

Let's come back to the margin, Wendy, and where we sit on the businesses. I think we took you through what we were estimating in terms of oil and the impact of oil on commodity pricing for the year. We told you where we had started. With the 75, we responded the last time to what we thought would be a 90 average, and now we are planning to 120 average for this year, which is the elevated level that oil sits at today. There is, of course, as I just explained with Hill's and the agro prices a lag in terms of your ability to take pricing and make it play in the marketplace. And in the case of Hill's we made estimates, we took pricing to respond to those estimates, and the agro costs surprised us significantly in the first quarter, which we have responded to with pricing that will take place at the end of the second quarter. Since we last spoke, importantly in the United States, we have announced a 9% price increase on our toothpaste business, which will reach the marketplace at the beginning of the third quarter. And relative to the consumer, so far we are not seeing a slowdown in terms of the consumers purchasing of our products. The category growth in the United States remains positive. They may be down 50 basis points from historical highs but they are still running about 2.5% to 3% across the board. And in Europe they are running about 2% to 2.5% higher on our personal care and oral care businesses. So, we think we have responded appropriately to unprecedented cost movements in the marketplace and have pricing in place now going forward that reflects that and accounts for that and has not been tampered by…

We'll go to Bill Pecoriello with Morgan Stanley.

Good morning.

Hi, Bill.

If you could give us the gross margin to walk through in the quarter and then just in terms of the components as the year goes on, is the main difference going to be whatever that pricing contribution, obviously, is going to go up based on what you are saying? Any other major changes in the contribution on commodity impact, restructuring, funding the growth etcetera, once you give us that walk through on the Q1?

Yeah, let me do that, Bill. Obviously, in the prior year our gross profit was 54.7%. We had material 57.3%. We had a pricing headwind of some 320 basis points, materials costs increases of some 320 basis points that offset by funding the growth savings around 90 basis points, restructuring benefits of 80 basis points, the balance in price and mix getting you to the 57.3% down to 10 basis points year-on-year. As we look forward, Bill, for the rest of this year you see a greater pickup indeed due to pricing that is forecast with both the material price headwind as I said, being held at the current level and our funding the growth savings and restructuring, offsetting the balance.

Thank you.

We'll go to Ali Dibadj with Sanford Bernstein.

Hi, guys. A couple of questions.

One question, please, Ali.

Sure. I will try to tie it into one big one. Around margins, certainly just trying to get a more of the clarification on the lag effect on pricing and if that modified in any way your kind of seemingly to most people, an unstoppable march to 50% by 2010. And then on the operating margins part of that, what is your confidence in keeping up operating margin safe? I am just looking at one of your star region Latin America here. With great pricing growth you are still down on operating margin there and how that build confidence for the rest of the business having to take pricing and not getting ahead on operating margins?

Yeah. So the first question relative to gross profit, as I said at the beginning, we are very comfortable with the overall strategy we have in place in terms of the effectiveness and efficiency. Obviously, we focus on many things. We focus on our Colgate business planning which is on track, and we are still looking to get $100 million from Colgate business planning this year. We focus on providing value-added offerings to the consumer. So the consumer is prepared even in this environment to pay a premium price. Well, and of course, we continue to be focused on advancing the higher gross profit oral care and personal care businesses, which handily led the pack in this quarter. And then on top, we are, of course, taking pricing. Now, we are still focused in 2009 and going forward, against the targets we have from a gross profit point of view and also 75 basis points. And as we have done some about preliminary thinking in 2009, I think I have already said we have confidence that we will be substantially up, even with some fairly conservative assumptions built into that. But I think it is fair to say, Ali that in terms of delivering 60% you said 50%, it was actually 50% by 2010. We may miss that by a quarter or two, given this unprecedented top profile that we are meeting and overcoming in 2008. So that's the answer on the gross profit, growth confidence going forward, and I think in terms of the prevailing cost environment, we are assuming that will worst and dealing with that. Secondly, back to Latin America, I think we had this discussion on the call the last time, Ali relative to Latin America. This is a terrific business that we got volume growth in Latin America of around 7.5%. And we have seen our advertising investment in that division up meaningfully year-on-year, and still we have a profit increase of plus 14%. So we like the profile of that business and we are making a choice to drive our brand growth and penetration and trial and market share in a favorable environment. So, I repeat volume growth about 7.4%. As Bina said, shares in some of that key market in Latin America and find high with an opportunity to drive them further and maintain that top line volume growth in the high single-digit area as we have said before.

We go to Alice Longley of Buckingham Research.

Hi. I just wanted to check at one statement you said earlier. Did you say that you assumed operating margins for the year would be flat?

It's actually flat with prior year, yes.

And that’s just for the year overall. Okay. And on you gave us some projections that you are assuming for some of the variables like FX, what is the assumption that we should use for pricing for the year overall? You had 3% in the first quarter.

I think we will see pricing for the year overall in the 3.5 to 4.5 range.

We will go to Filippe Goossens with Credit Suisse.

Good morning, Ian and Bina. My question is on the emerging markets in general in Brazil specifically and maybe first the Brazilian component. Obviously another great performance by Peter particularly on the mouthwash side, but I was hoping if you could give just give us a little bit more of a color in terms of how you are looking at the new value-added packs that was implemented February 1 in the state of Sao Paolo, how that is impacting your business in this, if there is any initial read on whether other states may follow the lead of Sao Paulo. The other emerging markets question Ian, has to do obviously with rising Cuban inflation in many emerging markets. Your initial read, any impact on your volumes or peoples willingness to also pay higher prices as you had just accordingly, thank you very much.

Thank you, I think Filippe good question. Let me take the second one first. We are keeping a very close eye on food items in emerging markets and downtrend distribution particularly cooking oil, which is obviously a very important family purchase. The answer would be no. We have not seen an impact on our purchases. And I think to go back a little bit to the strategy that we deployed with our businesses, and that is for those emerging markets, we have packaging forms, namely sachets and small tubes which permit us to bring our thoughts into that channel of distribution at a very affordable cash outlet price for that consumer that is buying on a daily basis, and we made sure from a distribution point of view, obviously that we are very strongly represented in those channels and as I say, affordable from a cash outlet point of view. So no impact but we are keeping a very close eye both on our businesses as we indicate the foodstuffs, as I say, like cooking oil. Turning to your first question, that the tax exchange did not have an impact on us in the quarter, because we managed complex negotiations and the implementation of the government with the industry association, with early communication and therefore avoided any disruption order. We do not have any information that would suggest this could expand elsewhere, but were to do so we would obviously manage it with the same attention and discipline to avoid the disruption as we did in Sao Paolo.

We go to Chris Ferrara with Merrill Lynch

I just wanted to get to the advertising line. I think last quarter, I guess you said presumably with some conviction that you would get 12% of sales on advertising for this year. I think if I might have misheard you earlier you said you expect to be flat year-over-year. Is that right? And why? I guess where is the advertising coming from versus what you previously expected if there was a change?

I just wanted to get to the advertising line. I think last quarter, I guess you said presumably with some conviction that you would get 12% of sales on advertising for this year. I think if I might have misheard you earlier you said you expect to be flat year-over-year. Is that right? And why? I guess where is the advertising coming from versus what you previously expected if there was a change?

Then if I did say that Chris, I apologize. I don’t think I did. We are actually very pleased that our advertising on this first quarter is up double digits year-on-year and the ratio is up year-on-year and I think we said that our aspiration and our goal was to get to a 12% advertising to sales ratio by the end of 2008 and that very much remains our goal and our forecast. We are committed to appropriate advertising behind our business to do trial for the brand that we have.

We'll go to Bill Chappell with SunTrust Robinson Humphrey.

Good morning. On a couple of commodities, you haven’t talked about corn and soybean. I assume that was as big a surprise over the past few months for the Hill's business. Is there any change to your hedging policies on a go-forward basis? And maybe what you are expecting for prices of those products going into ‘09 for your pricing?

Yeah Bill. It’s Ian, sorry.

You're okay?

Yeah. I guess the water went down the wrong way here. I would like to respond. We on our Hill's business, we hedge about a third of it and that would include the corn and I don't have soybean specifically on this list, Bill. I am sorry. Is there somebody who has it around the room? Bill, I think we’re going to have to get back to you after the call. I am sorry, let me correct that, I can say that soybeans for us in terms of our assumptions this year is up between 40%, and 45% and corn because of the hedge it's basically the same. But the soybean is up and we will, as we look forward, be hedging those like materials in 2009.

We’ll go to Bill Schmitz with Deutsche Bank.

Hey, good morning.

Hey Bill.

Hey, a couple things. The SG&A cost in the quarter seemed like they came down pretty considerably which is impressive obviously and that’s even with the shipping and the handling cost in the SG&A line. So, what happened in the quarter? Did you adjust spending or change some things given the input cost environment?

Yeah, good question Bill. From our point of view essentially overhead came down and was offset by advertising going up. It’s that simple and in that overhead line and also putting investment behind, our go-to-market capability in terms of professional selling, organizations and on the ground merchandising and sales capability. So, the overhead costs came down on a ratio basis, offset by advertising going up.

We will go to Lauren Lieberman with Lehman Brothers.

Thanks. Good morning.

Good morning Lauren.

I have a question about funding the growth. My understanding is that one of the buckets of cost savings within funding the growth is purchasing related. First of you mentioned that funding the growth was only about 90 basis points this quarter. It’s the lower rate of savings this quarter and maybe what is the lower rate of savings expected through the year because you are less able to get purchasing type savings in this commodity cost environment?

Lauren, the answer to your question is we are forecasting at the first quarter rate going forward for precisely the reason you said.

We'll go next to Connie Maneaty with BMO Capital.

Hi. Good morning. I understand the sensitivity of the Hill's business to agricultural commodities and I understand the top down was going along the 120, but I really don't understand the sensitivity of toothpaste to commodities. So, where is the link between toothpaste and the 9% price increase you are taking? What justifies the price increase of that nature? Is that a price increase worldwide and have your major competitors followed you on it?

It is cost justified Connie in the United States, a combination of war and packing materials. And yes, my understanding is that the principal competitors in the United States have both announced price increases on those businesses.

We'll go to Alec Patterson with RCM.

Yes, good morning.

Good Morning, Alec.

I just want to get a feel for the margin algorithms, as you are taking pricing now up to, you said 3.5%-4.5% level and how that is going impact the way we should look at gross margin. I presume it's about a 200 basis points positive impact and things like the advertising and the sales ratio mentioned before, obviously, you are taking pricing up. Are you trying to match that with an advertising list? I am just trying to get a sense of how pricing is affecting the way the margin structure plays out.

I would say, as I mentioned in going through the gross profits for the first quarter, Alec that's about 130 of the gross profit with the offset material prices was in pricing. I expect that, given that the rate of pricing increases on the balance of the year to increase somewhat in that 150 to 200 range for the balance of the year to offset the prevailing 300 odd basis points of material price list and see the start to rebuild gross profit over the balance of the year and the advertising falls out of that in our planning.

We'll go to Andrew Sawyer with Goldman Sachs.

Two quick ones. First, I am just wondering if you could help us through why you're looking for an acceleration in volume growth in Latin American region for the balance of the year and second, kind of building on Alice's question, and I guess about adding up a lot and look at gross margins instead of looking on a percentage basis, if I look it in dollars, it seems to me still with foreign exchange the way it is, you are looking at may be low double digits to low teens to gross profit in dollars and first of all is that correct? And second, I guess with that level of funding, I guess how should we think about operating leverage against that kind of dollar growth in gross profit? Thanks.

Let me talk about Latin America first, Andrew. If you profile 2008, you got a probably the easiest, in fact the easiest comparisons of the toughest comparison, I am sorry, of the year, quarter-to-quarter, first quarter of 2007 was approaching about 14% and, obviously very healthy 7.5% in 2008, it was terrific on top of that. Now the range has increased, we are looking at in Latin America for the year in that 7 to 8.5 volume range, is activity driven and comparison against prior year quarter. So we feel very comfortable about that. Turning to your question on gross margin

We will take our final question from Jason Gere of Wachovia Capital Markets.

Good morning. Sorry I got cut off there. I was wondering if you could just provide little more color on Hill's, the volumes, may be in the US, some of the specialty channels were very aggressively promotional during the period, I am just wondering if you could talk a little bit about what they are doing during this time when you are taking pricing and obviously you are facing a lot of cost inflation and the impact on the consumer?

Yeah. Good question Jason, interestingly we saw, as you saw very good volume for Hill's in that 3% to 4% range. And we sold that in the United States and that was with the 7.5% pricing. I think when we talked the last time, I had mentioned though when we took pricing in the fourth quarter of last year, we saw a slight slowdown in terms of the up take in the specialty channel, when the pricing was initially introduces and that we had seen that come back towards the end of the year. And that has continued into the first quarter of this year. So, we are seeing, from a dollar point of view in the specialty channel, growth rates around 4.5% to 5.5% through the first two months of this year. And I would just comment generally not related to Hill's that the overall business sales growth, started this quarter quite strongly as well. So we see the consumer buying and the kind of initiatives remember we are focused on with Hill's is building loyalty and use because of the clinical benefit with professional recommendations. It is not a price dealing price sensitive business. So far the consumer is staying with us. Hello?

And advertising, looking to be stepped up in year end and operating margins looking to be flat, can you, are you just quantify that SG&A, you are going to see continuation of the improvements that we saw during the year? So, we hadn't seen those improvements in the last two years?

As we look at the year, we're going to see SG&A overall basically flat, which will see a slow reduction in overhead and an increase in advertising for the year. I think I said the last time when we were on the call; we had put some good capability in place as we had gone through the restructuring program, we are getting benefits in terms of our overhead cost structure and we will be investing some of that. And I think I said that we expected that to start to tail off towards the end of 2008 on the overhead line and that is what we're planning.

And now do we have any more questions?

That was the final question.

Thanks very much for joining the call. We thank you for your support and we look forward to catching up again at the end of the second quarter.

And that does conclude today's call. Again, thank you for your participation have a good day.