Colgate-Palmolive Company (CL) Q2 2010 Earnings Report, Transcript and Summary

Good day, and welcome to today's Colgate-Palmolive Company Second Quarter 2010 Earnings Conference Call. [Operator Instructions] 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.

Thank you, David and good morning, everybody. And welcome to our second quarter 2010 earnings release conference call. With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Elaine Paik, Treasurer. This conference call will include forward-looking statements. These statements were 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. And 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. We'll 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 it's 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 that we continue to deliver solid results despite slowly growing economies in many parts of the world of foreign exchange headwinds and continuing challenges in Venezuela. These factors obviously affected our top line growth with organic sales up 3.5%. Pleasingly, we are still seeing stronger growth in developing markets. Our gross profit margin was flat year-over-year and was significantly affected by Venezuela, which provided a drag on the total company margin of 90 basis points. A portion of this is the result of pricing actions being less than originally anticipated. Additionally, gross profit was burdened with higher cost inventory longer than originally projected. Know at the end of last year, we had purchased inventory at parallel market rates, which translated into a higher U.S. dollar costs. And under hyper-inflationary accounting, this inventory is carried at historical cost. So due to slower consumptions, it took longer than previously anticipated to sell-through this higher cost inventory. Going forward, inventory values are now at lower U.S. dollar replacement cost and coupled with more favorable pricing, gross profit margins started to improve at the end of the second quarter and are expected to be higher for the balance of the year. The company, as a whole, gross profit margins in the third and fourth quarter are expected to be up around 50 basis points year-over-year. As you read in the press release, advertising was up modestly in the second quarter. And you'll hear in a moment how that has helped increase market shares in countries around the world. You know that our shopper marketing initiatives are an integral part of our marketing communications strategy worldwide. This includes effective in-store merchandising and promotional activity in instances where many purchase decisions are made at the shelf. Accordingly, in developed markets, our commercial investments skews more heavily to this type of trade promotions, and therefore, it's reflective in negative pricing rather than advertising reported in the P&L. World-wide overhead was down as a percent of sales, reflecting our relentless focus on generating savings on every line of the P&L. Our cash generation was good, and our balance sheet remains strong, with both receivable and inventory days trending down. So a solid quarter in the face of world-wide challenges that we and all our competitors are facing. Let's turn to the division. North America. We're pleased with our 5% volume growth in North America, particularly in what has continued to be a highly competitive marketplace. We've launched a number of new products throughout the year and supported them with very effective in-store activity as part of our overall integrated marketing campaign. Our excellent toothbrush share was referenced in the press release. As you know, our Colgate 360° Toothbrush has been a success in each of its markets around the world. Since launching the first brush here in the U.S., we've added 360° Sensitive, 360° Deep Clean, and this year, 360° ActiFlex, all of which have added incremental share and have nearly doubled the share for the franchise in 2006. It's now over 10.5%. Also our Wisp Toothbrush continues to perform well. Wisp Plus Whitening was launched in March of this year, and the buzz and PR for the Wisp franchise continues with over 15 million impressions in the second quarter, including articles in Fitness and InStyle magazines and mentions on The View and numerous blogs. College sampling also has driven awareness along with brand ambassadors on campuses and a Facebook fan drive. As a result, trial and repeat levels continue to climb. We often told you about our ability as a global oral care leader to share best practices and ideas around the world. In the Greater Asia division, we launched an integrated marketing campaign for Colgate Total toothpaste called, Seeing is Believing, in the fourth quarter of 2009, which has contributed to an increase of the share for Colgate Total in many countries. We will be using the same integrated marketing campaign here in the U.S., reaching all touch points starting this quarter. The key communication points are: one, as you finish brushing with ordinary fluoride toothpaste, bacteria starts to grow back in the mouth right away; two, bacteria is the cause of most common oral health problems; and three, unlike ordinary fluoride toothpaste, Colgate Total helps fight bacteria for 12 hours and provides 12-hour protection against bacteria buildup. We use the striking illustration of the before and after germ scan, where more plaque bacteria are shown to have grown back 12 hours after using regular toothpaste, and much less so after brushing with Colgate Total. This demo is memorable and easily understood. So this should be an important part of our Colgate Total commercial investment scheduled for the second half of this year. In Personal Care, the categories that is growing well is shower gels. We've launched a number of new variants throughout the year. And one that has been particularly successful is Nutri-Serums. Building on this success this quarter, we're introducing Nutri-Serums illuminating with Mineral Extracts with a concentrated dose of skin softening emollients with stand-out gold beads. General beauty products is very popular in the higher end beauty stores, and this brings them to the mass market at a more affordable price. So looking ahead, volume in North America is expected to increase mid-single digits for the third quarter and full year, with organic sales increasing low-single digit for both periods. Operating profit is expected to be up modestly for the third quarter and full year, both on an absolute basis and a percent of sales. Turning then to Europe. As we all know, the macroeconomic situation across Europe is quite difficult. A number of countries are beginning to implement austerity measures in the face of large deficits. So in this context, we're pleased with the quarter's results. We're till seeing modest overall category growth in Oral and Personal Care. And encouragingly, as we continue to launch relevant and value added new products, our market share is strong. Our market shares are up on a year-to-date basis: toothpastes, toothbrushes, mouthwash, liquid hand soap, bar soaps, cleaners and fabric softeners. We continue to see good results in the launch of Colgate Sensitive Pro-Relief. This breakthrough innovation is rolling out across most of Europe in 2010, supported with a strong and innovative integrated marketing campaign. Colgate Sensitive Pro-Relief has already been launched in the U.K. and Ireland, Greece, Sweden, Poland, Romania, Iberia, Denmark and Norway and most recently, Italy. End market results are outstanding, ranging from a 2% share of the market in the U.K. to almost 4.5% in Greece. In the U.K., Colgate has doubled its share of market within the Sensitive segment while trial and repeat rates for Colgate Sensitive Pro-Relief are ahead of any toothpaste launched within the Sensitive segment, reiterating the strong potential of this product. In Greece, Colgate has achieved leadership in the Sensitive segment. Further innovations under the Colgate Sensitive Pro-Relief platform will be launching in 2010 to further enhance the strong momentum of this product. In Personal Care, Europe's major 2010 innovation is the launch of Palmolive Nutra-Fruit, a line of three shower gel variants enriched with moisturizing cream and pleasurable fruity fragrances, selected from top fragrance houses in a breakthrough swirly formula. This critical strategic initiative is helping establish Palmolive in a premium Beauty Care/Shower Gel segment. End market results are already significantly above initial stimulated test market protection for the Nordic countries, thanks to a powerful and integrated marketing campaign, So Pleasurable, It's Addictive. Nutra-Fruit's value share reached 4% in Sweden, 4.5% in Norway and almost 6% in Denmark in the latest period. Nutra-Fruit variants already ranked among the best sellers of the category, one of the most successful launches since the Palmolive Aromatherapy launch in 2001. And importantly, Nutra-Fruit's share has, so far, been highly incremental to the overall Palmolive franchise, 60% on average. Other European countries, Nutra-Fruit was also very encouraging. Value shares are already nearly in line with year-end targets, reaching 1.6% in Greece, 2.5% in Romania, 2% in Poland and the Baltic states and almost 1% in France. April saw the launch of Colgate-Palmolive's first cross-category care platform, Natura Verde, a performance that carries through your home and beyond. The Natura Verde platform has been applied under our three core home care brands of: Ajax, for cleaners, Palmolive, for hand dish; and Soupline, for fabric softeners. Natura Verde is a true innovation in the home care category designed to meet the needs of consumers looking for products with ingredients of natural origin and environmental reassurance without having to compromise the efficacy, and it represents another step in our commitment to offer an environmentally responsible product. The Natura Verde range was launched with a fully integrated market campaign in France, Greece and the Netherlands, and in May, in Belgium and Switzerland. Despite the recentness of the launch, initial results are promising. While this division is still building this early stage, May retail audit data shows we are tracking well versus objectives. In our main market, France, after less than two months in store, we've already achieved a 2% share in the latest period, which is 50% of our year-one share objective. TV support started in June, with more activities planned for July and August. Launch plans are in progress for other European markets. So looking ahead, volume in Europe is expected to grow low to mid-single digits for the third quarter and full year, with organic sales growth projected to be in the low-single digits. Operating profit is expected to decline low-single digits for the third quarter, but to be up as a percent of sales. operating profit for the full year is expected to be up modestly, both absolutely and as a percent of sales. Turning then to Latin America. We are pleased with a continued good share progress across the region. Of course, Venezuela has been a volatile and challenging environment. And as referenced in the press release, current macroeconomic conditions have resulted in a revised forecast for the full year impact on the overall P&L. Volume declines in Venezuela affected the division volume growth by that 400 basis points. But across the rest of the region, business is encouraging. Our toothpaste shares have increased in all but two countries. In Mexico, where we have been faced with new competitive entries, our year-to-date share is still well above 80%, consistent with prior experience. Brazil, we reached a record level of almost 71% in the most recent period, with particularly good performance from premium products. Colgate Total share is now over 18%, and our share of the Sensitive segment is over 3%. And despite the difficult macroeconomic conditions in Venezuela, our toothpaste shares set a record, almost 94% of the market on a year-to-date basis. In the toothbrush category, we've also performed well in the face of ongoing strong competitive activity. In Brazil, our market share climbed to 29.5% in the most recent period, within less than a point of the market leader. Excellent merchandising and effective in-store activities have been critical to this success. In Mexico, our year-to-date toothbrush share is at 41%, up 30 basis points from the year-ago period, and the most recent period is at 42.8%. As you know, another focus for us in Oral Care is mouthwash, where we have met with continued success in markets around the world. Across Latin America, our share is up two full points year-to-date, narrowing the gap between the leading competitor from 29.3 points in 2007 to just 15.7 points. We achieved leadership positions in Brazil and Argentina. And in Mexico, we achieved a record share in the most recent period of almost 18%, which positions us as number two in the market, while the leader competitor continues to lose share. Bar soap. We've maintained our number one position across the region and are market leader in eight of 12 countries. Protex is now the number one brand followed by Palmolive. New product introductions as well as the implementation of a hand-washing campaign have contributed to this success. So looking ahead, volume in Latin America is expected to be up low to mid-single digits for the third quarter and full year. Organic sales are expected to grow high-single digit for the third quarter and full year. Operating profit is expected to decline modestly for the third quarter and full year. Turning then to Greater Asia/Africa. We're very pleased with the continued strong business momentum in this region, excellent volume and profit drove the company by market share increases in toothpastes, toothbrushes, mouthwash and shower liquids. As in other regions of the world, we continue to roll out Colgate Sensitive Pro-Relief with encouraging results. You may recall that Singapore, along with the U.K., was our lead market for launch in September of last year. On a year-to-date basis, Colgate Sensitive Pro-Relief has almost three full share points and has been completely incremental to our share of the Sensitive segment, which has grown from 4.5% to over 9%, while the leading competitor has lost almost three points a share. In fact, Colgate Sensitive Pro-Relief has been almost entirely incremental in every market across the region. And in key cities in China, we've established a leadership position in the Sensitive segment. Toothbrushes. We're maintaining our number one position at 36.5%, up 60 basis points from the year-ago period. The launch of a range of new products across price tiers has increased our share of Indian market by 320 basis points to 40.3%. Premium price offerings, such as Colgate Max White and 360° ActiFlex has helped grow our leadership share in Russia from 49.7% to almost 52%. Continued focus on mouthwash has helped our business as well. From just over a three share in 2007, we've now climbed to 15.4% with increases in every country. Russia, our share is over 23%, having just introduced mouthwash this year. Colgate Plax Complete Care has been an important driver for the business, along with the launch of Colgate Plax Ice and Colgate Plax Whitening in select countries. Gaining credibility and endorsement from this profession has been an important element of our roll-out plan. Colgate Plax is the brand recommended most often by 26% of dentists, up from 12% three years ago and way ahead of the nearest competitor at 4%. And we've told you often about our consumer innovation centers, strategically located in important markets throughout the world, so as to better understand local habits and preferences in developing new products. Success in the shower liquid category in Russia is an example of unique and relevant innovation, based on specific local trends and context. The Sensorial segment, we launched Palmolive Thermal Spa Steam Banya. A banya is a place where the Russian consumer goes to get purified and rejuvenated. This new product offers daily banya at home. As a result, our market share is up over a full point year-over-year to 28.2%, with the most recent share at 28.9%. So looking ahead, volume in Greater Asia/Africa is expected to grow double digit for the third quarter and full year with organic sales growth at similar levels. Operating profit is expected to grow double digits for the third quarter and full year, up both absolutely and as a percent of sales. And finally, Health. Decline in volume for the quarter, which was greater than expected, was due primarily to two factors: the roll out of Hill's comprehensive resizing and repricing initiatives and delayed shipments to Russia. Delays in finalizing customs agent and distributor contracts upon transition to a subsidiary structure precluded shipments to Russia in the quarter. This contributed to a 1.5% drag on Hill's volume for the second quarter. Shipments to Russia have resumed in July. As we indicated in the press release, implementation of Hill's comprehensive resizing and repricing initiative also impacted volumes during the quarter. Dry package sizes were reduced in key markets globally during the first six months. Adverse impact upon initial shipment of smaller sizes is expected to be offset by a shortened consumer purchase cycle over time. Considering implementation timing and an average consumer-purchase cycle generally in the 50- to 60-day range, this transition was not completed by the end of the quarter. Encouragingly in the most recently reported period, unit consumption in the United States was up nicely compared to the prior year. So looking forward, we expect unit consumption to be increasing sequentially for the balance of the year, while volume, as a result of the downsizing, is expected to be flat for next quarter and full year. But we're encouraged by the prospects for Hill. We have a number of new product launches, both here in the U.S. and abroad. Science Diet Healthy Mobility was launched in May and initial customer feedback and sell-out pace has been positive and a strong promotion and media campaign is planned for this quarter and next. Across Europe, we've launched Science Plan Vet Essentials and distribution continues to expand. In Germany, this was launched in conjunction with the season of prevention campaign. The season of prevention program started in Italy, and we've expanded it from there. Similar to Oral Health month, we work in partnership with the Vet Association, and we offer free checkups and education for the wellness of pet to the pet owners. As we repeat the program every year, the numbers increase accordingly. In Germany, we registered 2,100 vets in the program who did 15,500 health checks with pet owners. The online portion of the campaign had 52,000 unique website visitors, while 22,000 pet owners registered online. In both in the U.S. and Japan, our Small and Toy Breed products are also a good start and a comprehensive support plan, which includes print, online and word-of-mouth campaign is in place. So looking forward, as we said, volume at Hill's is expected to be essentially flat to the third quarter and full year with organic sales down modestly for the same period. Operating profit is expected to increase modestly to the third quarter and full year, up absolutely and as a percent of sales. So in summary, we are pleased, to again, deliver profitable growth in the face of numerous macro economic challenges around the world. Our market shares are healthy, as a result of our continued support behind our leading brands. Our pipeline of new products is strong. And Colgate people around the world remain tightly focused on our clear strategies and priorities. So we look forward to sharing our results with you as we go through the balance of the year. And now, David, I'd like to turn it over to Q&A. But before I turn it back to you, I would just like to say that we've got a lot of new analysts now. There are a lot of you out there. I'm sure you have plenty of questions. [Operator Instructions] So David, let's go ahead.

[Operator Instructions] We'll go first to Bill Chappell with SunTrust.

I guess, just on the trade promotion spend and the competitor environment, how should we look at this quarter compared to earlier in the year and how you see the rest of the year playing out? I mean, has it gotten better? Has it stabilized? Or is this, kind of, the new normal in terms of competitive stand that you're just going to have to keep matching the competitors for the next two, three, four quarters?

I think, Bill, to sort of put that in a broader context, and then I will come back and answer the direct question. I think the trends in our, shall we say, consumer engagement spending or commercial investment have been clear for some time. We have said that as part of our communications strategy, particularly in the developed world where we are seeing slower growth, a lot of consumer engagement is happening at the store level. So we have always been quite strategically conscious of having shopper marketing programs at retail, which of course comes out of trade spending, and is not measured in the traditional A&P. And as we have seen our A&P progress, the traditional media spending has been led by the emerging markets where the consumer engagement is more that, direct-to-consumer advertising. If you talk about trade promotional activity on top of that, we have, I think, said before that there was that activity in the marketplace, that it seemed to be quite focused on household product categories. Those that have a very direct volume impact. And I must say that we have seen an uptick in promotional activity in the second quarter across a broader array of categories. We have responded to that with the in-store shopper marketing programs that I have mentioned. And as we look out to the balance of the year, we have used the second quarter as a guide for our developed market activity in this regard. So if we look at our A&P spending going forward, we're going to see A&P up, both absolutely and as a percent of sales, but within that, we're going to see more of the at-retail activity in the developed world, while the emerging market will see strong traditional media investment. So going forward, there will indeed be more of that focus in the developed world.

We'll go next to Doug Lane with Jefferies. Douglas Lane - Jefferies & Company, Inc.: Can you break down the total company outlook for your top line growth this year between volumes, pricing and organic sales growth? And secondly in your gross margin commentary, it sounds like you're still looking for expansion, but maybe not getting fully to the 60% for the full year, so I read that as, kind of, a tick down in your gross margin outlook. Is that due solely to the second quarter? Or is there a change in the lay of the land that might impact gross margins in the back half?

If I start with the gross margin, obviously, as we try to identify, a significant drag in the second quarter was Venezuela. As Bina explained in her prepared remarks, that drag lessens over the balance of the year. And we see ourselves with our traditional funding of the growth programs, increase our gross margin. And we will be around that 60% level by the end of the year, which is what we had said on the last call. So holding to the, around 60% by the end of the year, not for the year average. In terms of the growth of the company, again responding to what we have seen in the second quarter, where in the developed world, we have seen a slowdown in our categories by about a point or so, perhaps in harmony with the economic landscape. And our sense for the balance of the year is that we will still be within our 4% to 7% volume range, but towards the lower end of that range.

Our next question is Chris Ferrara with Bank of America.

Just wanted to ask about -- so SG&A x advertising and your other expense line, together they look like they got about 100 basis points better. I guess, in light of the fact that sales had decelerated. What's driving that better leverage this quarter?

I think Chris, simply said, it is our unremitting focus on finding cost savings. And largely, those cost savings are in our overhead area. So we are simply, as part of our strategy, being more efficient in how we invest in the overhead area.

Our next question is Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc.: Just a quick question on the market slowdown, Ian, you just cited. Is that new for 2Q? And is that mostly Europe? Or are you also seeing that slowdown exacerbate in North America as well?

It is a change in the second quarter, and it is across Europe and the United States as well. And it's about a percentage point in both cases. The emerging markets continue to be quite strong, high single, low-double digits, which of course, is encouraging, given the global breadth of our business.

And our next question comes from Ali Dibadj with Bernstein.

You did mention how much Venezuela hurt on volumes in Latin America, but you didn't mentioned how much it helped on price? So if you guys clarify that, that would be great. And the other real question is, as it sounds like more and more investment is needed to be -- [indiscernible] of the market, whether it be shipping from advertising to above the line or what have you, first to defend competition and defend the, I guess, slow down in the consumer, I'm trying to understand how much more you're going to need to invest, particularly as it sounds like it's spreading? And I guess I asked that on the context of, kind of, your level of certainty on making our double-digit EPS growth for this year and going forward, which you've, sort of, publicly said you would do?

I can answer the first question quickly, and that is we don't break that out, so you can see the effects of Latin America, in terms of our price as we show the division and the rest of the world. And given the environment we have just talked about, our expectation going forward is that we would see pricing modestly negative for most of our geographies with the exception of Latin America, going forward. Now when you turn to the consumer and what is required to engage and entice the consumer, both from a marketplace point of view and a competitive point of view, there is more at play than simply advertising. Of course, we feel that we have a very strong innovation flow for the back half of the year starting in this quarter, and part of engaging in consumers is having a strong flow of products. Then you come to the engagement. And as I said earlier, in terms of engagement in the developed world, in a slower economic environment, we are seeing increasingly consumers making decisions at the point of purchase. And therefore, your best way of engaging is to do it at the retail level, and our plans for the balance of the year, consistent with our strategy, assume that. And with that shift in the developed markets, our total advertising increases on an absolute basis and on a percentage to sales basis, driven more by the emerging markets where the traditional media engagement still applies. Now all of that said, and we feel quite comfortable with that decision, obviously we have absorbed the additional impact to Venezuela and the headwinds we faced from a currency point of view, keeping our advertising at levels we believe are competitive. Indeed, as a traditional share invoice analysis, we do show that our spend levels are quite healthy year-to-date, and our market shares are quite strong. All of that said, absorbing those pressures and maintaining what we believe to be the right focus on advertising for the balance of the year, we have indeed reaffirmed the double digit, but in that environment, it's a double digit closer to the 10%.

Next question is Ed Kelly with Crédit Suisse. Edward Kelly - Crédit Suisse AG: Ian, could you provide more color on the issue with the resizing and repricing of the Hill's business? And I'm specifically interested in the strategy behind it. And then, why it took a bit longer to rollout?

Yes, I guess there's a couple of things to say, again, in the broader context with Hill's. The repricing and resizing is an important part of a corrective strategy when we knew we had gone one price increase too far. So as Bina said, for the balance of this year, new product activity supported by commercial investment to the consumer. And some of these larger promotional events, like the German one that Bina mentioned, are very important parts of our Hill's business recovery and growth. Now when you turn to the specific pricing and sizing, the pricing we were able to effect at the shelf quite efficiently. The sizing, unfortunately, has taken us longer. And the objective of doing both was to return our relative pricing compared to other premium products in the channels in which we distribute to historical levels, i.e., before the price increase we took that was one price increase too far. And as I said while the pricing was reasonably easy to execute, the sizing took us longer to get to the retail shelf than we would have wanted. And then to the point Bina made with a two-month purchase cycle, the rebuying of bags ends up being pushed out of the quarter. And as Bina also said, at the end of the quarter, we have seen quite a nice run-up in terms of the unit purchases. But simply said, if the consumer was buying nine bags a year before, she's now going to have to buy 10 bags. So your pick up from a volume point of view is somewhat delayed. And it was that slowness in getting it to the retail shelf against our original projections and the interval approaches that has pushed the recovery back a little bit to the flat scenario that Bina mentioned earlier. So that was really the crux of the matter.

Your next question is Bill Schmitz with Deutsche Bank.

The gross margin bridge -- I don't want to waste my question on that one, but if you're feeling charitable, that would be great. And then the other question is, I know when Procter bought to what normal BU [ph] this Project Achilles [ph] to really drive your toothbrush share. Is there a similar sort of holistic global plan to try to address the receptive spending pretty much globally in toothpaste now? And if you can add any details on it, that would be great also.

Well, let me be charitable. So the margin bridge runs as follows: prior year, obviously 58.8%, pricing picked up 20 basis points, funding the gross savings of 1.6, basically offset material prices of 1.7 and that saw us back at the 58.8%. And as we said, Venezuela was basically 90 basis points of that from a transaction of view. Turning back to the Project Achilles [ph], we don't have any Greek-coded plans in a holistic context. But we do have a global strategy and specific set of programs that we deploy when faced with competitive activities in specific markets. We have deployed them before and I think they are understood and well tested and as Bina said, Brazil continues to perform very well, we believe, from a share point of view. And in Mexico, we are still north of 82 share points as the competitors cyclically has back up to 12, 13, which is exactly the kind of curves we have seen historically with the activity. So suffice to say, we do have specific global plans that we deploy to each market condition in our Oral Care category and part of it is when that category comes under attack. But part of it is us picking markets in which we want to grow our share or we want to establish a category expansion position as with mouthwash. And China share is growing. India share is growing. Brazil share is growing. And in Russia, we're holding a strong 34 leadership position and bringing toothbrushes and mouthwash along behind it. So it's a combination of a global plan deployed by country in response to competitive activity and then it's selective plans by market to grow our businesses by segment, country by country. So I guess, the short answer would have been, yes, we do.

Next question is John Faucher with JPMorgan. John Faucher - JP Morgan Chase & Co: If I'm looking at my model correctly, it looks like the European comp gets -- from a volume standpoint, gets dramatically more difficult in Q3 versus Q2. And I think you're guiding for roughly similar volume growth. So can you talk a little bit about what you see there that's going to drive that sequential improvement in the underlying performance?

Yes, it is specifically an innovation flow, John. I think some of which, Bina talked about, along with the strengthened integrated marketing activity that we have across the year, the balance of the year and the plans developed with retailers against those. So it is innovation joint business plans with customers, behind increased commercial investment.

And we'll go to our next question Lauren Lieberman with Barclays Capital.

Just actually wanted to continue on Europe. One thing is that in the quarter and in your remarks, you've said that the categories, while they slowed categories are still up and your shares are up. But your organic sales was down in the quarter in Europe, and a very significant deceleration sequentially. So what kind of -- can you just give me a little more color, I guess, maybe on the quarter? And then what change the significantly sequentially because that doesn't look like a 1.4 than in market growth, that looks like something more.

There is nothing that stands out from a sequential point of view that I can talk to, Lauren. It is a slowdown in the category growth, maybe there is some timing of activity, but nothing material that I can point to.

But from 7% volume in Q1, Q1 and a half and Q2, so was there are lot of shifting for Pro Sensitive that helped Q1 and...

Let me put that into context. The fact of the matter is in the first quarter of 2009, we had a very weak point of comparison because we had, at that point in time, some fairly meaningful, shall we say, altercations with some retail partners, that saw us without product at retail in some categories. And certainly, far lower levels of promotional activity than we had. So that was the reason for the, I would say, abnormally high comparison, first-quarter-on-first-quarter. Second quarter, if you take an underlying volume rate in Europe at between 2% and 3% then that comparison for the second quarter alone, I think tracks quite well with a category. So it was an aberration of comparison, first quarter to first quarter last year, driven by trade situations rectified in the first quarter of 2010.

Next question is Jason Gere with RBC Capital Markets.

Just a question on the advertising in the quarter. I was wondering if you can just kind of rank in the buckets, when you look at the 1% spend, I mean how much was affected by, one, I guess the magnitude of the Q1 spend which was up over 30%. Two, some of the shift to promotional spending. And then three, was there difficulty getting inventory, just with the World Cup going on, had been hearing that a lot of the media rates went up? I just want to see if that was actually a factor as well?

The World Cup was not a factor, particularly given the early exit of the U.S. and England. So it was not a factor. If you kind of profile the second quarter advertising, I would make a couple of observations. I think I have painted the strategic framework of how we think about advertising and how one engages with consumers in the developed markets versus the emerging markets to give some texture around that from a geographic point of view and where the spending is point of view. The advertising, and now I'm talking the traditional A&P below the line, as you would see it increase in the emerging markets, strong double digits. In the developed markets, we spent competitively. But we moved spending into shopper marketing programs at retail. And our overall commercial investment grew high single digits on a global basis driven by the developed market. So that's the profile we're seeing in terms of how best it is to engage with the consumer and that's how we're thinking about the balance of the year.

Next question is Connie Maneaty with BMO Capital.

I think you'd probably expect a Venezuela question out of me. What I'm wondering is if you could sort of put market conditions in context in Venezuela if you think the impact is going to be limited to this year? Or will there be some operating spillover into next year? And if you're still getting the preferential rate?

The answer is, as we think about Venezuela from an operating point of view, even though this is a soft comment, I think our people down there are doing an absolutely terrific job in very challenging and difficult circumstances. As we think about the balance of this year going forward, we recognize what happened in the second quarter. And although our market share has continued to be quite strong, toothpaste at 94%, Venezuela consumption is of course under pressure. The margin will improve, as we said, because of that change in hyperinflationary accounting. And we have modified our investment over the balance of the year in harmony with that. We are still getting the preferential rate at that 2.6 level, quite a sizable sum, allowing us to continue to operate the business. You well know that there are elections in September of this year, and would I think be irresponsible of me to talk about 2011. As we see how this unfolds, we will provide, I think, the customary early advice that we have all the way along on Venezuela, as we get a better sight on 2011. But that's how we're thinking about 2010 and the access continues even if the process is a little bit slow.

And I don't know if you mentioned this, but what did Venezuela cost EPS in the second quarter?

We didn't mention it, and we wouldn't mention it. We gave the guidance for the year.

Next question is Alice Longley with Buckingham Research.

My question is about North America. You said that categories have weakened here from the first into the second quarter and yet your volume was still up 5%. And we've seen in some other companies that shipments have started to be up more than sell-throughs because some retailers are restocking, particularly the biggest one in America. And I'm wondering if you've seen any of that or expect to see any of that in the second half, meaning do you think your shipments have been or will be up more than your sales at retail?

I think that's difficult to project. We haven't historically and don't believe so far, have seen that kind of restocking swings to any magnitude. That, of course, will depend on strategies that retailers deploy over the second half of this year. As you know, we have seen a shift in terms of the consumers' buying habits to more of the so-called mass club and the dollar retail outlets. And again, we'll just have to see how those strategies from the retailer's perspective play out in the second half of the year. But I don't think -- I know we're not planning for, and I don't think we would suggest that there would be an inventory imbalance, let's say.

Our next question comes from Andrew Sawyer with Goldman Sachs.

I was going to follow up again on the topic of weaker U.S. and European category sales. And my question is that we've seen a pretty broad increase in promotional spending from your sales in a lot of your competitors. What are your metric say about the effectiveness of that promotion in this sort of consumer environment? Are you seeing abnormally low volume lift as you promote? Or is there something else going on that's driving that category deterioration?

Yes, well, part of it -- I mean, from a value point of view, obviously part of the category deterioration is promotional activity itself, not compensated for by volume lift. I think the answer to that question strategically and why we have been so cautious over time in terms of this promotional arena, is you have to ask yourself the question -- which is the question you're asking -- what is the most engaging way of reaching the consumers at retail? And many of the programs that we tried to structure, albeit executed at retail seek to bring a conceptual value, not just a price value, so that there is more of an equity build than simply a price-related volume build, which may be a transfer from one store to another or will suffer the peaks and valleys in future periods. And when we do that, we see good lift. We see good lift on traditional promotional activities too, but those tend to be shorter term and you do them in order to protect your business from what you see from competitors. But ultimately, our belief and my belief, even though we are assuming it's for the balance of this year, is that manufacturers will have to move away from that and back to brand building through engagement, not price promotion.

Next question is Jon Andersen with William Blair. Jon Andersen - William Blair & Company L.L.C.: Pricing and aggregate improved slightly from first to second quarter in light of your commentary on developed markets and incremental shopper marketing programs. How do you see pricing playing out in the second half of the year and the full year?

I think we covered this a little bit earlier. We would see the balance of the year, from a price point of view, in line with our historical average, which is less than a percentage point for the full year. And that really is composed of, as I mentioned earlier, pricing that would be positive in Latin America and part of that, of course, is Venezuela. And yet pricing in the other divisions, particularly the developed world, reflecting the shift of activity to trade spending, the so-called above-the-line investment at retail shopper marketing engagement program. So positive in Latin America, modestly negative in the rest of the world, driven by that strategic shift in the developed markets and under a percentage point for the year all up.

Next question is Nik Modi with UBS.

It's actually Mike Kwon for Nik. Could you just give us some perspective on Lat Am [Latin America] volume momentum outside of the 400 basis point drag from Venezuela, I mean did you see a slowdown in marketing growth as well? Just trying to reconcile the volume trends with your commentary on market share gains.

Yes, from a volume point of view, we didn't see much of a slowdown from a -- yes, we didn't see much of a slowdown in Latin America or at all, nor in the rest of the emerging markets and every other geography in Latin America was up. So which was why we called out the drag of Venezuela, because we're actually quite pleased with our continued volume growth in Latin America x Venezuela and, of course, share progress as well.

So would you say there's nothing really to look at behind, going from 8% last quarter to 5%, if you put back in the 400 from Venezuela?

That's basically yes.

Next question is Linda Bolton with Caris. Linda Weiser - Caris & Company: Do you have any estimation of when you would get FDA approval for your Sensitive toothpaste in the U.S.? And if not, can you tell us when you filed?

Well, as is customary with these things, Linda, we are in conversation with the FDA, as is part of a customary process, and I have nothing I can comment on relative to timing. When we have a clearer view on that, you will be amongst the first to know.

Next question is a follow up from Chris Ferrara with Bank of America.

Ian, on the ad spending, I know you said that it would be -- I think you said it would be up as a percentage of sales over the rest of the year. I think you were referring to both media advertising and the gross to net promotional spending, but can you just clarify that?

No, Nik (sic) [Chris], I'm glad you asked the follow-up question. Earlier, I was trying to say from a strategy point of view, we are deploying investment in the gross to net, as you call it, the trade spending, particularly in the developed world to engage with consumers, where they increasingly make their purchase decision in a slowing economy. The number I was talking about was the traditional Advertising & Promotion, which is exclusive of the gross to net, the number that we customarily talk about. And I was saying that, that, which is to say advertise, media and promotion will be up absolutely and as a percent of sales for the balance of the year. Led by the emerging markets as in the developed world, we put more of our investment into those shopper marketing programs at retail.

We'll go to our next question from Mark Astrachan with Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Just following up on the advertising question again, just thinking about it from the effectiveness of spend standpoint, when do you think you'll see evidence of an improvement? And then sort of related to that on the develop market standpoint, do you think there was a bit of restocking towards the end of last year coming out of the economic issues? And now that things are potentially getting worse again, are you seeing a destocking that has to get cycled once again?

I don't believe so, Mark, we don't believe so. The rule of thumb in our business, certainly the way we approach it with our major retailer is we're always looking for inventory efficiency. So you don't tend to get these swings of destocking and restocking. So no, I don't believe that's a factor.

We'll go next to John McMillin with Lord Abbett.

I know you want to look forward, not backwards. But if you look backwards, a year ago, you said, come hell or high water, we're going to have our double-digit EPS in dollars, despite whatever happens to dollars and euros and so forth. And I just wonder kind of in your retrospect with your kind of -- you used too much gas in the tank and kind of left the organization with a little vulnerable lead either the P&G and so forth. But if you just look backwards for a second with me, and say, was that a prudent move?

I'm not sure, John, that I would have said hell or high water. But I think we committed to double digit and we believe, as an organization then, as we do now clearly, as we reaffirm it, that this is an appropriate stance to take. We believe we have modified our plans for the balance of the year in a way that is responsible in terms of building our brands by redeploying between Advertising & Promotion and the in-store marketing. So we challenge ourselves all the time in terms of the appropriate balance between performance and brand building and we feel this is still the right place for our company to be.

Our final question comes from Lauren Lieberman with Barclays Capital.

One was just -- in the press release, I noticed there was a comment about Sensitive toothpaste of some sort launching in the U.S., can you just say what that is? Because obviously, it's not the special one?

It's a traditional potassium nitrate technology, which rounds out our offerings in terms of our current portfolio. So this is not the so-called Sensitive Pro-Relief that we talk about all the time.

Was that part of your initial plan or is it something you're doing? Because there's been a greater delay with the FDA approval and you've had P&G and Glaxo being very aggressive with Sensitive toothpaste in the U.S. clearly, in anticipation of you launching Pro-Relief?

We didn't have Pro-Relief built into our plans, no.

But I mean, was this -- the Multi Protection, is that something you've...

That's something we would have done anyway. Yes, it's something we would have done anyway. In fact, if you look at our businesses around the world, we have quite a well-developed line of Sensitivity toothpaste using what I might call traditional technologies and Pro-Relief is what we believe sets a new standard and we have that on top.

And then just on the other expense line in the P&L, because it's just -- it's twinning around a lot. Could you tell us how should we think about it for the rest of the year because there's about $38 million, $39 million a quarter in the back half last year, $2 million in June. So I guess that's a pretty being big swing factor.

I think, Lauren, if you take a general look at the balance of the year, you should see it reducing.

Year-over-year?

Yes. Well, thanks everyone for the questions. Thanks for being disciplined to ask almost one, and we look forward to catching up with you again as the year continues to unfold. Thanks very much.

And this does conclude today's conference. Thank you for your participation.