Colgate-Palmolive Company (CL) Q3 2010 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Colgate-Palmolive Company's Third 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.

Thanks, Dana. Good morning, everybody. And welcome to our third quarter 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. And 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. We will discuss our results and outlook excluding the one-time charge of $271 million related to the transition to hyperinflationary accounting in Venezuela as of the 1st of January 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 is posted on the Investor Relations page of our website at www.colgate.com. So we'll be glad to answer any questions you may have, including or excluding these items, as you wish. We are pleased that our third quarter, again, exhibited solid performance, reflecting the successful implementation of our financial strategy well known to you all. Our gross margin increased and we reduced our overhead expenses. This provided funds to increase our advertising, both absolutely and as a percent of sales, to grow the top line while at the same time increasing our profitability. And this was particularly pleasing, given the macro economic challenges we faced in the more developed regions of the world, coupled with ongoing competitive activity in all our markets. Importantly, our market shares in many key countries around the world are strong and growing. Often the majority of our categories, including toothpaste, toothbrushes and mouthwash. You'll hear more about specific share performance as we review the regions in more detail. And as you know, relevant innovation is key, and we continue to launch new products across categories across a range of price points to appeal to all consumers. Our global launch of Colgate Sensitive Pro-Relief continues to do well. As of the end of this quarter, it is now being sold in markets that represent 75% of the sensitivity market world wide. As well as a strong P&L, our balance sheet is solid. Our strong cash position has amounted to increase our dividend this year, as well as to continue with our share repurchase program, both of which provide a good return to our shareholders. So let's turn to the divisions for more specifics. Starting with North America. Business in this region remains solid. We continue to launch new products across categories and have an exciting pipeline slated for the first quarter of next year. As you know, this quarter, we are in the midst of a relaunch of our Colgate Total toothpaste line. This is being accompanied by strong media and trade support. Relaunched with innovative packaging incorporate's very impactful integrated marketing campaign and in-store activity across all retailers. Our MaxFresh line, which is particularly relevant with the Hispanic consumer, will see increased focus on key Hispanic accounts in the fourth quarter. Our manual toothbrush shares continue to do well, up 150 basis points on a year-to-date basis, to over 30%. The Colgate 360° franchise is doing well, fueled by the ActiFlex line launched earlier this year, and we continue to build trial and repeat for our on-the-go toothbrush with Colgate Wisp. Another encouraging signs of U.S. business is that private label growth appears to be flattening, and we see consumers reverting to branded products. As you know, private label in toothpaste is virtually nonexistent, and we see the trends in other categories improving. We've just launched Colgate Sensitive Pro-Relief in Canada. While as early days, results are particularly encouraging. In three weeks, we've achieved 80% distribution, a process which would normally take closer to three months. Acceptance on this part of the trade and the profession has been excellent and we started to see replenishment orders. So looking ahead in North America, volume growth is expected to be solid in the fourth quarter amid single-digit, and should be up mid-single-digit for the full year as well. Organic sales are expected to be up low-single digits for the fourth quarter and full year. Operating profit is expected to decline modestly for the fourth quarter, but should be up mid-single digits for the full year up both absolutely and as a percent of sales. Turning then to Europe. The macroeconomic situation in Europe continues to be challenging. As you know, recently U.K. are implementing austerity measures, and the general climate in these key [ph] countries is very depressed. As we told you last quarter, private label continued to make inroads in the Home Care categories and growth in all our categories is sluggish. But despite this, our market shares are up in the important categories of toothpaste, toothbrushes and mouthwash. And this has been due to the consistent introduction of innovative new products, many of which are premium-priced. Our launch of Colgate Sensitive Pro-Relief in this region continues to drive incremental share. In fact, our overall toothpaste market share is up 70 basis points on a year-to-date basis, with our sensitivity product at a 1.2% share. In Greece, our overall share is in a record 47% on a year-to-date basis, up almost four full points within those recent share at 48.9%. And Colgate Sensitive Pro-Relief leads the sensitivity segment with almost eight points of share. In the U.K., Colgate Sensitive Pro-Relief is at 2.6% year-to-date with the most recent share at 3.4%. And we've narrowed the gap with our leading competitor from almost 13 points to about 10.5%. In the countries where GABA is strong, we've launch the sensitivity product under the Elmex name, which uses the same breakthrough Pro-Argin technology. While only in markets since August, we've gained distributions very quickly and trade and professional reception is strong. Our manual toothbrush share was up 70 basis points on a year-to-date basis to 19.9%, with the most recent read at 20%. In the U.K. our share increased three full percentage points behind launches such as the premium-priced 360° ActiFlex. And in Italy both the Colgate and GABA brands drove our share almost 0.5 a point. And in Germany, we gained share behind both the premium and mid-tier segments. In mouthwash, our share was up a full point with increases from both the Colgate and GABA brands. Germany launched a new mouthwash under our very successful Meridol name targeted particularly for those suffering from bad breath. Our market share there is up 60 basis points on a year-to-date basis to 21.7%, with the most recent read at 23.6%. As a result of the successful recent launch. So looking ahead, volume in Europe is expected to be up modestly for the fourth quarter and full-year with organic sales down modestly for the same period. Operating profit is expected to decline double digits for the fourth quarter and should be essentially flat for the full year on a dollar basis, but increasing as a percent of sales. Latin America. Business across Latin America remains solid with good market share performance. Our regional market shares are up in toothpaste, toothbrushes, mouthwash, bar soaps and deodorants, and we are maintaining our leadership position in the fabric conditioners and dish washing liquids. In the toothpaste category, our shares are up in virtually every country. Our excellent toothpaste share performance in Brazil was referenced in the press release. Both Colgate Total and our Colgate Sensitive business are performing well in that market, where Colgate Total is up over two points on a year-to-date basis. The launch of Colgate Sensitive Pro-Relief has met with success, and helped drive our professional recommendations for sensitivity toothpaste to a leadership position. In Mexico, despite heightened competitive activity, our toothpaste share is still well over 80%, and has increased sequentially for the last three periods while our main competitor has lost share. Colgate Total in Mexico is at a record of 17.6%. With the launch of Colgate Sensitive Pro-Relief, we've establish the number one position in sensitivity in drugstores. Our regional toothbrush share is up almost a full point year-over-year. In Mexico, despite aggressive competitive promotions, our share is up over two points to over 41%, a new record. And in Brazil as well, heightened competitive activity has not affected our share, which is at a leading 30% of the market in the most recent period, and up almost 0.5 point on a year-to-date basis. Our Mouthwash business is very strong as well, up almost a full point on a year-to-date basis, with firmly established number one position in Brazil and Argentina. While we are the number two in the region overall, our excellent performance has narrowed the gap with the number one competitor from almost 30 points in 2007 to 15 points year-to-date in 2010. Both the Palmolive and Protex brands have helped lift our number one regional bar soap position in almost a full point year-to-date. In addition to new products, implementation of a hand-washing campaign modeled after our Bright Smiles, Bright Futures Oral Care program has contributed to our success in this category. Continuing innovation in the underarm category is critical, and a number of new products have driven our regional share, up by half a point. Men's Speed Stick Extreme, Waterproof and StainGuard and Lady Speed Stick Waterproof Professional Protection and Depil. So looking ahead, volume in Latin America is expected to be up slightly in the fourth quarter with full-year growth in the low- to mid-single digits. Organic sales are projected to be at mid-single digit for the fourth quarter and high-single digit for the full year. Operating profit is expected to decline in the fourth quarter after a very strong increase in the year-ago quarter, which should be up as a percent of sales. And for the full year, operating profit is expected to decline modestly on a dollar basis and as a percent of sales. Turning then to Greater Asia Africa. The strong momentum continues across the region, testament to the growth offered by many of these markets. Most of the countries economies are quite buoyant and categories are showing continued good growth. Our regional toothpaste share was up 70 basis points to almost 40%. In China, our share is now at 32.5%, up 80 basis points year-over-year. We've launched Colgate Sensitive Pro-Relief in key cities where it is now has a full point of share. We referenced our strong share performance in India in the press release, now solidly over 50% at 51.1% of the market. In Russia, we're maintaining our leadership position of almost 33%. And in Singapore, one of our lead markets for the launch of the Colgate Sensitive Pro-Relief, little over a year ago, we continue to see benefits from that new product with overall shares at almost 69%. Across the region, we enjoyed the number one position in toothbrushes. Our year-to-date share is up 40 basis points to 36.2%. India increased toothbrush shares 180 basis points to almost 40%, as we relaunched our popular Zig Zag toothbrushes in the Value segment. And in Russia, super premium new products drove our market share of 230 basis points to 51.7%. In Turkey, Colgate 360° contributed to a 510-basis-point increase to almost 24% of that market. In the mouthwash category, we increased our share in every subsidiary. In China, we have a fair share with the most recent period at 33.4%. Ongoing new product launches supported by media and effective in-store activity have driven our success across the region. So looking ahead, volume in Greater Asia/Africa is expected to grow up double digits for the fourth quarter and full year, with organic sales increasing double digits for both periods as well. Operating profit is expected to grow high single digits for the fourth quarter, and double digits for the full year, up absolutely and as a percent of sales. So turning then to Hill's. Our business at Hill's is slowly improving. Although volume was modestly down for the full quarter worldwide, volume in Europe was positive, and we saw volume increasing in the U.S. at the end of the quarter, indications that our right pricing and rightsizing initiatives are working. Another encouraging data point is that unit consumption of the large-format retailers here in the U.S. was up for the most recent one-, four-, 13-, and 26-week period, and volume was up on a one- and four-week basis, boding well for the business going forward. We told you last quarter about the launch of Science Diet Healthy Mobility here in the U.S. This product is doing very well, enjoying new consumers to the Hill's brand. Shipments are above forecast and customer feedback has been very positive. Media support and in-store activity has helped to drive these results. We also told you about the launch in Europe of Science Plan VetEssentials. Our products sold only to the veterinarian. This has been very well-received and has driven our overall market share. As a result of this launch, our vet recommendations have increased as well. Our launch of Toy Breed Science Diet in Japan has done well, and our 3.6% share is ahead of all other brands in this segment. A recently announced innovation here in the U.S. is the Hill's Prescription Diet Therapeutic Weight Reduction program, available only to veterinary clinics for obese, or obese-prone dogs. Think of it as the Jenny Craig for dogs, with premeasured food and biscuit packs. Pet owners are also provided with ongoing support in the form of therapeutic weight reduction guide providing instructions and tips. Support is also available online. So looking ahead, volume with Hill's is expected to be even with last year for the fourth quarter and modestly down for the full year. Organic sales are expected to decline modestly in the fourth quarter, down low single-digit for the full year. Operating profit is expected to be flat to the fourth quarter but up as a percent of sales, and full-year operating profit should be up modestly, both absolutely and as a percent of sales. So in summary, we're pleased with our results. We have a proven strategy that has worked over the years to deliver profitable volume growth and increasing market shares. As noted in the press release, while we're still in our global budgeting process for 2011, we are planning to continue to strengthen our volume and market share next year, driven by many new and existing Colgate products supported by increased advertising. Colgate people around the world are working hard to help them deliver these solid results, and we look forward to sharing our further progress with you as we go forward. So now, Dana, I would like to turn it over to the Q&A session.

[Operator Instructions] We'll take our first question from Ali Dibadj with Bernstein.

I just wondered, your perspective, it's kind of a good four, five months ago that we've talked about extra investments by competitors. And at that time, you were hopeful that these conversions won't actually happen. And in fact, you believed that you could defend if they did and maintain double-digit EPS growth forever, for at least for next year. Now that's no longer the case, we're both just would get underneath that a little bit it if you would, kind of what specifically has changed? Do you have confidence now that you can really grow your EPS even mid-single digits given what you see out there from a competitive perspective and defend, or even a consumer perspective and defend? How long have you budgeted for, and/or how long do you think these investment bets from your competitors will last? What products, or countries, specifically? Just, really trying to get underneath that dynamic, if you could, please.

Okay, Ali, a broad question indeed. If you look at it sequentially for us, I think in the second quarter of this year, we saw and we've been talking about the heightened promotional activity and the fact that we had responded to it and that we were going to continue assuming that would be the new normal for the back half of this year. And despite that, we reaffirm the notion of double digit earnings per share growth for 2010. Yes, in terms of the longer-term, our objective is a sustainable double-digit earnings per share growth, but fairly constantly across the third quarter. And you and I had this discussion as well, the position we took was that, as we began our 2011 budgeting process for the year 2011, we would weigh what we were seeing around the world and what we were planning to do with our own businesses and make the right determination by the business. And as we had guided for 2010 in the third quarter of last year, we thought it was appropriate to give out preliminary thinking while our budget process is not finished. And that is that, with the competitive environment we see, with the initiatives that we have to build on what we still view as a strong business, we have the opportunity to strengthen and accelerate the top line growth in 2011 with our innovation stream, supported by increased trial-generating advertising and that's the way we're thinking about 2011. So that's the way we're approaching it, Ali.

Can you just give us more of a sense of where exactly it's happening in terms of competitive increases?

Well, we haven't finished our budgeting process, but we will be focusing on continuing to build our market shares in brands and geographies important to us. But I wouldn't be more specific than that at this stage.

How about temporarily, how long do you think something like this last?

We are talking about the 2011 budget.

And we'll take our next question from Wendy Nicholson with Citi Investment Research.

My question has to do kind of just with the longer-term outlook. I know you guys have been, just historically, one of the most consistent double-digit, low-teens earnings growth companies out there, but as you think about kind of the competitive environment and how you look at something like Latin America where the volume growth, even X-Venezuela, just doesn't seem to be quite as good as it used to be, is there is a chance that there needs to be a change in your long-term sort of growth algorithm, so that maybe we're looking at, maybe a little permanently high-single digit earnings growth as opposed to reverting back to double-digit in sort of 2012 and beyond?

Yes, I guess, Wendy, we don't take that view. I think as we have revisited our strategic planning process, which leads into our budget process for 2011 and without any conceit, I think we feel that the strategic initiatives we have are sound and can continue to guide the company going forward. We feel the category choices we have made are sound in terms of the inherent growth rates over time and profitability over time in those categories. We think our geographic diversity positions us well over the medium term. What we are seeing, I think, in 2010 is heightened activity from some competitors who are perhaps recovering from a slower-than-traditional performance, and we are meeting that in 2010, and we have initiatives of our own in 2011 that we want to drive hard. And I'm sure in response to question, we will come back and talk about market shares around the world, the market shares are good. So we think we're making an investment of choice in order to accelerate the top line, in order to continue to build our brands and market share, and we're viewing this as we go into it as a 2011 focus. And we will revisit in the context of our strategic plan in 2012 budget those out years. But we do not believe that there is a structural change going on here.

And just as a follow up to that, as you think about, I know it's early in the budgeting process, but as you think about 2011, with all the new products you're launching, does it sound like the pressure on margins is going to come by primarily from step-up advertising? Or do you anticipate more promotions and price-off, which would then pressure your growth margin?

We are focusing always on trying to build our brands. We have said before that when we think about marketing and building trial and awareness, we prefer to use what you might call traditional advertising. That said, we have been building in-store shopper marketing activity, which comes in the gross-to-net calculation but particularly in those parts of the world that are responsive to that from a consumer point of view and that would be more of the developed world. So as we plan going forward, it will be a mixed tier between commercial activity at retail as part of our unintentional strategy, and it will be, what you might call the more traditional advertising and promotion, the media and the sampling below the line.

And we'll go next to Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc.: First question is about the "normal" you've referenced earlier. I mean it sounds like you're talking about 2011, specifically. But you guys have not really starved your brands. I mean your advertising spending, I guess year-to-date is close to 11% and that's sort of the average for the last five years. And you've put up pretty good volume growth during most of that period. I mean as we look beyond 2011, is there a chance that now companies in this space have to spend beyond 10%, 11% on advertising to really drive that mid-single-digit volume growth?

I guess the way I would answer, Joe, first of all, my comments on the new normal to a certain extent was related to 2010. And we were simply saying on the last call that we weren't changing our view on the back half of the year based on remarks made by some, that maybe their pricing activity would be easing. My sense is, and our strong view is, we want to take the choiceful opportunity in 2011 to accelerate our top line and further strengthen our brands. And in order to do that, we are prepared to and want to increase our advertising, and with the backdrop of the competitive activity we're seeing. If you're projecting forward, what one could foresee happening is that maybe, the pricing intensity will lessen overtime, and advertising in that 11-plus area is a quite healthy level of advertising.

And we'll go next to Bill Chappell with SunTrust.

Just as it looked to next year's guidance, I wanted to kind of understand if any impact comes from higher commodity costs and specifically thinking of the Hill's business, is corn and soy are spiking while you're looking to kind of lower or rightsized prices. Can you give us some color on the commodity outlook as well?

Yes. Again, that's early in our process, Bill, but let me take this opportunity to do what we traditionally do and give you the role forward on our gross profit for the third quarter of this year, because it allows me to step in to the point for next year. If you looked at third quarter last year, our gross profit, it was 59.2. We have a headwind of material prices of 1.8, and we have Funding the Growth savings at Funding the Growth program of around 2, which gets you to the 20 basis points and the increased gross margin. Now if you move forward to 2011, and I stress, early days in our process as well as we are looking at it across all of our businesses including Hill's, we're seeing a range of headwind that could be in the 3.5% to 6% zone. And we are very, very focused on our Funding the Growth savings for 2011 as an ability to handle those commodity prices, and that we think at this stage, we can do.

And we'll go next to Doug Lane with Jefferies & Company. Douglas Lane - Jefferies & Company, Inc.: Can you just talk broadly about the M&A environment and any interest, heightened or lessen these days in looking at acquisitions?

Well, I don't think I'll go as broad as the environment. Let me just talk about our philosophy and thinking on that topic. We view M&A, obviously, as a strategic activity. When we talk about the growth of our company, we don't say for any planning period, that the growth is going to be driven by a bolt-on acquisition. We rather talk about our philosophy. And our philosophy is we want to buy, to strategically strengthen priority categories for us. So categories of interest, would be Oral Care, Pet Nutrition and Personal Care. You're unlikely to see us with a buyer in the Home Care space. And I guess the bookend to that thinking is we are very disciplined in our financial calculations for an acquisition, and we strive, as they say, not to pay too much. And that has seen us in the past, you may recall when Pfizer sold their OTC business, not fit to buy all of that business just to get Listerine because we thought that would've been imprudent. And if I pointed to GABA and Tom's of Maine, our two most recent acquisitions, they are both outpacing the acquisition plan that we justified to our board to make the acquisition. So the headline would be, we remain interested in the right strategic acquisition, at the right price but we are not reliant on it in our planning for the sustainable growth of the company.

And we'll go next to Bill Schmitz with Deutsche Bank.

Can you just talk about the category growth rates? And do you think it's macro, or do you think it's self-fulfilling? So do you think it's driven by some of this pricing and promotional activity, or do you think it's more macro-driven? And then the other questions, sort of part and parcel of that, is there a time in history when both Glaxo and you and P&G have been so aggressive with both innovation and spending?

Well let's talk about the categories. As we said on the last call, we continue to see now what we saw then, and that is that the emerging markets around the world are growing high-single digits on a value basis. And the categories in the developed world are growing low-single digits, with the U.S. ahead of Europe. As to whether or not that's macros or self-fulfilling, it's a bit chicken and egg, there is no question in low-growth environment, some deflationary pressure, partly consumer, partly retail and partly competitive. But that's the spread around the world, and that's what we are looking at going forward, we believe. When you come to the competitive pace of activity, Glaxo has always been a healthy competitor in the Oral Care space, maybe more headline attention now, given our activity on Sensitive Pro-Relief, but there has always been intensity from them. And in the case of Procter & Gamble, it is limited to the markets that we talked about every time we're on the call. And in fact, why don't I use that maybe as sort of a jumping off point to talk about some of those markets and give you the headline market shares around the world. If I start with the bricks, you know our share in Brazil approaching 71% and that up against the second and third multinational competitors, one at about 3% share and the other at about 14%. Russia as Bina said, we continue to hold a strong leadership position, twice the level of our nearest competitor who is declining on a year-to-date basis. India, our share is up as Bina said. China, our market share is up, and the nearest multinational competitor is down a point. And Mexico, the market share is running around 83%, with the nearest multinational competitor around 11%, 11.5%, and the more near end trends favorable to us. And I could show you that on toothbrushes around all of those markets where we continue to make favorable progress. So I would say GlaxoSmithKline situation as before, and Procter & Gamble, the new markets that we have talked about before, and the kind of results I've just taken you through.

Is Mexico getting better share wise? I think that was one of the few places, I think, at least my data shows that -- losing share. It sounds like more recently, it's gotten better?

The Nielsen Scan data shows that it's getting better. And remember, Bill, we have seen these things before. And I've often said, our 85%, 86% can drift down to 81%, 82% and their 8% to 9% can drift up to 13%, 14%. And then there is a cycle to these events, pleasingly, the near-end market share show the share on their side weakening as our share strengthens. Obviously, we will continue to be attentive to what we're doing in the market. I was actually just down there in the past several weeks, then I was in Russia and India and feel quite comfortable with the programs they have in place.

And we'll go next to Jason Gere with RBC Capital Markets.

I guess I want to talk a little bit about the gross margins. I know that at the height of the restructuring, 75 to 125 basis points. If I just heard your commentary correct, you're saying some of the commodity pressures will be offset by the funding of growth. So I guess the question is two-fold. One, can you just talk, maybe about the role of pricing next year, which has also been obviously an important driver of organic sales in the past couple of years. And then two, can you put into the context of maybe some bigger cost-saving initiatives? Is there anything underway? I'm not talking about our 2004, but is there something more acceleration in the cost-saving front that will help you still drive the gross margins and get towards that 65% long-term goal?

Yes. When we were working our way through the restructuring process, you'll remember we took up our more historical gross margin annual expansion range from 50 to 100 basis points, to 75 to 125 basis points. And if you go back to history when commodity prices are -- we have tended to say that we will be at the low-end of that 50 to 100-basis-points range, and when commodity prices are with you, we would tend to be at the higher-end of that range in a world without restructuring. So as we think gross margin going forward, that's how I think we should think about it for 2011. Pricing, again, if you take out the extraordinary years of 2008 and 2009, the contribution of price on a global basis has tended to be in the 0.5% to 1.5% range. And again, while early days, I think as we think about 2011, we should think about it in those terms. And to your final point, always we are considering opportunities we have, linked as we are by SAP around the world now, to regionalize or globalize our process, organization, structure, and sourcing. We talked on the last call about the opening of the European business service center in Warsaw and how we're running the back office with 27 operations through that hub, bringing savings benefit and better quality, more efficient reporting. And to the extent we can identify more of those, and we are aggressively pursuing them in that overhead area, we will be most certainly executing them, working them through the P&L as we can for 2011, no question. And some of the initiatives that we have underway, obviously contributed to the 20 basis points gain that we got in reduced overhead in this quarter. So you're right, Jason, a strong area, we're focused on top of our more traditional gross margin-oriented initiatives.

And we'll go next to Mark Astrachan with Stifel Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: One follow-up and then one other question, just on the gross margin, can you give us a sense of what you're anticipating for oil prices for next year, compared to, I think the $85 number that you used for this year?

We're in the $80 to $85 range. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: And then just in terms of consumer spending level in the U.S. and Europe in particular, can you give us a sense of what you're seeing there in terms of what the spending is looking like? And then relatedly, are you seeing any benefits from this push towards more trade spending in terms of volume? Or just other sort things that you can give us to say, "Hey, this is actually starting to really work for us."

Let's talk about the consumer. I think true around the world but particularly true in the developed world, the consumer is looking for value. And as we have said before, value is not priced, necessarily. And therefore, I think our and other people's job as marketers is to continue to create an innovation stream but while offering innovation at all price points has the ability to have consumers pay a higher price and want to pay a higher price, and believe they get the right value from a superior product. And that's, for example -- is exactly the strategy that is playing out with Colgate Sensitive Pro-Relief, a clinically proven benefit of instant and long-lasting relief, a super premium-priced and the consumer thinks that price is worth paying for the benefit that they are getting. As we see the consumer behavior translated into purchasing, we tend to see them staying with the same brand. So if they were buying our Colgate Total, which is a premium-priced product, they continue to buy Colgate Total. And being a talked about some of the shares in Mexico, for example, strengthening even though it is a premium business. What we are seeing more of, is the consumer changing the way she is shopping. And we are seeing the discount club and mass merchandise retailers are getting more of the consumer's business and then also, interestingly in the U.S, the drug or the small mom-and-pop stores getting the business, usually the larger stores at the beginning of the payday cycle, and the smaller stores at the end of the payday cycle. So that's kind of the consumer's behavior. Stays with brands, private label going down, as Bina said in the U.S., particularly on Personal Care and Oral Care categories, but buys in different places and is seeking value. So that's the shape of the consumer.

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

First, just as the follow up on when you went to the moving pieces for gross margin, you called out raw materials and funding the growth. What were the numbers for pricing, promotion, mix, et cetera, in terms of -- your more other components?

Pricing was no contribution to margin this quarter.

And then same follow-up is, you've mentioned that you expected for next year, there's to be a raw material cost headwind of 3.5% to 6%. Is that basis of 350 to 600 basis points to gross margins? Or is that you're. . .

That's a year-on-year percentage increase in our raw material purchases.

And that is purely on raw materials. Because when you talked about gross margins and then moving pieces in the past, my understanding is that currency plays into that raw material piece. So this is excluding any offset from benefits of currency?

Yes. Our current thinking, Lauren, is it's not going to be such an effect next year. We're thinking that in fact, is going to be similar to what it was this year. So you can take the 3.5% to 6% as basically, the percentage increase on this year, dollar cost for buying all of our raw and packing materials.

And then the other thing was when you talked through market growth and saying that emerging markets are growing high-single digits, developed low-single. You said that was value, right? It wasn't -- So if I just put those two together, that would suggest aggregate category growth for where you compete should maybe in the 4% to 5% range, but your organic this quarter was 3%? So can you may be talk a little bit where shares aren't so positive?

Nearer 3% to 4% in terms of the category growth. Nearer 3% to 4%. And that's all categories everywhere around the world, right? So that's all categories.

And is that consistent with what you -- where you thought categories were in the second quarter?

Yes.

Latin America, last quarter you've helped us out by giving a sense of how much Venezuela contributed to pricing and detracted from volume in the quarter. Could you do the same this quarter?

Well let me just say, Lauren, I read your note. You are right. If you look at the third quarter, volume without Venezuela, it is sequentially modestly down for Latin America compared to the second quarter, which is what you were deducing, I guess. The comment I would make though is, that sequentially Mexico and Brazil, second to third, are up. And the impact in Latin America specific to this quarter was the impact of the timing of promotional activity, specifically in Columbia.

And we'll go next to John San Marco with Janney Montgomery.

What is your preliminary 2011 plan assumed for trade spend? And then as a follow-up on that because I'm not sure I'm clear on this, if you've addressed it, but particularly in the context of your positive commentary you made around private label competition, do you view today's heightened level and the heightened level from the last couple of quarters as a structural shift in the amount of trade spend it takes to support your products? Or is it reasonable to assume there'll be some positive normalization?

It's difficult to answer that question with precision, John. But as I said earlier, if we talk trade spending in two parts now. One is strict price promotion, the other maybe sharper marketing activity at retail which includes merchandising and display activity. My bet is that over time, we will see the price promotion ease. Now when to call that, is a difficult thing to do, and as we said on the second quarter call, we haven't assumed that for the balance of this year. But the other part of trade spending, which is related to sharper marketing initiatives based on the marketing strategy and an insight to drive brand engagement at the retail level, is actually in our view a good strategic investment with a good ROI not just in terms of the impact on category and brand volume and share at retail level but also in terms of building the equity, particularly in those more challenged North American and European environments. So its completing the job of brand engagement at retail level and not all of it is price related.

So the price promotion piece, which you broadly view as trade expenditures, you said you weren't assuming any abatement for the rest of 2010. What about in 2011? Do you think it will be negative at the margin, positive at the margin or just sort of more of the same?

Frankly, John, haven't completed the process. That really is one where all of them listening to the general chatter at 60,000 feet, we prefer to go through it country by country and understand the data of what exactly is going on in Thailand versus Equitable versus Denmark. So I'll take a pass on that and we will most surely answer it once we have been through budget process on the next call.

And we'll go next to Victoria Collin with Atlantic Equities.

I wonder if I could ask a quick question on share buybacks for 2011. Should we be looking at these, I know it may be too early, but should we be looking at these to be at a similar level to the $1.8 billion, $1.9 billion that you guided for full year '10, although we see it step back a little bit more in line with sort of the historic $1 billion rate that you were buying shares?

I would say, Victoria, and again, we're talking preliminary here, and we're talking in a world where all other things are unchanged, which is to say, we don't just spy an acquisition that seems realizable, that our preliminary thinking would be, that 2011 would be around the same level as 2010.

And we'll go next to Alec Patterson with RCM Investments.

First of all, I was hoping that you can just go over quickly, the toothpaste market share is in the third quarter in the U.S., could you speak to what they were year-over-year? And then I was just wanting to get a better handle on your productivity initiatives, both overhead management and the Funding the Growth for next year? You talked about Funding the Growth, for example, offsetting the commodity cost outlook, which if I took your numbers and put them into your gross margin, you're implying roughly about 200 or 300 basis points of commodity costs pressure next year. So you're expecting roughly that same amount on Funding the Growth as an offset?

Well if you look at this on that point, Alec, if you look at this quarter, we got 210 basis points of gross margin on our Funding the Growth.

So the answer is yes?

I guess, yes.

And then the market share question?

Yes. I actually had it by month, it's not broken down by quarter because, well, just because I don't. If you look at all outlet shares in the U.S., we're about neck and neck with our leading competitor in the mid-30 area. If you track per month, the latest period is consistent with that at about exactly the same level as the year-to-date. The prior month was slightly lower by a point or two based on the introductory activity behind their whitening product, the 3D Whitening product, which indeed got off to a very good start. And of course, as Bina mentioned on the call, we are now at work in terms of that relaunch with Colgate Total, with our innovation activity coming back in the fourth quarter. So year-to-date, about evens. And if I take the months of the third quarter because I don't have the entire month, July and September at about the same level, August, slightly lower.

Are you saying the market shares are flat year-over-year in all past few months?

No. Our market share is modestly down year on year, largely related to the incursion effects. So our market share, in total, is about a point down.

And we'll go next to Chris Ferrara with Bank of America.

Can you give me one quick clarification on the raw materials thing, I know you said 3.5% to 6% increase in dollar cost of what you're buying. So how do I think about that relative to your sales are going to increase, too. So in other words, even if your sales are up 3.5% to 6%, and you're raw materials bought that 3.5% to 6% percent that would mean -- and if percentage of sales basis, those aren't going up, or is that 3.5% to 6% in inflation number on top of just the notable volume increase you'll see?

We do it in constant volume.

And then just one other clarification I guess, if your pricing is going to be plus in that range of plus 0.5, to plus 1.5 in 2011 you've seen historically, I guess despite the fact that you're probably going to grow next year's earnings at about half the rate that you've normally grow on part of that is going to be increased levels of promotion, I guess where else might pricing be coming through? And does it get back to that commodities inflation?

In terms of our focus, the focus for us would be on A&P. So to the extent that we can hold our pricing, and remember, we haven't been through the process yet in that 0.5 to 1.5 range, terrific. If we don't believe we can in terms of the plan, then that won't be the contribution from price. But our orientation is to try and put as much of our investment spending on A&P to drive the trial of the new product flow that we have.

And we'll go next to Andrew Sawyer with Goldman Sachs.

I would like to get a little color on, like Oral Care versus Personal and Home Care, because we see in the U.S. data we've seen Oral Care hold up reasonably well, but things like Palmolive and some of the Deodorant businesses have been more pressured. Is that something that we're seeing globally? And I thought you gave some context around your 3% organic sales growth. What was Oral Care substantially more than that and how has those relative trends behaved?

Let me try and give you some global data on that. We can talk anything we want, Andrew. Let me get third quarter and maybe let's talk organic growth for the year in the quarter?.

What you see in terms of the organic growth is Oral Care, strong mid-single digits; Personal Care, mid-single digits; and Home Care, low single-digit. So that's the profile, it's been for quite a while because obviously, we put more of our effort behind the Personal Care categories as you know from our strategy. So our Oral Care business as you say, and these are global numbers by the way, this is not talking U.S. now, so that has been pretty consistent, pretty consistent around the world, market by market. If you focus in on the U.S. the one competitive spot beyond Oral Care in the U.S. business has been the set up activity in this liquid. And you know what that has been, the introduction of a new brand to compete in that space. Our market share is down about a point. And we have responded with sizing and pricing actions that are underway, and we have three new strong pieces of innovation coming early in 2011, only one of which I will talk about, which is a dish liquid that provides a germ-killing benefit, actually on the plates themselves for superior hygiene which we think is a strong idea. Retail reaction has been good, and we will be driving that business aggressively as we get into the new year. Otherwise, the U.S. profile is pretty much like the rest of the world.

Just A quick one on the dish side, when you say sizing, I know you guys have done a concentration this year, are you reversing that back out because it didn't work?

No, the concentration will stay. The sizing will change.

And we'll go next to Nik Modi with UBS.

Just a couple of questions in categories where you've seen some of your bigger competitors kind of come in with increased intensity, what have you seen to the actual category growth rate? And maybe you can just give Brazil as an example if you have the numbers in front of you. And then the second question is most of your penetration in Oral Care is primarily in brush and toothpaste, so I guess there's also a lot of whitespace for Colgate to attack. Any thoughts about kind of getting to the areas of Oral Care?

Frankly, Nik, the growth numbers in the category are still in those high-single digits. I mean you're either shifting people between brands with pace of bringing new people into a category or increasing their per capita consumption, tends to have uneven notes to it. So you may get period-to-period shift but on an annualized basis, the growth rates are still in the zone that I've mentioned to you. In terms of segments that we are not in, where we can drive performance and growth, you know of course, that if you go around the world and look at the segments in Oral Care, toothpaste is by far and away, the single biggest segment, followed by toothbrushes and then third would be mouth rinse. And of course, you know from some of Bina's remarks and comments that we have made before, that we have, for the last several years, had a very strong focus and still do have a very strong focus on driving both that category, which is in many countries, growing double-digit consistently, and of course, building our market share at the same time. And mouth rinse shares both growth and the gross margin characteristics that we so like in Oral Care. So I guess the third territory that we would stick out is the international mouthwash market.

And we'll go next to Connie Maneaty with BMO Capital Markets.

What is your all-outlet market share in the U.S. in toothpaste including Wal-Mart, Dollars stores?

All outlet is between 35 and 36, Connie.

And we'll go next to Linda Bolton Weiser with Caris. Linda Weiser - Caris & Company: I was just curious on the topic of M&A, would you have considered Alberto Culver putting aside valuation and not considering evaluation, but just as strategy, would that have been something that would have fit in to Alberto Culver with haircare and skincare?

We did not consider Alberto Culver, Linda. Linda Weiser - Caris & Company: Can you explain why it wouldn't have fit?

I'm not sure it helps to go there. It's a Personal Care category that doesn't fit within our strategic frame.

And we'll go next to John Faucher with JP Morgan. John Faucher - JP Morgan Chase & Co: So taking a look at the Latin American business, and you've talked about sort of the volumes being sort of flattish. And I guess the question is, you've talked over the past couple of years as we've had this raw material and FX volatility about the playbook related to pricing, and here's what you do and you get this type of volatility. And I guess looking at the results over the past couple of quarters, is there any change to the playbook? Is there something that played out differently than you would have anticipated as we've seen the volumes go sort of closer to flattish? And then I guess the other question that goes along with that would be, maybe one of the reasons why you had the strategy you've had is because you guys gave earnings guidance on a dollar basis as opposed to sort of an FX-neutral basis. And have you given any thought given some of the volatility to maybe changing how you end up guiding?

To the second question, we debate options often. We have elected thus far, not to change the way we guide. We are a diverse global company, and therefore, we guide the way we guide in terms of the dollar performance as it actually is. In terms of Latin America relative to the playbook, now I would say our thinking relative to the playbook has not changed. The principal weight on Latin America this year has been Venezuela playing out.

And we'll go next to Jon Andersen with William Blair. Jon Andersen - William Blair & Company L.L.C.: Could you just provide a quick update on the resizing and repricing of the health business and have the new sizes kind of made it to retail shelf ? And it sounds like we should expect volume to be flat in the fourth quarter, but should we get back to more of a historical trend in the mid-single digits as we move into 2011?

Yes. The short answer is, yes. The sizing and pricing is in place. As Bina said, we have seen volume, reported volume, dollar-weighted volume increase in Europe. And in the U.S., we have for the past six months seen units increase and for the last couple of reporting periods, seen that convert into volume growth. So we believe the mechanical fix that needed to be made is both made and is effective at retail. As we said on the last call, and to your point, modest nearly flat volume this quarter, expectation for flat next and a return to volume growth in 2011. And as we have said on previous calls, that has a lot to do with the innovation stream that we are now bringing to bear on Hill's. Bina mentioned some of them, and there are several others that have not yet been announced publicly, and therefore I will refrain. But the move now is having fixed the base. We're now moving to a stepped up innovation flow supported by trial building, marketing activity, and we are hopeful of turning back to good, sustainable volume growth in 2011.

And we'll take our final question today from Alice Longley with Buckingham Research.

I'm trying to get at the price mix question there or the price question the other people have asked. You're saying you're determined to get your volume accelerating in 2011. Do you also feel determined, have your organic sales growth accelerated into 2011?

Yes, Alice. Absolutely. Part of our intention here is setting ourselves the target of returning to the pace of organic growth that we have seen in the not-too-distant past. Yes.

Which was what?

Which was a strong mid-single digits.

So you're determined to get back to 4% to 7%, something like that?

That's a good spread, Alice.

Do you think you can do that in 2011?

Well that's what our preliminary budget planning is taking us to. We will work through the budget process and put the plans together necessary to do that. So that's our intention, yes.

And then my other question is on mix, which I know you put into volume.

It's all the way to volume, yes.

Is mix -- can you talk about what's happening with mix? And is it continuing to be positive in Oral Care through this difficult times? And then the second part of that question is, if it is positive in Oral Care, is it a positive, neutral or negative for you overall, considering what might be happening in Home Care?

That's a very broad question. I guess, my only way of answering it would be to say that we continue to see in Oral Care the premium price and margin accretive variants lead the growth of that business, which would be a way of saying, yes, that's certainly our portfolio mix would be favorable. Beyond that, I really don't have the data on the top of my head to answer.

Within Home Care, are you seeing a downward shift in mix?

Mix is less of an issue in home care, because the portfolio tends to be more of homogenous from a margin point of view. Okay. Well, thanks, very much guys. Thanks to all the Colgate people around the world who make it happen and talk to you in the new year.

That does conclude today's presentation. We thank you for your participation.