Colgate-Palmolive Company (CL) Q2 2011 Earnings Report, Transcript and Summary

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

Thank you, Elizabeth. Good morning, everybody, and welcome to our second quarter 2011 conference call. With me this morning are Ian Cook, Chairman, President and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; and Elaine Paik, Treasurer. This conference call will include forward-looking statements. And these statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements. For information about certain factors that could cause such differences, investors should consult our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Cautionary Statements on Forward-looking Statements. We will discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures. A full reconciliation with the corresponding GAAP measures is included in the Press Release and is posted on the Investor Relations section of our website at www.colgate.com. We're pleased with our results for the second quarter, which exhibit acceleration from the first quarter across the lines of the P&L, higher volume in organic sales growth, coupled with a greater increase in advertising, operating profit and EPS growth. And looking specifically on organic sales growth, we see particular momentum in our Emerging Markets, which, as you know, represent more than half of our sales worldwide. Organic sales growth in these markets was strong high single-digit and was the highest quarterly growth in a year. Our long-standing presence, deep distribution and leading market shares in this part of the world provide a strong balance to the continued macroeconomic challenges which we and our competitors face in the more mature markets of North America and Europe. Given the continued rise in commodity costs worldwide, gross margin declined in the quarter. And as Ian said in the press release, we still expect gross margin to remain at first quarter levels for the full year, as pricing will play a greater role in the second half of the year to offset cost increases and as we continue to realize accelerating savings from our Funding the Growth initiatives. Additionally, we're beginning to see progress on our overhead line. Fixed cost within SG&A in the quarter declined by 30 basis points, which freed up money to invest in advertising. And as we've told you on previous calls, we periodically undertake projects to further reduce fixed expenses, and these initiatives are generating strong savings. Again as planned, advertising in the quarter was up, absolutely and as a percent of sales in support of new product launches around the world. We expect even more new product activity in the second half here in the U.S. in particular, and that will be backed by continued healthy increases in advertising. As previously announced, we've closed on the acquisition of the Sanex business in the second quarter and expect that we will complete the divestment of our Colombian detergent brand tomorrow, July 29. From a company-wide ongoing operating perspective, the 2 transactions should offset each other, so the income statement for the balance of the year should be unaffected. However, as we go through the divisions, I will outline for you the effect in Europe and Latin America in terms of sales and profits. The one-time gain from the sale of detergent should be approximately $130 million after-tax. And in-line with our efforts to continually lower costs and become more effective and efficient, our current plan is to reinvest this gain in support of various business realignment opportunities throughout the Colgate world. Implementation of these initiatives will begin in the third and fourth quarters, and we expect that they will fully offset the gain. And these initiatives should yield ongoing savings beginning mostly in 2012, in line with our historic rate of return for similar projects of 30% to 40%. So let's turn to the divisions, starting with North America. We're pleased with our North American results in light of slower than historical category growth rates and continued very aggressive competitive activity. As noted in the press release, our all-outlet toothpaste share is up on a year-to-date basis. And in addition, our dish liquid market share reached 2009 levels in the most recent period, almost 38%. As you may recall there was a low-priced new product entry in this category 2 years ago, and we're pleased that we have regained the share, which was temporarily lost. Our share momentum in these and other categories should continue as we launch some exciting new products in the second half of 2011. As you read in the press release, we're extremely excited to be introducing Colgate Optic White toothpaste and toothbrush in the third quarter. Colgate Optic White toothpaste represents a breakthrough for Colgate in the whitening category, having taken many years to develop this technology. Colgate Optic White toothpaste contains the same whitening ingredient as whitening strips for whiter teeth in one week. The Colgate Optic White toothbrush contains both whitening cups and polishing bristles. Colgate Optic White toothpaste and toothbrush will be supported with an extensive integrated marketing campaign, including both direct in-store and out of store support. We're also excited to be launching Colgate Sensitive Pro-Relief, a product with proprietary technology that provides sensitivity relief to consumers that is faster to the nerve for lasting relief. This will serve as an excellent companion to our existing dentist office arginine product in the U.S. that provides patients instant relief from sensitivity in the office while we continue to work with the FDA to obtain approval for the consumer product. In the dish category, we're very excited about the relaunch of our Palmolive Sensorial dish liquid line. A key element of this is a new fragrance, Palmolive ultra pomegranate. Pomegranate is a growing trend in the marketplace and Sensorial is a key growth driver in the Home Care segment. This new product should help to continue the previously mentioned rebound in our overall dish liquid share. And we're also very excited about a new launch in the Personal Care category, Softsoap bar soap. As we look to expand the Softsoap equity beyond our successful hand soap and body wash businesses, the launch of Softsoap bar soap is designed to further establish Softsoap as a mega-equity within the Personal Care category. Softsoap bar soap fulfills the unique whitespace in the bar soap category, providing consumers with highly experiential fragrant bar soaps that complement our hand and body washes that should drive brand and category growth. Additionally, over 1/3 of American consumers use both bar soaps and body wash, and most of those consumers buy the same brand of bar soap and body wash. So now we can provide Softsoap consumers with bar soaps and body washes in their favorite fragrances. So looking ahead, volume is expected to be up low single-digit for the third quarter and full year 2011, with organic sales growing modestly for the third quarter and down slightly for the full year. Operating profit is expected to decline mid-single-digit for the third quarter and double digit for the full year. Turning then to Europe. This region of the world remains very challenging from a macroeconomic point of view, as you are all aware. However, while cautious, we see some encouraging signs. Market growth has recovered slightly overall and specifically for Colgate, our market shares are quite strong. Our shares are up on a year-to-date basis in both toothpaste and manual toothbrushes, with a record share in toothbrushes. Our mouthwash shares are holding steady, and we expect momentum to build in this category, as we roll out a complete relaunch of our mouthwash business during the balance of the year. You saw that despite gross margin and commodity pressures, we were able to increase our advertising support. This is as a result of some of our initiatives that generate savings in our overhead and fixed expenses line. Initiatives such as shared services, which we have reviewed with you in the past and which serve as model for other regions of the world. And as mentioned in the press release, Colgate Max White One and Colgate Sensitive Pro-Relief have both met with good results across the region. Strong media and in-store support helps drive our toothpaste share in France to over 20% year-to-date, with the most recent reading at 20.9%. In Italy, our share is up over a point on a year-to-date basis to 23.4%, with the most recent read at 23.9%. And in the U.K., where a major competitor has just launched a new line of toothpaste, our share climbed over 50% in May, as we supported both our sensitive and experiential offerings with a mix of media and promotion. Our toothbrush business in Germany is doing particularly well, driven by the GABA business. The combined Colgate and GABA business is up over 1.5 to 17.7% year-to-date, with the most recent read at 18.4%. And in the U.K., we reached a record toothbrush share in May of 33.3% largely driven by our higher margin premium business. And as you read recently, we completed the purchase of the Sanex business on June 20 and are very excited about this as we go forward. This business has distinct positioning around healthy skin with strong market share and is growing, and we are now busy integrating the business. So while we are mindful of the challenges we face from a macroeconomic standpoint, we expect results in Europe to accelerate in the second half from the first half. Volume should increase modestly for the third quarter and full year, with organic sales down only slightly. Including the recent acquisition of Sanex, third quarter volume should be up high-single digit and full year volume should be up mid-single digit. Operating profit, including Sanex, is expected to increase mid-single digit for the third quarter and full year as well. Turning then to Latin America. This division delivered excellent results despite continued heightened competitive activity in certain markets in the region. A consistent flow of relevant new products at all price points, supported by increased advertising contributed to the strong performance, while continued effective media and merchandising solidified our base business. Year-to-date, market shares have increased in the higher-margin oral and personal care categories such as toothbrushes, mouthwash, bar soaps, deodorant and hair care. In toothpaste, our regional share is holding at over 77% of the market year-to-date, with records achieved in Venezuela, Central America, Chile, Peru and Paraguay. In Mexico, where promotional activities still remains extremely high, our shares are still over 80% year-to-date, with an increase in the most recent reading to 83% while our nearest competitor dropped to the lowest level since the beginning of the most recent heightened competitive activity. Strong performance from our higher-priced Colgate Total brand has driven the share gains, while aggressive activity from our competitor seems to be focused on the value tier. In Brazil, another hotly contested market, our toothpaste share remains over 70% year-to-date, with an increase of 30 basis points in the most recent reading. Support from the Brazilian dental profession continues to grow with leading and growing positions in brand recommended most often for toothpaste, toothbrushes and sensitive toothpaste. In toothbrushes, our regional share is up over half a point on a year-to-date basis to almost 40% of the market, maintaining our number one position across the region. In Brazil, our share is up over a point on a year-to-date basis, driven by the higher margin Premium segment where strong innovation and in-store activities have countered aggressive competitive activity. In Mexico, we've held our record high share of over 40% on a year-to-date basis, with a reading of almost 42% in the most recent period. Again, this has been achieved despite heightened competitive activity. In mouthwash, our share is at its highest so far, 32.2% on a year-to-date basis, with our most recent share read at 33% closing our gap with a leading competitor from almost 30 points to under 10. Expectations are that our share will continue to increase as we roll out a complete relaunch of our Colgate Plax line through the balance of this year. So we're very encouraged with the momentum in this business. Looking ahead, we expect volume to increase mid-single digit for the third quarter and full year, with organic sales growing double digit for both periods. Operating profit is expected to grow high-single digit for the third quarter and full year. Greater Asia/Africa. This region continues to offer great growth opportunity. Volume and organic sales growth was strong across the region. And of particular note, the 2 largest countries in terms of population, India and China, both enjoyed double-digit organic sales growth. Our toothpaste share across the region is at almost 40%, and our toothbrush share is at 35% on a year-to-date basis. Now as you'd expect, we pay particular attention to both India and China. Our innovation teams on the ground look to gain deep and relevant consumer insights in both markets in order to bring to market new products with unique benefits. A good example from China is our recent launch of Colgate Plax Fresh Tea. This product has a mild flavor of green tea with a hint of mint and capitalizes on the learning that Chinese consumers like the flavor of green tea but dislike a burning mouth feel. As a result of this and other new products in the Plax line, our mouthwash share in the key cities of China is growing strongly, with the most recent share at 30%. And of course, in both India and China, we are also rolling out global bundles such as Colgate Sensitive Pro-Relief toothpaste and toothbrushes, as well as Colgate Max Fresh Ice toothpaste. In the toothbrush category, we are launching our Colgate 360 Surround toothbrush, as we are in other parts of the world. The success of this product has resulted in record toothbrush shares in Malaysia, Taiwan, Turkey and Vietnam. And as you saw in the press release, new product activity has been strong in the Personal Care category as well. Several years ago, we launched a shower gel line under the Palmolive brand called Thermal Spa in Russia, which met with great success. Taking the learnings from that launch, we are now launching the same product in Turkey where we already have a strong share approaching 40%. So looking ahead, volume in Greater Asia/Africa is expected to grow at least mid-single digit for the third quarter and full year, and organic sales are expected to grow double digit for both periods. Operating profit is expected to grow double digit for the third quarter and full year as well. And turning to Hill's. Our Hill's business continues to improve, with solid organic sales growth in the quarter. As you saw, pricing was slightly positive as we followed competition judiciously, working to somewhat offset the steep price in commodity costs. Pleasingly here in the U.S., we see renewed growth in the vet channel, which has been somewhat sluggish during the economic crisis. And along with growth in the category comes growth in veterinary recommendation, which is a very important component of our business model at Hill's. One factor driving growth in the vet channel, both here in the U.S. and in Europe, is our Vet Exclusive product. This was launched in March of this year in the U.S. under the Science Diet Healthy Advantage brand supported by vet health care team sampling, in-clinic awareness centers and pet owner trial rebates and new pet kits. A similar product in Europe launched about a year ago, Science Plan VetEssentials, is meeting with similar success. And we're very excited about all the new products being launched this quarter, some of which you saw referenced in the press release. The first is Science Diet Ideal Balance. Natural pet food is the fastest growing segment within the category as pet humanization and the inclusion or exclusion of specific ingredients are increasingly driving consumer behavior. Hill's Science Diet Ideal Balance is all about combining the power of precise advanced nutrition with natural ingredients to create a unique product offering in the marketplace. Hill's Science Diet Ideal Balance has fresh chicken as the first ingredient, no corn or artificial flavors and fruits and vegetables. It emphasizes that good nutrition is not just about the ingredients. It's about having the right ingredients and perfect balance for the lifelong health of pets. And as you'd expect, the launch of this product will be fully supported with in-store displays to drive trial, store-associate education, PR for word of mouth and full digital engagements via search and social media. The second new product is Science Diet Age Defying 11+ for older cats. Senior cats are the largest and fastest-growing cat population segment. This translates to a population segment of nearly 36 million cats experiencing 5.3% growth versus total cat population rates of about 0.10%. The launch of Hill's Science Diet Senior Age Defying 11+ reinforces Hill's legacy of life stage nutrition while enhancing a position of strength and leadership in the aging segment with 2 differentiated offerings: Mature Adult Active Longevity, and now, Senior Age Defying 11+. Each product addresses the unique nutritional needs of the growing demographic segment. Launch of the Senior Age Defying 11+ formula is supported by a very powerful reason to believe as the formula fights the signs of aging in just 30 days. Consumers will see visible results as cats become more interactive and playful, more alert and agile and experience fewer litter box accidents. And the third new product is Hill's Prescription Diet y/d Feline Thyroid Health. Feline hyperthyroidism is the most common endocrine disorder in cats. Therapy options are often expensive and inconvenient. Least expensive and most common option is daily medication, which can negatively impact the relationship between the pet owner and their pet. Hill's Prescription Diet y/d Feline Thyroid Health is the first and only food that manages feline hyperthyroidism as a replacement to other treatments. The launch of this transformational product represents a new category within therapeutic foods and underscores Hill's as an innovation leader in nutritional science. So we're very excited about all the activity at Hill's and look forward to a strong second half. Volume for the third quarter and full year is expected to grow modestly with organic sales growing mid-single digit. Operating profit is expected to grow mid-single digit for the third quarter and full year. So in summary, a solid quarter, particularly given the challenging macroeconomic times we all face in the Developed Markets. We're particularly encouraged by the momentum we see across our businesses with volume growing in every division. Our pipeline of new products is as full as it has ever been, and we are excited about the many launches coming up in the second half of the year. And as we've told you, these will be supported by increases in advertising and should result in further increases in our already strong market shares. So we look forward to sharing our results with you as we progress through the balance of the year. Elizabeth, that's the end of my prepared remarks, and now, we would like to open it up for questions.

[Operator Instructions] We'll take our first question from Bill Chappell with SunTrust.

I was wondering if you could just -- and you may of already disclosed this -- talk a little bit more about Sanex in terms of kind of what the growth rates have been over the past few years and kind of how the margins compared to your existing portfolio over there?

Well, the -- I think, first of all, we closed. We're happy. We see Sanex as very much being on strategy for our Personal Care business, and we look forward to seeing the benefits from Sanex in the second half of this year. And if you look at the second half of this year with Sanex in our portfolio, we are expecting to see volume for the balance of the year about mid-single digits and Sanex would be about 1.5 of that, and that's continuing the rate of growth we have seen on their business. And from a margin point of view, it is accretive, which is why we like the business, and we like the brand.

And there's room to kind of expand that or is it just kind of riding what it...

No, we very much see expansion room, Bill. I mean, I -- we shouldn't get too excited about that until we go through all the planning and execution, but the potential for expansion is two-fold. Number one, expansion of geography within Europe and maybe beyond. And secondly, expansion into other Personal Care categories. And as we have received the business and begun to fully understand the richness and the heritage of the brand, we've been delighted to find a very well-developed innovation and new product portfolio that we can move with quite quickly. So geographic and category expansion, but again, we will do it in a methodical, studious way over time.

We'll take the next question from Dara Mohsenian with Morgan Stanley.

I have a couple of questions around pricing. First, can you discuss the key reasons in product categories where you actually implemented additional pricing during Q2 and then also in July post the quarter end? And also your initial thoughts on if higher pricing is actually going through and the consumer demand reaction to it. And then specifically in the U.S., it looked like pricing came in a bit below your goals in Q2. So can you just talk about the pricing environment versus your expectations in the promotional environment in the U.S.?

Sure. And thanks for the single question. Two things then. In terms of pricing, let me put it this way that in -- by the third quarter, we will have in place about 80% to 85% of the pricing that we have planned for this year. And all of that pricing is announced and is either at retail or making its way to retail around the world and has been accepted by the retail trade and where at retail, so far accepted by the consumer. One business we were particularly sensitive in terms of our pacing on price was Hill's. And in fact, the Hill's pricing goes into effect here in the United States in the third quarter. And although we often don't like to say this, in that regard, we have been a follower and are the last major pet nutrition manufacturer to bring pricing to the market. And I would add that the pricing on the Hill's business and indeed the pricing we are taking around the world is substantially lesser than the pricing we had to take in 2008 and 2009. So, so far, broadly -- globally, we feel very good about the fact that the pricing is announced, accepted and out there to the tune of 85%, has not been debilitating from a consumer point of view so far and we think Hill's pricing has been judiciously taken. Now here in the United States, and I think we've been quite consistent about this on prior calls, we continue to find ourselves under some promotional pressure. And we said for our U.S. business, it was going to be a year of 2 halves, a basically flat first half and then we would see a recovery in the second half driven by innovation. Bina has now laid out quite clearly what the principal aspects are in the innovation area. Again, well received by the trade, and the only point of focusing on the innovation is that we have taken pricing in the United States. But that largely in the third quarter, behind the innovation stream that we are bringing to the marketplace. And in some businesses, dish, for example, our pricing is following the leading competitor in the category. So the U.S. was always going to be a second-half proposition and that included pricing, but the pricing in the U.S., again, is announced and accepted and it is behind the innovation stream that is just now going to market. And I would add that our U.S. business in the month of July is off to a very healthy start, substantially outpacing the first months of the prior 2 quarters, so we do think the plans we have in place should be effective across the back half of the year.

And we'll take our next question from Mark Astrachan with Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: I guess question on gross margins. Given the pricing that has been implemented or will be implemented, I would've thought gross margins would have been up a little bit more over the back half of the year. I guess I'm sort of curious on puts and takes there and obviously if you could go through your bridge, that would be helpful in the second quarter. But in terms of what's embedded in the numbers on a go-forward basis, is there some anticipation of seeing some of that pricing being reinvested into the business beyond what you said about disposal?

Well of course, if we talk about gross margin, unless the reinvestment were in price, that would come below that line. But let me start with the roll forward from the second quarter of 2010 and then let me comment on the balance of the year around margin, but focusing on our savings and pricing activity. So the gross profit second quarter 2010, as you know, was 58.8%. We picked up in the second quarter of this year 0.2% from pricing. As we had indicated on the first quarter call, our Funding the Growth savings contribution was a positive 1.9 percentage points, 190 basis points, which was an acceleration from the first quarter as we have said it would be and pleasingly is ahead of the step up we had in the second quarter of 2010. So I think Colgate people around the world, consistent with our value of continuous improvement continue to find terrific savings opportunities with our Funding the Growth program. And again, we expect that to continue and to continue to step up quarter-on-quarter as the year unfolds. Material prices were, however, a net negative headwind of 3.2 percentage points, 320 basis points leading to a net negative of 130 basis points. And then you had some other changes, mix and the like, leading us to the 57.4 on the year. So the central issue in the second quarter is that while our Funding the Growth savings were excellent, they were not adequate to offset the step up in material costs, and our pricing contribution was modest. Now when we last spoke, when you think about the entire year, we said that we thought material prices would be up between 10% and 13%. As the year has unfolded, we are very much towards the upper end of that range, in terms of the increase in our cost of goods. So while we expect the Funding the Growth savings to provide increased contribution to gross margin, and we expect pricing to play an important role in offsetting the commodity costs, still, we think the reasonable outlook for the year is to close the year at about the first quarter level as Bina said. And while we will see improvement quarter-on-quarter, we think the best we can do this year, which frankly was the objective we had balancing volume with pricing coming into the year and that is to offset the dollar impact of the cost increases we face, and we'll return to rebuild the ratio in 2012.

And we'll move on to the next question from Nik Modi with UBS.

Just -- you hinted at or briefly talked about more cost saving opportunities. Just curious if you can give us a little bit more detail on exactly what you have planned and any type of magnitude quantified at all?

Well, I think the answer actually, Nick, is probably no. But let me reframe again and give you some indication on what we're planning. You will remember we started talking towards the end of last year about the fact that given the volatility in commodity costs in our world today, we were increasing our focus on organizational realignment and restructuring opportunities that we could work through the income statement. You will remember, in the fourth quarter of last year, we did some of that on a lesser scale and obviously, with the opportunity of the gain from the sale of the detergent business, we very much have had active initiatives underway to utilize that one-time gain to set us up for 2012. So as Bina said, we will be -- we expect to be using that gain to fund realignment and restructuring actions, which are likely to benefit 2012 given the implementation timing and, as was the case with the last 2 restructurings we have done as a company, will provide a rate of return in that 30% to 40% range. So you get a sense of the return we are expecting on that investment. Of course, we don't want to reveal or discuss prematurely what the specific actions might be. Suffice to say, structural and realignment will be the 2 key operating words.

And, of course, Ian, at some point, I guess when you have kind of broadcasted that to the organization, you'll provide us more details on exactly what you guys are planning?

We absolutely will because we think some of the things we have are operationally quite inventive and will be meaningfully important for the company going forward. So we will certainly be talking about it once we're in a position to do so.

The next question today comes from Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc.: Just 2 quick ones if I could. First, I'm trying to square your comments regarding the pricing to support gross margins in the back half of the year and your outlook on volumes. Because it seems like if you put the 2 together, you're anticipating price increases along with volume acceleration in the back half. Is that because you've got easy compares? Is that because of innovation or a combination of the 2? And then secondly, when would we expect to see possibly the pricing in North America to turn positive?

Well, let me talk a little bit about the volume first. It is an acceleration of volume. And that is driven I guess largely by 2 things. One, a continued -- a continuation of the momentum we have in Latin America where we have been able to take pricing and accelerate volume. And we expect that to continue behind the innovation stream that we have. And of course, as I mentioned a little bit earlier, the innovation that we have in North America, which we expect to lift the volume in the second half. So it's continuing at the pace we have had with continued growth in Latin America or accelerated growth in Latin America and the United States behind innovation. And the comparisons are a little bit gentler as you say year-on-year. And relative to pricing in the United States, I mentioned earlier that we really are taking our pricing in the United States in the third quarter. As we have said before, we now shift from hopefully perhaps a more promotional environment to an innovation-led environment from our point of view. And it is our expectation that the pricing in the U.S. will turn positive in the second half of the year, primarily in the fourth quarter.

We'll take our next question from Wendy Nicholson with Citi.

My first question has to do with India, specifically, and then sort of the Greater Asia/Africa region more broadly. But I know -- we can track the India results because they're publicly traded, but the margins there have been kind of generally trending down. And I'm wondering whether that is simply, hey, India is struggling with commodity prices the same way everywhere else is. Or whether you're anticipating a lot more competition there. But the trend more broadly has been that your margins in Greater Asia/Africa have also trended down. So it's the whole region. But I think, Bina, your guidance was actually for stronger profit growth in the back half. So I'm wondering these places where you've got really big market shares and really well-entrenched franchises is India sort of indicative of another region where you're coming under pressure? Or am I reading too much into it?

Without being discourteous, I think you're reading too much into it. The top-line performance in that part of the world is extremely strong, particularly in both of those markets and our leadership shares continue and we make progress. When you look at India, specifically, it is largely the commodity costs where we source many more of our raw materials in country from local suppliers. And sometimes those costs don't follow world trends exactly up or down. So India is specifically hit by that. And we are taking pricing there as we are elsewhere. And as Bina said, we expect to see progress over the back half of the year in that area from a gross margin point of view. Based on the pricing sticking, it really is not a competitive issue.

Okay. And then more broadly, and I don't think you talked about this, but just currency, generally, obviously being I think a bigger tailwind this year than you would've expected and yet the guidance for earnings to still be in that mid-single digit range, that's great. But is the implication that, "Hey, if there are currency gains to be had on the EBIT line, you will choose to reinvest those?" Or would you flow them to the bottom line such that we could expect better than, let's say, 5% EPS growth?

I think our strategic intent, Wendy, when we came into this year was to make sure we invested behind regaining momentum, accelerating momentum on the top line. And I think, unless it were unreasonable to do so, that our stated intent for the balance of the year would remain that. In other words, if foreign exchange became more favorable than our second half projections and we picked up discretionary funds compared to our estimates, estimates which, by the way, see advertising in the second half continuing to step up from the first half, both absolutely and as a percent of sales. But I think as a matter of strategy, it would be our intent to increase our investment, hold to the guidance we gave and make sure we secure the outcome we came into the year trying to secure, which was accelerating the top line growth of the company.

We'll take the next question from Chris Ferrara with -- I'm sorry from Per Ostlund with Jefferies & Company. Per Ostlund - Jefferies & Company, Inc.: Maybe just following on to Wendy's question on India but turning it to Latin America, specifically. It looks like you're basically holding your Latin America sales outlook consistent with what you said last quarter, though the operating income outlook might have been inched down a little bit. I think you went from kind of a double digit to high-single digit despite very high teens, very strong profit growth there this quarter. Is that really just sort of the gross margin pressure that you're seeing everywhere else? Or is there something more regionally specific going on there?

No, I think the gross margin pressures in Latin America are the same as elsewhere. And if we look at the balance of the year, we see the year, as Bina said, for Latin America, are basically ending up where we ended up in the first quarter. I think the thing I would say coming back to Wendy's point is that one of the things we stated was to rebuild the top line acceleration is that we wanted to reinvest behind the business, and we have some meaningful increases in advertising across the back half of the year, as I said. So that's the strategy in Latin America and that slightly affects the EBITDA margin as you say. But we think it's the right decision for that very important and good growth region of the world.

We'll take the next question from Chris Ferrara with Bank of America.

So I wanted to go back on the currency question, right? And I guess the question is more backward-looking than forward-looking. But has currency been materially better than you expected it to be in the first half of the year? And I guess has advertising been exactly what you thought it was going to be, too? Because my sense is advertising as a percentage of sales for the first half hasn't gone up very much, or it hasn't been -- on a dollar basis, it has, right? But not as a percentage of sales. And currency has been very strong. So I guess where has that gone? Has it been -- has it been more in a difficult pricing environment?

Well, the -- I think the real drag on the first half has been the gross margin. And in terms of our advertising, we were actually very pleased with the 140 basis points reduction in gross margin that we were still able to take the advertising up, albeit modestly on prior year on a ratio basis. And I think the thing that shifts in the second half of the year is we get progressive improvement in the gross margin because our Funding the Growth savings step up because the pricing now sticks in and contributes, and that will allow us to shift up our advertising spend behind the business and looking prospectively as Wendy asked. Should currency become more favorable in the second half of the year than we are estimating and we have discretionary funds, then I think strategically, we would continue to put it behind the advertising. But when we look at the pacing of our activity, we're actually quite happy with where our advertising is and where it is going to be going forward.

And Connie Maneaty with BMO Capital has the next question.

Can you talk about the launch of Sensitive Pro-Relief in the U.S.? Where is it going to be priced? And is it going to be called the same thing once the arginine product gets out of the FDA. I guess I'm kind of wondering how you manage a brand that is different in different parts of the world?

Well, I think -- very good questions, Connie. But I think in the end, what you manage is the benefit. The benefit is relief from sensitivity. We believe in the arginine technology obviously, which is why we have taken it globally. And we have the ability and are actively using that with an in-office product with professionals. Pleasingly, the product that we have in the Sensitive Pro-Relief that we are introducing has some proprietary technology that allows the active, which is potassium nitrate to speed its way to the nerve to offer faster relief, which is the same benefit that arginine delivers around the world. And so yes, the answer is we think it's important to be in that space with exciting advanced technology. We think Pro-Relief is the right name for it, given the nature of the benefit it can provide. It is priced at the sensitive segment pricing, which is to say premium. And when we do secure FDA approval, we will bring the arginine technology into that bundle as a further improvement and then it will be a companion to the in-office product, which hopefully by then professionals will have come to like and see the benefits that it provides. And I think it's a matter of marketing from the consumer's point of view there is no likely stumble with that kind of an approach.

We'll take our next question from Ali Dibadj with Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: So just want to get a little bit of clarifications. So if you look at your expectations you had going into the quarter, you missed on volumes in Europe, Asia, Africa -- organic sales and operating profit, everywhere but in Latin America. So what changed specifically? If you can kind of just aggregate the level of change. Was it the competition was tougher or didn't raise prices as you'd have thought? Was it the macro consumer? Was it in some sense the elasticity of some of the price increases? So what was the surprise?

Well, I don't think as we worked our way through the quarters there were -- good morning, Ali, by the way -- that there were many surprises. I think the biggest headwind we had to contend with as a company were the commodity costs. And when you talk about pricing, with the exception of Latin America, the pricing even though 80% to 85% of it is accepted and moving to retail or already at retail now, our pricing was not a significant factor in the second quarter. I must say the market growth rates in Europe and the United States, consistent with macroeconomic trends in those geographies continued to be low and in the United States specifically, lower than they have been historically. And that was also a factor. And there's no question in Asia there was a factor in Russia where we saw declines in our business and our category, which seemed to be corrected as we come into the third quarter, with Russia beginning to come back. But if I look at the world, those were the kind of changes we had to deal with. I think we have dealt with them and delivered, we think, good momentum into the quarter. And I think we feel good about where the balance of the year will be. Again, back to the themes of Funding the Growth in pricing and the innovation stream we have, behind which we are putting more advertising. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: So it does sound that there are -- I mean, because your expectations were different the way you delivered, that there were surprises or changes. And it sounds like they're more macro driven given the category growth that you're describing. If that's not right, correct me. But can you talk a little bit about the drivers of the category growth? So how much of it is competition? That certainly was an issue a little while ago. Is that still an issue in terms of the inability to take pricing as one would have been able to? Is that curtailing a little bit or is it just that, look, the consumer is strapped. We all hear about it. We all know about it. And that's been the struggle. So just a little bit more color if you could given you guys -- do have such breadth in terms of seeing what consumers are saying.

Yes, it depends, Ali, I'm afraid. There is no sort of one general universal answer. I think in Europe, there is no question, our consumer data shows us that in some respects, consumers are simply being more frugal. They are buying less frequently. They are buying less volume when they do buy. And they're making that little squirt or squeeze last a little bit longer before they go back for the next repurchase. In the United States, I think it is more what has been the commercial intensity in the marketplace, which we have talked about often as people scrap for pieces of a smaller pie. And interestingly, in the United States -- again, I'm talking only our categories, but we have basically seen private label shares here in the United States either flat or coming down, which may be another way of thinking about the promotional activity that is coming from the branded goods. Unlike the last time we were on a call together, I think it would be fair to say around the world that you are beginning to see a diminution of competitive activity. You are certainly beginning to see people taking pricing, both announced and at retail, and that's what gives us, along with our innovation stream, the confidence in the second half of the year that we can take pricing in a world where people are doing the same, keep our Funding the Growth focus and therefore create the funds to put behind the innovation stream and the growth acceleration and momentum that we expect for the balance of the year.

We'll take our next question from John Faucher with JP Morgan. John Faucher - JP Morgan Chase & Co: Just following up on the Latin American operating profit. I think you guided for a sequential deceleration, and I'm just trying to figure out, is this due to the potentially the Colombian business? Or is it really due -- if you look at the past couple of quarters, and it's a little complicated because of the comps, more than 100% of your operating profit growth has been coming from Latin America. And so I guess, is this also a sense that as the pricing goes through and as Funding the Growth goes through, you can just take some of the pressure off of the Latin American business in terms of the extent that it's been sort of carrying the rest of the profit growth given the tough developed markets?

I wouldn't put it quite that bluntly. But I think there is no question in the second half of the year that the broad-based step up in Funding the Growth benefit and broad-based benefit from pricing is going to increase gross margin around the world and give us a better return. And then on the flip-side, consciously, for Latin America, we are taking our advertising spending up quite sharply to step up the volume growth in that part of the world. So yes, I think pricing sticking and Funding the Growth continuing to build around the world sees us putting even more money behind the healthy investment we have in Latin America. John Faucher - JP Morgan Chase & Co: Okay, so following up on that just one quick question. So there's no real change in terms of sort of the pricing piece of the algorithm in Latin America? It's really just sort of what you're doing with some of that extra whatever gross profit you would have gotten from it?

Exactly, so. It's a discretionary investment below the gross profit.

Jason Gere with RBC Capital Markets has the next question.

I guess I just wanted to talk about the portfolio, where it stands. Obviously, with the inclusion of Sanex and then selling the laundry business in Colombia, I mean, are there more opportunities for you to exit tail brands in the portfolio, reallocate resources?

I think if there are, they are modest. We basically focus on the 4 categories that we have, which obviously Sanex fits very nicely into. And as I have said before, if you rank things, then something always has to come last. Like children, that doesn't mean you love them any less. It just means they happen to be last. So I don't think from a strategic point of view there is anything of substance that we would say we might think about divesting. We like the businesses we have, and we think we can make progress with them.

Okay, and just for housekeeping. Just on Sanex, I know that it closed on the 20th of June. Was there any inclusion of sales in the quarter? I'm not sure if you mentioned that earlier in the conference call?

I think someone may have mentioned it Jason, but the simple answer is no. No contribution.

. We'll take our next question from Javier Escalante with Weeden & Co. Javier Escalante - Weeden & Co., LP: A question for you about Funding the Growth, which, to a large extent, is a little bit of a black box for us because we don't know what goes into it. And I know that you guys have said that is an accumulation or an aggregate of small programs. But backing to what you guys have disclosed and it's about $150 million in savings year-to-date, your target is about $300 million to $600 million in savings in Funding the Growth. So it would be great if you could please provide details on the most important new activities that will be kicking off and step up these Funding the Growth going forward. Because the shared service program is already in the base and it's about the 100 basis points and 190 basis points. But it seems that you should be growing -- I mean, generating savings that gross more over the 200 basis points in the balance of the year?

The -- what I -- I guess my [indiscernible] will be that the projects that are most important are the ones that are yet to come. But let's take a step back. Funding the Growth has been a hallmark of this company for a long time. Funding the Growth had started as basically savings programs unaided by technology, which today, is enabled by SAP around the world, which gives us visibilities, interdependencies, connections, communication abilities that we never had before. And amongst our 3 values of caring, global teamwork and continuous improvement, that combination of continuous improvement and global teamwork means that as we identify opportunities, we share them quickly and we share them broadly. And I think we have a pretty good track record of delivering against our Funding the Growth commitments. And as I said earlier, we were really quite pleased with the 190 basis points of margin, gross margin contribution in the second quarter, which was a step up from the first quarter and the second quarter of last year. And captured by Funding the Growth is literally everything that goes into gross margin, which are the direct costs of the product, whether that's substitution, adaptation, renegotiation, aggregation, any of these kinds of initiatives. And then, we also have an aspect of Funding the Growth today that isn't in gross margin, where we focus on the indirect materials. That's everything that doesn't go into the product and that's everything from telephones to computers to cars to lab supplies, et cetera, et cetera. And we are applying the same principles enabled by SAP in those areas. That's what Funding the Growth is, and that's what we manage on a year-in, year-out basis. And I feel confident of saying that we will be within the $300 million to $600 million range that we have been for the last several years. But that's Funding the Growth. Now the other areas of focus which are going to be covered by the one-time gain from Colombia are those structural and realignment opportunities like the shared service center we have talked about in Warsaw. And those we will make transparent once they occur and the impact on the organization is clear. Javier Escalante - Weeden & Co., LP: But the one thing, Ian -- and I know that is probably difficult to flesh out each individual program, but savings -- $600 million in savings year-over-year-over-year without taking restructuring charges, I -- from what I see, even looking at your peers in Europe, is pretty unique. Nobody has done this. So I guess -- I don't want you to reveal the secret sauce, but if you could just enumerate what is something specific that it can amount to $600 million this year and then next year is going to be incremental $600 million. It's quite aggressive and, I guess, I am trying to gain confidence without knowing too much details about it.

But again, remember, not all of it goes into the gross margin. A large part of it does because we give that out. But Funding the Growth can go into the efficiency of how we buy our media. Funding the Growth can be in the trade spending that we execute around the world where we find a greater or better return on investment. If you talk about activities that go into the cost of product, different laminates, different plastics, different weights, different constructions. I mean, all of these areas are under constant inspection, and technology improves and changes year-on-year. And that we are able to take advantage of perhaps quicker than some because we have access to it so quickly with an SAP system that tracks and drives the entire company. And again, look at our track record in terms of our ability to deliver against it. I think you see it in the numbers.

Our next question comes from Joe Lachky with Wells Fargo.

Looking at the big picture, you -- I guess you mentioned you're beginning to see a reduction in the level of promotions. But I guess, longer-term, if you look over the past 5 to 6 years, we've seen a clear upward trend for promotions domestically in all oral care categories. And now, oral care has always been competitive, and I imagine you'll continue to see competitive pressure, especially internationally. You mentioned Mexico, Brazil. But with all the ongoing acceleration and promotions over the long term, how do you view the future profitability of oral care?

Terrific. The -- that's one piece of an equation, and oftentimes that's fueled by people that may want to take a run at a business. But again, behind a strategy and a category like oral care and why we like the category is you really can build loyalty with a consumer, with a product that they put in their mouth and their kids' mouth to deliver a benefit that can be endorsed by a professional who independently assesses the performance of your product. And if the performance of the product is superior and seen as a real benefit by the consumer, there is the opportunity to raise price. And even during the worst of the sub-prime in Brazil, for example, Colgate Total, which is a significantly premium-priced product in that country, was the brand that led the share progress in the country. So the characteristics of the category are such that if you deliver a benefit and you have the loyalty we have and you have the professional recommendation, whilst the promotion is there, the strength of a brand and your ability to premiumize the business over time in a way that consumers think and see they're getting value leaves us very comfortable with the future prospects in that category.

We'll now hear from Caroline Levy with CLSA. Caroline Levy - Credit Agricole Securities (USA) Inc.: Ian and Bina, just wondering if you can compare and contrast Mexico and Brazil. Because just looking at other people's results, it's been really a mixed bag, very mixed bag. And if you can talk about just the consumer in each place and then also the competitive dynamic. Are they the same or different?

Well, Mexico is a little bit closer to the U.S. than Brazil, and therefore, the macros that are in the U.S. more directly affect Mexico than Brazil. I guess that would be one observation. In our kinds of businesses, they tend to be fairly similar with perhaps the one exception if you look at per cap consumptions that the Brazilians, culturally, seem extremely advanced in terms of health and wellness behaviors and the use of those kinds of products, which is obviously to our advantage. But in all other respects, I would say they're pretty similar. They have a modern trade. They have a down trade. We're strong in both. There are the same mix of multinational and local competitors, and we have very strong and bouyant and growing businesses. So we don't see an enormous discrepancy between a Brazil and a Mexico as indeed I have read some have commented. Caroline Levy - Credit Agricole Securities (USA) Inc.: Okay. And the competitive environment in each in oral care, has it eased at all or accelerated?

The competitive environment is what it is. Which is to say if you look at the new entrant in Brazil, we are still seeing high levels of promotional activity. We are still seeing distribution limited to the more modern trade. The distribution in the down trade, which is about 20% of the category, is still in the low double digits, which is not well-advanced. And our recommendation levels and market shares, as Bina said, continue to go up. In Mexico, we were actually very pleased to see the results of the latest share read. And there again, you see heightened promotional activity. You see a brand that is not pro-health leading the share they have, and you're seeing up to 75% of the business on promotion all of the time. So again, back to the answer to the prior question, we think our focus on innovation with a loyal brand, professional recommendation and the kind of advertising support we have behind the business will see us well.

We'll now hear from Alice Longley with Buckingham Research.

I have a follow-up question on pricing. I think your guidance for the third quarter for the U.S. is that volume would be up low-single digit and organic growth up modestly. Not sure the difference between the 2, but they sound close. And I'm just wondering why we're not seeing the pricing coming through. Is it because you expect promotional activity, a hike in promotional activity to offset the pricing?

The -- basically, you have seen what the pricing was for the first 2 quarters. You will see pricing move to basically flat in the third quarter and then into positive territory in the fourth quarter. That's a combination of taking price increases, which, as I said, will take effect in the third quarter, thereby mainly benefiting the fourth quarter. And that's beginning to switch our focus behind the innovation and trying to move away or see less of the kind of promotional activity that has been a factor in the first half. So flat, positive in the fourth quarter, which we think is a responsible evolution as we bring the innovation to market.

Just to clarify. I think you said that the price increases were out there at retail in July. So you expect heightened -- your promotional activities to still be up in the third quarter offsetting that pricing?

What I meant was the pricing in some categories was on the shelf in July. But in other categories, when you announce it in July, it doesn't get to the shelf until September. So what I was saying is the pricing is out there, by which I mean it is out there with retailers. And as I said, it is either at retail or moving to retail and the lead-lag between announcement is between 10 and 12 weeks.

Our next question comes from John San Marco with Janney Capital Markets.

I think a similar question was asked earlier about what changed during the quarter. But specifically, I want to ask this question with respect to the North American region. Can you just talk about that operating profit decline we saw in North America, which I think was 10% lower than what you had expected and what changed in a short 3-month period to drive that shortfall?

Well, the -- in terms of our North American business, the real, I guess, influence was, as it is elsewhere in the world, but it tends to reach North America quickest, was the pressure from commodity costs that we were unable to offset with pricing because of the promotional environment. So I think that was the biggest factor on the quarter for North America.

We'll take the next question from Bill Schmitz with Deutsche Bank.

Was there a big difference between the sell-in and the sell-through in the quarter in the U.S.? Because I know this category is not great, but directionally, it seemed like the sell-through data was much better than the reported sell-in that you guys had today?

Shares have been good in the U.S. Obviously, with the category gross rates being what they are, you these days have a little bit inventory at retail than has been the historical norm. But I would say nothing dramatic, Bill.

Okay. So it wasn't that like there was a lot of inventory at the beginning of the quarter and you kind of work it down through the balance?

No. I mean, I'm not putting it forward in that sense. I am saying that with the slowdown in the categories, given the lead times in the United States, with the kind of lifts that you're seeing, I just think it's a fair observation to say there is a little bit -- in the first half, there has been a little bit more inventory at retail than you would see normally. I think that's worked its way through the system. And as I say, I'm quite happy with the market shares on our U.S. business consumption.

Perfect. And just one more, if I could. Was there -- if you look at the gross margin, maybe you don't really look at it this way, but was it disproportionally -- the hit just pushed your way to the Home Care business. Because if you look at the segment profit changes, it seems like -- Europe obviously was the biggest decline, year-over-year. I know that this is about half home care. I mean, is there a difference in your pricing ability in that business and was that the bigger driver of the gross margin decline?

I would say if you look at our business, the biggest impact, and I think it's for everyone, has been in fats and oils in terms of the way they affect your bath soap business. That's clearly one. And then, yes, I think it would be fair to say, although thankfully petroleum is staying where it is right now, at least it seems to be, that your home care businesses do tend to be more impacted because of that. And I think it would be fair to say that there is lesser pricing power in Home Care than you would find in the oral, personal or pet nutrition businesses.

Okay, great. And then just one last one. On share repurchases, do you have an outlook for the back half of the year?

Yes, it's still going to be in that 1.8% to 2% range.

We'll now hear from Linda Bolton Weiser with Caris.

Just kind of a longer-term question. Colgate has always hit kind of a targeted gross margin expansion goal long-term and not so much operating margin, which I understand the reasoning behind that. But a lot of investors like to see operating margin expansion, and there's a lot of companies even in the consumer products sector that believe they can expand their operating margin over a long period of time. Can you just give us some color on how we should think about that? Is it that once we get top-line growth stronger then maybe we will see some leverage of SG&A down the road and you can expand that margin or -- I'm having trouble picturing a 25%, 26% operating margin, which is where you guys would have to be headed toward, the very high level of operating margin?

Yes, the -- I think, Linda, the focus we put, which is back to this Funding the Growth thing, is the gross margin. And I think we said on the last call that given the volatility we had seen in our world, that we were targeting something like a 63 gross margin by about 2015. So that is the goal that we are driving against on the gross margin side. Now on the overhead side, with the comments we made this morning. Obviously, we have been assessing for some time our ability to realign, reorganize and restructure in order to get overhead relief, recognizing the volatility in the raw materials, and all of this to allow us to invest appropriately behind our businesses and deliver our long-term double-digit EPS growth. So I think that's how you should think about it, which is to grow a business 4 to 7 volume top line. We seek to increase our gross margin, reduce our overhead to put funds behind the advertising and deliver long-term double-digit earnings per share growth. So that's the kind of framework I would suggest to you.

And our next question comes from Jon Andersen with William Blair. Jon Andersen - William Blair & Company L.L.C.: I'll keep it brief here. I was wondering if you could just provide a little more color on the pacing of the new products that you mentioned earlier for the second half, those being Optic White and I guess the Palmolive relaunch and the Softsoap bar soap. And then the ad spending behind those -- that relaunch of those or those new products, should we expect advertising spending to be up absolutely and as a percent of sales in the second half?

No, I mean, if I take a world basis, let me start there, we expect our advertising to be up absolutely and as a percent of sales in the second half. If we take the United States, which were the products that you quoted there, all of those products go to market in the third quarter, different months, different dates within those months. And I think in the United States, what you will see as the distribution builds, the bulk of the advertising support you will see in the fourth quarter. And there again, the United States will follow the world, which is to say up absolutely and as a percent to sales.

And with no -- I'm sorry, I was just going to turn the call back over to you. We have no further questions in queue.

Thanks so much, Elizabeth. Well, thanks, everyone for joining us this morning. We very much enjoyed telling you about the second quarter, and we look forward to coming back and talking with you once we complete the third quarter. And again, a special thank you to all the Colgate folks out there who get all of this done. Thanks.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.