Bina H. Thompson - Former Vice President of Investor Relations Ian M. Cook - Chairman, Chief Executive Officer and President

Dara W. Mohsenian - Morgan Stanley, Research Division Nik Modi - UBS Investment Bank, Research Division Wendy Nicholson - Citigroup Inc, Research Division Joe Lachky - Wells Fargo Securities, LLC, Research Division John A. Faucher - JP Morgan Chase & Co, Research Division Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division Javier Escalante - Consumer Edge Research, LLC Jason M. Gere - RBC Capital Markets, LLC, Research Division William Schmitz - Deutsche Bank AG, Research Division Christopher Ferrara - BofA Merrill Lynch, Research Division Alice Beebe Longley - The Buckingham Research Group Incorporated Lauren R. Lieberman - Barclays Capital, Research Division Constance Marie Maneaty - BMO Capital Markets U.S. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division Alec Patterson Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division

Good day, and welcome to today's Colgate-Palmolive Company Fourth Quarter and Fiscal Year-End 2012 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 Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Thank you, Cameron. Good morning, everybody, and welcome to our fourth quarter earnings release 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 Statement on Forward-Looking Statements. This conference call will also include a discussion of non-GAAP financial measures, which differ from our results prepared in accordance with GAAP. We will discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures. We will also discuss gross profit, gross profit margin, SG&A, operating profit, net income and earnings per share, excluding the impact of certain items described in the press release. And a full reconciliation with the corresponding GAAP measures is included in the press release and is posted in the For Investors section of our website at www.colgatepalmolive.com. We're pleased with our solid fourth quarter results. Our momentum is excellent in many areas of the world, both developed and developing, and we think we are well-positioned to deliver stronger results in 2013. On a global basis, our market shares are up year-to-date in toothpaste, manual toothbrushes, mouthwash, bar soaps, body wash, deodorants and fabric conditioners. And as you will hear as I review the divisions, innovation has played an important role in increasing market shares, and we have a…

[Operator Instructions] And we'll take our first question from Dara Mohsenian at Morgan Stanley.

So Ian, it sounds like Venezuela clearly had some massive sales and profit declines in the quarter given the impact you quantified on the corporate results. Can you give us more detail on exactly what's occurring there, how long you think those issues will linger? And then also separately, on the same subject, can you discuss your ability to hit your double-digit EPS growth guidance in 2013 if there is a devaluation in Venezuela and how managing through that situation might be different than past devaluations just given the price controls in place?

Clearly, questions on Venezuela, given what we have already said, are entirely appropriate, and I will answer it in a moment. But I do want to underscore what Bina said when you think about our company in total. We delivered at the low end of our organic sales for the year, 6%. We delivered 8% dollar EPS growth year-on-year, absorbing a 6% headwind from foreign exchange, which means that we delivered our currency neutral earnings per share growth. And we expanded our gross margin at the low end of our expectations given Venezuela. And more importantly, we believe with strategic initiatives that we have been deploying for several years continue to be effective. We have a global growth and efficiency program now in place behind a very strong innovation stream to continue to grow our business going forward. But yes, indeed, in the fourth quarter, after our last call and based on the uncertainty between elections and inauguration, we did see a slowdown in our Venezuelan business, as you say, partly due to uncertainty at retail level and partly due to the slowdown in our factory. As Bina said, our global organic sales would have been up 150 basis points if it were not for that. Indeed, our emerging market sales would have been up some 300 points from the 6% you saw in the results. But I can tell you that after considerable dialogue and collaboration with our workforce, with support from local government ministries, we enter this year with our operations in Venezuela basically back to historical levels, and our top line progress has bounced back to the levels pre the event and consistent with our thinking about Venezuela for this year. Now as we discussed on the last call, when I said that a significant devaluation in…

And we will take our next question from Nik Modi with UBS.

Ian, if you could just kind of walk us through -- as the year unfolded in 2012 and as you kind of look into 2013, how is the competitive environment involved? I mean, has it gotten much more intense in a sense that more promotions, maybe some of the advertising money is going into promotions? And are you seeing it kind of accelerate here as a lot of your global competitors have been obviously restructuring and have some more money to play with, plus commodity cost has been about a lot tamer? Just curious on your view. And as you think about the back half of the year, where do you think that's headed, as many companies have gross margin upside to kind of reinvest?

Well, I think, Nik, we have been sort of generally clear that despite or regardless of what many people have been saying about the level of competitive activity, we have seen it and we continue to see it, and we continue to plan that it will be at the levels that we have seen for the last little while. And we, too, will see expansion of our gross margin. We see our material costs up about the same level as they were this year, which is around 1%. We still expect to see our gross margin expand next year within the 50 to 100 basis points level given our investment in the formulas at Hill's. And so that's what we think we will see in the ongoing operating costs from Venezuela. And we think we have -- from an advertising point of view, we're well-structured our plan. It is a plan that continues to confirm a 6% to 7% organic growth level. It continues to see the Hill's business with all of the terrific product activity behind it, turned volume positive, continues to see our advertising grow. And I would make a comment about advertising. As we have said for some time, many of us in going to school came out with a view that advertising was good and trade spending was bad. And I think we have been trying to say that in many ways, given the analytic tools available to us, the way one can execute at the retail level these days, a wise trade investment can be a terrific way of building a brand, engaging with a shopper at retail and getting them to that final purchasing decision on top of the traditional advertising and the social media and the other techniques that we use. So these things are all in a balance, and we build our plans accordingly. But essentially, the plan we have for 2013 assumes the continuation of competitive activity, adequately funds our innovation and we believe has the right balance between traditional advertising spending and that which we would execute and be able to measure the return on investment on -- at the retail level.

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

Could you talk about Hill's specifically? And the margin that you generate there has, for a long time, been so good and sort of above average for the company. And can you talk about kind of going forward what you expect from Hill's profit margin? With all the new product activity and the volume declines you've seen, is that not an area where maybe investment spending should go up? Or how much will Hill's itself benefit from some of your restructuring?

Well, I think, Wendy, as we think about Hill's, frankly, we're quite excited. We think -- from an innovation point of view, we think we've got it right. We think we have been able to improve the relevance of our Ideal Balance product while not losing the strength of the Hill's scientific credentials. We think we've made a major upgrade in our Science Diet business for the U.S. We have packaging, we know works. We have advertising, we know works. We have clear selling communications for our consultants at retail to bring back consumers to the business, and we have invested in those consultants. And we have had very, very good collaboration with the PETCOs and the PetSmarts of this world in bringing these plans to the consumer. So by all means, it is an investment year for Hill's. And we are investing in advertising to convey the benefits of the products that will be coming to the marketplace, are coming to the marketplace now. And we believe we will see the volume of that business return into positive territory as we move across the year. And yes, we have made an investment in upgrading the formula in Hill's. Having said that, we are going to expand the gross margin of the company within our 50- to 100-basis-point range. And in the life of the plan that we have, we rebuild that gross margin investment on the Hill's business. So we're comfortable with where we are putting the investment funds, and we look forward to reporting the progress of the Hill's business across 2013.

And we'll take our next question from Joe Lachky with Wells Fargo Securities.

I just was wondering if you could describe how you're responding to the competition in Brazil, and maybe if you could let us know what category growth rates are in that country for oral care. And is net the competition positive or negative for the category overall?

Okay, Joe. Well, let me draw a little bit of a whirlwind tour, and I'll come back to Brazil. Take the big high-growth markets that everybody talks to, China, our share is approaching 34%. The competitor is below 19%, down over 3 share points year-on-year. Russia, our share is over 32%, and the competitive share has now drifted below 15%, continuing a 4-year downward progression. Our share in Mexico, as Bina said, is about 82%. And the competitive share towards the end of the year is around 13%. And if we come now to Brazil to your point, our share is, as Bina said, the highest we have seen in 15 years. And the competitive share for the year is about 6%, and change in the fourth quarter based on Nielsen data is around 7%. We have seen category growth in Brazil. We have seen our market share growth in Brazil. And the growth rate in Brazil is pretty much at the same as it has been in all of our emerging markets, which is high single digits, low double digits. We have said many times that we believe the basis for growth in categories is innovation. And in Brazil, as you may know from our various comments on the subject, whether it was Sensitive Pro-Relief, whether it was Luminous and the other innovations we have planned, we are constantly looking to engage with the consumer through innovation rather than just price promotion. And we see that and plan for that continuing in Brazil and the other emerging markets around the world in 2013.

And we'll take our next question from John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: So I just want to follow up in your comments on the relative value of trade promotion versus advertising, because advertising for us in terms of the information we get, it's obviously a fairly blunt instrument. One of the things that the investment community sort of focuses on advertising for is it can tend to be more of a leverageable expense, while trade promotion we associate is a little bit more variable in terms of having to put the trade promotion out there for the units that you get. So can you talk with us a little bit about sort of SG&A leverage in that context? And then the second question I have was just sort of a housekeeping thing which is, can you talk a little bit about the interest income line, which went from negative to positive in the quarter, and what happened there?

Yes. Well, let me talk about it holistically. I think from the trade spending point of view, I guess what it comes down to is the programming. I mean, if you looked at our advertising in the fourth quarter on a ratio basis, it was at the level -- it was down about 10 basis points as we said in the release. But overall, our commercial investment was up a multiple of that. And when we think about trade promotion, there are 2 aspects to it. One is pure price and the other is consumer spend, which can include price but it can include activity at the retail level. And think these days about anyone's shopping experience, particularly in the developed world, one gets messaging from the traditional media, engagement from social media and other "word of mouth type" messaging. And then what one encounters at retail, which is substantially different today than it was even 5 years ago. And we have talked from our side about Colgate business planning, about better understanding of pricing as a competence in our company and the use of analytics. And these things all tied together when you come to retail. We were able today to construct programs that may be built around price but are much broader than that at the retail level and are, as we call them, integrated communications that go from a television ad to the activity that consumers see at retail or the coupons that they might receive directly or indirectly. You can do good analytics on it. It's very targeted. And you can collaborate with retailers against it, and you can track to make sure that it is not damaging brand health but rather an additional component that is strengthening brand health. So that's how we think about…

And we'll take our next question from Ali Dibadj with Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: So clearly, you're affirming the double-digit EPS growth for the year, x top [ph]. But I haven't heard you say directly the organic top line growth of 6% to 7%, which you said in the last conference call is still intact. So is that the target? Is it smooth throughout the year? And you may talk about Venezuela in that context. And I thank you for giving us more detail on what the organic sales growth and gross margin would have been, x Venezuela, in the quarter. But to be fair, would you mind elucidating what your organic sales growth and gross margin would have been, x Venezuela, over the past 3, 4, 5 years?

Well, yes, I guess I would mind, I guess, is the straightforward answer. And the -- looking forward -- I thought I had said it earlier, but if I didn't, then let me say now that indeed, we do reaffirm our 6% to 7% organic growth for 2013. And the reasons are innovation stream, the return of our Hill's business to volume growth and what we believe is an executional focus that we have in all parts of the world but particularly in the emerging markets to make sure our distribution and our in-store visibility and activity truly engages the consumer. And remember, the Venezuela impact in the fourth quarter was a very unusual impact.

And our next question comes from Bill Chappell with SunTrust.

Just a quick follow-up on Venezuela and then another question. On Venezuela, is there a catch-up that will happen in the first quarter with things back to normal in terms of when you see those sales materialize and boost organic growth? And then just the regular question is, on the new product launch this year, is it in roughly the same in terms of kind of revenue generation and timing as we're trying to model out?

If I take the second question first, if you think about our innovation in total, I think the contribution to the top line from innovation in total will be around the same level as it was in 2013. Quite how it profile across the year, I must say, I don't have. And from a Venezuela point of view, it is -- and that will be around 7% to 8%, by the way, Bill. And from a Venezuela point of view, the first quarter, as I said, is back to historical levels, but I wouldn't think there would be a rebuild of any significance from a modeling point of view.

And our next question comes from Javier Escalante with Consumer Edge Research.

I have a question, a follow-up on Brazil and basically in the context of also what is happening in Europe. As I understood it, you held up market share in Brazil this quarter, but do you see this 50% shipment growth that one of your competitor indicated early this week as a leading indicator of heavier competitive activity in the future as opposed to now? And in the context of the need of upping reinvestment in Brazil, I would like to bring up this issue of Europe where you had seen negative pricing pressure for 3 years. Is this because of your home care business, which is low in terms of strategically and financially in your ranking? And if that's the case, should you consider doing something more drastic in Europe, maybe divesting home care, if that's the core of why pricing has been negative for so long?

Okay, Javier. Well, let me take your 1 question in the 2 parts it was asked, starting with Europe. At first, we were pleased with the organic growth we got in Europe, albeit volume-driven in the fourth quarter. Secondly, the -- a pricing negative relates to the European environment and has been that way for the same years you quoted. It is not especially oriented towards our home care business. You may recall that when we talked about our global growth and efficiency program, we very specifically said that we were in a world where growth rates in our categories was going to be driven by the emerging markets in those high single digits, low double digits ranges. And that the category growth rates in the developed world would be low single digits, and in Europe, definitely low single digits. And that therefore, that we wanted to go forward and lower the structural costs in our company that would increase our speed and efficiency and strengthen us for the longer term with these concepts, both hubs, Colgate business, service centers and, of course, more facility rationalization. And you will remember that one of the first announcements we had relative to that program was indeed relative to Europe. So I think we've been attentive to the world that we are living in. We like our businesses. We don't think we have a business problem, and we are trying to create structures that will make us strong, not just today, but for the medium term. Now relative to Brazil and 50% volume numbers, I seem to recall over the last 3 to 4 years, there have been quite a few plus 30, plus 22 types of volume numbers quoted. And our reaction would be you can see the market shares. We see the competitive activity in the country, and I think we have demonstrated, over the last several years, an ability to meet that competitive activity. We have said that over that period, a lot of it was price promotion-related. The latest entry now gives competition to the Luminous offering that we had in the marketplace already at pretty strong share levels, and you will continue to see our innovation at play in Brazil and other countries as we work our way through 2013.

And we'll take our next question from Jason Gere with RBC Capital Markets.

I just want to, I guess, go back to the organic sales question, just some of the, I think, numbers that you threw out there. You talked about the innovation, I think, being 7% or so this year. Is that right?

Yes. 7% to 8% sales for the year.

Okay. So then with the 6% to 7%, I guess I just want to talk about the pricing element, like how you look at pricing this year relative to some of the maybe incremental promotion out there and then put into context when you look at last year the pricing that came through. Because half of that 6% organic sales was price, what was the kind of impact that you saw on volumes? I'm just trying to reconcile the numbers to get comfort with that 6% to 7% that you've laid out.

Yes, I think, Jason, as we think about pricing, again, take the more strategic perspective. We called out back-to-school 2 areas that we were going to, over time, build competence in. One was pricing and the other was analytics. And to a certain extent, they go hand-in-hand. And we have definitely been focused on that and trying to find the right balance between pricing and volume. So this year, as you say, it's been about half and half price and volume in terms of that 6% organic growth. Next year, we are looking at pricing that's going to be in the 1.5% to 2.5% range, reflecting our capability in that area. About 1/3 of that is going to be rollover pricing from 2012. The balance will then be a volume and, again, back to the reasons for the confidence in the volume, the turnaround of Hill's from a negative volume to a positive volume business and the growth we have in the emerging market and the innovation stream that we have behind our businesses. So this is built up from the ground up, and we feel reasonably comfortable with where the plan sits.

And we'll take our next question from Bill Schmitz with Deutsche Bank.

Can we get some more color on sort of the mechanics of the restructuring program, like when the savings are going to come through, where the big buckets are? Maybe I missed over the last few months, but maybe great to just get some color on sort of if you got anything to date and when you're going to see sort of the big uptick in the savings.

Yes, well, the -- I think we spelled out the savings we were expecting this year and the onetime charges we were expecting this year, so savings in the $30 million to $40 million after-tax range and onetime charges for this year in the $185 million to $220 million, this year being 2013. So that's what we are looking at. Now the buckets, I think of the buckets that we frame the program with when we started. They will be this notion of "hubbing" or they are operating units around the world so that smaller operations can benefit from greater capability in the hub center, the Colgate business services center that we have talked about for quite some time out of Warsaw in terms of the operating efficiency and related savings that you get with that and the rationalization of our facilities, largely manufacturing, which you started to hear about in Europe a little bit earlier. And in terms of the timing of the savings for 2013, as Bina said, as you would expect, it will come more normatively towards the back half of the year. And so by deduction, you can see that the majority of the savings will come in the out years, and we will talk about progress on those out years as they become concrete.

And our next question comes from Christopher Ferrara with Bank of America.

Ian, can you talk, I guess, a little bit about the innovation stream? I guess one of the things that I think some investors are a little bit concerned about is just the ability to lap what look like a pretty aggressive new product flow in 2012. And I think you had a number of what you might describe as platforms like Optic White and Luminous White that really impacted '12. So as you move to '13, that 6% to 7% organic growth rate, obviously, that's a big number considering the innovation pipeline last year. So I guess can you talk a little bit about, a, what does that pipeline look like in '13 relative to '12 with respect to your number of kind of big hit innovations? And I guess put that in the context of what your growth rate looks like.

Yes, well, again, this year, we delivered around 6% organic growth. And next year, we're talking about the same 6% to 7% range that we had for this year. And as I mentioned earlier, we expect innovation to deliver about 7% to 8% of the sales in 2013. We think the pipeline is strong. Unfortunately, for the question you're asking, some of the products that are coming to market have not yet been announced, and it would be remiss of me to provide competitive advantage. But we have a very good, we believe, process in place from an innovation point of view. We have talked about it many times. We have external linkages. We have innovation centers around the world. We have long-term innovation groups. We have a strategic group that needs to try and accelerate capital investments and other investments that might be required to accelerate an innovation. And we have even done some of these rapid innovation models as we have talked before in some of our emerging markets to identify innovations that are directly for those categories. So we think we have a process in place that will give us an innovation stream as productive as 2012. And remember, in that organic growth for 2013, the innovation that is now coming to market from Hill's is going to, we believe, turn that business positive from a volume point of view. And, of course, that's an important factor not to forget either.

And our next question comes from Alice Longley with Buckingham Research.

You might have answered this at the beginning of the call, but if we look at margins in Latin America and Asia, in both those regions, they were down year-over-year, while they were up a lot in the U.S. and Europe. The first question is about in the emerging regions. If you were to take Venezuela out, I know you commented on the gross margins, but would operating margins have been up and the same is true for Asia, Africa or similar questions. With competition rising, do you expect margins to go up or down ahead in those 2 regions?

We don't comment going forward, Alice, on operating margins. Clearly, given what we said on the gross margin, the operating margin in Latin America would have been higher in the fourth quarter of 2012, had it not been for Venezuela. So that is indeed true. And, again, for 2013, we have said that we plan for our gross margin to increase by 50 to 100 basis points, and we have reaffirmed the top line at 6% to 7% organic and the bottom line at 10% on a dollar basis, x a significant deval or macroeconomic event. So that's where we are on the margin. We were very pleased with the pricing we've been able to get relative to margin. And, obviously, in the U.S., you have the comparison between the fourth quarter of 2011 when we were investing at very elevated levels to introduce Optic White from where we are this year, with that innovation still driving share growth in the U.S., I would add.

And our next question comes from Lauren Lieberman with Barclays.

[indiscernible] has the gross margin buildup for the quarter, you could go through that?

I thought you'd never ask. So if you take the fourth quarter, we have the prior year gross profit at 57.7%. Pricing added 0.9 point. Our Funding the gross savings came in strongly at plus 2.8 points, 280 basis points higher than prior year, although 2012 followed the same profile as last year. And material prices were a negative 2.9 percentage points, and the majority of that was the operating costs in Venezuela, as we have said earlier. So with no other changes, then that roll forward therefore gets you to the 58.6% in the fourth quarter.

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

I have a housekeeping question and then a real one. What's the normalized contribution in Venezuela to sales and earnings? So if here you would exclude the fourth quarter disruption. And then could you also explain the big increase in North American operating margin? Is it sustainable or were there some onetime factors that caused it to go up as much as it did?

Yes. Let me take your second point first. The operating margin, as I said, in North America was a reflection of the fact that in the fourth quarter of 2011, we had very elevated investment behind the launch of Optic White, and of course, we didn't cycle that this year. I wouldn't project out at the fourth quarter level in North America going forward. Now relative to your second question, I think we said, Connie, that Venezuela represents about 5% of our sales, and that is what we provide.

And our next question comes from Caroline Levy with CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: I just want to understand. Ian, if you could help. What has -- what took you by surprise in Venezuela? Because I do get the sense that you weren't expecting quite as severe volume hit or cost hit. And what has changed as you look at the first quarter?

I guess there was incredible uncertainty after the election and in the lead-up to the inauguration. But I would say the biggest factor was the labor slowdown in our facilities, and that was something that took us time in conjunction with our local management, in conjunction with our workforce and with support, as I said, from government -- appropriate government ministries. And we have resolved the labor slowdown that we had basically in the November, December months. And in January, as I said a little bit earlier, our factory in Venezuela, where we make about 85% of what we sell, is back up running at normal historical levels. And, of course, the sales have bounced back meaningfully from the November, December levels of last year as we have product to supply the market. So it really was that, and the correction is as I laid out. And I think if you read some of the general press, as we have tried to say in our release, I don't think that was -- at that particular period, was a situation unique to Colgate, but that really was the issue.

And our next question comes from Alec Patterson with RCM.

Ian, just quickly, I was curious. The interest expense, sort of the cost of financing initiative that you talked about earlier, if you do unfortunately have a Venezuelan devaluation, would that dramatically change the ability to generate strong interest income?

Yes, many things would be affected. I think, Alec, that would.

And our next question comes from Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: One quick question and then a follow-up to that. Double-digit earnings growth, is that still 10%- to 11%-type range?

Yes. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then the follow-up. So I'm just trying to reconcile 6% to 7% sales growth to that number. So...

Yes, sales growth, yes. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: Right. So benefits from 3 restructuring programs, budgeting oil last time at $110. So obviously, it's lower than that, the interest expense benefit share repurchase. I guess where are the incremental spend or where's the incremental spend going? If you could maybe help us sort of reconcile those 2 numbers, the sales to earnings, that will be helpful.

If you're trying to get at the top line, where is the incremental spend going to drive the 6% to 7% top line, well, it's going into commercial spending, which is to say spending we do directly with retailers. It's going into traditional advertising. It's going into innovation. It's going into overhead of SG&A because we will, in some locations, be strengthening our on-the-ground capability. So it really is geography- and project-specific. Yes. And so that's where it's going, but remember that the restructuring savings in 2013 are in that $30 million to $40 million after-tax. So it's a relatively modest number compared to what has yet to come.

That does conclude today's question-and-answer session. I'll now turn the conference back over to our speakers for any closing remarks.

Well, thanks for your questions. Thanks for joining us, always a pleasure. And a particular big thank you to the Colgate folks who may be listening or read the transcript who actually make all this happen. And particularly, thanks to our folks in Venezuela. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation.