Colgate-Palmolive Company — 2024 Q1

Great. Thanks, Steve. I'd come back to the points I made in my upfront comments around balanced organic sales growth. I mean we're getting really good quality coming through on the volume line. You saw the 1.3. That was with the headwind of private label that we're obviously exiting on the Hill's business. and strong pricing across the board, mid-single-digit pricing ex the impact of Argentina. And as you point out, we're seeing nice share growth consistently around the world that's driving obviously that top line organic growth and the top line sales growth. But we're most pleased with, I think, is the balance we're getting both on volume and price. We're able to still get pricing, not just inflationary pricing, but we still have pricing going through the categories, particularly in some of the markets where we've had more inflationary impact from raw materials.

Robert Ottenstein here. Noel, let's kind of maybe do a deep dive on Oral Care. Can you talk a little bit about the market share trends by region? And more -- a little bit more specifically, are you gaining share more from other international players that may have more similar type of products or local players that are maybe more idiosyncratic? And what are the key drivers to the share growth. Is it more the fact that you're increasing share of voice? Or are there particular product areas like whitening that are really engaging consumers now more than they did in the past.

Yes. Thanks, Rob. It's a little bit of all of what you've just said. So overall, really pleased with the growth and the acceleration of market shares globally. You saw that -- in the prepared remarks. You saw that in some of the slides that we provided, particularly on the Whitening segment. And it's really a function of the strategy that we've been executing for the last couple of years and really starting to see the fruits of all that effort.

Great. Let me talk about more conceptually strategically, and I'll let Stan handle some of the more specifics on your question. So overall, as we think about the year unfolding, as we've talked about, I think, quite consistently, we'll see pricing start to ladder down as we move through the balance of the year, although we will get inflationary pricing, we still have some pricing that we're taking in some markets.

Yes. So I'd pick up that -- look, we're very pleased with the margin performance in Q1, up 310 basis points year-to-year and improved sequentially. We had a slight benefit from Argentina, but the overall underlying margin improvement was quite good. We've guided for margin expansion for the year, and we're confident we can deliver. There's a couple of headwinds in here and tailwinds. We talked about the modest raw material inflation, as you've heard from others as well. We expect that will slightly escalate as we go through the year.

So as we said in the prepared remarks, really pleased with the performance at Hill's in the quarter in what's a pretty tough operating environment. Volume was closer to flat ex the impact of private label and that was sequentially up, which is good. And we had very good pricing, as we discussed, coming out of the year in 2023 and our need to continue to offset some of the agricultural inflation that we saw in the back half of '23 moving into '24.

The only thing I'd add there is that the investment in capacity has also enabled us to bring in some product that was being co-manufactured before, which improves reliability and delivery and also will improve our margins over time.

And to your point on, Filippo, on wet, obviously, there's some opportunities for us as we're very low indexed in wet. And particularly in segments like cat, where there's a lot of wet food consumed, we have an opportunity to leverage the new manufacturing that we have and get more formulas into the market and obviously, more growth for the business.

Yes. I think as we've talked about, thanks for the question, the consumer has been quite constructive. I mean, we've seen obviously the significant inflation move through the category over the last year. We expected that we would see a return to volume growth as inflation became more benign and as pricing started to stabilize in the categories, and that's principally what's happened. Interesting to note that as you take the aggregate of our categories, by and large, the categories are still negative. So the volume growth that we had and delivered in the quarter, which suggests obviously, that we're growing good volume share. And I think that's a reflection of the broad-based strategy that we're deploying.

Yes. Thanks, Bonnie. I'll start with the end of your question, which is we're seeing terrific ROI in the business. And I think that's translated into the results in the quarter. Obviously, good volume growth, helping to -- certainly above the category, share growth pretty consistently around the world in both value and volume. We're seeing our premium innovations take share, and we're obviously spending a disproportionate amount of our advertising to drive premiumization and category value.

I wanted to ask you a little bit about your organic sales guide for the rest of the year. Obviously, contextually understand why you wouldn't flow the 10 points continuing. But why would organic sales decelerate as the comp fees? Presumably, you're getting more pricing? Clearly, we understand that this is a very dynamic environment, but would love to get a little bit more color in terms of your expectations for the rest of the year because it sounds like you're very bullish on innovation, on pricing capabilities, and volume acceleration, et cetera. I would appreciate a little bit more color there.

Sure. Thanks, Olivia. So clearly, some of the comps get more difficult as we go through the year to go. We took obviously a lot of pricing. We'll see that pricing become more benign or slow in the back half of the year that will -- to be determined how much of that comes back into volume. The good news is the first quarter and some of the success that we saw in the fourth quarter, give us confidence that the volume is returning as we expected. The elasticities are in line with as we expected.

Sure. Thanks for the question. Let me take the North America and then I'll let Stan jump into some of your questions around gross profit. Overall, the strategy in North America that we're executing, we feel good about it. We've been very focused, as we've talked about before on improving the middle of the P&L, getting gross margins back to where they needed to get to, getting operating margins where they need to get back to and reinvesting that into the business in order to drive market shares.

And Chris, your question on the sequential margin improvement, first of all, I'm pleased with that sequential margin improvement. Argentina was a little bit less of a headwind. And as you watch that FX, it's been very volatile. We've taken actions to address it, including sourcing changes, pricing changes et cetera. And then the team candidly executed really well.

Yes. Thanks, Lauren. A great quarter for Europe. And again, a terrific execution from the team on the ground. Overall, really, really strong with growth across the vast majority of our business, and it wasn't just Oral Care, it was pretty broad-based. And obviously, as you saw, volumes inflected positively given that we're still getting pricing in the category.

Yes. Bryan, thanks for the question. So first, we're pleased with the cash flow performance, a really solid start for the quarter. We're down a little bit year-over-year, but I remind you, last year was a terrific cash quarter, and this was really driven by receivables, which were impacted by the timing of Easter. In fact, we've looked at the first couple of days of the quarter and that collection period completely brought DSO back in line. So we're very comfortable with that.

Yes, Bryan, the only thing I would add is, again, picking up on the theme of flexibility, it's not only flexibility throughout the P&L, but it's having a really strong balance sheet that gives us the flexibility to deploy capital as we see the best return on that investment. And I give Stan and the finance organization huge credit and the discipline that they're bringing around the world to ensure that the cash generation continues to be robust.

Yes. Thanks. So again, we've been talking about that for quite some time, and that has been, I think, a reflection of the strategy that we've talked about for 3 years, which is core adjacencies and channels and getting back to real focus and understanding the consumer journey across all of the markets in which we compete has been fundamental to making sure that we have strategies to capture and deploy our investments in areas where we think we're going to get the best return for that.

Yes. Thanks, Brett. What's interesting is you're seeing -- I think you're hearing that a lot of the competitive set has focused on building healthy category growth, and that's two ways: one, with increased media investment and the second is with increased innovation. We have not seen a fundamental shift around the world to more volume sold on promotion. It's still below where we were pre-COVID. Now as volume becomes the important aspect here, you may see some players move to that strategy of doing more promotions. But overall, the category has been very constructive in terms of big players spending money on media, driving value to the categories through innovation, and offerings that are differentiated in the marketplace. And so it's incumbent upon us to ensure that our innovations continue to drive real value to the category and the differentiation in a very competitive market and making sure that we're using the analytics and the data that we have to drive balanced promotional strategies in the categories.

Just a kind of follow-up on Latin America. So given the strong organic sales growth in the last few quarters, what should we expect going forward? I mean, to what extent the consumer is willing to continue to accept meaningful price increases without giving up volumes.

Yes. Again, let me contextualize Latin America. Obviously, a really strong organic sales growth quarter, with and without Argentina, there was good volume growth across every single hub led by Brazil, which was up double digits. If I take the last 4 quarters of Latin America in terms of volume, 0.5, 5.4, 8, and 6.2. So again, very consistent with what we talked about.

Great. Well, thanks, everyone, for joining the call today. Obviously, we're really pleased with the quarter and how we've gotten off to a strong start that we believe sets us up for continued sustainable growth moving forward and generating that long-term algorithm that we've been talking about for quite some time for our shareholders.