Colgate-Palmoliv (CL)

Q2 2010 Earnings Call

July 29, 2010 11:00 am ET


Ian Cook - Chairman, Chief Executive Officer and President

Bina Thompson - Vice President of Investor Relations


Alice Beebe Longley

Edward Kelly - Crédit Suisse AG

Constance Maneaty - BMO Capital Markets U.S.

Lauren Lieberman - Barclays Capital

William Chappell - SunTrust Robinson Humphrey Capital Markets

Mark Astrachan - Stifel, Nicolaus & Co., Inc.

John Faucher - JP Morgan Chase & Co

Ali Dibadj - Bernstein Research

Joseph Altobello - Oppenheimer & Co. Inc.

Michael Kwon

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets Corporation

Douglas Lane - Jefferies & Company, Inc.

John McMillin - Prudential Equity

Jon Andersen - William Blair & Company L.L.C.

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Weiser - Caris & Company

Christopher Ferrara - BofA Merrill Lynch



Good day, and welcome to today's Colgate-Palmolive Company Second Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time for opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead, ma'am.

Bina Thompson

Thank you, David and good morning, everybody. And welcome to our second quarter 2010 earnings release conference call. With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Elaine Paik, Treasurer.

This conference call will include forward-looking statements. These statements were made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements. For information about certain factors that could cause such differences, investors should consult our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions, Risk Factors and Cautionary Statements on Forward-looking Statements. And we'll discuss our results and outlook, excluding the one-time charge of $271 million related to the transition to hyper-inflationary accounting in Venezuela as of January 1, 2010. We'll also discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures.

A full reconciliation with the corresponding GAAP measures is included in the press release, and it's posted on the Investor Relations page of our website at We'll be glad to answer any questions you may have including or excluding these items, as you wish.

We are pleased that we continue to deliver solid results despite slowly growing economies in many parts of the world of foreign exchange headwinds and continuing challenges in Venezuela. These factors obviously affected our top line growth with organic sales up 3.5%. Pleasingly, we are still seeing stronger growth in developing markets. Our gross profit margin was flat year-over-year and was significantly affected by Venezuela, which provided a drag on the total company margin of 90 basis points. A portion of this is the result of pricing actions being less than originally anticipated.

Additionally, gross profit was burdened with higher cost inventory longer than originally projected. Know at the end of last year, we had purchased inventory at parallel market rates, which translated into a higher U.S. dollar costs. And under hyper-inflationary accounting, this inventory is carried at historical cost. So due to slower consumptions, it took longer than previously anticipated to sell-through this higher cost inventory.

Going forward, inventory values are now at lower U.S. dollar replacement cost and coupled with more favorable pricing, gross profit margins started to improve at the end of the second quarter and are expected to be higher for the balance of the year. The company, as a whole, gross profit margins in the third and fourth quarter are expected to be up around 50 basis points year-over-year.

As you read in the press release, advertising was up modestly in the second quarter. And you'll hear in a moment how that has helped increase market shares in countries around the world. You know that our shopper marketing initiatives are an integral part of our marketing communications strategy worldwide. This includes effective in-store merchandising and promotional activity in instances where many purchase decisions are made at the shelf. Accordingly, in developed markets, our commercial investments skews more heavily to this type of trade promotions, and therefore, it's reflective in negative pricing rather than advertising reported in the P&L.

World-wide overhead was down as a percent of sales, reflecting our relentless focus on generating savings on every line of the P&L. Our cash generation was good, and our balance sheet remains strong, with both receivable and inventory days trending down. So a solid quarter in the face of world-wide challenges that we and all our competitors are facing.

Let's turn to the division. North America. We're pleased with our 5% volume growth in North America, particularly in what has continued to be a highly competitive marketplace. We've launched a number of new products throughout the year and supported them with very effective in-store activity as part of our overall integrated marketing campaign.

Our excellent toothbrush share was referenced in the press release. As you know, our Colgate 360° Toothbrush has been a success in each of its markets around the world. Since launching the first brush here in the U.S., we've added 360° Sensitive, 360° Deep Clean, and this year, 360° ActiFlex, all of which have added incremental share and have nearly doubled the share for the franchise in 2006. It's now over 10.5%. Also our Wisp Toothbrush continues to perform well.

Wisp Plus Whitening was launched in March of this year, and the buzz and PR for the Wisp franchise continues with over 15 million impressions in the second quarter, including articles in Fitness and InStyle magazines and mentions on The View and numerous blogs. College sampling also has driven awareness along with brand ambassadors on campuses and a Facebook fan drive. As a result, trial and repeat levels continue to climb. We often told you about our ability as a global oral care leader to share best practices and ideas around the world.

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