Colgate-Palmolive Management Discusses Q2 2012 Results - Earnings Call Transcript

Colgate-Palmolive (CL)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET

Executives

Bina H. Thompson - Former Vice President of Investor Relations

Ian M. Cook - Chairman, Chief Executive Officer and President

Analysts

Nik Modi - UBS Investment Bank, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

Javier Escalante - Consumer Edge Research, LLC

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Ian Gordon

Joe Lachky - Wells Fargo Securities, LLC, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Jason Gere - RBC Capital Markets, LLC, Research Division

Jon Andersen - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good day, and welcome to today's Colgate-Palmolive Company's Second Quarter 2012 Earnings Conference Call. Today's call is being recorded and is being simulcast live at www.colgatepalmolive.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.

Bina H. Thompson

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.

We will discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures. We will also discuss gross profit, operating profit, net income and earnings per share, excluding the impact of the onetime items described in the press release. 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.colgatepalmolive.com

We're very pleased with our second quarter results, particularly in light of an increasingly unpredictable global economy. Of particular note is our organic sales growth, which was positive in every division and up double-digit in the emerging markets, accelerating from the first quarter's strong pace. The total company organic sales growth of 8% reflected a good balance between volume of 4.5% and price of 3.5%. Our market shares are strong around the world, and our categories are growing. Even in the developed markets, we see category growth, albeit modest. And we believe we have the right strategies and plans in place for 2012 and beyond. As you know, 1 of our 4 strategic initiatives is innovation for growth, and that focus has been one of the key drivers of our top line momentum. You'll hear more about recent launches as well as new products to come when we go through the divisions.

Gross margin increased 50 basis points and continues to be higher than the fourth quarter of last year. The increase was somewhat less than previously anticipated due primarily to higher foreign exchange transaction costs from a rapidly strengthening dollar during the quarter. However, we expect gross margin to increase sequentially in the third and fourth quarter, and to be up within our targeted range of 75 to 125 basis points for the full year. Our increase in margin and control of overheads has allowed us to increase advertising, both absolutely and as a percent of sales, as we told you we would. And with EPS as expected, overall a healthy income statement. Earnings per share increased 6% and was up strong double-digit on a currency-neutral basis. Our balance sheet remains strong, both inventory and receivable days declined year-over-year and our free cash flow before dividends increased 8%.

So then let's turn to the divisions. First, starting with North America. Our business in North America remains solid. Our categories are still growing, and we are growing even faster. Both for the quarter and on a year-to-date basis, our all-outlet market shares are up in toothpaste, manual toothbrushes, liquid hand soaps, bar soaps, body wash, all-purpose cleaners and fabric conditioner. Our strong advertising support behind a broad array of new products has helped drive these results.

We're very pleased with the continued strong performance of Colgate Optic White toothpaste and are very excited about the launch this quarter of Colgate Optic White mouthwash to complete the existing regimen of toothpaste and toothbrush. This mouthwash, our first entry into the U.S. market, effectively whitens teeth and freshens breath. The alcohol-free formula helps prevent -- protect against future stains and reaches hard-to-brush areas. It kills bad breath germs, while being enamel-safe. Reception by the trade has been excellent.

In addition to the mouthwash, we're also launching Colgate Optic White enamel white toothpaste, which fortifies enamel through mineralization for strong teeth while providing a whitening benefit. This bundle addresses a large segment of whitening users and nonusers who fear long-term enamel damage. Enamel variance grew 22% in 2011 and now represent almost 6% of the toothpaste market.

In personal care, in both liquid hand soap and body wash, we are expanding our fragrant footprint with Softsoap Pampered Hands Coconut Lime Foaming Hand Soap and Softsoap Citrus Splash & Berry Fusion body wash. The body washes are created with real fruit extracts and best-in-class, wake-me-up fragrances, along with strong, invigorating graphics to help differentiate the products on the shelf.

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