Colgate-Palmolive Company Second Quarter 2014 Earnings Release Conference Call Prepared Remarks Thursday, July 31, 2014

Transcription

1 Colgate-Palmolive Company Second Quarter 2014 Earnings Release Conference Call Prepared Remarks Thursday, July 31, 2014 Cautionary Statement on Forward-Looking Statements and Non-GAAP Financial Measures Today s conference call will include forward-looking statements. These statements are made on the basis of the Company s 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 the Company s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on the Company s 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 the Company s results prepared in accordance with GAAP. The Company will discuss organic sales growth, which is net sales growth excluding foreign exchange, acquisitions and divestitures. The Company will also discuss gross profit, gross profit margin, SG&A as a percent of Net sales, operating profit, operating profit margin, net income and earnings per share on a diluted basis excluding the impact of the items described in the press release. A full reconciliation with the corresponding GAAP measures is included in the press release and is posted in the For Investors section of the Company s website at Prepared Remarks Good morning and welcome to our second quarter 2014 earnings conference call. With me this morning are Ian Cook, President, Chairman and CEO, Dennis Hickey, CFO, Victoria Dolan, Corporate Controller, and Elaine Paik, Treasurer. We are happy to report another quarter of good organic sales growth with every division participating. Consistent with other companies in our industry, we are facing increased macroeconomic pressure in certain areas of the world. Category growth has slowed somewhat in geographies such as Asia, a factor which we referenced last quarter. On the other hand, we see some encouraging signs of slow recovery in some European markets. Competition remains healthy and promotional battles continue. However, our new product pipeline is as full as ever and our commercial investment behind our launches has increased worldwide, a careful balance between media spending and in-store activity. This has resulted in solid market shares, growing in many categories and geographies and showing positive trends in the most recent periods. Our Global Growth and Efficiency Program is on track and savings from that are supplementing our ongoing Funding the Growth initiatives, which are as healthy as ever. Both of these contributed to our 20 basis point increase in gross margin. Offsetting those savings were increases in raw and packaging material costs as well as continued foreign currency transaction pressure. 1

2 Our three business service centers around the world are now up and running in Warsaw, Mexico City and Mumbai. The hubbing activities are complete in Europe and are well underway elsewhere in the world, which will make us even more nimble and effective winning on the ground. And of course our balance sheet is strong and cash generation solid. So let s turn to the divisions. North America Organic sales growth in North America was modest. The volume growth of 2.5% was of course on top of a very robust increase in the year ago quarter of 6% reflecting the initial launch of Colgate Total mouthwash. We have an exciting innovation launching as we speak, which I will discuss in a moment. Pleasingly, versus the second quarter of 2013, our 2014 second quarter shares increased in toothpaste, toothbrushes, deodorants, body wash and fabric conditioners and our mouthwash share held steady at about 6.5 percent. Trial and repeat numbers for Colgate Total mouthwash are above previous recent competitive launches and the product has been instrumental in driving overall category growth. Our recent launch of Suavitel Fast Dry Fabric Conditioner has also met with success. Our quarterly national share is at a record 18.6%, up 170 basis points versus second quarter And, this is a product which is largely sold in Hispanic markets where it holds a 36.2% share on a year-to-date basis, fast closing the gap between us and the leading competitor. So, looking ahead, our latest toothpaste innovation here in the U.S. is Colgate Enamel Health Toothpaste. The enamel strengthening segment is the fastest growing in the toothpaste category with 54% of consumers concerned about enamel. This new product replenishes natural calcium and other minerals back into weakened enamel, filling in rough spots while, at the same time, polishing the enamel surface so germs are less likely to stick on the teeth. The formula has an active fluoride system along with gentle-on-enamel silica and the product comes in two variants, whitening and sensitivity relief. In addition, the impactful packaging is interactive with a touch and feel demo showing acid softened rough enamel and healthy smooth enamel. As you would imagine, we have a very robust integrated marketing campaign planned including television, print, public relations, professional, digital, social, mobile and in-store activities. Europe/South Pacific We are very encouraged with our progress in Europe and are cautiously optimistic that some of the macroeconomic headwinds we have been facing are beginning to die down. Our organic sales growth of 2.5% reflects the balance between volume and price where we have had strong promotional activities across the region to support new product launches. And this has paid off in terms of market share. Our oral care shares are strong across the category and showing good momentum. 2

3 In toothpaste, our year-to-date market share is at 35.2%, up 70 basis points from the year ago period, with the most recent share at 35.4%. Of particular note is the UK where, despite an ongoing competitive battle, our year-to-date share is just shy of 50%, up a full point, with the most recent read over 51%, a record high. In manual toothbrushes, our year-to-date regional share is up 90 basis points to 23.5% with the most recent read at 24%, consolidating our number one position. This was in part fueled by excellent progress in the UK where we have achieved a record 37.5% share year to date. And in mouthwash our share is up ten basis points to 16.4% on a year-to-date basis with the most recent read at 16.9%. We re very excited about the launch of Colgate Maximum Cavity Protection with Sugar Acid Neutralizer across Europe and South Pacific. First quarter launches in Australia and Norway have achieved 3.7% and 3.5% shares, respectively, in the most recent period. We have only just launched in the UK, where, as I mentioned, we are reaching record market share levels, and will introduce the product across the rest of Europe in the balance of the year. In Germany, where our share is up 140 basis points to 41.2%, on a year-to-date basis, we have launched it under the Elmex brand. More new products are planned for the second half of this year as well. We will continue the roll out of Colgate Max White One Optic. Whitening is the second biggest segment in toothpaste in Europe and we hold the number one position. Similarly, in manual toothbrushes, we will continue the roll out of Colgate Slim Soft Charcoal toothbrush, a product which, as you know, was developed in Asia but has met with great success in other parts of the world. An innovation in the mouthwash category is Colgate Plax Deep Clean mouthwash, which provides a deep effective clean, even in hard to reach areas. The product contains two natural ingredients, eucalyptol and propolis, that are well known to the consumer. Eucalyptol is known for cooling and antibacterial properties and propolis for its protective properties. Latin America We are very pleased with the continued strong organic sales growth in this region. This growth was broadly based. One exception was Brazil, where consumers were glued to their televisions during the World Cup and not spending time in stores, a temporary condition which we expect should reverse itself in the second half of this year. Market shares continue to climb. In the press release we cited record toothpaste shares in a number of countries. Our year-to-date manual toothbrush shares also achieved record highs in Brazil, Chile, Peru, Puerto Rico and Uruguay. In Brazil, Colgate Maximum Cavity Protection with Sugar Acid Neutralizer toothpaste has achieved a 2.3% share year to date, lifting our overall share to a record 71.9%. In Mexico, our toothpaste share has been over 80% for the last three months. While we don t have readings yet in national Nielsen shares, Colgate Maximum Cavity Protection with Sugar Acid Neutralizer toothpaste has registered a three point share in Scantrak. 3

4 As in other regions around the world, the launch of Colgate Slim Soft toothbrush has met with success in Latin America. In Brazil, our share is up 80 basis points to 32.8% year to date on the strength of both Colgate 360 and Colgate Slim Soft, both of which are super premium priced, helping to increase margins. In Mexico, our manual toothbrush leadership share climbed to a record 44.9% in the most recent period. Our mouthwash share across the region is up 30 basis points to 36.3% while our principal competitor is down almost a full point to 38.8%. In the personal care category, we have increased our underarm share in Mexico as a result of new products such as Men s and Lady Speedstick Stress. We are now the leader in bar soaps across Latin America with Protex and Palmolive holding the number one and two positions, respectively. And in fabric conditioners, our regional share is up over two points to 50.8% year to date, with the most recent read at 51%. More innovation is planned for the second half. During the third quarter, we will be launching Colgate Total Professional Breath Health toothpaste. Dentists advise their patients that bad breath can be caused not just by food odors, but also by the accumulation of bacteria in the mouth. This breath freshening toothpaste formula, with breakthrough Neutro-Odor Technology, is scientifically proven to fight and neutralize bad breath causing bacteria. Next month we are introducing Colgate Luminous White Instant toothpaste. Its exclusive formula with optic brighteners activates while you brush for a visibly whiter smile instantly. In the personal care category, this month we are launching Lady Speed Stick Aclarado Perfecto with Vitamin E. Its formula, with Vitamin E and Pearl extract, was perceived in a consumer test to help restore the skin s natural tone while also providing sweat protection for up to 48 hours. Asia While organic sales growth in this region slowed from the first quarter pace, this quarter was compared to the strongest quarter of last year which saw organic sales growth at a very strong 13%. Macroeconomic factors in China affected our results. We told you on our last call about some categories slowing and in fact that did happen. However, as referenced in the press release, we continued to see strong growth in other countries in the region such as India. And innovation continues to help drive market share increases. In toothpaste, our market share in India is up 70 basis points on a year-to-date basis to 54.8% with the most recent period at 55.1%, and this in the face of recent competitive entries. A revitalization of Colgate Active Salt, a toothpaste with a unique salt formula that gives a deep clean feeling and helps fight germs for strong teeth and healthy gums, helped drive these results. In Malaysia our share increased 50 basis points to 73.5% year to date with the most recent read at 74.5%. This was our first Asian market to launch Colgate Maximum Cavity Protection with Sugar Acid Neutralizer toothpaste. In just six months it has achieved almost a four percent share of the market. 4

5 Our toothbrush share across the division is up to 30.6% year to date, fueled by increases in India, Thailand, Philippines, Malaysia, Singapore and Taiwan. In India, new products such as Colgate Super Flexi have resulted in an increase of 240 basis points to 43.5% year to date with the most recent read at 43.7%. Our mouthwash business is solid as well with a regional share year to date of 21.8%, up 110 basis points. Colgate Plax Jasmine Tea, a mouthwash which provides long-lasting fresh breath with a pleasant jasmine tea flavor, has contributed to very good results in Thailand and the Philippines, where total mouthwash shares are up year over year 170 basis points and 380 basis points, respectively. Colgate Plax Herbal Salt mouthwash, which was launched in Malaysia and Singapore and contributed 80 basis points and 250 basis points, respectively, in the initial read, will launch in India as Colgate Plax Active Salt during the fourth quarter. As you may know, the Indian consumer habit is to rinse one s mouth with salt water so this innovation should resonate well in this market. Of course, more innovation is planned for the second half of this year. We will continue to roll out Colgate Maximum Cavity Protection with Sugar Acid Neutralizer toothpaste. In China, we will be launching Colgate Tea Health toothpaste, which provides refreshing breath with a pleasant longjing tea flavor. Longjing is a popular and premium type of tea in China which is associated with multiple types of benefits including healthy teeth and refreshing breath. We will also be launching the Colgate HD1 toothbrush with seven way cleaning with the following benefits: cleans teeth surface, removes bacteria, is gentle on gums, cleans in between the teeth, absorbs brushing pressure and is easy to maneuver. And, in Thailand, we will be launching Colgate Plax Tartar Control mouthwash, an exciting addition to our strong mouthwash portfolio in that country. This mouthwash provides the dual benefit of tartar control and breath freshening all at once. Africa/Eurasia We are encouraged with the continued solid organic sales growth in this region. Of particular note was Russia where, despite an uncertain political and macroeconomic environment, new products such as Colgate Altai Herbs toothpaste, Colgate Total Interdental toothpaste and Colgate Optic White Instant toothpaste helped drive strong growth. Toothpaste and toothbrush shares remain solid across the region. Innovation in the mouthwash category has delivered good share results. In Russia, we told you last quarter about Colgate Altai Herbs mouthwash which contains an ingredient well known to the local consumer a companion product to the previously mentioned toothpaste. Our mouthwash share in Russia is up year to date 170 basis points to 27.5%. In Turkey, our newly launched Colgate Plax Green mouthwash has resulted in a market share increase of 120 basis points to 20.5% year to date. We are also very pleased with the continued success in our shower gel business across the region where we hold a leadership position of 22% - up almost two full points year over year. Palmolive Gourmet Spa has driven increases of 220 basis points and 400 basis points in Russia and Turkey, respectively, and the recent launch of Palmolive Thermal Skin Renewal resulted in an increase of five points in South Africa. 5

6 More innovation is planned for the third quarter. In the Eurasian markets we are introducing Colgate Total Pro Whitening toothpaste. Here, as elsewhere, the premium priced whitening segment is very important to the overall toothpaste category. In Russia, consumers believe in the power of natural ingredients and traditional recipes to improve oral health. Accordingly, we are launching the Colgate Natural Extracts toothbrush containing pine tree bristles with premium, differentiated and impactful packaging designed to stand out on shelf. As I mentioned earlier, our Palmolive Gourmet Spa line of shower gels has been very successful. We hope to build on that success with two new variants to be added to the existing chocolate, vanilla and strawberry. The new creamy coffee and peach sorbet variants are infused with natural extracts and their creamy formulas smooth the skin. As you would expect, we will have a very strong integrated marketing campaign to support this launch. Hill s Hill s business continues to be solid. General softness in pet super stores has been affecting us and others as well here in the U.S. However, we are encouraged by our continued stream of innovation which we expect to drive growth going forward. Our roll out of Hill s Ideal Balance continues to meet with success. Here in the U.S. our share of the naturals category continues to grow. In addition to the regular Ideal Balance, we launched Ideal Balance Slim & Healthy in the second quarter for both dogs and cats. Support activities included features in coupon brochure handouts, brand ambassador coupons and nutritional consultant coupons. In Europe, we launched in the UK and Germany in April and May, respectively. So far we have seen very good trade acceptance with listing in the major accounts supported by promotional activities as well as secondary placements. In the store, we activated with branded gondola ends, demonstrators in key accounts and indoor and outdoor posters and point of sale materials. In addition, we featured the product at consumer pet shows and through testimonial campaigns. On the therapeutic side of the business our 2013 launch of Prescription Diet Metabolic continues to do well both here and abroad. In the U.S., our sales are exceeding our expectations. Our commercial support includes before and after imagery along with videos online. This quarter, we have globally launched an antioxidant upgrade to the product. In Greater Europe, we have widened the gap between our nearest competitor from two points to eight establishing a clear leadership share of 47% year to date in the weight category. Another important therapeutic category is feline urinary, a category where we were underrepresented until the launch of Prescription Diet CD. New platforms such as Efficacy, Stress, Ocean Fish and Stew were added in the second quarter here in the U.S., all supported with inclinic sampling and messaging at professional conferences. Similar activities in Europe have resulted in a 130 basis point increase in our share of the category to almost 30% year to date. Looking forward, this quarter we will continue the roll out of Ideal Balance Slim & Healthy and Science Diet Perfect Weight, our new wellness weight loss products, in markets outside the U.S. For the fourth quarter we have more exciting news which we will share with you soon. 6

7 Summary So in summary, we are pleased that we continue to drive organic sales around the world with good bottom line growth. Our new product pipeline is as full as ever and our market shares are healthy and growing in many regions. Our savings programs are on track and our clearly focused strategies continue to deliver results. Colgate people everywhere are working hard to keep us winning on the ground. We look forward to sharing our results with you as we go forward through the balance of the year. 7