Colgate-Palmolive Reports Strong Q2 Growth Driven by Innovation and Pricing Strategies

Earnings call: Colgate-Palmolive sees growth in Q2 with innovation drive By Investing.com

Colgate-Palmolive (NYSE: NYSE:CL) has reported a robust second quarter in 2024, marked by a return to mid single-digit volume growth and expanding gross margins. The company's success has been attributed to a balanced organic sales growth across all divisions, driven by innovation, strategic marketing spend, and the scaling of new capabilities, including the use of data analytics and AI tools. Noel Wallace, CEO of Colgate-Palmolive, highlighted the strong performance of the Hill's business and the company's aggressive investment in advertising and international expansion. Despite the challenges of a promotional environment in North America and potential industry deceleration in Europe, Colgate-Palmolive has maintained solid volume growth and market share gains, with plans to continue this trajectory in the latter half of the year. In summary, Colgate-Palmolive's earnings call for Q2 2024 has demonstrated the company's ability to drive growth through innovation, strategic investments, and a focus on premium brands. With a strong performance across various regions and categories, Colgate-Palmolive is positioned to maintain its momentum in the face of global market challenges. Colgate-Palmolive's (NYSE: CL) second quarter performance in 2024 has not only shown resilience but also a strategic foresight in maintaining growth momentum. Here are some insights from InvestingPro that may shed light on the company's financial health and market position: InvestingPro Data indicates that the company has a market capitalization of $81.47 billion, reflecting its significant presence in the industry. The P/E ratio stands at a moderate 31.44, while the adjusted P/E ratio for the last twelve months as of Q1 2024 is slightly lower at 30.43. This suggests that the company is trading at a reasonable valuation relative to its earnings. Moreover, the gross profit margin is an impressive 59.0%, which is in line with the company's reported expanding gross margins and underpins its ability to maintain profitability. An InvestingPro Tip worth noting is that Colgate-Palmolive has raised its dividend for 34 consecutive years, demonstrating a strong commitment to returning value to shareholders. Additionally, the company's stock generally trades with low price volatility, which could be appealing to investors seeking stability in their portfolio. For readers who are interested in a deeper analysis, there are additional InvestingPro Tips available on the platform. The tips could provide further insights into the company's earnings revisions, profitability predictions, and debt levels. To explore these insights, visit https://www.investing.com/pro/CL and use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 11 more InvestingPro Tips available for Colgate-Palmolive, which could be invaluable for making informed investment decisions. Operator: Good morning. Welcome to today's Colgate-Palmolive second quarter 2024 earnings conference call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher. John Faucher: Thanks Drew. Good morning and welcome to our second quarter 2024 earnings release conference call. This is John Faucher. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the second quarter 2024 earnings press release and related prepared materials, and our most recent filings with the SEC including our 2023 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the second quarter 2024 earnings press release and is available on Colgate's website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer, and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q2 results and our 2024 outlook. We will then open it up for Q&A. Noel? Noel Wallace: Thanks John, and thanks for joining us this morning. I look forward to taking your questions in regards to our strong Q2 results. As part of our ambition to deliver consistent compounded earnings growth, we have talked about the importance of driving balanced organic sales growth - all six divisions, all four categories, and with a combination of volume and pricing growth. We have re-vamped our innovation model, leveraged our global strength across price tiers, invested in marketing spend, and scaled new exciting capabilities across the organization, all of which is driving brand health and household penetration. This is particularly important given the pricing we have taken over the past few years. Our return to mid single-digit volume growth this quarter, including growth at both Hill's and Hawley & Hazel highlights some early success from this strategy, and this is well timed. We are returning to strong volume growth as gross margins are expanding, which will drive the incremental gross profit that funds the investment in brands and capabilities while still delivering compelling bottom line growth. We're also using data and analytics tools, including AI, to track the effectiveness of these activities as we look to further optimize the return on our increased spending. This is a topic we'll be discussing more over time. With this combination of increased penetration and the continued success of our revenue growth management strategy, we have the plans in place to drive consistent, balanced top line growth. We combine that with the benefits of operating leverage, productivity and cost discipline to turn that into consistent compounded earnings per share growth. Along with strong cash flow to fund investment, dividends and share repurchases, we believe this leaves us well positioned to drive top tier TSR. Our recent results show the strength and effectiveness as we continue to execute against this strategy, and with that, I'll open it up to questions. Operator: We will now begin the question and answer session. [Operator instructions] The first question today comes from Peter Grom with UBS. Please go ahead. Peter Grom: Thank you Operator, and good morning everyone. Noel, I was hoping you could give us a deeper understanding of the levels of investment and what drives the confidence that the changes you've made over the past several years can sustain this improvement we've seen. Obviously from an outsider perspective, it seems to be working given the market share is in the mid single digit volume growth today, but just as you look ahead, how do you sustain this momentum and continue to build household penetration from here? Thanks. Noel Wallace: So let's get into the heart of the strategy, which I think we've been pretty consistently communicating over the past few years, and that's really getting the middle of that P&L in a place where we could have a lot more flexibility to invest behind the brands. That investment certainly is helping to drive the strong volume performance, but more importantly household penetration, which ultimately drives category growth and market share. It's keeping that flexibility in the middle of the P&L, allowing us to pinpoint the advertising in areas where we see real growth. The international exposure of our business obviously is giving us opportunities to allocate money in regions and areas where we see great growth opportunities, and that was delivered in the quarter with category growth across all of our categories and all of our divisions. Keeping those investment levels where they are, continuing to find ways to drive the effectiveness of that investment likewise is very important. As I've mentioned before and as you saw down at CAGNY, we're using AI and other tools to really drive improved ROI. We're getting much better at our innovation - that's certainly helping drive that consistent growth around the world, and the execution of the strategy, we think is far better than it has been in previous years. Overall, keeping the flex in the middle of the P&L, strong gross margins, and allocating that in areas around the world where we're seeing real opportunities for growth, we think will drive sustained, consistent compounded growth moving forward. Dara Mohsenian: Just wanted to focus on the long term top line growth opportunity in Hill's from here on the volume and pricing side. First, maybe just on volume, you've added a lot of capacity in the last couple of years, you've also got a lot of areas you're still under-penetrated in, in theory internationally - wet foods, small paws, etc., so just some perspective at this point as we look out over the next three to five years, is there incrementality in volume as you pursue these areas more aggressively, and how should we think about that? Then on pricing, obviously you've had very strong penetration increases, market share gains on the Hill's business. In theory, that should support higher pricing over time, but you're also in a category environment with industry trade-down in pet and probably a tough CPG environment in general for pricing, so how should we think about pricing going forward? Can you take consistent pricing, maybe to recapture some of the margin compression if you strip out the higher marketing in recent years, and just how would you juxtapose that sort of internal momentum versus the external environment in terms of your ability to take pricing longer term, looking out over the next few years? Noel Wallace: Thanks Dara. You know, clearly a great quarter for Hill's, a strong performance across the board, quite frankly, and we're particularly pleased with the strong volume in light of the significant pricing we've taken historically. I'll come back and talk about pricing in a moment. But obviously ex-private label, to see the strength of the volume and the pricing move through the P&L is extremely encouraging, particularly given the advertising investment that we've put into the business, which continues to strengthen the brand. I think what's important to call out in the quarter is the real inflection on the margin line, strong gross margin, strong operating margin, and this is a reflection, I think of getting more volume running through the business and obviously seeing the leverage move through the P&L. But if I take a step back again and characterize the marketplace, clearly as we've talked about before, low household awareness and low brand penetration overall of the Hill's business clearly supporting the strong advertising investment, and we're seeing that delivered in the quarter - penetration up, market share's up. We're were one of the fastest growing global brands in some of the pet specialty stores this quarter, so again I think a reflection of the upside potential we still have. When you look at segment opportunities, we've talked about that in the past, obviously wet an area that we're under-indexed in, clearly seeing the ramped up capacity we have in wet delivering better penetration, better growth, better execution in stores as we're getting more wet SKUs on the shelf. That's obviously translating into more upside potential as we consumers obviously shifting into those categories. Overall, we think the balance of the business is where we want it, and we're continuing to invest aggressively to drive that household penetration. You couple that with a really strong innovation pipeline, we see that in the first half of this year and we see that moving into '25 as well, so we think quite frankly the flywheel of the business is working very effectively for us right now. Low penetration, low awareness, we're working on that and getting more effectiveness in our advertising spend, which we're increasing, and importantly getting the gross margins and operating margins back to where we'd like them is allowing for the increased gross margin dollars to invest behind the business. International, likewise - we've talked about the opportunities that we still see globally in the long term to take this brand around the world. We're very focused on the big core markets right now, but long term we see opportunities to expand into new markets. The last I'd say is obviously the mix between Science Diet and Prescription Diet, we saw a good inflection on Prescription Diet this quarter - that's been deliberate, that's been a function of partly due to the capacity expansion that we've had has allowed us to get more diets on the shelf, allowed us to provide more sustained, consistent deliver to the vet professionals on the Prescription Diet business, and we saw a good mix benefit of that in the quarter as well, so overall we're pleased with it. The category is a little soft right now, as you mentioned, as household starts come down, but as we see hopefully the U.S. economy starting to show some vibrancy, or at least for a softer landing, we think that will bode well for us. Pricing is an opportunity, given the strength of the brand. We'll continue to take pricing where we have necessity to do that. The good news is we've seen a little bit of flattening on commodity pricing in the Hill's business, which is excellent for us as we get that pricing we've had historically. We've seen the benefit of a more moderate inflationary environment on input costs, and we get more leverage through the P&L as we see the volume come back. So overall, we feel like we're in a good position to sustain that moving forward. Operator: The next question comes from Filippo Falorni with Citi. Please go ahead. Filippo Falorni: Hi, good morning everyone. I wanted to ask about the North America business - great to see the volume return to solid growth, but you also called out a more promotional environment, so maybe one, you can talk about the general promotional environment in your categories from your competitors and private label? Also from a cycling standpoint, I know last year you were cycling lower promotional levels. Is it fair to think that's going to continue in Q3 and then by Q4, you're going to have a more normal comparison from a promotional level? Any color on the balance between pricing and volume in the back half for North America would be helpful, thank you. Noel Wallace: Sure, thank you Filippo. Overall, organic growth in North America was roughly in line with our expectations, albeit more volume, which was really pleasing - I'll come back to that in just a moment, and a little less pricing than expected, although as you rightfully point out and as we said in the prepared commentary, this was due to comparisons with the year ago. If you remember, really strong pricing in the second quarter, high single digits - I think it was around 9%. We talked about it in the call in the second quarter last year, the fact that we perhaps may have pulled back a bit too far on promotions. We saw some of those promotions come back in the quarter this year, particularly in one retail environment where we didn't promote at all in the year-ago period, a little bit of mix change between some of the higher price retailers to lower price retailers also impacting price. But pleasingly on the volume side, which we think is very important for us in North America right now, we saw great improvement, and what was particularly encouraging there is we saw household penetration as a result of that. We've talked a lot about that over the last four quarters, the importance of driving household penetration, and the North America numbers are terrific. Market share is more or less flat in value, but up quite considerably on the volume side - that reflects, I think, a much more targeted approach and a thoughtful approach in how we're utilizing promotional dollars to be very effective and prudent without going too far down the trap of over-promoting. But right now, we feel we're in a very good place with that. We did see some of the retailers lean in. There's been a little bit more lift on promotional coupons, a little bit higher but expected as we move through the quarter, and we expect that to continue through the balance of the year. As I continually say, at least if you look outside of scanner data, our non-Nielsen business continued to track at multiples higher than the Nielsen tracked channels, so again really, really pleased with the overall context of how the quarter we delivered. We're going to watch the pricing carefully, but encouraged to see the volume coming back quite nicely. Operator: The next question comes from Andrea Teixeira with JP Morgan. Please go ahead. Andrea Teixeira: Thank you, good morning to all. My question is on Europe - obviously nothing short of impressive that you capped your [indiscernible] there, but with that, some of your peers have been calling a broader deceleration similar to what has been happening in the U.S., so wanted to see if you are--as you exit the quarter and as you negotiated some of the shelf space and [indiscernible] in Europe as well, and how you just described some of the shifts into the channels in the U.S. into the low income or more affordable channels, or discounters, are you seeing this happening in Europe or just as you said, your pricing ladders and your innovation has been able to sustain momentum there, and how we should be thinking to the back end. Thank you. Noel Wallace: Yes, good morning Andrea. Much around the latter, obviously. I think we have seen some shift in the retail environments there, but again we're through the negotiations and I think what's particularly pleasing in Europe is the breadth of the innovation across price tiers and the breadth of innovation across various channels. That's allowed us, in our view, the deliver that sustained very strong growth. What's particularly pleasing is obviously the balance between pricing and volume there. We'll see pricing obviously come down as we lap some of the strong pricing we took last year, but the volume coming back into the P&L at such healthy levels was particularly encouraging for the business, and that's reflected in market share and in household penetration, as I said. The market share on toothpaste is at record high levels. I think the balance and effectiveness we have between the Colgate and the Elmex and Meridol brands is really taking stride now in the sense of getting that promotional mix right between the three brands, and we're seeing likewise on the home care and the personal care brands, some of the innovation coming to the market and drive good sustained growth. Overall, a great performance for Europe. We'll watch it in the back half, but right now we think the sustained market share growth that we've had across all of our categories is going to bode well for the back half, and the volume coming back in across multiple price tiers is a good indication that we're in a good place to set us up for a strong back half as well. Operator: The next question comes from Robert Moskow with TD Cowen. Please go ahead. Robert Moskow: Hi, thanks for the question. Noel, you mentioned sequentially higher commodity costs as the year progresses, and I was wondering if you could help us quantify it or tell us, is it material enough that you would have to make any kind of pricing actions, and if so, where would the hot spots be? Noel Wallace: Yes, let me let Stan get into the details, but strategically, obviously we think with the pricing that we've taken and strong productivity moving through the P&L, particularly with the volume starting to inflect much more positively, we think we're set up well for the back half. We will see some inflationary commodity increases, at least in terms of where commodities are in the back half, but nothing that gives us tremendous concern, particularly given the strong margin profile that we have across the business and where we're seeing the growth. Let me have Stan give you a little bit more color there Stan Sutula: Thanks Noel. What we saw in the first quarter, we talked about coming out was that we had general easing on commodities, but as we're looking into the back half of the year, we do see some raw material inflation in commodity costs, as well as an impact from transactional FX. As we think about the components of that, there are some pieces here that are going through, but we do feel confident in our ability to offset those with funding the growth and productivity. I don't see the need, unless they move more dramatically, to take large incremental pricing. In addition on our margin as we look, even anticipating these, we expect that our second half gross margin should be up year on year at levels probably more similar to Q2, so overall I think the teams keep a good eye on this. We look at it on a forward basis, we've already locked in a significant proportion of Q3 and we'll look at that obviously in Q4 as we go ahead, so while we're aware of it, we feel pretty well positioned. Noel Wallace: Yes, the one unknown there is probably foreign exchange, and you've seen that obviously move a bit against us in the last three weeks, particularly the Latin currencies, so we'll have to watch that carefully, but we're on it. Operator: The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead. Excuse me, Mr. Gajrawala, your line is open. Okay, we'll go to the next questioner. The next questioner is Bonnie Herzog with Goldman Sachs (NYSE:GS). Please go ahead. Bonnie Herzog: Good morning Noel. I'm just curious to hear if you've seen any noticeable changes in consumer behavior in any of your key markets, especially from the low income consumer; and then if so, what initiatives have you guys been implementing to ultimately offer more value for consumer to drive this faster volume growth that we're seeing? Thank you. Noel Wallace: Yes, thanks. I think overall, quite constructive around the world, and that's obviously reflected in the strong volume growth, and likewise the penetration and market share growth; but overall, constructive. I think a lot of the strategy that we've put in place over the last couple years, and that's innovating against some of our big core businesses and making sure that we're deliberate about the innovation by retail environment, has played out well relative to ensuring that those consumers looking for more value-oriented offerings, that we have that disposable opportunity in our portfolio, and we've seen that. I think outside of the U.S, the consumer has been quite constructive. We've seen a little bit more price value shopping in North America, but nothing too unusual right now, but we'll have to watch that carefully as we move through the back half of the year. As I mentioned earlier, we've seen a little bit more volume on deal coming through North America, but nothing that's not in line with historical numbers, quite frankly. Overall, U.S., watchful; Europe seems to be okay; Latin America, again you've seen the really strong volume growth over the last three or four quarters despite significant pricing, and so we're seeing a good consumer environment there. Africa, Asia, Eurasia, strong, again good volume growth, and pleasingly starting to see some good volume growth coming back out of Asia and India specifically, which is encouraging. Chris Carey: I just wanted to go back to the North America business, specifically around volume and investment posture, so just two parts to this. I guess first, the negative pricing in the quarter, is there a way to dimensionalize how much of that you think is the year-ago compare versus, say, actions that you're taking in market a bit more offensively? Then just from a volume perspective, when does this volume number feel sustainable going into the back half? I know you have some compare dynamics in Fabuloso and in hand soap, but at the same time, I think in your prepared remarks you called out double-digit volume growth in toothpaste, which was quite a bit ahead of what we can see in the consumption data, so I'm just wondering if they're both timing and also durable dynamics that you see in Q2 as we go into the back half. Thanks for those two. Noel Wallace: Yes, let me start with, I guess, the volume numbers overall. We feel obviously good strong growth in the quarter, largely toothpaste driven, but we saw it across all categories, which is terrific. We expect that to continue as comparisons in North America will be favorable for us in the third quarter and in the fourth quarter, so volumes should continue to track well. Let me get into a little bit of dimensionalizing the pricing. As you said, most of it was the comp, as you recall we had 10% price in Q1, 9% price in Q2 last year, and we talked specifically, as I mentioned earlier, that we may have pulled back a little bit too much on promotions in the second quarter, so the comparison was obviously very, very favorable, and we needed to get the promotion cadence back to where we need to. We had one particular retailer, as I mentioned, that we had pulled out of last year that came back online this year, which was encouraging to help drive some of the strong volume growth, but again I think the promotional cadence that we'll see will be--or the pricing will be somewhat consistent with where we were in the second quarter as we move through the back half of the year, off a very strong year in 2023. Overall, what's most encouraging is to see the elasticity there as we put a little bit more pricing in the market relative to coupon and promotion. We're obviously seeing a great return on that relative to volume. Encouraging likewise, gross profit percent and gross margin dollars were up in North America, which is allowing us to continue to invest strongly behind the business, and we are encouraged by that particularly as we move in the back half of the year. Operator: The next question comes from Olivia Tong with Raymond James. Please go ahead. Olivia Tong: Thanks, good morning. I wanted to go back to Latin America, given that continues to be a very strong driver of your total company growth - obviously very strong volume, very strong price. But you called out Brazil and Mexico, so can you talk about what you're seeing, any incremental concerns within the macros there, your sense of how the consumer is behaving in those key markets, as well as some of the other countries given the overall resonating of the growth in Latin America? Thank you. Noel Wallace: Yes, great. Thank you Olivia. We're encouraged in our two largest businesses, LatAm and Hill's, both delivering really strong quarters, particularly at the EBIT line - LatAm up 50% on EBIT, Hill's up 20%, so getting the big businesses growing at that level is encouraging for us. LatAm obviously continues to be such a consistently strong performer for us. Organic sales growth was strong, we saw good volume growth across all of our businesses. Every country was positive in volume with the exception of Argentina. This was led by Brazil, which was high single digits, which is really, really strong, and four quarters of mid-single digit volume growth in LatAm, so overall a pretty good consumer environment. I would say Brazil seems to be quite strong. Mexico slowed a little bit in the quarter, we'll have to watch that carefully, but the rest of the region performed quite strongly. Oral care, as you mentioned, really strong performance, our market shares were up 90 basis points across the division, volume shares were up likewise across the division, so encouraged by that. The strong marketing and innovation that we put in, in the first half seems to be taking hold, so we think we're well set up for continued, consistent growth as we move through the back half. I would characterize the consumer environment as pretty good, and the innovation that we have, particularly at the premium side, seems to be taking hold on whitening and some of the core re-launches seem to be driving some good success in terms of household penetration. So overall, we're encouraged by LatAm and continue to believe it will be a great growth driver for us moving forward. Operator: The next question comes from Steve Powers with Deutsche Bank (ETR:DBKGn). Please go ahead. Steve Powers: Hi guys, good morning. Thank you. Noel, I was hoping we could talk about pricing more broadly. It's been a topic already, but it's been the number one focus that I've heard from investors today, and really not just for Colgate, not just for North America, but for the industry at large, given what we've seen and heard from others, where arguably pricing is coming down faster than might have previously been expected, at least in significant pockets. It's not hurting your performance today - you know, volumes and gross margins are great, strong reinvestment in the middle of the P&L, as you discussed. But I guess the question is, if the direction of travel is lower on pricing, again not just for Colgate but for the competitive set, is that volume and full P&L performance sustainable, and how do you think about that? Noel Wallace: Yes, well listen, we know the market's been focused on getting back to volume growth, but we've consistently talked about, and I talked about it certainly at Deutsche Bank in Paris, on the importance of that growth being balanced, that we were going to continue to focus on the strong revenue growth management principles we have in place, the price pack architecture work that we're doing, and the necessity to continue to get pricing in the P&L. Now, as the inflationary environment becomes more benign, obviously we'll see some foreign exchange transactional pricing that needs to go into the P&L, but we're going to continue to be very focused on finding ways to drive some balanced pricing through the P&L, and we think we'll continue to see that obviously in the back half of the year across most of our divisions. As I mentioned earlier, our revenue growth management capabilities are very, very strong right now, and that's encouraging for us, to find ways where we're seeing less inflationary pricing, to find ways to optimize category growth from a dollar standpoint. But we've talked about it consistently that we would see particularly this year inflect more towards volume than pricing, but that being said, the 4.2% pricing that we generated in the second quarter continues to be very, very strong in the context of the marketplace. I think that talks to the strength of our brands and our need to continue to offset some of the inflationary pressures that we saw in the business. So overall, we'll see pricing in the second half come--be a little bit lower than where we were in the second quarter, but given the levels of raw material inflation and the benefit of FTG, we still feel good about where we are from a gross profit standpoint. Bryan Spillane: First, I just wanted to extend a happy birthday to Peter Grom - we all love Pete. Second, just a question, I guess, as we go into looking at the first half and going into the balance of the year, and thinking about just as we fill in our models, kind of the base that we're using for '24 for next year. I guess Noel, you've had upside in the first half, and I think last year there was some reinvestment, and I think as you started this year, you also spoke a bit about a bias, right, to balance the driving earnings growth but at the same time taking the opportunity when you have it, right, when things are good and you've got upside to reinvest. Can you give us a sense of just maybe the scope of reinvestment that's occurred in the first half, and then as we're thinking about the second half, would that be your bias? Have you identified potential areas to spend some money back that you hadn't planned, and then finally in that, as we're thinking about that for a base for '25, is there anything we should consider with regards to the level of investment in '25, whether this would be a good base off '24? Thanks. Noel Wallace: Yes, thanks Bryan. Again, very consistent with what we've spoken about in the past, and that is getting the flexibility in the middle of the P&L to give us the opportunities to really direct advertising in areas where we're going to get the best return on that investment. With the continued growth in gross margin dollars with the strong top line growth, that affords us that flexibility around the world, and at the same time, as I've mentioned, we are all over trying to improve the ROI of that spend in terms of getting more bang for the buck and being very deliberate in terms of how we approach the advertising, not increased advertising for the sake of increased advertising. The ROI culture that we're implementing across the organization is very, very strong. Our intention is to continue to invest where we see a return on investment, and we see real opportunities for continued volume growth opportunities, particularly around household penetration and to build brand awareness, and we'll continue to invest opportunistically where we see those opportunities. I don't think there will be anything changing in the back half of this year. Our intention is to continue to invest behind the business and drive that top line consistently to drive the bottom compounding growth that we've talked about over the last three or four quarters. Stan Sutula: Bryan, just to add onto that, if you look, I think we've demonstrated a good track record here with our ROIC back over 33%. We're on a mission for consistent, compounded EPS growth, and we'll make those investments where we see the ROI, and I think our track record is pretty good here. We'll look to continue that going forward. Operator: The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead. Robert Ottenstein: Great, thank you. First, a quick follow-up, just on North America. Given that you're returning to historical or normal promotional levels, would it be fair to say that you don't expect any kind of particular competitive response? Would just love to get color on that. Then my bigger picture question is it seems to us, and I think we see it in your results, that the consumer, at least certain groups of consumers are more willing perhaps than in the past to pay up for innovation and performance, perhaps more than pre-COVID levels. Is that in fact something that is true, that you're seeing? Why would that be the case, and is it perhaps in combination with better communications on your part in terms of making clear exactly how the performance is better, and maybe what's driving that better communications? Thank you. Noel Wallace: Yes, good morning Robert, thank you. Again, I think the overall promotional environment is constructive. As I mentioned, we may have pulled back a little bit too far last year as we pulled promotions out to get some pricing in the categories, and we've simply re-balanced that to, more importantly, probably match promotional pricing than certainly to lead it. Our intention is not to lead the category on a promotional cadence that can't be sustained. Overall, we feel like it's more or less consistent with where we are. We'll continue to be very prudent and mindful on where we invest those dollars, and making sure that we see the volume and the gross margin where we need it to be to continue to sustain what we want to focus on, which is strong advertising building the brands and leveraging the strong innovation pipeline that we have. Now if I extend onto innovation, clearly we will continue to operate with a real focus on the premium side of the business, and we're seeing great results from that across most of our divisions, where some of our premium innovation, particularly in whitening, now with the re-launch of Total going into Latin America, obviously Elmex and Meridol at the premium side with some of their innovations, we're seeing great inflection on the premium side of the business. If you couple that with the strong core business innovation that we've had - Max Fresh in India, a great example of that, we're seeing great core innovation that's driving real value oriented points of difference versus our competitors, and that's what we'll focus on, making sure that consumers are willing to trade up based on the real strong proposition and the big selling idea behind that. We've talked about the science and the superiority of our brands, and we're really trying to incorporate that much more into our messaging, to your point, to get the messaging stronger and the content delivery stronger. Overall, it's a combination of all of what you discussed, making us be focused on ensuring that we have the innovation pipeline and the pricing in place to continue to sustain that strong top line growth. Operator: The next question comes from Lauren Lieberman with Barclays (LON:BARC). Please go ahead. Lauren Lieberman: Great, thanks. Good morning. I know you just mentioned Elmex and Meridol on the last question, but I wanted to ask a bit about that three-brand strategy in Europe and get just maybe a bit of an update on how you're managing channel reach, if you've taken those more premium brands beyond the pharmacy channel in Europe, more countries that have been added maybe in the last few years that we've kind of lost sight of, and how applicable that strategy in particular may be to other markets, because I think I recall that you were launching one of the premium brands in Latin America a few years ago. I'm just curious if that's progressed at all. Thanks. Noel Wallace: Yes, thanks Lauren, and you're absolutely right - we launched Elmex in Brazil, and I'll come back to that here at the end of my answer. But overall, it's been a very deliberate strategy for us to really flex our portfolio far more than we have done historically and making sure that we're capturing what are the unique needs and the consumer journey in the marketplace, and what are the growing parts of the category and particularly the therapeutic side of the category, which is where we were not seeing the level of growth that we needed. Using Elmex and Meridol particularly across Europe to capitalize on that growth has been very successful. You combine that with the strong focus we've had on whitening and multi-benefit in Total, as well as the Optic across the world, that gives us a unique combination of offerings to both the retail environments that we compete in as well as the consumer. The retail environment, we've been very disciplined about how we take Elmex and Meridol around the world, first and foremost. We've been very deliberate and selective on what markets we're going to put that into, we're not going to put it in for opportunity's sake alone. We're going to be strategic about where we do that, particularly where the pharmacy channel is strong and the therapeutic benefits are growing, and we have a unique offering to go get some of our competitors in that space. We're going to be very selective on how we continue to take that around the world, but we will take it to new markets around the world where we see that opportunity. The point is, I think, getting the balance between Elmex, Meridol and Colgate right, and Europe has been a great test market for that, where we're seeing very significant incremental growth across the whole entire franchise by being very focused on where we're going to take those brands and how we advertise them. So overall, we feel good about that. Professional was the other aspect, and really focusing on the professional heritage of the Elmex and the Meridol brands. We've been very deliberate about going back to the profession, educating them on the science and the key point of difference behind the Elmex and the Meridol brands, and that's certainly led to stronger endorsement levels from the profession, which obviously improve the premium-ness of the brand and the loyalty that we have behind those franchises. Oh, and you had a question in regards to--let me come back on LatAm, Lauren, quickly. Brazil was where we decided to take that brand - again, a very strong pharmacy class of trade, where we were not seeing the incremental growth that we wanted just with the Colgate franchise. We came in with the Elmex brand in LatAm, launched it in pharmacies in Sao Paulo only, and then decided to expand that based on the success that we had around the country, and we've seen that drive very significant incremental share in the pharmacy class of trade, so a great combination of portfolio offerings to the pharmacist in terms of being high end therapeutic with the Elmex brand, and making sure that we had the core offerings for the pharmacist as well with the Colgate brand, so it's been a great combination for us to leverage that portfolio. We'll use that as a proxy as we think about new markets around the world, but again a very consistent and disciplined go-to-market strategy, only launching in pharmacy, building the brand through the profession, and then finding ways to potentially democratize that brand as we move forward, but we're going to be very deliberate and very cautious as we do that to ensure that the brand is well established and well seated in the marketplace, based on its credentials. Operator: The last question will come from Mark Astrachan with Stifel. Please go ahead. Mark Astrachan: Yes, thanks, and good morning everybody. I wanted to ask a couple of questions, one more of a clarification on the North America commentary and the shift to lower priced channels. We can see in the scanner data these days the shift to Costco and Amazon, as an example, and the growth is eight, nine times what it is in the legacy tracked channels. Are you referring to those as lower priced channels? If not, I guess I'm curious what's driving the growth. It's been there for at least a number of quarters now, so what's driving the share shift into those channels? Then separately, unrelatedly on Prescription Diet and your commentary around the supply chain flexibility increasing shelf space and volume, we started to see some of it in the pet specialty channel, but you still have a sign up there that says you need to have a prescription to buy the product, so I guess I'm curious how that works in terms of to get on shelf, you increase brand awareness and it sort of sells from there, and if you could provide just the mix of the Prescription versus the rest of the business, that'd be helpful too. Thank you. Noel Wallace: Yes, thanks Mark. Let me take the retail channel. This has been, I think, nothing new here, quite frankly. I wouldn't say it's been a huge inflection in terms of shift. You've seen the non-tracked Nielsen channels consistently growing faster than the tracked Nielsen channels, and there is a value play there obviously with some of the club offerings. But overall, I think all the channels are looking very, very carefully at their value proposition and the price pack architectures and finding ways to ensure that there's a value orientation back to the consumer without losing, obviously, the great pricing that's come through the P&Ls or the categories over the last couple years. I don't anticipate those shifts will be anything different moving forward. We'll continue to see, I think, more consistent with where we've been in the past, and we're well prepared to continue to capitalize on those shifts. But the encouraging aspect is growing the Nielsen tracked channels as you've seen, as I mentioned earlier, the strong volume share growth that we've had in the Nielsen tracked channels. We're encouraged by that -it suggests that obviously the innovation and the value proposition that we're offering to our trade customers to grow their categories continues to be quite solid. On Prescription Diet, again a great opportunity for us to continue to grow the Prescription Diet business. We've talked about it in the past, where the Prescription Diet opportunity with only--less than 5% of pets are using a therapeutic nutrition today, and while our studies show, as you've heard me saying--talk about in the past, that 80% of pets can benefit from the therapeutic nutrition, so we're very focused on making sure pet specialty, our vet partners, etc. have the plethora of offerings that we bring to the market, and the increased capacity that we have with Tonganoxie coming online and allowing us to optimize our network and provide more of our offerings to the retail environment on a consistent basis is playing out quite nicely for the brand, getting more of those recipes into pet specialty and neighborhood pet stores, as well as making sure we have consistent supply to our veterinary professions, where they recommend and provide that recommendation to their pet owners has been terrific for it, so we will continue to make sure that offering expands and making sure that we continue to look for ways to increase the mix towards Prescription Diet, which is a real benefit for the pet owner. Operator: This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate-Palmolive's Chairman, President and CEO for any closing remarks. Noel Wallace: Well, thank you all for joining us today, and I just want to applaud all the Colgate-Palmolive team around the world for the exceptional efforts to deliver strong top and bottom line growth. Importantly, we're doing that while we're building capabilities we need to stay strong moving forward, so that's terrific work by all the team. But I remind us, as always, that we're only halfway through the year and we still have a lot of work to be done, so thanks to everyone and appreciate the great discussion this morning. Operator: The conference has now concluded. Thank you for attending today's call. You may now disconnect.

Colgate-Palmolive (CL) Q2 2024 Earnings Call Transcript

Noel Wallace - President, Chief Executive Officer Stan Sutula - Chief Financial Officer John Faucher - Chief Investor Relations Officer Good morning. Welcome to today's Colgate-Palmolive second quarter 2024 earnings conference call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher. John Faucher Thanks Drew. Good morning and welcome to our second quarter 2024 earnings release conference call. This is John Faucher. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the second quarter 2024 earnings press release and related prepared materials, and our most recent filings with the SEC including our 2023 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the second quarter 2024 earnings press release and is available on Colgate's website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer, and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q2 results and our 2024 outlook. We will then open it up for Q&A. Thanks John, and thanks for joining us this morning. I look forward to taking your questions in regards to our strong Q2 results. As part of our ambition to deliver consistent compounded earnings growth, we have talked about the importance of driving balanced organic sales growth - all six divisions, all four categories, and with a combination of volume and pricing growth. We have re-vamped our innovation model, leveraged our global strength across price tiers, invested in marketing spend, and scaled new exciting capabilities across the organization, all of which is driving brand health and household penetration. This is particularly important given the pricing we have taken over the past few years. Our return to mid single-digit volume growth this quarter, including growth at both Hill's and Hawley & Hazel highlights some early success from this strategy, and this is well timed. We are returning to strong volume growth as gross margins are expanding, which will drive the incremental gross profit that funds the investment in brands and capabilities while still delivering compelling bottom line growth. We're also using data and analytics tools, including AI, to track the effectiveness of these activities as we look to further optimize the return on our increased spending. This is a topic we'll be discussing more over time. With this combination of increased penetration and the continued success of our revenue growth management strategy, we have the plans in place to drive consistent, balanced top line growth. We combine that with the benefits of operating leverage, productivity and cost discipline to turn that into consistent compounded earnings per share growth. Along with strong cash flow to fund investment, dividends and share repurchases, we believe this leaves us well positioned to drive top tier TSR. Our recent results show the strength and effectiveness as we continue to execute against this strategy, and with that, I'll open it up to questions. We will now begin the question and answer session. [Operator instructions] The first question today comes from Peter Grom with UBS. Please go ahead. Noel, I was hoping you could give us a deeper understanding of the levels of investment and what drives the confidence that the changes you've made over the past several years can sustain this improvement we've seen. Obviously from an outsider perspective, it seems to be working given the market share is in the mid single digit volume growth today, but just as you look ahead, how do you sustain this momentum and continue to build household penetration from here? Thanks. So let's get into the heart of the strategy, which I think we've been pretty consistently communicating over the past few years, and that's really getting the middle of that P&L in a place where we could have a lot more flexibility to invest behind the brands. That investment certainly is helping to drive the strong volume performance, but more importantly household penetration, which ultimately drives category growth and market share. It's keeping that flexibility in the middle of the P&L, allowing us to pinpoint the advertising in areas where we see real growth. The international exposure of our business obviously is giving us opportunities to allocate money in regions and areas where we see great growth opportunities, and that was delivered in the quarter with category growth across all of our categories and all of our divisions. Keeping those investment levels where they are, continuing to find ways to drive the effectiveness of that investment likewise is very important. As I've mentioned before and as you saw down at CAGNY, we're using AI and other tools to really drive improved ROI. We're getting much better at our innovation - that's certainly helping drive that consistent growth around the world, and the execution of the strategy, we think is far better than it has been in previous years. Overall, keeping the flex in the middle of the P&L, strong gross margins, and allocating that in areas around the world where we're seeing real opportunities for growth, we think will drive sustained, consistent compounded growth moving forward. The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead. Just wanted to focus on the long term top line growth opportunity in Hill's from here on the volume and pricing side. First, maybe just on volume, you've added a lot of capacity in the last couple of years, you've also got a lot of areas you're still under-penetrated in, in theory internationally - wet foods, small paws, etc., so just some perspective at this point as we look out over the next three to five years, is there incrementality in volume as you pursue these areas more aggressively, and how should we think about that? Then on pricing, obviously you've had very strong penetration increases, market share gains on the Hill's business. In theory, that should support higher pricing over time, but you're also in a category environment with industry trade-down in pet and probably a tough CPG environment in general for pricing, so how should we think about pricing going forward? Can you take consistent pricing, maybe to recapture some of the margin compression if you strip out the higher marketing in recent years, and just how would you juxtapose that sort of internal momentum versus the external environment in terms of your ability to take pricing longer term, looking out over the next few years? Noel Wallace Thanks Dara. You know, clearly a great quarter for Hill's, a strong performance across the board, quite frankly, and we're particularly pleased with the strong volume in light of the significant pricing we've taken historically. I'll come back and talk about pricing in a moment. But obviously ex-private label, to see the strength of the volume and the pricing move through the P&L is extremely encouraging, particularly given the advertising investment that we've put into the business, which continues to strengthen the brand. I think what's important to call out in the quarter is the real inflection on the margin line, strong gross margin, strong operating margin, and this is a reflection, I think of getting more volume running through the business and obviously seeing the leverage move through the P&L. But if I take a step back again and characterize the marketplace, clearly as we've talked about before, low household awareness and low brand penetration overall of the Hill's business clearly supporting the strong advertising investment, and we're seeing that delivered in the quarter - penetration up, market share's up. We're were one of the fastest growing global brands in some of the pet specialty stores this quarter, so again I think a reflection of the upside potential we still have. When you look at segment opportunities, we've talked about that in the past, obviously wet an area that we're under-indexed in, clearly seeing the ramped up capacity we have in wet delivering better penetration, better growth, better execution in stores as we're getting more wet SKUs on the shelf. That's obviously translating into more upside potential as we consumers obviously shifting into those categories. Overall, we think the balance of the business is where we want it, and we're continuing to invest aggressively to drive that household penetration. You couple that with a really strong innovation pipeline, we see that in the first half of this year and we see that moving into '25 as well, so we think quite frankly the flywheel of the business is working very effectively for us right now. Low penetration, low awareness, we're working on that and getting more effectiveness in our advertising spend, which we're increasing, and importantly getting the gross margins and operating margins back to where we'd like them is allowing for the increased gross margin dollars to invest behind the business. International, likewise - we've talked about the opportunities that we still see globally in the long term to take this brand around the world. We're very focused on the big core markets right now, but long term we see opportunities to expand into new markets. The last I'd say is obviously the mix between Science Diet and Prescription Diet, we saw a good inflection on Prescription Diet this quarter - that's been deliberate, that's been a function of partly due to the capacity expansion that we've had has allowed us to get more diets on the shelf, allowed us to provide more sustained, consistent deliver to the vet professionals on the Prescription Diet business, and we saw a good mix benefit of that in the quarter as well, so overall we're pleased with it. The category is a little soft right now, as you mentioned, as household starts come down, but as we see hopefully the U.S. economy starting to show some vibrancy, or at least for a softer landing, we think that will bode well for us. Pricing is an opportunity, given the strength of the brand. We'll continue to take pricing where we have necessity to do that. The good news is we've seen a little bit of flattening on commodity pricing in the Hill's business, which is excellent for us as we get that pricing we've had historically. We've seen the benefit of a more moderate inflationary environment on input costs, and we get more leverage through the P&L as we see the volume come back. So overall, we feel like we're in a good position to sustain that moving forward. The next question comes from Filippo Falorni with Citi. Please go ahead. Filippo Falorni Hi, good morning everyone. I wanted to ask about the North America business - great to see the volume return to solid growth, but you also called out a more promotional environment, so maybe one, you can talk about the general promotional environment in your categories from your competitors and private label? Also from a cycling standpoint, I know last year you were cycling lower promotional levels. Is it fair to think that's going to continue in Q3 and then by Q4, you're going to have a more normal comparison from a promotional level? Any color on the balance between pricing and volume in the back half for North America would be helpful, thank you. Overall, organic growth in North America was roughly in line with our expectations, albeit more volume, which was really pleasing - I'll come back to that in just a moment, and a little less pricing than expected, although as you rightfully point out and as we said in the prepared commentary, this was due to comparisons with the year ago. If you remember, really strong pricing in the second quarter, high single digits - I think it was around 9%. We talked about it in the call in the second quarter last year, the fact that we perhaps may have pulled back a bit too far on promotions. We saw some of those promotions come back in the quarter this year, particularly in one retail environment where we didn't promote at all in the year-ago period, a little bit of mix change between some of the higher price retailers to lower price retailers also impacting price. But pleasingly on the volume side, which we think is very important for us in North America right now, we saw great improvement, and what was particularly encouraging there is we saw household penetration as a result of that. We've talked a lot about that over the last four quarters, the importance of driving household penetration, and the North America numbers are terrific. Market share is more or less flat in value, but up quite considerably on the volume side - that reflects, I think, a much more targeted approach and a thoughtful approach in how we're utilizing promotional dollars to be very effective and prudent without going too far down the trap of over-promoting. But right now, we feel we're in a very good place with that. We did see some of the retailers lean in. There's been a little bit more lift on promotional coupons, a little bit higher but expected as we move through the quarter, and we expect that to continue through the balance of the year. As I continually say, at least if you look outside of scanner data, our non-Nielsen business continued to track at multiples higher than the Nielsen tracked channels, so again really, really pleased with the overall context of how the quarter we delivered. We're going to watch the pricing carefully, but encouraged to see the volume coming back quite nicely. The next question comes from Andrea Teixeira with JP Morgan. Please go ahead. Andrea Teixeira Thank you, good morning to all. My question is on Europe - obviously nothing short of impressive that you capped your [indiscernible] there, but with that, some of your peers have been calling a broader deceleration similar to what has been happening in the U.S., so wanted to see if you are--as you exit the quarter and as you negotiated some of the shelf space and [indiscernible] in Europe as well, and how you just described some of the shifts into the channels in the U.S. into the low income or more affordable channels, or discounters, are you seeing this happening in Europe or just as you said, your pricing ladders and your innovation has been able to sustain momentum there, and how we should be thinking to the back end. Thank you. Noel Wallace Yes, good morning Andrea. Much around the latter, obviously. I think we have seen some shift in the retail environments there, but again we're through the negotiations and I think what's particularly pleasing in Europe is the breadth of the innovation across price tiers and the breadth of innovation across various channels. That's allowed us, in our view, the deliver that sustained very strong growth. What's particularly pleasing is obviously the balance between pricing and volume there. We'll see pricing obviously come down as we lap some of the strong pricing we took last year, but the volume coming back into the P&L at such healthy levels was particularly encouraging for the business, and that's reflected in market share and in household penetration, as I said. The market share on toothpaste is at record high levels. I think the balance and effectiveness we have between the Colgate and the Elmex and Meridol brands is really taking stride now in the sense of getting that promotional mix right between the three brands, and we're seeing likewise on the home care and the personal care brands, some of the innovation coming to the market and drive good sustained growth. Overall, a great performance for Europe. We'll watch it in the back half, but right now we think the sustained market share growth that we've had across all of our categories is going to bode well for the back half, and the volume coming back in across multiple price tiers is a good indication that we're in a good place to set us up for a strong back half as well. The next question comes from Robert Moskow with TD Cowen. Please go ahead. Robert Moskow Hi, thanks for the question. Noel, you mentioned sequentially higher commodity costs as the year progresses, and I was wondering if you could help us quantify it or tell us, is it material enough that you would have to make any kind of pricing actions, and if so, where would the hot spots be? Noel Wallace Yes, let me let Stan get into the details, but strategically, obviously we think with the pricing that we've taken and strong productivity moving through the P&L, particularly with the volume starting to inflect much more positively, we think we're set up well for the back half. We will see some inflationary commodity increases, at least in terms of where commodities are in the back half, but nothing that gives us tremendous concern, particularly given the strong margin profile that we have across the business and where we're seeing the growth. Let me have Stan give you a little bit more color there What we saw in the first quarter, we talked about coming out was that we had general easing on commodities, but as we're looking into the back half of the year, we do see some raw material inflation in commodity costs, as well as an impact from transactional FX. As we think about the components of that, there are some pieces here that are going through, but we do feel confident in our ability to offset those with funding the growth and productivity. I don't see the need, unless they move more dramatically, to take large incremental pricing. In addition on our margin as we look, even anticipating these, we expect that our second half gross margin should be up year on year at levels probably more similar to Q2, so overall I think the teams keep a good eye on this. We look at it on a forward basis, we've already locked in a significant proportion of Q3 and we'll look at that obviously in Q4 as we go ahead, so while we're aware of it, we feel pretty well positioned. Noel Wallace Yes, the one unknown there is probably foreign exchange, and you've seen that obviously move a bit against us in the last three weeks, particularly the Latin currencies, so we'll have to watch that carefully, but we're on it. The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead. Excuse me, Mr. Gajrawala, your line is open. Okay, we'll go to the next questioner. The next questioner is Bonnie Herzog with Goldman Sachs. Please go ahead. Good morning Noel. I'm just curious to hear if you've seen any noticeable changes in consumer behavior in any of your key markets, especially from the low income consumer; and then if so, what initiatives have you guys been implementing to ultimately offer more value for consumer to drive this faster volume growth that we're seeing? Thank you. Noel Wallace Yes, thanks. I think overall, quite constructive around the world, and that's obviously reflected in the strong volume growth, and likewise the penetration and market share growth; but overall, constructive. I think a lot of the strategy that we've put in place over the last couple years, and that's innovating against some of our big core businesses and making sure that we're deliberate about the innovation by retail environment, has played out well relative to ensuring that those consumers looking for more value-oriented offerings, that we have that disposable opportunity in our portfolio, and we've seen that. I think outside of the U.S, the consumer has been quite constructive. We've seen a little bit more price value shopping in North America, but nothing too unusual right now, but we'll have to watch that carefully as we move through the back half of the year. As I mentioned earlier, we've seen a little bit more volume on deal coming through North America, but nothing that's not in line with historical numbers, quite frankly. Overall, U.S., watchful; Europe seems to be okay; Latin America, again you've seen the really strong volume growth over the last three or four quarters despite significant pricing, and so we're seeing a good consumer environment there. Africa, Asia, Eurasia, strong, again good volume growth, and pleasingly starting to see some good volume growth coming back out of Asia and India specifically, which is encouraging. The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead. I just wanted to go back to the North America business, specifically around volume and investment posture, so just two parts to this. I guess first, the negative pricing in the quarter, is there a way to dimensionalize how much of that you think is the year-ago compare versus, say, actions that you're taking in market a bit more offensively? Then just from a volume perspective, when does this volume number feel sustainable going into the back half? I know you have some compare dynamics in Fabuloso and in hand soap, but at the same time, I think in your prepared remarks you called out double-digit volume growth in toothpaste, which was quite a bit ahead of what we can see in the consumption data, so I'm just wondering if they're both timing and also durable dynamics that you see in Q2 as we go into the back half. Yes, let me start with, I guess, the volume numbers overall. We feel obviously good strong growth in the quarter, largely toothpaste driven, but we saw it across all categories, which is terrific. We expect that to continue as comparisons in North America will be favorable for us in the third quarter and in the fourth quarter, so volumes should continue to track well. Let me get into a little bit of dimensionalizing the pricing. As you said, most of it was the comp, as you recall we had 10% price in Q1, 9% price in Q2 last year, and we talked specifically, as I mentioned earlier, that we may have pulled back a little bit too much on promotions in the second quarter, so the comparison was obviously very, very favorable, and we needed to get the promotion cadence back to where we need to. We had one particular retailer, as I mentioned, that we had pulled out of last year that came back online this year, which was encouraging to help drive some of the strong volume growth, but again I think the promotional cadence that we'll see will be--or the pricing will be somewhat consistent with where we were in the second quarter as we move through the back half of the year, off a very strong year in 2023. Overall, what's most encouraging is to see the elasticity there as we put a little bit more pricing in the market relative to coupon and promotion. We're obviously seeing a great return on that relative to volume. Encouraging likewise, gross profit percent and gross margin dollars were up in North America, which is allowing us to continue to invest strongly behind the business, and we are encouraged by that particularly as we move in the back half of the year. The next question comes from Olivia Tong with Raymond James. Please go ahead. Olivia Tong Thanks, good morning. I wanted to go back to Latin America, given that continues to be a very strong driver of your total company growth - obviously very strong volume, very strong price. But you called out Brazil and Mexico, so can you talk about what you're seeing, any incremental concerns within the macros there, your sense of how the consumer is behaving in those key markets, as well as some of the other countries given the overall resonating of the growth in Latin America? Thank you. Noel Wallace Yes, great. Thank you Olivia. We're encouraged in our two largest businesses, LatAm and Hill's, both delivering really strong quarters, particularly at the EBIT line - LatAm up 50% on EBIT, Hill's up 20%, so getting the big businesses growing at that level is encouraging for us. LatAm obviously continues to be such a consistently strong performer for us. Organic sales growth was strong, we saw good volume growth across all of our businesses. Every country was positive in volume with the exception of Argentina. This was led by Brazil, which was high single digits, which is really, really strong, and four quarters of mid-single digit volume growth in LatAm, so overall a pretty good consumer environment. I would say Brazil seems to be quite strong. Mexico slowed a little bit in the quarter, we'll have to watch that carefully, but the rest of the region performed quite strongly. Oral care, as you mentioned, really strong performance, our market shares were up 90 basis points across the division, volume shares were up likewise across the division, so encouraged by that. The strong marketing and innovation that we put in, in the first half seems to be taking hold, so we think we're well set up for continued, consistent growth as we move through the back half. I would characterize the consumer environment as pretty good, and the innovation that we have, particularly at the premium side, seems to be taking hold on whitening and some of the core re-launches seem to be driving some good success in terms of household penetration. So overall, we're encouraged by LatAm and continue to believe it will be a great growth driver for us moving forward. The next question comes from Steve Powers with Deutsche Bank. Please go ahead. Noel, I was hoping we could talk about pricing more broadly. It's been a topic already, but it's been the number one focus that I've heard from investors today, and really not just for Colgate, not just for North America, but for the industry at large, given what we've seen and heard from others, where arguably pricing is coming down faster than might have previously been expected, at least in significant pockets. It's not hurting your performance today - you know, volumes and gross margins are great, strong reinvestment in the middle of the P&L, as you discussed. But I guess the question is, if the direction of travel is lower on pricing, again not just for Colgate but for the competitive set, is that volume and full P&L performance sustainable, and how do you think about that? Noel Wallace Yes, well listen, we know the market's been focused on getting back to volume growth, but we've consistently talked about, and I talked about it certainly at Deutsche Bank in Paris, on the importance of that growth being balanced, that we were going to continue to focus on the strong revenue growth management principles we have in place, the price pack architecture work that we're doing, and the necessity to continue to get pricing in the P&L. Now, as the inflationary environment becomes more benign, obviously we'll see some foreign exchange transactional pricing that needs to go into the P&L, but we're going to continue to be very focused on finding ways to drive some balanced pricing through the P&L, and we think we'll continue to see that obviously in the back half of the year across most of our divisions. As I mentioned earlier, our revenue growth management capabilities are very, very strong right now, and that's encouraging for us, to find ways where we're seeing less inflationary pricing, to find ways to optimize category growth from a dollar standpoint. But we've talked about it consistently that we would see particularly this year inflect more towards volume than pricing, but that being said, the 4.2% pricing that we generated in the second quarter continues to be very, very strong in the context of the marketplace. I think that talks to the strength of our brands and our need to continue to offset some of the inflationary pressures that we saw in the business. So overall, we'll see pricing in the second half come--be a little bit lower than where we were in the second quarter, but given the levels of raw material inflation and the benefit of FTG, we still feel good about where we are from a gross profit standpoint. The next question comes from Bryan Spillane with Bank of America. Please go ahead. First, I just wanted to extend a happy birthday to Peter Grom - we all love Pete. Second, just a question, I guess, as we go into looking at the first half and going into the balance of the year, and thinking about just as we fill in our models, kind of the base that we're using for '24 for next year. I guess Noel, you've had upside in the first half, and I think last year there was some reinvestment, and I think as you started this year, you also spoke a bit about a bias, right, to balance the driving earnings growth but at the same time taking the opportunity when you have it, right, when things are good and you've got upside to reinvest. Can you give us a sense of just maybe the scope of reinvestment that's occurred in the first half, and then as we're thinking about the second half, would that be your bias? Have you identified potential areas to spend some money back that you hadn't planned, and then finally in that, as we're thinking about that for a base for '25, is there anything we should consider with regards to the level of investment in '25, whether this would be a good base off '24? Thanks. Noel Wallace Yes, thanks Bryan. Again, very consistent with what we've spoken about in the past, and that is getting the flexibility in the middle of the P&L to give us the opportunities to really direct advertising in areas where we're going to get the best return on that investment. With the continued growth in gross margin dollars with the strong top line growth, that affords us that flexibility around the world, and at the same time, as I've mentioned, we are all over trying to improve the ROI of that spend in terms of getting more bang for the buck and being very deliberate in terms of how we approach the advertising, not increased advertising for the sake of increased advertising. The ROI culture that we're implementing across the organization is very, very strong. Our intention is to continue to invest where we see a return on investment, and we see real opportunities for continued volume growth opportunities, particularly around household penetration and to build brand awareness, and we'll continue to invest opportunistically where we see those opportunities. I don't think there will be anything changing in the back half of this year. Our intention is to continue to invest behind the business and drive that top line consistently to drive the bottom compounding growth that we've talked about over the last three or four quarters. Stan Sutula Bryan, just to add onto that, if you look, I think we've demonstrated a good track record here with our ROIC back over 33%. We're on a mission for consistent, compounded EPS growth, and we'll make those investments where we see the ROI, and I think our track record is pretty good here. We'll look to continue that going forward. The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead. Robert Ottenstein Great, thank you. First, a quick follow-up, just on North America. Given that you're returning to historical or normal promotional levels, would it be fair to say that you don't expect any kind of particular competitive response? Would just love to get color on that. Then my bigger picture question is it seems to us, and I think we see it in your results, that the consumer, at least certain groups of consumers are more willing perhaps than in the past to pay up for innovation and performance, perhaps more than pre-COVID levels. Is that in fact something that is true, that you're seeing? Why would that be the case, and is it perhaps in combination with better communications on your part in terms of making clear exactly how the performance is better, and maybe what's driving that better communications? Thank you. Noel Wallace Yes, good morning Robert, thank you. Again, I think the overall promotional environment is constructive. As I mentioned, we may have pulled back a little bit too far last year as we pulled promotions out to get some pricing in the categories, and we've simply re-balanced that to, more importantly, probably match promotional pricing than certainly to lead it. Our intention is not to lead the category on a promotional cadence that can't be sustained. Overall, we feel like it's more or less consistent with where we are. We'll continue to be very prudent and mindful on where we invest those dollars, and making sure that we see the volume and the gross margin where we need it to be to continue to sustain what we want to focus on, which is strong advertising building the brands and leveraging the strong innovation pipeline that we have. Now if I extend onto innovation, clearly we will continue to operate with a real focus on the premium side of the business, and we're seeing great results from that across most of our divisions, where some of our premium innovation, particularly in whitening, now with the re-launch of Total going into Latin America, obviously Elmex and Meridol at the premium side with some of their innovations, we're seeing great inflection on the premium side of the business. If you couple that with the strong core business innovation that we've had - Max Fresh in India, a great example of that, we're seeing great core innovation that's driving real value oriented points of difference versus our competitors, and that's what we'll focus on, making sure that consumers are willing to trade up based on the real strong proposition and the big selling idea behind that. We've talked about the science and the superiority of our brands, and we're really trying to incorporate that much more into our messaging, to your point, to get the messaging stronger and the content delivery stronger. Overall, it's a combination of all of what you discussed, making us be focused on ensuring that we have the innovation pipeline and the pricing in place to continue to sustain that strong top line growth. The next question comes from Lauren Lieberman with Barclays. Please go ahead. Lauren Lieberman Great, thanks. Good morning. I know you just mentioned Elmex and Meridol on the last question, but I wanted to ask a bit about that three-brand strategy in Europe and get just maybe a bit of an update on how you're managing channel reach, if you've taken those more premium brands beyond the pharmacy channel in Europe, more countries that have been added maybe in the last few years that we've kind of lost sight of, and how applicable that strategy in particular may be to other markets, because I think I recall that you were launching one of the premium brands in Latin America a few years ago. I'm just curious if that's progressed at all. Thanks. Noel Wallace Yes, thanks Lauren, and you're absolutely right - we launched Elmex in Brazil, and I'll come back to that here at the end of my answer. But overall, it's been a very deliberate strategy for us to really flex our portfolio far more than we have done historically and making sure that we're capturing what are the unique needs and the consumer journey in the marketplace, and what are the growing parts of the category and particularly the therapeutic side of the category, which is where we were not seeing the level of growth that we needed. Using Elmex and Meridol particularly across Europe to capitalize on that growth has been very successful. You combine that with the strong focus we've had on whitening and multi-benefit in Total, as well as the Optic across the world, that gives us a unique combination of offerings to both the retail environments that we compete in as well as the consumer. The retail environment, we've been very disciplined about how we take Elmex and Meridol around the world, first and foremost. We've been very deliberate and selective on what markets we're going to put that into, we're not going to put it in for opportunity's sake alone. We're going to be strategic about where we do that, particularly where the pharmacy channel is strong and the therapeutic benefits are growing, and we have a unique offering to go get some of our competitors in that space. We're going to be very selective on how we continue to take that around the world, but we will take it to new markets around the world where we see that opportunity. The point is, I think, getting the balance between Elmex, Meridol and Colgate right, and Europe has been a great test market for that, where we're seeing very significant incremental growth across the whole entire franchise by being very focused on where we're going to take those brands and how we advertise them. So overall, we feel good about that. Professional was the other aspect, and really focusing on the professional heritage of the Elmex and the Meridol brands. We've been very deliberate about going back to the profession, educating them on the science and the key point of difference behind the Elmex and the Meridol brands, and that's certainly led to stronger endorsement levels from the profession, which obviously improve the premium-ness of the brand and the loyalty that we have behind those franchises. Oh, and you had a question in regards to--let me come back on LatAm, Lauren, quickly. Brazil was where we decided to take that brand - again, a very strong pharmacy class of trade, where we were not seeing the incremental growth that we wanted just with the Colgate franchise. We came in with the Elmex brand in LatAm, launched it in pharmacies in Sao Paulo only, and then decided to expand that based on the success that we had around the country, and we've seen that drive very significant incremental share in the pharmacy class of trade, so a great combination of portfolio offerings to the pharmacist in terms of being high end therapeutic with the Elmex brand, and making sure that we had the core offerings for the pharmacist as well with the Colgate brand, so it's been a great combination for us to leverage that portfolio. We'll use that as a proxy as we think about new markets around the world, but again a very consistent and disciplined go-to-market strategy, only launching in pharmacy, building the brand through the profession, and then finding ways to potentially democratize that brand as we move forward, but we're going to be very deliberate and very cautious as we do that to ensure that the brand is well established and well seated in the marketplace, based on its credentials. The last question will come from Mark Astrachan with Stifel. Please go ahead. I wanted to ask a couple of questions, one more of a clarification on the North America commentary and the shift to lower priced channels. We can see in the scanner data these days the shift to Costco and Amazon, as an example, and the growth is eight, nine times what it is in the legacy tracked channels. Are you referring to those as lower priced channels? If not, I guess I'm curious what's driving the growth. It's been there for at least a number of quarters now, so what's driving the share shift into those channels? Then separately, unrelatedly on Prescription Diet and your commentary around the supply chain flexibility increasing shelf space and volume, we started to see some of it in the pet specialty channel, but you still have a sign up there that says you need to have a prescription to buy the product, so I guess I'm curious how that works in terms of to get on shelf, you increase brand awareness and it sort of sells from there, and if you could provide just the mix of the Prescription versus the rest of the business, that'd be helpful too. Thank you. Noel Wallace Yes, thanks Mark. Let me take the retail channel. This has been, I think, nothing new here, quite frankly. I wouldn't say it's been a huge inflection in terms of shift. You've seen the non-tracked Nielsen channels consistently growing faster than the tracked Nielsen channels, and there is a value play there obviously with some of the club offerings. But overall, I think all the channels are looking very, very carefully at their value proposition and the price pack architectures and finding ways to ensure that there's a value orientation back to the consumer without losing, obviously, the great pricing that's come through the P&Ls or the categories over the last couple years. I don't anticipate those shifts will be anything different moving forward. We'll continue to see, I think, more consistent with where we've been in the past, and we're well prepared to continue to capitalize on those shifts. But the encouraging aspect is growing the Nielsen tracked channels as you've seen, as I mentioned earlier, the strong volume share growth that we've had in the Nielsen tracked channels. We're encouraged by that -it suggests that obviously the innovation and the value proposition that we're offering to our trade customers to grow their categories continues to be quite solid. On Prescription Diet, again a great opportunity for us to continue to grow the Prescription Diet business. We've talked about it in the past, where the Prescription Diet opportunity with only--less than 5% of pets are using a therapeutic nutrition today, and while our studies show, as you've heard me saying--talk about in the past, that 80% of pets can benefit from the therapeutic nutrition, so we're very focused on making sure pet specialty, our vet partners, etc. have the plethora of offerings that we bring to the market, and the increased capacity that we have with Tonganoxie coming online and allowing us to optimize our network and provide more of our offerings to the retail environment on a consistent basis is playing out quite nicely for the brand, getting more of those recipes into pet specialty and neighborhood pet stores, as well as making sure we have consistent supply to our veterinary professions, where they recommend and provide that recommendation to their pet owners has been terrific for it, so we will continue to make sure that offering expands and making sure that we continue to look for ways to increase the mix towards Prescription Diet, which is a real benefit for the pet owner. This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate-Palmolive's Chairman, President and CEO for any closing remarks. Noel Wallace Well, thank you all for joining us today, and I just want to applaud all the Colgate-Palmolive team around the world for the exceptional efforts to deliver strong top and bottom line growth. Importantly, we're doing that while we're building capabilities we need to stay strong moving forward, so that's terrific work by all the team. But I remind us, as always, that we're only halfway through the year and we still have a lot of work to be done, so thanks to everyone and appreciate the great discussion this morning. The conference has now concluded. Thank you for attending today's call. You may now disconnect.