Colgate-Palmolive Company (CL) — Q4 2015 Earnings Call Transcript

Thank you, Chanel. And good morning, everybody, and welcome to our fourth quarter 2015 earnings release conference call. With me this morning are Ian Cook, Chairman, President and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; and Elaine Paik, Treasurer. We’re delighted to have finished 2015 with continued strong organic sales growth in the fourth quarter. The 5% growth was well within our targeted growth rate of 4% to 7% and is impressive coming on top of strong growth in the year-ago quarter. Our gross profit margin was up 20 basis points despite continued pressures from foreign exchange-related transaction costs. And although down on a year-over-year basis, our advertising as a percentage of sales was up sequentially from the third quarter. As you will hear in more details as I go through the divisions, our market shares around the world are growing. Innovation has played an important role and will continue to do so as we enter 2016. Our global growth and efficiency program is on track and our ongoing funding-the-growth initiatives continue to deliver substantial savings. Our balance sheet is strong and working capital is under very good control. As you read in this morning’s press release, we have taken the decision effective December 31, 2015 to change our accounting method for our Venezuelan operations. As a result, in future periods, we will no longer include the results of our Venezuelan operations in our consolidated financial statements. As we stated in the press release, we expect the EPS impact in 2016 resulting from the change in accounting for our Venezuelan operation will be about a negative $0.10 for the full year. We’d expect this impact to be negative $0.02 to $0.03 per quarter. Let’s turn to the divisions, first with North America. We’re pleased with the continued solid organic sales growth in this region. As mentioned in the press release, our market shares increased year-to-date in toothpaste, manual toothbrushes, mouthwash, liquid hand soap, body wash, liquid cleaners, and fabric conditioners. As you’d expect, innovation was an important contributor to these excellent results. In the third quarter of 2015, we launched Colgate Total Daily Repair toothpaste. This toothpaste remineralizes weakened enamel to help prevent cavities and maintain stronger teeth, as well as kills bacteria that cause gingivitis for healthier gums. In addition, we engaged in a targeted outreach to consumers with diabetes. People with diabetes are two times more likely to develop gum disease. We reached both dentists and consumers and developed retail partnerships. As a result, our overall market share for Colgate Total toothpaste grew to 10.3% from 10% at the beginning of 2015. Our Colgate Optic White toothpaste franchise is also growing, up to 5.7% at our last period of 2015, thanks to the launch of Colgate Optic White Platinum Express White. With the help of a comprehensive IMC plan, support from dental professionals, and strong in-store activities, Colgate Enamel Health toothpaste has also grown share. Toothpaste innovation will continue in the first quarter. Building on the success of our whitening franchise, we’re launching Colgate Optic White Platinum High Impact White, which provides four shades of visibly whiter teeth in six weeks and starts working in just three days. We're also introducing premium-priced Colgate Enamel Health Mineral Repair toothpaste with an accompanying mouthwash and whitening toothbrush. The toothbrush and mouthwash help replenish natural calcium for stronger enamel. To bolster our toothbrush business, we’re launching Colgate Kids Interactive, the only talking-powered toothbrush featuring kids’ favorite licensed characters which coach them to better brushing. The brush features a two-minute timer to help ensure effective brushing. Also in the first quarter, Tom’s of Maine is launching Tom’s Natural Rapid Release Sensitive toothpaste with a clinically proven arginine and calcium carbonate formula to provide rapid release and long-lasting protection. With no artificial dyes, sweeteners, or preservatives, it will be premium-priced. Our liquid hand soap share was up 90 basis points year-to-date. Our year-to-date body wash share increased 80 basis points. More innovation in this quarter should help maintain this healthy momentum. In liquid hand soap, we’re launching Softsoap Foaming Hand Soap for kids that makes handwashing fun, as well as Softsoap Pure Foaming Hand Soap with a simple formula that is dye-free, alcohol-free, has 100% natural fragrance, yet effectively cleans and purifies. In body wash, we’re launching Softsoap Luminous Oils, one variant with avocado oil and iris and the other with macadamia oil and peony, designed to leave skin feeling soft. Turning then to Europe, South Pacific. We’re delighted with the return to positive organic sales growth in this region. Across Europe, our market shares have increased in toothpaste, toothbrushes, body wash, underarm, and fabric conditioner. In the toothpaste category, we’ve seen strong results. In France, our market share is up 80 basis points year-to-date to 22.4%. In Poland, we grew share 160 basis points to 47.6% year-to-date. In Italy, we increased share 30 basis points to 24.6% year-to-date. Similarly, in manual toothbrushes, our market shares increased year-to-date. Overall in the region, our market shares are up 120 basis points to 24.7% year-to-date, with excellent results in areas such as the UK, which is up 340 basis points to 39.3%; Germany, which is up a full point to 21%; and Italy, which is up 60 basis points to 16.4%. And as in the U.S., our innovation grid for the first quarter in Europe is very full. In the toothpaste category, we’re introducing Colgate Total Deep Clean, which features high cleaning prophy-silica, the same ingredient dentists use for in-office cleaning. The product provides a deep-cleaning user experience and is unique among the current variants in the Colgate Total portfolio. In addition, we’re restaging the Colgate Total toothpaste premium line with a new design that better communicates higher quality, health, and scientific and therapeutic benefits. New icons visually convey the variant benefits, enhancing differentiation, relevance, and shopability. In the toothbrush category, we’re launching Colgate 360° Expert White Toothbrush Plus Pen, a toothbrush with a whitening pen that has helped increase market shares here in the U.S. under the Colgate Optic White name. In personal care, we’re relaunching Palmolive Gourmet shower gels with high-density creamy formulas and a new packaging technology that provides a premium look with high-quality satin finishing and very strong shelf impact. Vanilla pleasure, chocolate passion, peach delight, and strawberry touch will enchant consumers at the point of sale. Also in personal care is the Palmolive SKIN GARDEN line, a premium offering with a regimen approach. The shower gel, bath foam, liquid hand soap, bar soap, and body lotion contain irresistible fragrances, natural ingredients rooted in the garden such as violet and honey, peony, pear, and Mirabelle plums, sensorial and vivid textures and cutting-edge packaging, all reinforcing the Palmolive regimen. As we told you last quarter, our Sanex business is performing well and we have new news to report here as well. Our line of Sanex Advanced shower oils is bringing the shower oil trend from pharmacy to mass. The shower oils provide a feeling of comfort in the shower and are formulated to minimize the risk of irritation. These are suitable for children, a new consumer target. Also inspired by the pharmacy channel are our new Sanex Advanced body bombs in a new stand-up tube format with a thicker, richer formula and premium pricing. Sanex Manual will also be launched, which is the first masculine personal care range truly focused on men’s skin health. As you know, we have a very strong market-leading homecare business in this region. An exciting innovation in this category is a line of Ajax specialty sprays that facilitate difficult everyday tasks in the kitchen. Priced at a premium, individual variants tackle different surfaces - the oven and microwave, MicroCeramic, and stainless steel. Turning then to Latin America. Despite some macroeconomic challenges in certain countries such as Brazil and Venezuela, the division delivered solid organic sales growth. Severe devaluations across the region have necessitated fairly significant price increases. But despite that, our regional market shares are solid and increase year-to-date in toothpaste, manual toothbrushes, mouthwash, toilet soaps, shampoos, and liquid cleaners. In Brazil, our toothpaste market share continues to climb up 100 basis points year-to-date to 72.4%, with the most recent lead at 73.4%. Innovations across our portfolio have contributed to this success. In Mexico, despite continued competitive pressure, our market share is up 120 basis points to 80.8%. One of our newest innovations, Colgate Maximum Cavity Protection with Neutrazucar, increased 70 basis points and is now almost at 2 points. Our market-leading manual toothbrush share is up 350 basis points year-to-date across the region. This excellent performance has been driven by innovation in the Super Premium category with products such as Colgate Slim Soft and Colgate 360. In toilet soaps, we increased our leadership share 40 basis points to 30.9% year-to-date. Protex and Palmolive continue to hold the number one and number two positions in the region. We achieved record shares in Mexico, Colombia, and Guatemala. More innovation is planned for this year. In the oral care whitening category, we have three exciting launches. In toothpaste, we’re launching Colgate Luminous White Advanced Expert, which delivers three shades of whiter teeth; a companion Colgate Luminous White mouthwash with an alcohol-free zinc and anti-tartar salts formula that helps deliver an anti-stain white smile; and Colgate Luminous White Advanced toothbrush and whitening pen, which claims to provide whiter teeth in two days and will both launch later this year. In mouthwash, a graphics relaunch of Colgate Plax 2-in-1 mouthwash clearly explains the benefits, which remove bacteria for a fresh and clean mouth and drive growth for the category. In personal care, under the Protex name, we’re launching a range of bar soaps, shower gel, and liquid hand soaps. Protex Pro Hydrate, developed from consumer insight that to have healthy and moisturized skin, it is necessary to deeply clean skin before moisturizing, has a formula that eliminates 99.9% of bacteria and a macadamia oil complex that glides over your skin for a soft sensation. A similar range under the Palmolive equity will be Palmolive almond and omega oil with a nourishing formula. In underarm, a relaunch of premium-priced Lady Speed Stick Clinical and Speed Stick Clinical will provide the benefits of superior sweat protection, neutralizing the source of bad odor, hypoallergenic, anti-stain technology, and advanced skin care. Turning then to Asia. While organic sales growth was somewhat muted in this region in the fourth quarter, we’re pleased that volume increased in our largest businesses - Greater China and India. And this, despite some overall slowing in category growth rates. As elsewhere, innovation has helped drive growth. In India, our toothpaste share is up to 54.7% year-to-date. Colgate Sensitive Pro-Relief Repair and Prevent and a relaunch of the rest of our sensitivity line have met with success. Additionally, Colgate Total Charcoal with a unique antibacterial formula that reduces bacteria on 100% of your mouth’s surfaces has added market share. Elsewhere in the region, our toothpaste shares were a little soft on a year-to-date basis, but market shares for the fourth quarter increased versus fourth quarter 2014 in China, Thailand, The Philippines, Singapore, Taiwan, and Pakistan. Our year-to-date toothbrush shares are also up in India, The Philippines, Malaysia, Taiwan, Hong Kong, and Pakistan. A particular success has been Colgate Slim Soft Charcoal Gold toothbrush with less than 0.01 millimeter charcoal gold slim tip antibacterial bristles for deep, gentle cleaning. In the most recent period, it achieved 2.1, 3.6, and 2.2 share points respectively in Malaysia, Hong Kong, and Singapore. In the fourth quarter in Hong Kong, we launched our Colgate Optic White toothbrush and whitening pen, and it has a 6.4% share in the latest read. Our mouthwash business is strong. Across the region, our market share is up to 25.7% year-to-date, which is up 70 basis points year-on-year with the most recent lead at 26.5%. We have some exciting innovations launching this quarter. In China, where natural ingredients resonate very strongly with the consumer, we will be introducing Colgate Naturals toothpaste. There are five variants - tea tree oil gum care, lemon zesty radiating white, jasmine and chamomile healthy refreshing, lotus jade green soothing gum, and seaweed salt pure white. The packaging visually communicates the different ingredients. There are also new products in the toothbrush category. Colgate Slim Soft Sensitive, a silky soft brush for sensitive teeth and gums; Colgate Super Flexi Black, with a flexible neck and improved handle; and a line of mid-tier brushes for kids with tapered bristles. To maintain our momentum in mouthwash, we’re launching in China Colgate Plax Extreme Icy Mint mouthwash, which delivers long-lasting prevention of bad breath with dual mint essence as well as antibacterial protection. Then going to Africa, Eurasia. As you know, currency headwinds in this part of the world have necessitated some significant pricing in countries like Russia, but market shares are solid and growing. Our year-to-date regional toothpaste market share is at 33.2%, up a full point from a year-ago period. In Russia, our share is up 260 basis points year-to-date to 34.5%, reaching a record-high of 35.2% in the most recent period. In South Africa, our market share is up 80 basis points year-to-date to 49.6%. Our recent launch of Colgate Maximum Cavity Protection with Sugar Acid Neutralizer in both these countries has contributed to these robust results. In manual toothbrushes, our market shares are up in many countries across the region. In Russia, our year-to-date share is up 260 basis points to 48.4%. Excellent in-store execution has played an important role in these results. In Israel, two new products, Colgate Extra Clean and Colgate Slim Soft, helped increase our year-to-date share by 300 basis points to 51.2%, with the most recent share read at a record 55.6%. Our bar soap business is strong as well, up 80 basis points to 21.7% on a year-to-date basis. In South Africa, the Protex brand is helping grow the business and our market share is up 20 basis points on a year-to-date basis. In Russia, Palmolive is leading growth driven by promotional support as well as strong in-store execution. Our year-to-date share is up 50 basis points. We have some exciting innovations for this part of the world as well. This quarter, we will be launching Colgate Total Pro Breath Health toothpaste across the division. The differentiated packaging with icons on the pack clearly explains the benefits, which include a unique breath-freshening technology, ON12 complex. Another toothpaste launch will be the Colgate Sensitive Pro-Relief Repair and Prevent line extension. This premium-priced toothpaste repairs the cause of sensitivity and prevents further sensitivity from gum recession. An innovation for the Russian market is Colgate Altai Herbs Ginseng, with an exclusive blend of Altai herbs and ginseng. In the personal care category, we are relaunching our existing line of Palmolive Aroma Sensations body washes and adding two new variants, Feel Good and So Dynamic. Finally, with Hill’s. Hill’s finished the year with a strong quarter, both here and abroad. All three brands - Prescription Diet, Science Diet, and Ideal Balance - are doing well. In fact, Hill’s Prescription Diet or flagship line of therapeutic pet foods became a $1 billion brand in 2015. In the U.S., superstore retail consumption is growing in both PetSmart and Petco, which contributed to our solid results. In Europe, our Ideal Balance line is now fully rolled out across all key countries and doing well. We’re seeing a steady build of distribution and volume. Our integrated marketing campaign is focusing on trial and repurchase. We’re very excited about our upcoming innovation. Just launched at the North American Vet Conference is Prescription Diet Derm Defense for dogs. This diet is the first and only nutrition formulated to reduce signs of environmental allergies by helping to disrupt the internal allergy response and create a barrier against future episodes in dogs. It’s available in dry and new delicious forms and will be supported by a full IMC campaign to engage the increasingly millennial vet population. Hill’s will also be entering the wearables space. Hill’s has formed a strategic alliance with AGL to advance veterinary healthcare with the development of a wearable sensor for dogs that is sophisticated enough to distinguish the acts of scratching and shaking from running. Coupled with a robust data and analytics platform, it’s designed to more quickly alert veterinarians and pet owners to potential health concerns as part of an ongoing monitoring program. It will be recommended for dogs that need to be regularly monitored, including those with dermatological conditions, arthritis, or obesity. New news in the wellness category is the premium-priced Hill’s Science Diet healthy cuisine for dogs and cats, which uses our new Algenec technology to deliver superior-looking, tasty wet food. The new formulas are loaded with tasty morsels, tender vegetables, and savory sauce. Before I wrap up quickly, I want to cover two more housekeeping items relative to your models. Net interest in 2016 should be between $30 million and $45 million to quarter with a loss of interest income in Venezuela. Average diluted common shares outstanding were 896.5 million for the three months ended December 31, 2015. Because we had a GAAP loss in the fourth quarter of 2015 due to the one-time charge with Venezuela, this number excludes 6.6 million of net incremental common shares outstanding assumed issued from the exercises in the money stock options as they are anti-dilutive. We expect the 6.6 million shares to be included in diluted common shares outstanding in the first quarter of 2016 as they should not be anti-dilutive in this period. In summary, we’re extremely pleased with the way that we finished the year. Organic sales growth was strong around the world, our gross margin increased, and our market shares are healthy. Colgate people around the world are all focused on our strategies and priorities, delivering these consistent strong results. Our global growth and efficiency program is on track and these ongoing funding-the-growth programs are set up. Our innovation pipeline is full, and we’re excited about the many products and initiatives we just told you about. We expect this momentum to continue into 2016 and look forward to sharing our progress with you as we go throughout the year. Chanel, that’s the end of my prepared remarks. I would like to turn it over now to Q&A.

Hey, good morning. Ian, you had very strong pricing in the quarter both at the corporate level and in Latin America but the volume reaction looked more severe than what we’ve seen traditionally in your business, particularly in Latin America. So I was hoping you could just discuss consumer demand elasticity in this current macroenvironment if you’re seeing any different behavior versus in the past with the macro slowdown we’re seeing in Latin America and then how that may impact your desire to take additional pricing going forward to offset incremental FX pressure. And then that’s at the consumer level, but at the competitor level, what are you generally seeing from your competitors? Are they following, and can you characterize the competitive environment that you’re seeing? Thanks.

Yes, thanks, Dara. Before I jump in, let me just take this belated opportunity to wish everyone on the call a happy, healthy, and safe 2016 in this volatile world. When we turn to that volatile world, we’re actually very pleased with the results in 2015, as Bina said, with consistent 5% organic top-line growth in the quarter and the year, with our gross margin building from the second quarter to 59% in the fourth quarter, which is the highest in two years in that environment, positioning us well to see margin expansion in 2016. I’ll come back to that when we talk about margin. But turning to how we think about the business in the environment everybody is operating in, we seek to have clarity and consistency of strategy. We’ve had that for the last decade, with a simple and focused strategy that starts with consumers and ends with leadership development in the company to deliver our products to those consumers. Then you have the balance between the consistency of results by quarter and our ambition of the longer term, captured in the global growth and efficiency program in terms of building the organization we want for the future. Of course, the decisions we make on the ground and the agility that’s required to deal with events as they unfold. If you look at Latin America to this specific question, obviously, the foreign exchange headwind there has been the most severe we experienced in our world for 2015. When we think about the consumers, we think about the brands' health, and the market share development of our brand. However, we need to focus on rebuilding the margin, which is the fulcrum for investment in a business. In both those divisions, we took a conscious decision to take pricing to help recover gross margin and suffered the volume decline you see. We feel, however, very comfortable because of the performance of our market shares, whether you look at the value market share and local currency, as Bina talked specifically to Brazil, or whether you look at the volume market shares in that region, they are up. The consumer is staying with us across the portfolio of brands. As we think forward into 2016, there are a couple of things to say. First, the enormous translation headwinds we faced in 2015 will still be there in 2016, but it will be at a lesser level. Second, the general commodity pricing environment year-on-year will be flat to modestly down. Third, we have our funding the growth program, which we talk about every call, which we expect to build the same way it has for the last several years. We have the global growth and efficiency program. On top of that, we have pricing, but we have less pricing in 2016 than we had in 2015. Half of that pricing, without Venezuela, is still rollover pricing into 2016. So our expectation is that we will see the balance between volume and pricing move back a little more to volume and less to pricing. This will include Latin America, and we expect our market shares to continue to grow. Consumer behavior hasn’t changed. We haven’t seen downgrading. We’re confident about the reversal back to volume more and price less in 2016 for Latin America and the overall business.

Hi. Can I just follow up on that last one just in terms of the outlook, maybe in the near term to manage expectations? I know the comps in Latin America on the volume are really tough in the first half of ‘16. So do you think we’re going to see negative volume growth maybe for the next quarter or two, potentially even worse than we just saw in the fourth quarter in Latin America? Broadly, I also wanted to ask more strategically, Asia, the slowdown in category growth that you’re seeing there surprises me that we’re seeing a slowdown in category growth given the very low per capita consumption levels. I get in Latin America, but not so much in Asia. So can you talk about Asia, specifically China and India? Do you think there’s something more structural there? Do you think it’s going to take a longer time? Do you think it’s really an economic factor that’s leading to the slowdown of the growth? If you could talk about that, that would be great. Thanks.

Yes. I think in Latin America, the expectation is not to see the kind of negative volume that we had in the fourth quarter as we set our way into 2016. Obviously, it will build across the year, but we don’t expect to repeat the level of that volume. When you turn to Asia, if you look at the emerging markets in general, the local currency growth rates in categories are still mid-single digits, maybe slightly off that in the fourth quarter. We haven’t seen anything dramatic in terms of a change in behavior thus far. We’re obviously very focused on that, Wendy, as you would suppose. Pleasingly, I can report that the market shares in China and India have both improved nicely in 2015. So we continue to observe the category closely. Right now, we continue to see cash agreements growing around mid-single digits in local currency terms.

Great. Thanks. Just one more on the volume if I could just to clean it up. Ian, can you just talk about whether the volume softness you've seen in response to pricing has been at all more pronounced on the personal and home care side versus oral care or if it’s about equal? A few months ago, you indicated that you saw traditional advertising ratios would be up again as a percentage of sales in 2016. As we’ve talked about, a good deal has changed since then, the macroenvironment, so I’m just curious if that’s still your expectation in terms of what’s embedded in your outlook, the Super Bowl ad notwithstanding. Thanks.

The answer to your first question on volume is no, not really. It has more to do with the short-term slowdown concerning the level of increase in pricing you take, regardless of which category you’re raising prices in. On the advertising side, I won’t repeat too much of the story, but I would say, back to this notion of marketing mix, when we think about advertising, we think about everything from educating kids in schools to getting dental professionals and veterinary professionals to make recommendations before the consumer has even purchased a product, to engaging with consumers to the various different media that we can avail ourselves of, increasingly digital, but also traditional media. We think about that balance all the time to make sure that our brand health doesn’t weaken over time. I mentioned the advertising would be up absolutely and also as a percentage of sales in 2016, and we’ve ended up with our plan. So I can say that our traditional advertising in 2016 is up both on an absolute basis and of course on a ratio basis as well given that strength of innovation.

Hi, good morning.

Hey, Bill.

Hey, a couple of things. How do you define strong organic growth? I’m trying to figure out how that sort of plays out relative to Venezuela. Can you tell us how much Venezuela contributed to organic growth now that the cat’s out of the bag on the earnings side? How do you think organic growth is going to play out next year?

Well, let me just say, Bill, in response to your question, when you say how do you define strong organic growth, I think we would say in the environment wherein the range we had 4% to 7% bookend strong organic growth, and 5% for 2015 in that regard is, therefore, strong. The way we’re thinking about 2016 without Venezuela is exactly the same way, which is to say our target for organic growth is to grow in that 4% to 7% range without Venezuela. I can report that, I have to say, from a top-line point of view, the year is off to a bright start.

Hey, good morning, folks.

Hey, Jason.

Thank you for the question, and happy New Year to you as well. I want to come back on Venezuela real quick just to make sure we understand the math. I think in the last Q, you filed that you listed around 4% of sales, 2% of EBIT, clearly more UPS with interest income that you talked about. On the EBIT side, the math I know on very rounding numbers suggest that removal of Venezuela is going to be about a 50 basis point contribution of EBIT margins. Is that sort of directionally right? If so, can you comment sort of bigger picture on how you are thinking about margins overall next year, both with and without that tailwind?

We don’t tend to talk about EBIT margin, Jason, so let me turn to gross margin, which as you know we regard as the fulcrum of everything. Gross margin was up 20 bps to 59 in the fourth quarter. Perhaps I should take the opportunity now, before Lauren comes on and chides me of going through the row fort for that fourth quarter gross profit. The gross profit in the prior year was 58.8%. Pricing, our strongest showing for the year, was up 1.6 percentage points, so positive 1.6 points. Restructuring and funding the growth positively contributed 290 basis points. Material prices negatively impacted us by 420, of which 240 was transaction, modestly negative with all others, and you get to the 59. As we roll that forward to 2016 with the plans we have, we feel good about our ability to meaningfully increase gross margin in 2016. We would say that we expect to have gross margin expansion in 2016 to be in that 75 to 125 range. Part of the reason, as I mentioned earlier, is the less aggressive foreign headwind. But as I also said earlier, we have pricing less, but half of it is rollover. We have funding the growth, which you know very well. We have the global growth and efficiency program, and we expect to see that gross margin expansion begin in the first quarter of 2016.

Hi guys.

Hi Ali.

I wanted to drill down on two things. One is SG&A and then just a broader question on SKU proliferation. First on SG&A, I know we’ve talked a lot about ad spend. It is the seventh quarter in a row we’re seeing ad spend as a percentage of sales go down. But your point earlier is that your shares aren’t moving, as you confirm both volume and value. It doesn’t look like it’s moving. How much more of a shift do you think you can do from ad spend to in-store? What are you watching to make sure you don’t fall into the olden days’ fear of just hurting the brand? What’s your risk from that perspective? What are you watching? How much more can you go? On non-advertising, ex-advertising SG&A, I thought we would see more benefit because of the hubbing and the restructuring. Why are we not seeing that? And then on the SKU proliferation or innovation question, how do you deal with SKU proliferation? Is there discipline or a policy about putting one in and taking one out? How do you deal with that? Could you give us a sense of your SKUs over the years and how much that’s gone up? It’s something that struck me listening to you again. Thanks.

Yes, thanks for your one question as usual. Let’s turn to advertising. I mentioned in the introductory comments the word 'balance.' You and I had this conversation on the last call. We don’t view this as either/or; we view this as what do we need to create trial and repeat for our brands, build health over time, and ultimately increase market share with more consumers using our products. When you said your market share is not moving, it is moving, and it’s moving up, as Bina went through some of those examples. When we think about advertising, we think about marketing mix from the school room to the dental office, to the store, to all the other media we can avail ourselves of including digital and traditional media as well as in-store, all being necessary to strengthen our brand health over time. The advertising would be up both on an absolute basis and as a percent to sales due to that strength of innovation. Regarding SKU proliferation, you are right, it is always a risk that in the hunt for innovation you can end up over proliferating. We can't say that we have a strict one-in, one-out policy; that wouldn’t be correct. However, we monitor our SKUs by division and overall as a company. Thankfully, our SKU count has been coming down. Within that, you have cycles when you’re replacing, which can create a double count. But it’s something we watch closely because it touches everything—factories, inventory, and all touchpoints. Overall, I don’t believe we’re at risk of over proliferating due to our disciplined approach in managing innovation.

Thank you. Good morning.

Hey guys.

I guess I just want to go back to gross margin for a second and the 75 to 125 bps expansion outlook for this year. That seems to be your evergreen target. I was looking at my model and if it’s right, you guys haven’t done that since 2009. So it’s been a while, and I understand there’s been a lot of external factors that have crept up here. How much confidence do you have in that? How do we think about raw materials excluding the transactional impact of currency in that? How do we think about the exclusion of Venezuela regarding the dynamics of that gross margin expansion? Thanks.

Yes. First of all, there is no one more keenly aware of our gross margin plateaus than us. When we think about it, as I mentioned earlier, from the transaction point of view, although the foreign exchange continues to be a negative, it is less negative than what we endured in 2015. Of course, that improvement builds over the year, but still, overall, it is less negative. The underlying commodity costs are flat to modestly down, which is favorable. We have our funding-the-growth program that we’ve tracked through quarter by quarter. You will see the history from 2015, and that’s our goal for 2016. We believe that 2016 is the year to raise our gross margin. The proof will be when we talk next at the end of the first quarter, as everything that we know supports that confidence.

Thank you so much. Hi, Bina and Ian. Ian, just more commentary if you wouldn’t mind walking around a couple of big markets - China, Brazil, Mexico, Russia - just the state of the consumer. I mean from where we sit sometimes, things can sound really dire. What are you hearing from your country leaders and people on the ground about consumer sentiment? Is it significantly worse in any one of those areas than in another?

It’s difficult to find anybody with anything optimistic to say about much of anything these days. Without being overly generalized, I would say that the underlying consumer sentiment and behavior in China and India is okay. In Mexico, the underlying consumer sentiment is okay. I would say that the underlying consumer sentiment in Russia is not great, to put it mildly. In Brazil, the underlying sentiment is not great. We have said before that we think Brazil is not an overnight fix. We will stay the course, but generally speaking, emerging markets appear to show more underlying consumer sentiment that's okay, while Russia and Brazil would not be in that group in 2015, and we don’t expect them to be in 2016 either. It’s the same trend for some African countries, though they are smaller for our business.

Thanks, good morning.

Hey, Bill.

Just a follow-up, could you quantify what the organic growth was last year ex Venezuela? Also, I’m not sure if you commented on what it was in the quarter for share repurchase. Is there any thought with your stock where it’s been? In the past, you’ve used opportunities to step up and use a little more cash. Is that a thought right now?

The answer on Venezuela is polite no. I repeat, we delivered 5% organic growth in the fourth quarter and in 2015, guiding that we will deliver the same organic range between 4% and 7% excluding Venezuela in 2016. On the share repurchases, one has to be thoughtful about capital structure in the environment given the foreign exchange impact on cash profit. We have been committed to paying dividends and have increased it for the last 50 plus years. It’s a decision yet to be made, but that is obviously a use of cash. Capital expenditure is also focused on supporting our global growth and efficiency program, then we turn to share buybacks. Our gross share buyback for this year would be in the range of $1 billion to $1.3 billion.

Great, thanks. I would never chide you in, first of all. I had a question on Europe. When I spent some time with panels, middle of last year, we talked quite a bit about premium innovations, and it struck me that’s a different way of dealing with the longstanding deflationary environment in Europe. If you could talk a little bit about how those efforts are going on premium innovation, and if it’s a strategy you’re thinking about taking more significantly into other markets, that would help. Thank you.

Yes, it’s well underway. As we went through our 2016 budget program, you may have seen some of the upcoming products. That is very much underpinning the European plan for 2016, and some of those products are moving into the marketplace as Bina mentioned. It’s fair to say that depending on the market and the consumer condition, that is a model being observed and adopted in certain parts of the world. To the extent that it can be deployed, you can expect that it will be.

Good morning everyone. My question has to do with reports in the British press that Glaxo is considering selling off its consumer division. I would like to hear your thoughts regarding whether this asset, which includes Sensodyne, is something that you would consider strategic for Colgate on one end? On the other hand, with the restructuring savings ending in 2016, whether financially will be of interest as well as a means to generate savings? Thank you.

First of all, I’m hesitant to comment on the British press, Javier. The only proper answer to that question is that we don’t comment on market speculation and rumor.

Thank you very much. Two questions here. First, a lot more discussion about local brands and things like that. Yet as you said, your market shares are generally increasing. Can you talk about what you’ve seen from them from a transactional pricing standpoint? On the second question, probably, it’s a little bit of a devil’s advocate question and not one you’re probably expecting. When you talked about having the flexibility in terms of your marketing mix, wouldn’t that argue that longer-term the gross margin expansion, which we’ve been looking for, is less relevant? If you have that flexibility in marketing, it seems sort of the operating margin should take precedence over the gross margin. So my question is, does gross margin lose some importance over time if you’re able to shift these buckets more?

Let me answer the question of local brand pricing. For those materials that are dollar-denominated, they say it’s the same pressures we do. Many of these local brands are not classic cheapies. They are reasonably well-priced products. I must say I can’t give you a comprehensive review on whether they mimicked the pricing we have, but we haven’t seen them going the other way. They tend to be premium in many cases or they might have moved their pricing up. We haven’t seen them trying to go the other way. Regarding the marketing mix comment, I would be careful to argue about flexibility. What it gives us is against the objectives we have for a brand or an innovation or consumer, what is the best way to reach them. I made the comment last time that over half of moms today in Latin America are Millennials, so social media platforms are essential connection points for that community. Gross margin remains as important because what you're trying to do is create value in a product the consumer sees and is prepared to pay for, back to Lauren’s point about premium innovation. Everything else hinges on that; otherwise, operationally, you’re relying heavily on overhead and advertising. Gross margin focus should be unwavering in a consumer products company in our business. Okay. I’m pleased and pleasantly surprised by the duration of the call. Thank you for all of the questions. We look forward to keeping you updated as the year unfolds. Thank you very much.