Colgate-Palmolive Company (CL) — Q4 2020 Earnings Call Transcript

Good morning and welcome to our 2020 fourth quarter and year-end earnings release conference call. This is John Faucher, Chief Investor Relations Officer. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2019 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 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate’s website. Joining me on the call this morning is Noel Wallace, Chairman, President and Chief Executive Officer, and Stan Sutulla, Chief Financial Officer. I will provide commentary on our Q4 and full-year performance as well as our 2021 guidance before turning it over to Noel for his thoughts on how we are planning to sustain our growth momentum into 2021. We will then open it up for Q&A. As usual, we request that you limit yourself to one question so that as many people as possible get to ask a question. If you have further questions, you are welcome to re-enter the queue. We finished 2020 in very strong fashion with our highest level of quarterly organic sales growth in over 10 years and our highest annual organic sales growth since the depths of the financial crisis. Importantly, we continued to deliver balanced growth which we think is the key to sustainable strong performance. For both the quarter and the year, we delivered both volume and pricing growth, organic growth in all four of our categories - oral care, personal care, home care, and pet nutrition, and organic sales growth in every division with both emerging markets and developed markets performing well. Our strategy to deliver more impactful premium innovation is still in its early stages, but we believe the results are beginning to show. Importantly, this growth is driving our income statement. We delivered strong gross margin expansion for both the quarter and the year which allowed us to deliver profitable growth despite significant investments for future growth and the headwinds from foreign exchange. Our net sales grew 7.5% in the quarter. Organic sales growth of 8.5% was driven by 5% organic volume growth and a 3.5% increase in pricing. The impact of acquisitions added an additional 100 basis points to volume growth while foreign exchange was a 2% headwind. In the fourth quarter, our gross profit margin was 61.1% on both a GAAP basis, where we were up 100 basis points year over year, and a base business basis where we were up 90 basis points. For the fourth quarter, pricing was 130 basis points favorable to gross margin while raw materials were a 320 basis point headwind driven by increases in the cost of raw materials, like pulling oils, and the transactional impact from foreign exchange. Productivity was a 280 basis point benefit. On a GAAP basis, our SG&A was up 260 basis points as a percent of sales for the fourth quarter and 100 basis points for the full year. On a base business basis, in the fourth quarter our SG&A was up 310 basis points on a percent of sales basis. This was primarily driven by a 210 basis point increase in advertising to sales as we drove strong activation on brand building, innovation and ecommerce. Our SG&A ratio was also impacted by increased logistics costs primarily in the U.S. and investments behind growth and innovation. For the full year on a base business basis, our SG&A ratio was up 150 basis points driven primarily by a 100 basis point increase in advertising to sales and increased logistics costs. For the fourth quarter on a GAAP basis, our operating profit was up 4% year-over-year while it was up 3% on a base business basis. Our EPS was flat on a GAAP basis and up 5% on a base business basis. For the full year, our EPS growth was 14% on a GAAP basis and 8% on a base business basis. We delivered 18% growth in free cash flow for the full year. As we discussed at the beginning of 2020, we used some of the free cash flow to pay down debt primarily related to the Filorga transaction with the balance used for dividends and share repurchases. A few comments on our divisional performance. North America delivered 10% net sales and 8.5% organic sales growth in the quarter driven by premium innovation and increased consumption in categories impacted by the COVID pandemic. We also benefited from a rebound in performance by our skin health businesses in the quarter. Our ecommerce business in North America finished the year strongly with sales in the fourth quarter more than double last year’s sales. North America saw significant increases in brand support behind the Hum by Colgate electric brush, the Colgate Optic White overnight teeth whitening pen, our toothpaste business, and Irish Spring. Latin America net sales were down low single digits as double-digit organic sales growth was more than offset by the negative impact of foreign exchange. The strong organic sales growth performance was broad-based as we delivered organic sales growth in every hub for both the quarter and the year. Oral care innovation has been a key growth driver with Colgate Total Tartar Control, Luminous White Charcoal, and our Natural Extracts line all driving incremental growth. Europe delivered double-digit net sales growth in the quarter. Organic sales growth of 4.5% was driven by volume growth across all three segments: oral care, personal care, and home care, and in every hub. Strong oral care volume growth on the Colgate and elmex brands was accompanied by significant brand building investment in traditional media and digital. We were also encouraged by a return to organic growth for Filorga where strong China growth more than offset weakness in the travel retail channel. We delivered 7% net sales and 5% organic sales growth in Asia-Pacific led by volume growth across our biggest hubs: Greater China, India, the Philippines, and South Pacific. In India and China, our growth strategies are driving improved toothpaste performance through Colgate Miracle Repair in China, Colgate Vedshakti in India, and our re-launched Colgate anti-cavity business across the division. Our personal care and home care businesses also benefited from COVID-related demand in the South Pacific region. Africa Eurasia net sales declined 1.5% due to significant foreign exchange headwinds as the division delivered organic sales growth across all three categories and in every hub. Toothpaste organic sales growth was led by Colgate Herbal, Colgate Max Fresh, and Colgate Total. Meridol also delivered strong growth as we look to gain share in the pharmacy channel. Hill’s finished the year with another quarter of strong net sales and organic sales growth despite continued difficult comparisons. Organic sales growth was again led by the U.S. with ecommerce up significantly, but Europe also delivered double-digit growth. Encouragingly, we are seeing a re-acceleration in our prescription diet business as vet channel traffic continues to improve. Now for guidance. We expect organic sales growth to be within our 3% to 5% long term target range. Using current spot rates, we expect foreign exchange to be a low single-digit benefit for the year, although we expect currencies to remain volatile. We expect net sales to be up 4% to 7%. We expect our gross profit margin to be up year-over-year in 2021 despite difficult comparisons given our performance in 2020, increases in raw materials, and the continuing uncertainty associated with COVID. Advertising is also expected to be up on a percent of sales basis, although less so than in 2020. Our tax rate is expected to be between 23.5% to 24.5% on both a GAAP and base business basis. We point out that our guidance range does not account for any changes in U.S. corporate tax rates given the recent change in administration. On a GAAP basis, we expect earnings per share growth in the low to mid single digits. On a base business basis, we expect earnings per share growth in the mid to high single digits. Obviously this is a wider range than what we normally provide, which we think is prudent given what we consider to be a heightened level of uncertainty as we plan out the year. There are several factors that could impact where we fall within this wider range. First, COVID-related consumption. In the categories where consumption has risen during the pandemic, primarily liquid hand soap, dish soap and cleaners, we are expecting lower rates of growth or even declines year-over-year in 2021, depending on the market. However, we expect overall consumption in these categories to remain elevated versus 2019 levels. Also, particularly in emerging markets, movements in foreign exchange could impact our ability to take pricing. We are optimistic about our pricing plans for 2021 and believe they are appropriate given recent raw material trends, the competitive environment, and foreign exchange. Raw materials - we have budgeted for increased raw material costs, but we do highlight that many raw material prices are accelerating faster than anticipated. If this continues, it could pressure gross margin expansion depending on our ability to take pricing or drive additional productivity. Finally, logistics - we have seen a further rise in logistics costs over the past few quarters, particularly in the U.S. but also related to shipping containers in Asia. We expect these costs to remain elevated in the near term but to moderate later in the year.

Thanks John, and good morning everyone. Like me, I hope you and your families are safe and healthy, and you share some sense of optimism that we can return to a more normal existence over the course of this year. I want to welcome Stan Sutulla to the first Colgate-Palmolive earnings call. Stan joined us back in November, as we announced, and obviously we’re deeply excited to have him here. He’s hit the ground running already. As I reflected on 2020, I’m so proud of the Colgate people around the world and what they’ve accomplished. Our first quarter call, I discussed three topics related to how we planned to manage through the crisis. These three topics were staying true to our values and purpose and helping us navigate a very difficult environment, adapting our strategies where necessary and executing with agility, and importantly managing through the crisis with an eye towards the future. On the first topic, we’ve implemented programs to keep our employees safe and healthy while keeping our supply chain and our laboratories up and running and delivering record output from our facilities and our R&D organization. Nothing is more important than the safety and health of Colgate people and we will continue in 2021 to keep them as our first priority. We worked with the World Health Organization this year in local hospitals to distribute free health and hygiene products to people all over the world to help stop the spread of COVID and enable people to live healthier lives, programs that Colgate people are deeply proud of. In the second area, we continued to execute on our growth mindset strategy to drive sustainable, profitable growth through more impactful premium innovation, which you’ll hear more about at CAGNY, increasing our brand building globally, and executing against our digital transformation. As John laid out, we did this all while delivering strong and balanced growth in organic net sales, net sales, operating profit, earnings per share, and free cash flow. We were able to achieve those results despite many operating challenges we confronted and a sizable negative impact from foreign exchange. Most importantly, while we’ve been delivering on 2020 results, we have been very focused on positioning ourselves for growth in 2021 and beyond by taking advantage of our momentum, and that was the third topic - managing through this crisis with an eye towards the future. Now I’ll provide some thoughts on why I believe what we did last year leaves us well positioned to continue our growth journey in 2021 and beyond. There are three reasons. The first is that as an organization, we have truly changed how we think about growth. As a company with leading brands, we have to be focused on driving category growth, and we can drive this growth in many ways. Of course, we can increase the number of people buying our products, we can increase the price that people are willing to pay for our products, and we can increase the frequency of how often people use our products. We have strengthened existing tools and, importantly, built new capabilities to drive this growth. For example, on Hill’s we’re reaching a much larger group of consumers through increased advertising to broaden our reach and improving our digital targeting so we can raise brand awareness and household penetration in what is truly a differentiated brand. Think about this as finding the right person with the right message at the right time. It’s not just spending more, but spending smarter. In Latin America, we have used revenue growth management tools to drive value with price mix improvement in a very difficult operating environment. For instance, our share of the premium segment in toothpaste in Brazil has expanded by three points in the last two years, all driven by tactical and strategic revenue growth management. As I discussed at the Barclays conference, we have disrupted our innovation processes to focus on breakthrough and transformational innovation which will enable us to increase the frequency of how people use our products and purchase our products. Pure performance, new forms, delivery systems and innovation for new channels all allow us to expand our availability to the consumer so they can choose our products more frequently, and given that Colgate brand has the highest household penetration of any consumer brand in the world, we have a unique ability to leverage our presence into faster growth. The second reason is that we’re developing a balanced view of how we deliver profitable growth. We know that in order to deliver a TSR that is in the top tier of our peer group, we can’t just grow the top line, we need to deliver profitable growth. You can see this in our 2020 results where we delivered 8% earnings per share growth despite negative foreign exchange, while increasing brand building and investing in capabilities across the entire organization. We’re doing this by pulling on all the levers: premium innovation, revenue growth management, funding the growth, discipline on overheads, and laser focused on all cost elements throughout the income statement. Looking forward, we have to do more than offset the expected increases in raw material costs and logistics and in other areas, so that we can continue to invest in the transformational capabilities that we’re deploying and that will rely on pairing growth and productivity more effectively. The third reason is that we’re making the necessary transformations to our culture to unleash the true potential of Colgate people. As anyone who has come here from the outside can tell you, the desire of Colgate people to win is unmatched. In 2020, we took several steps to accelerate the rate of change to build an organization for future growth. To that end, we made real progress on ecommerce, where we have brought in more external talent while up-skilling existing talent across the enterprise, launched more online-specific innovation like the Optic White Pen and the Miracle Repair Serum, and invested broadly behind enhanced digital capabilities. All of this paid off in more than 50% online growth in the fourth quarter and we’ll exit the year with ecommerce at a double-digit run rate as a percentage of total sales. Lastly, it’s building out the right team. You need to provide the right tools to them, the right technology to digitally transform the organization. We continue to invest in systems to enable this transformation, like our transition to SAP S/4HANA that’s giving us better system speed, far better reporting, streamlined processes, and simplified transactions. We’ve developed our cloud capabilities, which is giving us far more agility, speed and capability building, our ability now to develop applications much faster and realize the value of those applications much faster, and with our partners building support for our data and our analytics journey ahead. We also recently rolled out a new global system with our Colgate business planning process - you will remember that was called CBP, that will significantly reduce the process time required by providing greater opportunity for our teams to do analytics, particularly in the commercial area and particularly around revenue growth management. To sum it up, I look back at 2020 as a year where our company battled through uncertainty to deliver really strong results. I would also look back at a year where we elevated our performance and capabilities and positioned ourselves to deliver sustainable, profitable growth into the future. With that, I’ll be happy to take your questions.

Hey guys. You’ve been able to realize some pretty significant pricing in the last few quarters of 2020. You mentioned optimism on pricing for 2021, also mentioned the rising raw material environment, clearly. Just wanted to understand the balance between pricing and volume in your 3% to 5% organic sales outlook, how much pricing you’re assuming, and perhaps you can touch on your ability to take further pricing in emerging markets in a weaker dollar environment and given the state of the consumer, and then in the U.S. the promotional environment also relative to 2020. The gist of the question is, look, it’s a robust organic sales growth outlook relative to last year, so just trying to understand what gives you confidence versus a tough comparison and how pricing plays into that. Thanks.

Thanks, Dara. I'd like to revisit our overarching strategy, as it relates to our capacity for sustained profitable growth, which relies on balancing volume and price. Examining the details of volume and price across all divisions and categories shows that our underlying momentum and strategy are indeed effective. Allow me to highlight some key focus areas that have contributed to this momentum this year. We have intensified our focus on premium innovation, alongside recovering some transactional aspects affected by foreign exchange fluctuations. Our emphasis has been on securing premium innovation in the market and implementing revenue growth management with greater discipline, training our commercial teams on different execution approaches. We’ve also explored adjacent markets that offer higher margins and value in our categories. Our core strategy continues to perform well in several major global markets, leveraging superior technology to capture more value as we advance. We have maintained a disciplined approach to pricing, particularly to offset foreign exchange impacts, which has been evident in the latter half of this year. This positions us well for navigating the rising raw material costs, particularly seen in recent months. Ultimately, our goal is to achieve balanced growth by ensuring appropriate pricing while simultaneously fostering innovation to drive both volume and price. This approach is evident in both emerging and developed markets. Regarding the promotional environment, we have experienced a somewhat more stable promotional landscape this year. We encountered some low points, but in the latter half, for instance, toothpaste promotions represent about 28% of sales. Prior to COVID, this figure was at 31-32%, indicating a return to previous levels. My impression is that the market is operating with discipline. As consumers return to stores and foot traffic increases, we will observe whether retailers choose to increase promotions. However, at present, the market remains disciplined, and we will continue to manage this trend moving forward. Overall, our core strategies of innovation and focus on premium products, as well as effective revenue growth management worldwide, are enabling us to achieve better balance and pricing quality in the market.

Yes, hello. I apologize for the issue. My question is about shipments and consumption. If we analyze the fourth quarter and how it transitions into the first and possibly the second quarter, I understand there are challenges. When we examine Nielsen data, particularly in the U.S., it's difficult to see the relationship between shipments and consumption in cat food and other categories. As we look into 2021, I would like to know how we should approach your outlook for volumes. Thank you.

Sure. Two aspects there. I think behind the question is where are inventories relative to the trade and consumers. Certainly following the pantry load that we saw in the first quarter, we saw those inventories come out in subsequent quarters - second, third and in the fourth, and trade inventories obviously, I think, were well in line. A little discontinuity in the fourth quarter and into January, I think as retailers came out of the Christmas season. They overloaded in some commodity categories and they’re looking to balance it across the board, but by and large we’re where we wanted to be. The replenishment of some of the high demand categories is basically there, and we think we’re in a good place relative to where we stand. We still have some opportunities in categories like liquid hand soap and dish, given the heightened demand, but overall inventories are not in a place that has any concern to us. I think what’s interesting, another point behind your question is obviously that our consumption or our shipments are running ahead of some of the market share trends we see around the world, and that again comes back to the point that we’ve talked about before, that our focus has been in driving top line organic growth, getting to where consumers are shopping, and the high growth that we’ve seen obviously in ecommerce and other channels that are non-tracked is obviously in our shipment numbers and not necessarily reflected in the consumption numbers, given that the non-tracked are growing at a significant multiple to the tracked channels today. By and large, I think the strategies of continuing to drive balanced top line growth across the growing channels is certainly delivering the acceleration that you’ve seen in the back half of this year, which has obviously been underpinned by strong advertising support and brand building.

Good morning everyone. Noel, I wanted to ask you about self diagnostics and self care, which are growing trends, especially as the population ages and as COVID has brought attention to them. I would like to know if you believe that Colgate, with its strong scientific background and brand reputation, can explore this area and establish a new growth pillar. Additionally, how would you approach this? Would it involve mergers and acquisitions, or could it be pursued through organic growth? Thanks.

Yes, interesting question, Nik. Strategically when you start looking at some of the behavior changes that we’ve seen in categories like oral health and skin health, let me start with oral health where we obviously have a very strong relationship with the professional community and understanding how they’ve begun to embrace telehealth. What’s interesting is go back two years and telehealth was very much non-existent, and obviously COVID has accelerated trends necessary, and the ability to look at monitoring systems and how those relationships between the dental practitioners and consumers are elevated is a space that we think very, very interesting. Let’s take the new product that we’ve launched online this year, the Hum electric toothbrush which gives you diagnostics live through a consumer app on exactly how you’re brushing your teeth and areas of improvement. We see that as an ongoing trend relative to connecting and building education at home, and you can start to piece it together long term how you then connect that with the profession in terms of a fully integrated end-to-end process. Likewise in skin health, the same thing - we’re starting to see obviously telehealth expand there. We’re seeing do-it-yourself procedures being done more at home. The consumers are much more open to taking part in things like skin peel, as an example, where we’ve launched a new entry-level skin peel for PCA that allows us to do more do-it-at-home versus having to come to the derm office. Obviously for the more sophisticated procedures, we continue to partner with consumers to get them into the profession to do that. There’s certainly a trend there. We’ve got people working on that and then opportunity to continue to elevate our partnerships and obviously bring new growth opportunities to the business as we think about connecting both the profession with the consumer with integrated devices.

Great, thank you. Good morning. Wanted to just get a little bit more detail into the key puts and takes to get to the 3% to 5% organic sales target, obviously volume versus pricing contribution to the top line given that promotion should continue to normalize, and obviously FX turning to a contribution, and then just a little bit of a view in terms of growth rate by product segment, oral care versus personal care and home care and Hill’s. Just trying to get a better sense of your level of visibility and where the flex points might be, given how much the current environment is evolving. Then as you think about what spending is already in the base, particularly for SG&A, versus what you’re planning for 2021, where do you think the areas are for potential upside and downside? Thank you.

Sure, let’s talk a little bit more on the categories. Obviously the uncertainty we have in the categories is exactly when you’ll see categories normalize relative to some of the accelerated consumption you’ve seen, particularly in COVID-related categories like liquid hand soap, like dish liquid. Our assumptions and plans as we built the 2021 budget were that we would see those begin to normalize in the back half of 2021, albeit at a lower level than we saw growth rates versus 2020 but slightly above the ’19 levels, so we still expect that we’ll see some opportunities for growth in the first half and then normalizing more in the back half versus ’19. But again, it depends very much, Olivia, on where you are in the world. As you probably well know, the COVID growth in consumption has been very much driven by the developed markets, particularly North America, to a certain extent some markets in Europe which had some pantry loading in the first quarter, and Australia. You have not seen that in emerging markets; in fact, if you take Africa, to a certain extent Asia, the Middle East, you’ve seen categories, quite frankly, languish and not nearly as robust as you’ve seen in emerging markets, which I think makes our emerging market growth particularly pleasing given the balance that we’ve seen, both in price and volume, across our big emerging markets and the growth that’s come behind that, which has been terrific. Again, balanced growth through the first half of the year, we’ll see things normalize, and that’s built into the current consensus as John laid out. In terms of advertising, again strategic for us this year. We’ve talked about from the first quarter on that we were going to invest behind the brands. The increased momentum that we’ve seen in the business has allowed us to broaden our spending across more categories, but particularly focused on where we’re seeing significant growth in the categories. Let’s take the Hill’s business, which constituted a big percentage of the advertising increase on the year and in the fourth quarter, and you’ve obviously seen the continued very strong performance on that business. That’s a business with more or less 10% awareness and low brand penetration, so the runway ahead of that business, we believe continues to be very strong and we will continue to obviously put the investment where we’re getting the return on that. Likewise in the North America business, we obviously put more money into some of the premium innovations that we’ve launched in the back half - the whitening pen, the super premium Optic White Renewal toothpaste, some of the work that we’re doing online and being much more targeted in that space. So again, the advertising has been very focused, broad in the sense of allowing us to go after certain categories around the world that we had not been supporting, where we saw some good opportunities, particularly in adjacencies, so we’re quite pleased with our ability strategically to get more investment behind the brands given the health of the P&L.

Great, thanks. Morning everyone, and congratulations on the strong results this year. Noel, I wanted to spend some time on your emerging markets business, just specifically around category growth and market share momentum, and then tie that into your outlook for the year. Obviously really strong performance, and that’s been part of the story here, driving the solid results in the back half of the year. Pricing has remained a strong contributor - one kind of understands that with respect to inflation and FX headwinds that the company has been coping with, but I think what’s noteworthy is that volume has been quite resilient in the back half of the year in a way that it wasn’t, even despite the fact you’re lapping tougher year-over-year comparisons. I was hoping you’d spend a moment, is this sort of the rising tide is raising all boats? Have you observed an acceleration in your categories, perhaps owing to increased consumer mobility related to the pandemic, or are you seeing very tangible signs of encouraging market share momentum owing to some of the strategic shifts in spending and investment that you discussed earlier in the call? If you could just tie that in also at a high level, what is the company embedding in its 2021 outlook related to emerging markets. Thank you for all that.

Sure, a lot packed in that question. Let me get to emerging categories. What’s particularly pleasing on our performance this year is that, as I mentioned to Olivia, we’ve seen a slowdown in some of the categories in emerging markets this year relative to the comparison on developed, and a lot of the good volume growth we’ve driven in those markets again comes back to the strategy - more premium innovation where we were under-indexed. You heard me mention Brazil, where we’ve increased three points in super premium toothpaste, ASPs are up about 12%, and all quality growth in the Brazilian market. Now, we’ve given up a little bit of share at the low end of the price points where we’ve seen some of our competitors driving a lot of volume at low price points, but the quality of our share and the profitability of our share in that market is far better than it was, given the focus on premium innovation. The other point that’s driving good volume growth in emerging markets again is our core. Focusing on core in Asia, a big part of our toothpaste in those markets, where we’ve seen obviously sluggish market growth, are shipments ahead of consumption, which is, I think, a tracked channel issue, again driven by good core innovation - taking pricing, bringing superior value to the consumer, and leveraging some big parts of our business across a couple of markets. The third would be the adjacency strategy that we’ve had in emerging markets, whether that’s in Africa, whether that’s in Latin America, looking at adjacencies that we can get good margin accretion in, that have high growth rates. Skin and facial products in Latin America, as an example, behind our Protex brand have performed very, very well, particularly in markets like Brazil. So again, the strategies that we’ve been deploying across innovation, particularly core premium and adjacencies, have played out. The other piece of this is depending on where you are, the emerging growth of ecommerce has been quite important for us, both in developing markets as well as the developed markets. If you take the growth that we’ve seen in emerging, ecommerce is still a low percentage of the total ACV in Latin America and in Africa. Obviously in Asia, the inverse - it’s significant growth in the category right now, and we’ve had terrific performance across our Asian business, particularly in China behind some of the unique innovation that we’ve put in the market. We’ll see how ecommerce continues to perform as foot traffic increases, but if you take the China piece specifically where we’ve been very focused on driving our online and digital capabilities, we’ve seen our market shares in ecommerce grow nicely in 2020 based on the strategy that we’ve been deploying. Overall, I think we’ve been looking at the channel growth in the right way, we’ve been looking at the portfolio strategies from an innovation standpoint in the right way. Now as COVID gets behind us, you would hope that we’d start to see a re-acceleration of the categories in emerging markets in the back half of 2021, and obviously they’ve been a little bit sluggish given, I think, some of the issues with the mobility in those markets and the significant increase in the virus, particularly in markets like Latin America and in certain markets of Africa. The belief is that in the back half, we’ll see that start to stabilize and we’ll see markets return, which will give us obviously an increased opportunity to continue to drive volume.

Hi. My question actually had to do with India, because I saw the numbers that came out of that division yesterday, and it’s obviously the exception that we actually get to see numbers for a specific country for you. I know it’s small, but the thing that struck me was top line growth was good but not great, but margin expansion was huge, off the charts, and gross margin, I think in India is now north of 70%. I just wanted to ask about it in the context, Noel, of your focus on balanced growth. Again, India is a small market, but when I think about some of your other big emerging market businesses that should be faster growers over the long term, I think, to help you meet your long-term growth algorithm, at what point do you say, wow, a 70% gross margin in an emerging market business is too high? Are there other countries where margins have really been exploding like that? It just struck me as kind of a surprise in the numbers, and I wondered if there was something more to it in terms of how you think about balancing top line versus bottom line growth over the longer term.

Yes, thanks Wendy. Listen, India is a very important market for us. We were very pleased with the rebound in the growth that we saw in the back half of 2020. Given some of the COVID issues experienced in the first quarter leading to lockdowns at the back end of that quarter and into the second quarter, generating a 7% organic in the third and just shy of 10% organic in the fourth, we think is just a terrific performance. Again, coming back to the strategy, India is very focused, likewise given the strong oral care business we have, on premiumizing that marketplace, and we’ve launched premium SKUs in Vedshakti, which is our new naturals position. We’ve continued to improve on the learning we’re seeing coming out of the naturals segment, which is an important growth opportunity for us. We’ve launched new adjacencies, new pulling oil mouth sprays in the market with anti-bacterial benefits, which have been terrific, so we’re looking at ways to continue to premiumize that business and move pricing up at the same time, which you’ve seen. I talked about it just earlier, the core renovations that we’ve had. A big part of the India business is their core anti-cavity business, and we’ve had a significant re-launch underway for the better part of a year now on the core anti-cavity business, which allowed us to get pricing up as well as drive significant superiority into that product in terms of a consumer benefit. The third would be the revenue growth management aspects that we’re starting to deploy with a lot more discipline and learning, and we’ve got more work to do certainly in emerging markets but we’ve seen great response from the teams getting behind opportunities to look at our promotional spend, specifically price-side architecture and looking for opportunities to drive more margin into the business. Overall, I think that the focus there is good top line growth - you’ve seen it in the organic, and strategically we think we’ve got some opportunities to continue to accelerate there. The comparisons get a little bit easier in the first half. We’ll obviously have difficult comps more in the back half given what I just stated, but we think the strategy is working and the investment that we’re putting into that market, as you saw from the release yesterday, is delivering.

Hi, good morning. I understand that toothpaste is performing about 300 to 400 basis points below historical levels in terms of promotions. You might be noticing even lower promotional levels in the home care categories. It seems like you believe these reduced promotion levels might persist into 2021 and possibly longer. Considering 2021 and on a broader scale, did you gain insights in 2020 about the actual amount of promotion needed for growth in your categories, and do you think these lower promotion levels could be sustainable in the long term?

Thank you. Based on the current situation with retailers and our partnerships to enhance category growth, we aim to optimize by value. We have spent considerable time analyzing promotion effectiveness. As foot traffic has declined, some retailers have not increased their promotional activities. Promotional levels are currently slightly below historical averages—by about three points. I believe that post-COVID, we may see a return to more typical promotional levels, although this is still to be determined. The situation is more prominent in emerging versus developed markets. In emerging markets, we have not observed significant changes compared to historical trends. Retailers and manufacturers recognize that innovation is crucial for driving growth in these categories, especially as the market stabilizes after COVID and related demand issues. They are eager to explore long-term strategic growth opportunities, which is where innovation plays a key role. We are being careful in our approach; revenue growth management is influencing our strategy as we shift away from promotions that do not add value to the category and our bottom line. You may have noticed this reflected in recent figures. Overall, we expect things to normalize by the end of the year. We are prepared for that, but our main focus is on delivering real value through premium innovation and revitalizing our core businesses in specific regions, which will greatly benefit the category.

Good morning everyone, and welcome Stan. Thank you for fitting me in. I have two quick questions, one tactical and one broader. First, regarding the tactical question, you mentioned December retail load and the pantry stocking trend. Should we expect a slower start to the year? For the broader question, you've discussed e-commerce growth several times. Can you provide a percentage of your sales today, compare it to previous figures, and explain how you're adapting your marketing and media strategy in response to this shift? Thank you.

Sure. Regarding the evolution of categories in the first versus the second half of 2021, we did notice some sluggishness in December, which isn't surprising given the ongoing unemployment situation and delays in stimulus payments. As we approached the holiday season, people were prioritizing essential purchases. However, in January, we saw a slight recovery in the categories, so we're not overly concerned. The changes we've observed in categories like liquid hand soap, dish liquid, and cleaners seem to be lasting. We expect the demand for liquid hand soap to remain stable in the medium to long term. When employees return to offices, we may see a shift in dish liquids and all-purpose cleaners, but these categories don’t represent a large portion of our overall sales. For the first half of the year, we believe categories will sustain higher levels than in 2019, likely slightly lower than in 2020, and then normalize later on. In terms of ecommerce, we are putting a strong emphasis here. We are bringing in new talent and retraining our commercial team to enhance our ecommerce execution, which is more complex than traditional methods. As we have developed our indirect trade over the last 15 to 20 years, we are applying that same focus to online sales. In the fourth quarter, ecommerce grew over 50%. We ended the year with ecommerce representing a double-digit percentage of our total sales. In key markets like China and the U.S., where ecommerce is significant, we've been able to gain market share by introducing the right innovations and leveraging analytics. We see ecommerce as a continuing growth opportunity and will adjust in response to consumer shopping trends throughout the year. Despite our overall market share being slightly lower in ecommerce, we are aware of the direction and still see great potential for growth.

Thanks, good morning. Looking back at 2020, I’m trying to understand the pet business and Hill’s, as well as the overall business performance. It seems that any stockpiling in oral care that occurred in March and April was somewhat offset later in the year, so the full-year comparisons aren’t significantly different. Is that accurate? Regarding the pet segment, it’s tough to gauge since veterinary centers were closed. Did the business operate at full capacity throughout the year or was it only at 85%? I’m trying to figure out what comparisons we should consider as we look toward growth in 2021.

Sure, let me take the toothpaste one first. As I mentioned, broadly the categories were sluggish in the first half, started to come back a little bit in the back half of the year, and as we accelerated our innovation pace and our advertising, we saw obviously our shipments accelerate in the back half on oral care, particularly in toothpaste. As we look to comp that next year, we’ll see how the behavior transpires in the first half of this year. The key is we’ve got strong innovation, as I mentioned, both coming out of 2020 as well as a first half innovation pipeline, that we think is good, so we’ll see what happens. But again, the message here is understanding the behavior shifts is obviously extraordinarily difficult and very different from market to market around the world. Obviously the U.S. being an important part of our toothpaste business, we’ve seen sluggishness there. Strong pipeline, as you talked about pantry in Q1, but we saw that come out and we’re starting to see a more balanced approach and more normal approach in terms of consumption moving forward, but our focus is to accelerate that category with the innovation that we’re bringing. Hill’s, obviously the comps were difficult last year. We comped those with strong growth this year, so if I come back to the Hill’s strategy, again it’s about how do we continue to deliver solid category growth for our partners. We’re doing that with obviously the premiumization of the category. We’re bringing great new products into the segment, we were pleased to see the prescription diet business start to come back, which I think is representative of a couple aspects on that business which is, one, we’re seeing people return back to veterinarians and the prescription diet business benefiting from that - our Hill’s to Home initiative has certainly helped that. Obviously the balanced growth we’re seeing across geographies, more so than just the U.S. which has been terrific, a strong performance in Europe this year, again both on the base business as well as prescription diet, so we see that obviously moving forward into 2021. The comps are difficult to be sure, but again remember this is a business with really low brand awareness and low brand penetration, and a great, great product offering, so as we get the balance right in terms of our digital spending focused on those growth opportunities that we see and the innovation that we’re bringing, both in the prescription on the Science Diet side, we see obviously the ability to continue to lap those comparisons that we’ve had this year. The category continues to be strong, between 3% and 5% growth depending on where you are in the world, and obviously the new channels that we’re experiencing growth, specifically ecommerce continue to deliver on that. So again, I think the right level of premiumization, the right channel focus, the right focus on continuing to invest in a business, which you’ll see in 2021, to drive brand awareness and bringing science-based nutrition to the category, which I think is positioned well based on how consumers are behaving. Comps are tough and we realize that, but we think we’ve got good plans in place for 2021.

Good morning everyone. It wasn't long ago that we discussed local brands in many emerging markets gaining market share, and it seems like those losses have subsided. Could you provide some insight into the competitive landscape in those markets today? Are they still as competitive as before? Did they manage to navigate through the pandemic? You've mentioned that trends in several of these markets have slowed down and there are various complexities, yet it seems you have managed to maintain a stronger position. Any context you can share regarding the situation in those major markets would be appreciated.

Sure. Listen - you’ve heard it, I think from others, there has been a return to big brands over the course of COVID, and obviously the importance of health and hygiene and trust played into that resurgence, and ultimately as consumers move back into stores and you get the benefit of displays, you will see perhaps some of the local brands reorient themselves and get some benefit of that. But if you look at the online world, obviously the big players have really figured out how to target more effectively, how to spend in the right mediums, which was historically a space that local brands and some of the insurgent brands were taking, and so over time local brands will always be a threat, but I think as you’ve seen through COVID, a resurgence to big brand trust and reputation, and obviously as we continue to bring a strong innovation pipeline to reward those consumers who have come into the franchise and continue to deliver against their expectations, we feel good about the movements moving forward. But I would say we never want to count local brands out. We continue to keep them very much at the forefront of our strategy and look at them very, very carefully in terms of how they’re orienting themselves locally, based on the insights required to win, and we feel like the innovation structure that we’ve put in place around the world in terms of our focus on H1, H2 and H3 and being more local where required, will hopefully address those increasing challenges that we’ll see as foot traffic increases in the back half.

Thanks. Hey guys, good morning. Noel, I wanted to hear a little bit more around your expected gross margin drivers into ’21, obviously off a very strong 2020. Can you pull apart those puts and takes that John started talking about at the beginning any further? My real question underneath that is John had laid out a couple of caveats - raw materials, inflation, and others - as potentially pressuring gross profit progression as the year progresses, but it didn’t sound like you expected those would be severe enough to actually turn gross margins negative year-over-year, but more simply just govern the expansion. Is that the right read, or does the lower end of your EPS guidance range actually allow for a scenario where gross margins face some actual contraction if some of those uncertainties break the wrong way? Thanks.

Thank you, Steve. Let me discuss the margin movement for this quarter and the year. We finished the third quarter with a 60.2 margin, driven by a 130 pricing benefit contributing to a 280 basis point increase. However, the rise in raw material costs posed a 320 basis point challenge for the quarter. Ultimately, we achieved a 90 basis point increase in gross margin for the quarter and 130 for the year, despite facing around 230 basis points of headwinds annually. An important point is that we generated strong pricing in the latter half of the year across all markets, which will help offset some increases we expect in 2021. That said, raw material prices have been slightly higher than we anticipated for 2021, so we must ensure we maintain our pricing strategy, which we are committed to. We also need to keep introducing premium innovations to the market and sustain strong funding for growth and productivity on our profit and loss statement to counter any further increases in raw material costs. The historical volatility in raw materials necessitates that we refocus our efforts on bringing innovation to market, enhancing productivity, and managing revenue growth effectively. The good news is that we've taken strong pricing actions in the latter half of the year to facilitate our performance into the first half, although this is contingent on the current cost rates we are observing. We remain vigilant as we navigate this in the coming months and are optimistic about our ability to achieve gross margin growth, despite current input costs and foreign exchange rates.

Great, thanks. Good morning. I was curious about M&A, and actually more specifically the strategy with regard to premium skin, because with your core and organic strategies - you know, investments working presumably so well and building momentum from here with all the advertising support and innovation you’ve got, I was just curious about the role that premium skin will play going forward. I think at the time to me, when you started building that out, it felt a little bit like trying to look for another leg to the stool as things were a bit slower in the core business. I was just wondering how that fits together looking forward, again with the success you’ve having on the core.

Yes, thanks Lauren. Listen, skin continues to be a really exciting category for us long term. You look at the demographics globally, you look at the economics of that category and you look at where we have made careful choices on where to compete, particularly around professional skin health, so we like the dynamics of the category strategically. Obviously post the acquisitions, we ran into a significant headwind related to COVID, particularly with foot traffic starting in derm offices, foot traffic basically coming to a halt in spas, foot traffic obviously related to travel retail coming to a halt in 2020, so we started to see importantly in the fourth quarter this year, we started to see growth back in those categories, which is terrific. We’ve spent the year, Lauren, and this is a real benefit, I think, to the quality of the performance we had this year, we spent the year investing behind those businesses. We weren’t taking cost out; we were looking to optimize the cost, we were looking to build more capabilities in those businesses, so we had the benefit of spending behind those brands and capabilities to set ourselves up for obviously what we would expect to see a return to growth in those categories, particularly coming out of COVID, likely in the back half. But as John mentioned, we saw some growth of those businesses in the fourth quarter, which was terrific, and we think we’ve set ourselves up relative to seeing those businesses deliver good, sustainable growth for us longer term, and it continues to be a real strategic growth opportunity for us in the long run, hence the reason why we decided to invest in those specific areas that we think give us a unique opportunity to add value to and drive incremental growth in the longer term. But again, businesses that were severely impacted based on COVID, but again giving us the opportunity to truly understand and build capabilities that we think, long term, those categories will perform quite well.

Great, thank you very much. I was wondering if you could drill down on the China oral care business. You made a lot of improvements with Darlie and with ecommerce, both with Colgate and Darlie, so maybe an update of where you are with that; and then if I remember right, the challenge was getting Colgate going on the brick and mortar channel, so maybe an update on all those issues. Thank you.

Sure. Again, this was a complete re-look at our strategy in China over the last year. As we alluded to, we expected performance in 2019 to improve in the back half based on those strategies, which it did. We obviously had the significant impact from COVID in the first and second quarters in China, which impacted the business, and we’ve seen the business obviously respond quite well in the back half of this year, in line with the expectations that we have. Our particular focus was around building our go-to-market out differently, specifically with relates to how we want to think about innovation in the online world, which has now become a pretty significant part of that business in China, and pleasingly we have seen shares grow nicely online - again, I think a testament to a reorientation behind premium innovation. An interesting index for you - pre-COVID or pre-the re-launch strategy in China, our indexes were running around 80% in the online world versus the category, so 20% below the category. Coming out of COVID and into the fourth quarter, our indexes are now running north of 110% to the category on average, so again clear, focused orientation around premiumizing our business, delivering online premium innovation like the Miracle Repair line, like some of the focus that we’ve done in electric toothbrushes have allowed us to really drive the pricing in that category, which has driven incremental value share. Now, the brick and mortar continues to be a bit soft on the Colgate side, quite strong on the Darlie side. Again, the Colgate side is against the significant changes we’ve made in some of our go-to-market that’s taking a little bit more time and obviously impacted by the fact that foot traffic in China was down quite significantly, particularly in hypers and supers as consumers moved online as a result of both behavior change and COVID. Overall, pleased with the progress that we’re making in China, pleased with the go-to-market changes that are starting to take hold, and encouraged by the early signs of growth momentum in ecommerce and our ability to deliver product innovation digitally in a more effective way.

Thanks and good morning everybody. I guess I wanted to ask you maybe a bigger picture question to end here. Overall EBIT margin is down a bit in recent years - I think you ended 2020 around where you were in 2012 or so, but sales have obviously accelerated, so how do you think about the give and take here? Can EBIT margin go back to where it was pre-2019, and if so, how do you think about contribution by line item - you know, gross margin, can that expand realistically from here, SG&A? Is ad spend, which is now above where it was a couple of years ago, at the right level, is it too high, too low? If you can just give some bigger picture thoughts there, that’d be helpful, please.

Sure. First of all, achieving long-term growth in operating margin begins with consistently increasing our top line, which has been our focus, as revenue is the primary driver of operating leverage. Additionally, we have various strategies to promote growth, and I've discussed several of them today, including premiumization initiatives that enhance leverage through our profit and loss statement and our revenue growth management efforts that also impact the profit and loss statement. We've seen positive outcomes in major markets like Brazil, particularly with our personal care and home care segments. As oral care is expected to pick up speed, it will further contribute to our leverage. Funding growth and productivity remains a significant priority for us, especially in the latter half of 2020, where we are intensifying our focus on opportunities related to our supply chain to enhance efficiency moving forward, which we believe will translate into greater leverage. The main point from your question pertains to the acceleration in our spending and rising logistics costs that have slightly affected our leverage. We anticipate these logistics costs will decrease in the latter half of the year. We are actively looking for ways to optimize our warehousing and freight services globally and are focused on identifying opportunities for increased efficiency. Ultimately, our key objective is to invest in the long-term health of the business by directing advertising dollars towards categories and key regions that offer substantial growth returns, particularly in markets like Hill’s, the U.S., China, and India. Overall, we expect to see that leverage materialize, but our current focus is on achieving growth in operating margins through our top line and enhancing gross margins to enable further investment in the business. So, overall, it’s about growth and we anticipate that leverage will become evident as we continue on this path. Yes, thanks. Again, a strong quarter, pleasing to see obviously the broad-based growth we had on the business, and very pleased around the capability building and how we’re thinking about the business and the changes that we made throughout 2020. Again, to all Colgate people who are really behind this success, thank you for your commitment to our values and our purpose. Thank you for everything that you’ve done. I’m deeply grateful for your commitment to the business and always optimistic that the way we work together, we’re going to continue to build a healthier future for all. Thanks everyone. Stay safe, and we’ll talk to you soon.