Colgate-Palmolive Company (CL) — Q2 2022 Earnings Call Transcript

Thanks, Caroline. Good morning. And welcome to our 2022 second quarter earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and earnings materials and our most recent filings with the SEC, including our 2021 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 are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will now provide you with his thoughts on our Q2 results and our 2022 outlook. We will then open it up for Q&A. Noel?

Thanks, John, and thanks to all of you for joining us this morning. I am delighted to share with you our second quarter results. On the first quarter call, I talked about my confidence that our organic sales growth would accelerate from our first quarter results. Some of this was due to the improvement in trends in February, March and April that we discussed on the call. But what really gives me confidence is the fundamental changes Colgate people have made to drive growth, which is why we are raising our organic sales growth guidance to 5% to 7% for 2022. Our second quarter results including double-digit organic sales growth in Oral Care and Pet Nutrition, show that the growth strategies we put in place three years ago are delivering on our objectives and how the power of our global portfolio is working. We are delivering growth across all of our divisions and all of our categories. We are showing the ability to take pricing because we have built healthier brands. We have built up our innovation capabilities so we can deliver more breakthrough and transformational innovation that can drive both category growth and market share. We have accelerated our digital transformation across the company by leveraging the capabilities we have built at Hill’s and in China, and other developed markets to lead ecommerce in our markets where this important growth channel is underdeveloped. And crucially in this operating environment, our revenue growth management tools are driving positive pricing and mixes our efforts to offset the significant raw material and logistics inflation we are seeing, although, along with the productivity and our ability to improve our price mix, which has enabled us to rebuild our gross margin moving forward. And looking at the quarter, the second quarter marked our 14th consecutive quarter with organic sales growth either in or above our long-term target range of 3% to 5% and that growth is broad based. We delivered organic sales growth in all six of our divisions. We delivered organic sales growth in all four of our categories, Oral Care, Pet Nutrition, Personal Care and Home Care, with all four categories either in line with or above our long-term target range of 3% to 5%. As we discussed on the first quarter call, our execution on revenue growth management and premiumization allowed us to deliver a 500 basis points sequential acceleration in pricing growth. Encouragingly, despite this pricing, our volume performance also improved sequentially in the quarter on both a one year and a two-year basis, behind strong marketing plans, innovation and improved supply chain performance. Our market share performance continues to improve with our global toothpaste and manual toothbrushes now up on a year-to-date basis. We continue to deliver on productivity with another strong quarter of funding to growth, which is vital to our plans to regain lost gross margin. As we enter the back half, we are just beginning to see early benefits from my 2022 global productivity initiative. Over the next 18 months, this program will help drive operating leverage. But we are still dealing with a very difficult cost environment. We now expect $1.3 billion in raw material and packaging inflation, with higher logistics costs as well. Foreign Exchange has become a bigger headwind since our first quarter earnings release. The euro has moved to parity with the dollar and most other currencies have weakened as well. But we will continue to invest in our brands, advertising spending was up on $1 basis, with continued shift to working from non-working and higher focus on digital spending. We are investing our capital to drive future growth as well. We are building capacity to meet strong consumer demand, particularly for Hill’s, but also for other projects like our recyclable tube, which we continue to roll out across the globe. As we look to the balance of 2022 and into next year, we are focused on executing our strategies with the right innovation, brand support revenue growth management and capital plans to deliver on our long-term growth targets, while working to rebuild our gross margins and deliver sustainable profitable growth in all four of our categories. And with that, I am happy to take your questions. Caroline, can we move to the Q&A?

Okay. If everyone can just hold on, we are working. It seems like there’s a problem on their end on the call.

Are we in? Yeah.

You are muted. Yeah. We are working on it. Everyone can just hold tight. There’s a problem on the conference call and so, hopefully, we will be back up shortly. Thank you.

Hey. Good morning, everyone.

Hey, Peter.

I hope you are doing well. Yeah. So, Noel, I was just wondering if we could take a step back and can you maybe just give us an update on kind of the health of the consumer in some of your key markets, particularly emerging markets and maybe specifically Latin America? Are you beginning to see any signs of softening demand or trade down in your core categories? And I guess, how do you think emerging market growth evolves from here as we look out to the back half of the year and potentially into 2023? Thanks.

Yeah. Sure. Thanks for the question. If you scan at least the numbers we are looking around the world, you continue to see great pretty good vitality at the consumer level, emerging markets growing mid-single digits, obviously some slowdown in the developed world, particularly out of Europe where you saw some sluggishness in the categories. But specifically to your question on emerging, it looks pretty good now. A lot of pricing as you can imagine going through, but if we come back to our overarching strategy and as we really laid out in the first quarter that we would be continuing to take pricing coupled with strong revenue growth management, but more importantly, accelerating our innovation cycle into those markets. Strong innovation on the premium and the value orientation side has allowed us obviously to continue to deliver strong topline growth, both in price and in volume. We will watch the consumer really closely, Peter. We obviously have a lot of teams on the ground, looking at exactly where the elasticities are. But so far, elasticities are in line with what we expected or slightly better. But that will change over time as you see more and more pricing going into the market and other economic factors impact categories. But, overall, so far we have seen the categories behave as we expected. Not a lot of trade down, but it’s early days. We will see how that evolves over time.

Hey, guys.

Hi, Dara.

So, you just mentioned the elasticity looks pretty good so far. Can you just talk a little bit about the competitive environment, given the strong pricing you are able to realize in the quarter? Are you seeing competitors move at similar levels? And then specifically, maybe talk a little bit about the Americas in terms of the sustainability of this growth turnaround we have seen in the U.S.? And if you could just touch on the consumer in Latin America, that would be helpful also? Thanks.

Sure. In terms of, just an overarching statement on competition, clearly, it’s been constructive relative to how we have seen competitors behave and I don’t pretend to understand their strategies or, quite frankly, react to them. We are very focused on executing our strategies in the marketplace and as we laid out again in early on the first quarter call that we would be taking a leading pricing in some of the markets, and ultimately, we expected given the inflation is impacting everyone, we would see competition follow as well and that’s been the case by and large around the world. So, overall, a constructive environment relative to pricing. In terms of the Americas, obviously, you have seen strong turnaround in our North America business. Again, we highlighted that we were taking pricing and saw momentum build in the first quarter, and that continued as we mentioned in the first quarter call through April, and obviously, you see now with the performance of the North America business, a good performance overall. I would call out that, obviously, they saw strong consumption across the categories. The innovation is certainly taking hold, excited to see the takeaway on Pro Series, which is at the premium end of the toothpaste. You have seen the market share and scanner performance, with scanner data in the U.S. up in eight of 11 categories over the last 13 weeks, which again, I think, shows the turnaround of that business, and importantly, the performance of some of our innovation coming in broad-based across all the categories in which we compete. So, overall, good. We are watching this closely. It’s an unpredictable environment relative to where we see consumers evolving, where we see inflation evolving. But the good news is, we have taken pricing, we have more pricing planned across the world moving into the back half and we will watch the consumer impact of that very carefully.

Okay.

Hi. Good morning. So pretty good progress on North American margins sequentially as pricing has built, you noted in the prepared remarks that, your supply chain headwinds are starting to abate and with pretty good traction with the consumer on this pricing, I just wonder if you have any updated thoughts on where we stand today on just the potential to rebuild margins in that segment even amidst the inflation, which is going to be a little bit higher than your prior expectations?

Yeah. Thanks, Chris. You have known our company for many years, how focused we are on gross profit and we will continue to be laser-focused on recovering gross profit as we move through the balance of this year and into 2023. The pricing and innovation strategies and revenue growth management discipline that we have across the organization is clearly focused and tailored towards getting our teams equipped to find innovative ways to drive category growth, get value into the categories through pricing and other innovation initiatives and that will clearly be the roadmap moving forward. And we feel quite confident given the health of our brands, the investment that we have been putting behind our brands, that we will have the ability to continue to take pricing in the marketplace. We will watch it very closely as I mentioned. But recognizing we have a very broad portfolio of products. We compete at the high end and at the low end of the market, and historically, we have been able to flex our portfolio quite well in markets where we have had difficult economic circumstances. So we will continue to innovate across all price points and be sure that we are capturing any trade down if that happens, which we have not seen at this stage. But, ultimately, I would expect you will see some trade down moving forward and we will continue to innovate the top end to drive the premiumization opportunity that we see.

Good morning and thank you for the new call format and prepared remarks. My question is about pricing and a follow-up on volumes in Europe and Asia-Pacific. Regarding pricing, you achieved an impressive global increase of 8.5% this quarter and about 3% in North America. I believe there is additional pricing coming through in oral care in the U.S. in July. Can you confirm the timing and the extent of this? Also, in Europe, you experienced a 3% decline in volume, possibly due to temporary distribution losses. I'm uncertain if this is related to the war. Additionally, could you clarify the exit rate for Asia-Pacific, as you reported a minus 17, just to ensure that we have all the relevant data? While I acknowledge the 9% organic growth, I want to make sure we understand the factors at play. Thank you.

Yeah. Thanks. A lot packed in that one. So let me talk a little bit about the overarching thoughts around organic growth in the topline. Obviously, strong pricing is 8.5. But I call out the positive volume growth where we saw across North America, Asia and Hill’s, and if you take obviously the impact of Russia, that volume moved up nearly 100 basis points. So, overall, we are very pleased with the broadness of the pricing that we took across all divisions and the positive volume growth that we saw across some of the markets that I just mentioned. When you look at, specifically calling out some of the other markets, Europe obviously was impacted by a couple of things, the negotiations on pricing certainly impacted categories. We tend to see some elasticity in Europe happen early on as the market adjusted to the new pricing, but ultimately, that tends to become mitigated over time as you see everyone take pricing. Asia, you asked about, obviously strong growth in Asia, both in pricing and in volume. We had an easier comp on Hawley & Hazel, but I would call out the CP China business, which grew significantly in the quarter as well on a more difficult comp. So overall really pleased with China, despite the lockdowns that we saw in the marketplace there. So we were able to overcome that and deliver strong consumption growth across most of our business. So, overall, we are pleased with the balance of pricing and volume. We are pleased with how we are getting pricing executed, and more importantly, we are pleased with the innovation that’s going into the market across multiple price points in order to sustain that moving forward. Moving forward, I would say that, we will continue to be pushing pricing and my expectation is we will see some pressure on volume in the year to go, but that’s to be expected as we get more pricing in the market. The important part is the balance of innovation across all price points to mitigate that.

Hey guys. Good morning.

Good morning.

Can you talk maybe or compare and contrast what your market shares look like from a volume perspective versus revenue perspective? Obviously, elasticities are better than planned, but curious on how it looks like versus the market. And then on your assumptions for commodity costs, are they linked to just assuming spot stays where it is or do you have some assumptions in there for things, particularly like palm oil and such? Thanks.

We are pleased with our share performance. It's important to note that the share performance data we provide does not capture e-commerce shares and some untracked channels. However, our global market shares for both toothpaste and toothbrushes continue to be strong. We are implementing pricing strategies, which are positively affecting our value shares, although volume shares have experienced some softness. Historically, when acute pricing enters the market, volume tends to decline in the short term. It is our responsibility to drive innovation across different price points and collaborate with retailers to increase volume in the categories. Our brands are strong globally, and retailers depend on us to attract customers and boost sales. We will focus on innovation to maintain the volume aspect of the category. However, I anticipate that with more pricing in the market, volumes may remain soft in the near term, but we will manage this closely. Regarding commodities, we initially estimated $1.2 billion of raw material inflation in the first quarter, which has now increased to $1.3 billion this quarter. Most of this impact will be felt in the second quarter, but we expect a recovery in the latter half of the year. We have new spot rates, and while some commodity prices have decreased, we are mostly locked in for the third quarter. Any benefits from deflation will likely show up in the fourth quarter and potentially more throughout 2023. We will continue to adjust our pricing in light of the significant pressures we are facing in raw materials and logistics, and we will ensure that our marketing plans are in place to execute effectively.

Great. Thanks. Good morning, everyone, and congrats on the quarter as always.

Hi, Kevin.

Hey. Good morning. Good morning, everyone. Noel, just to kind of pull together some of the pieces of what you have touched on with respect and as it pertains to the guidance, so you hedged it up your 5% from 4% to 6%. And, I am just looking to get at some of the macro and category-specific assumptions underlying that, understanding it’s going to differ little bit by category, but it does imply the midpoint of a deceleration in the back half of the year, again to each of year-over-year comparisons. And maybe just touch on that a little bit and maybe just some conservatism around elasticities that you have seen and should elasticities hold its upside, but maybe just comment on pulling together some of the commentary so forth and so far on the call relative to the guidance in the back half? Thank you.

Yeah. So, obviously, we have taken our guidance up based on the consumption we are seeing in the market based on the fact that we have been able to get strong pricing and early on, obviously, see some good volume moving through the P&L. FX continues to be the biggest incremental issue that we see based on where we were in the first quarter. But, overall, we see the categories behaving as we expected. Now given the incredible unpredictability of what’s happening in the global world right now, we are watching those category performance very, very carefully. Our estimations are based on the fact the elasticity will be consistent with what we expected it to be or slightly better and we will adjust accordingly as we move down the road, but it’s very difficult to predict exactly what’s going to happen at this stage. So we based our macros on what we can see today and what we can control. So let’s come back to what we can control. We control the execution of our strategy and we are executing against all the things that we have talked about, driving the core, looking at adjacencies, new channels and some of the faster growth channels particularly ecommerce, and you see that delivering in the results that we have had over the last 14 quarters. So we are pleased with the strategies taking hold. I think the competencies we are building around digital across the entire enterprise, the competencies that we are building on innovation are all starting to track well in terms of how we evaluate them and we are seeing that play out in the performance.

Good morning, everyone.

Hey, Bryan.

I wanted to ask a question about the rebuilding of gross margins. Can you rebuild gross margins if inflation or the current cost of goods stays the same, without any further inflation? Is it possible to improve gross margins at this cost level, or does it rely on some degree of disinflation in the cost structure?

Yeah. It depends on a couple of things, Bryan. First and foremost, we believe that over the longer term our focus is on rebuilding gross margins and we feel quite confident that we can do that, particularly in the current environment, given the strength of our brand, the investment we are putting behind the brands and the innovation grid that we have out in front of us. A couple of things that need to happen, obviously, the pricing in the market needs to hold, as you see inflation come down, it’s a real question of where competitors will go with pricing. We think it’s been quite rational to this stage. We think that given the unprecedented levels that you will see constructive moves around pricing and promotion moving forward. But we are prepared for that. It’s really the flex of our portfolio across different price points that we need to manage very, very carefully. So in my view, if inflation holds, the big determinant will be, will pricing hold, and my sense is, given where we see the marketplace today, that will be the case. So the answer is longer term, yes, we absolutely believe that we can rebuild gross margins.

Great. Thank you very much and congratulations on terrific results. Also kind of stepping back, Noel, over the last two years or three years, and what appears to us to be a very disciplined and systematic manner, you have kind of addressed various issues, whether it’s channel in the drug stores and in digital, whether it’s premiumization, whether it’s competition against local brands and really you have done a fantastic job executing and improving the momentum of the business on a commercial basis. Apart from the macro factors that are going on today and not to diminish those, but in terms of the general commercial strategy, where is the focus now in terms of improving your actual business momentum and what are you doing to address that? Thank you.

Sure. Thanks, Rob, and good morning. So if you come back again, I think, to the heart of our strategy, which is big core businesses that need to be innovated against and you see that coming through. We have got a pretty significant innovation on our anti-cavity business going, coming out in some of the developing part of the world. The premiumization aspect that we have talked about for quite some time, Rob. We continue to obviously unfold that across different parts of our category, whether it would be on our Hill’s business or whether it be on our Oral Care business, most recently with the Pro Series launch, which is a great innovation with our highest level of hydrogen peroxide in the marketplace. And obviously, looking into the adjacencies and new channels, if we talk about new channels specifically to your point, we still see a lot of runway there. Most of our markets, our online share is now above our general market share, which is terrific. I call out China specifically where we are up as you saw in the prepared remarks, 600 basis points on our ecommerce share and that’s the largest ecommerce business we have in Oral Care across the world and that’s been driven through good premium innovation, a lot of good personalized marketing, getting into data-driven decisions in terms of how we think about it. I come back to the success we have on digital and really equate it back to what we did with Hill’s years back. I mean, that knowledge transfer that we had on Hill’s where we went digital and online is transferring all around the world and we are seeing great results in our ecommerce business specifically. It’s up to now about 14% of our total sales. It was up nearly 20% in the quarter in terms of growth. So, overall, we are seeing a lot of those strategies we put in place. Moving forward, not a lot of changes, Rob. We are focused on the execution. I think getting some of the supply chain constraints behind us is critically important for us and that allows us to get back to focusing on what we do best, which is execution and innovation across multiple price points and that’s exactly where we see things unfolding. Revenue growth management will be critically important to our success moving forward. I think the discipline that we have on the ground quarter-to-quarter gets better. Are we where we need to be? No. But the pricing you see reflected over the last two quarters where you see at least a two-year stack on pricing, which looks terrific for us, I think is a testament to the fact that we are finding ways to build off the strength of our brands and get value executed in the marketplace. So, not a lot of changes, more focused on revenue growth management, more focused on our productivity initiatives. And in terms of funding the growth and our Global Productivity Program, which you are well aware of, getting that executed in the back half and early 2023. So, again, let’s focus on what we do best, get on our front foot and continue to execute.

Yes. Good morning. Noel, I wanted to follow up on some of the points you just mentioned. Based on your prepared remarks and your recent comments, it seems that most of your previous supply chain issues have largely been resolved globally. Could you confirm that and provide any updates on any bottlenecks you are still addressing? Additionally, I’d like to know more about the funding for growth and potential savings from the Global Productivity initiative. Specifically, can you share how those savings might accelerate in the second half of the year? It appears they are expected to accelerate, but I would appreciate confirmation on whether we should anticipate any differences between the third and fourth quarters.

Thank you, Steve, and good morning. Let’s discuss the supply chain first. We have encountered significant challenges over the past six to nine months, mainly due to COVID-19, which is consistent across the industry. Many of the supply chain issues in North America are now behind us, resulting in improved on-shelf availability, which in turn has positively impacted consumption for our brands and our market share performance over the last 13 weeks. However, the environment remains highly unpredictable. Our team is actively managing the situation, and I believe the toughest challenges are now behind us in North America. The demand for Hill’s is particularly strong, and the team is doing an exceptional job meeting this market need. An 18% organic growth, compared to 15% from last year, is an impressive achievement. I would like to credit our global supply chain team for their resourcefulness in meeting this capacity by leveraging ideas from all our global businesses. We have made strategic decisions regarding our finances, including the new Nutriamo facility opening in Europe, which will help alleviate some pressure. However, we need to monitor Hill’s closely since the consumption is high, though I don’t expect this level to be consistent quarter-to-quarter. We may experience peaks and troughs, but the core fundamentals of the business remain strong. It is essential that we continue to execute effectively from a supply chain perspective. Overall, we are feeling more optimistic about our global supply chain situation. Regarding funding growth and the Global Productivity Initiative (GPI), savings from GPI will be more heavily weighted towards the second half of the year and into 2023. We saw some minor savings in the second quarter, but most will materialize in the third and fourth quarters and into 2023. This funding for growth is expected to be evenly distributed, but historically, we tend to secure more funding in the latter half of the year. Our teams are highly focused on this. As we mentioned in our first-quarter call, we have placed a significant emphasis on funding growth in this unprecedented environment, and thankfully, the global productivity initiative we launched last year in anticipation of a challenging market is starting to yield benefits this year.

I want to discuss how you see the competitive landscape evolving in light of global macroeconomic slowdown concerns. Do you think this might enhance your competitive position, especially in emerging markets compared to smaller local competitors? Additionally, you mentioned expecting some trade down even though you haven't observed it yet. You're still planning to maintain pricing, and the results for Hill’s are quite telling. Could you clarify how you reconcile the expectation of trade down with the fact that it hasn’t occurred yet? Thank you.

Yeah. A couple of things. So, first of all, if I take the back end of your question first, the strategy that we have deployed in high inflationary times, which we have a lot of experience in this marketplace doing that is to balance our entire portfolio. We compete across multiple price points. In some countries, five to six different price points in a specific category. That allows us to be very thoughtful on where we take pricing and when we take pricing. And obviously, a lot of the analytics that we have in place, Olivia, now allow us to kind of see where consumers are trading in and out of to ensure that we are adjusting our strategies accordingly. And I think that flexibility and agility that we have learned over the years in managing high inflationary markets has afforded us the opportunity to think very carefully about how we want to adjust to this moving forward. The competitive environment may change, for sure. If inflation becomes more benign, there may be a decision by others to decide to put that into promotion to get some volume. But as I mentioned earlier on, I think the market seems to be acting quite rationally. This is an unprecedented environment for all CPG relative to the levels of inflation and so my instinct is you are not going to see a lot of people chasing volume by discounting price, they are going to try to regain margin into the P&L. You know, Colgate is very focused on gross profit. We will continue to be focused on getting pricing into the P&L as that allows us to maintain the advertising support to drive the topline and make sure we get our innovation while seated in the marketplace and I don’t really see that changing over the foreseeable future. We will flex our portfolio accordingly and the good news is we compete across so many price points across all of our categories that we feel that buffers us a bit for against any trade down that we see in the marketplace.

Yeah. Thanks. Good morning, everyone. I want to ask a question on Pet Care, specifically, without obviously drilling down too much. But the performance has been really strong, right? You go back even pre-pandemic, just really has gotten better since kind of mid-2000. I think what a lot of people know understand is that there were a lot of pet adoptions during the early parts of the pandemic, which continue. I guess if you could unpack a bit of how much of the contribution has come from that and maybe if you could talk about how you measure your success amongst that newer cohort in terms of your market share amongst those that have adopted pets over the last two years? And given that they are probably somewhat new to pet ownership, how do you think about the risk if any of trade down given where the economy may be going?

The performance of Hill’s has been impressive, and the strategies we've implemented there are consistent with those across all our categories. We've learned a lot from Hill’s, particularly in the digital and online spaces, which has been invaluable as we share insights globally about our business approach. Our strategy focuses on faster growth channels, and Hill’s is certainly viewing e-commerce as a significant growth opportunity. Their potential for expansion is supported by our global supply chain and presence in various markets. We're witnessing a rise in pet ownership in the U.S., which is sustainable, as pet owners will always prioritize feeding their pets. Our commitment to science remains central to all our core categories like Oral Care and Skin Health, enabling us to drive innovation and deliver significant consumer and health benefits throughout the value chain, resulting in strong growth for the Hill's business. We remain focused on our core areas, leveraging our professional model, and Hill’s has excelled in building strong vet partnerships, similar to our approaches in oral care and skincare. Hill’s digital initiatives are top-notch, as they've cultivated a digital-first business model. We're now enhancing our digital efforts with thematic advertising to improve brand penetration and awareness, which still has room to grow. Overall, we're optimistic about our position and growth trajectory, despite facing challenging comparisons in the future, yet feeling confident given the current consumer landscape. Historically, during the 2007-2008 recession, we didn't see significant trade-down from Hill’s, and we believe the brand is stronger now. We're committed to innovating and supporting our brand financially going forward, and we see opportunities to leverage our supply chain to further advance our goals.

Hi. Thanks. Good morning.

Hi, Lauren.

I have two questions. First, could you clarify your plans for second-half pricing, particularly in North America? I'm looking for a bit more detail on that. Secondly, regarding advertising spending, you mentioned in the release that it would remain flat as a percentage of sales but still increase in dollar terms. Given the raised sales outlook, how would you characterize your current advertising spending plans compared to the start of the year? That would be helpful. Thank you.

Sure. So, on pricing, let me just make it more on a global basis. Clearly, with the inflation that we have seen as we talked about in the first quarter and we are very clear in laying out visibility in the first quarter around where we saw pricing evolve through the quarter. Obviously, it accelerated in the back half of the first quarter and into April. We expect pricing will accelerate as we look at our organic growth composition through the balance of the year. That means obviously that we will have new pricing executed in the back half of the year and that will be pretty broad based across the world. I am not going to get into specific regions. But I will say that we will be taking pricing across both developed and developing world in the back half of the year and that will be depend on categories, competitive situations and we are looking at each of that very closely, but broad based we are taking pricing across the world. Relative to advertising, obviously, given the strong topline, the percentage of sales came down. Our absolute dollar was a little bit up. We expect our dollar increase to be up in the back half of the year as we continue to support our strong innovation plans and as a percentage of sales, we are estimating that that will come in more or less in line with where we were last year. You saw in the prepared remarks, we are spending a lot more time thinking about our digital advertising and the return on investment. We are getting there. We are moving a lot more money from non-working into working media in order to balance some of the growth opportunities we see in the market. So we feel pretty good about where we are from an advertising standpoint and intend to continue to invest to build our brand.

Thank you for taking my question. I apologize if my inquiry overlaps with your earlier remarks or your 10-Q, but we've received a lot of information today, and I must admit I haven't been able to digest it all. A few points stood out to me. The sequential improvement in margins in North America was impressive and exceeded my expectations. I haven’t had a chance to examine the drivers in your Q yet, but could you elaborate on what led to the year-on-year decline and the sequential increase? Is there anything transitory that contributed to this?

Sure. Thanks. So, obviously, the North America had strong sequential improvement in margin, obviously, up around a couple of hundred basis points that you saw as we put it in the prepared remarks. Dollar sales growth is driving that and obviously good topline growth, a good consumption growth across our categories. I mentioned earlier, Jason, that at least the last 13 weeks we have seen share growth in eight of our categories, which again, I think, is the result of obviously the execution results we are getting in the marketplace, the innovation, working our promotions effectively in the marketplace and some of the new products that we put in place. But, obviously, we are going to continue to focus on gross margin expansion across both North America and the company. Gross profit is the key focus. The funding the growth initiatives that we have in place, getting the mix right, getting the innovation right in Oral Care as we move through the back half of the year will be critically important. Supply chain was a contributor to that as well. Obviously, we have got some of those issues that are behind us, still a lot of pressure. We need to focus on logistics, which continues to be a real headwind for both North America and the company, and as we see opportunities in the back half, we will certainly look to take those.

Well, thanks everyone. Again, broad-based growth across the company, executing and transferring knowledge across our core categories, we are seeing obviously good consumption. Obviously an unprecedented environment around pricing, we will continue to be focused on revenue growth management, our funding the growth initiatives and our global productivity initiative as we go into the back half. Thanks for the call this morning and we look forward to talking with everyone soon.