Colgate-Palmolive Company (CL) — Q2 2023 Earnings Call Transcript

Thank you, Allison. Good morning, and welcome to our second quarter 2023 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 Q2 2023 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2022 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures including those identified in tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the Q2 2023 earnings press release and is available on Colgate's website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q2 results and our 2023 outlook, and we will then open it up for Q&A. Noel?

Thank you, John, and good morning to everyone. I want to share some quick reflections on our impressive quarter, marked by significant growth in both revenue and earnings, alongside the improved outlook for 2023 that we recently shared. During the first quarter call, I outlined three key priorities for the year: driving organic sales growth amidst tougher comparisons, executing on productivity and revenue growth management to support brand investments, and meeting our earnings targets while enhancing our cash flow performance. Despite the challenges, we made significant strides in these areas in Q2. The results demonstrated the strength of our global portfolio, achieving our highest quarterly growth on a two-year basis since Q3 2008, with both organic volume and pricing growth accelerating. We experienced organic sales growth across all six divisions, with mid-single digit growth or better in each category. We are committed to restoring balanced organic sales growth and believe our ongoing investments, combined with more favorable comparisons, offer a pathway to enhanced volume growth moving forward, boosted by increased brand support and innovation while still achieving profit growth. Our revenue growth management efforts and advancements in funding growth contributed to an improvement in our gross margin sequentially, and compared to last year. Our Base Business SG&A expenses decreased by 30 basis points for the quarter. Strong sales growth, lower logistics costs, and benefits from our 2022 global productivity initiative provided operating leverage, even as we increased advertising expenses by 20%. Coupled with our gross margin expansion, we achieved a 60 basis point increase in operating margin during the quarter. This allowed us to exceed expectations for the quarter despite ongoing pressure from lower-line items, including elevated interest rates and taxes. As I’ve noted before, this combination of growth-driven leverage, revenue growth management, cost control, and productivity supports investments in our capabilities and brand development, leading to the strong results we've seen this quarter. We believe it also sets a solid foundation for our performance for the remainder of the year and into the future. Additionally, our strong cash flow performance continued this quarter, helping to mitigate some of the headwinds. Free cash flow was up over 50% for the quarter and has increased by more than 80% year-to-date, driven by net income growth and improved working capital performance, particularly in our inventories and payables. While I am pleased with how we have begun the year, I recognize the challenges and uncertainties that lie ahead. Our objective remains to achieve consistent, high-quality growth in both revenue and earnings to enhance shareholder value. I am confident that Colgate-Palmolive possesses the brands, global reach, and talent necessary to succeed. Now, I will hand it over for the Q&A session.

Hey. Good morning, guys.

Hi, Dara.

So another impressive quarter of organic sales growth. And as you mentioned, the CAGR is accelerated on a multiyear basis, but it was driven by pricing more than entirely. And obviously, from here, we're going into a period where we're cycling higher pricing. So can you just talk about, conceptually at a high level, how you think about the balance of organic sales growth going forward, the level of visibility that volume can come back as pricing drops off? And maybe within that question also, if you could just touch on the global Oral Care share and the performance in the quarter and prospects going forward, that would be helpful also. Thanks.

Sure. Thank you, Dara. I want to revisit some of the points I made in my opening statement and discuss how we're striving to enhance the quality of our profit and loss statements. This will position us better for long-term balanced growth in both revenue and earnings, which we've been emphasizing for a while now. As you're aware, we're emerging from one of the most challenging raw material environments in decades. Our strategy involves a combination of our revenue management approach and the discipline we are instilling across the company, focusing on pricing and productivity to restore our gross margins, which is our main priority. We believe exiting this phase with a structurally lower gross margin puts us at a disadvantage that's hard to overcome in the future, especially since gross margins are essential for funding investments in capabilities and brand development, as you observed this quarter. We aim to increase margins while continuing to invest in our brands and maintain organic sales growth, which we are clearly demonstrating. A crucial aspect of this is ensuring we effectively manage pricing within the profit and loss statement. Our teams are actively engaged in addressing the cost inflation we're facing, which has been significant, and we understand that a single price adjustment is insufficient; it requires a consistent and purposeful approach. While we see some easing in cost inflation overall, there are still areas where margin pressures persist, necessitating further price increases, which have influenced volume. For instance, in China, we've raised prices for our Hawley & Hazel joint venture to enhance long-term profitability and fund necessary investments in digital initiatives and premium innovations, especially with our ongoing shift towards e-commerce. China is a notoriously challenging market for pricing, and this strategy has temporarily impacted our volume due to reduced promotions and wholesaler inventories as we establish the new pricing. Still, the consequences of not restoring margins would be more severe. Additionally, in North America, we're focused on strengthening our business and brands by shifting brand support to foster margin growth, which will benefit the health of our brands and profit and loss statement. This is evident in our non-promoted market share growth, which is a positive sign for business sustainability. In the short term, did we experience a larger-than-expected volume impact from fewer promotions? Yes, we did. However, we've adapted our profit and loss structure and strengthened it, allowing us to adjust as new opportunities arise. We are achieving both sales and profit growth, alongside increased brand support, contributing to a healthier business model. In the case of the Hill's brand, we continue to face significant cost inflation, leading to year-over-year declines in gross margins. Thus, we've implemented additional price increases to achieve the appropriate margin structure for the long term. Most of the quarter's volume decline in Hill's was in emerging markets, primarily due to changes in go-to-market strategies or shipment issues. On a positive note, our EMEA business in Europe performed well, while U.S. volumes only slightly decreased amid challenging comparisons, even with pricing rising significantly. Our goal is to return Hill's to volume growth in a sustainable manner, leveraging science-driven innovations and effective advertising, which need to be well-supported through margin expansion. Hill's experienced substantial increases in advertising investments this quarter, which we will continue to support. I recognize the importance of achieving volume growth, and we are all focused on this. However, we aim to pursue it in a way that establishes a solid foundation for long-term profitable growth. This will involve clear pathways to restoring gross margins to previous levels through revenue growth management, productivity efforts, adequately funded advertising, and enabling operating leverage through strong innovations and healthier brands. Thanks to the hard work of the Colgate team, we see positive trends in gross margins, overheads, and logistics. In the first half of the year, we increased our advertising by 17%, implemented additional pricing, and introduced strong innovations across all divisions and categories. Furthermore, we anticipate easier volume comparisons for the second half, about 500 basis points. Therefore, we feel we are in a favorable position. With that, I’ll now turn it over to the next questions.

Hey. Good morning. Just a follow-up on the prior question, Noel. You mentioned the need to take incremental pricing. Can you give us a little bit more color on which category, country combination are you taking more pricing? What has been the response so far, and generally, like the magnitude relative to the prior price increases? Thank you.

Sure. Let me quickly address Dara's point about market shares. Our global market shares in toothpaste have increased, showing strong growth in Europe, though there's been some softness in North America, as reflected in the scanner data. We're working on that as we move into the second half of the year. In Latin America and Asia, our shares look good, and in Africa, they are particularly strong. We're either up or flat in all 11 markets where we measure shares. Overall, oral toothpaste shares are performing well. Regarding your question about pricing, in some high-inflation markets, we will likely continue to see price increases in the latter part of the year, specifically in Turkey, Argentina, Pakistan, and other similar areas. We implemented a price increase in North America during the second quarter, which impacted volume, but we will proceed with focused pricing in areas where we face margin pressure. For the Hill's business, we've observed a rise in agricultural prices through 2022 and into 2023, prompting us to adjust our pricing accordingly in the back half of the year, although this will be more targeted. Most significant price increases are reflected in the profit and loss statement. As mentioned, a large portion of the pricing we took in 2022 is still influencing this year's P&L, with about 58% of it carrying over from last year. We have some adjustments left to make, but the majority has already been accounted for.

Thank you, operator. Good morning, everyone. Noel, I want to connect this back to Dara's question. In your prepared remarks, you mentioned that SG&A would increase in North America, Europe, and Hill's to support volume growth. Looking at the results, it seems like Europe has performed well and you've gained market share. Can you provide some context on the investment in each geography? Are we correct to conclude that Europe is seeing an impact while North America still has progress to make? I'd appreciate some insights on this.

Certainly. Thank you, Bryan. I'll begin with Europe. We've increased our investment there and are seeing a great response, especially with the elmex and meridol brands where we've raised our spending, as well as with the Colgate brand. Our efforts focused on premium whitening have successfully driven market share growth in Europe. Additionally, the investment in Europe extends beyond just Oral Care; we have significantly relaunched Sanex across Europe and are investing in that. We've also relaunched our Soupline business in France, which is substantial for us, and introduced Soupline Hearts with additional investment. It's crucial to note that as our operating margins improve, we have greater flexibility to support a variety of brands, especially in Europe. The same applies to Latin America, where we've noticed a slight increase in exchange rates. On a local currency basis, we're investing more in advertising and becoming more efficient and targeted, utilizing our digital capabilities globally. In North America, although it's taking a bit longer, we've observed a decline in promoted share. However, as I mentioned to Dara, the key takeaway is that our non-promoted volume share is increasing. This is a clear indication that we've enhanced support for the brand, contributing to a healthier brand. When examining the Colgate brand attributes in North America, we see positive movements in its equity health. Similarly, in Asia, we're experiencing a good response despite a decline in our largest business, Darlie, due to price increases. Overall, the Colgate business, which has received more support, is performing well. We're quite pleased with the progress in Africa's Oral Care sector, witnessing a significant increase. Advertising doesn't yield immediate results; it requires consistent growth over several quarters. Importantly, given the current quality of our profit and loss, we're able to maintain our advertising levels. In this quarter, we have indeed raised our advertising spending, which is part of our long-term strategy, as sustained advertising is beneficial for our brands over time.

Thank you. Good morning. Noel, you mentioned the balanced volume and pricing, obviously, impressive to see some of the green shoots in Africa and Eurasia. Can you talk also about the brand support above the line you mentioned in North America and elaborate more on that? And obviously, that has been a main drag to global volumes. And I understand it takes time, of course, to see volume share rebound. But do you see in terms of like when should we see some improvement there as you talk to your customers? And then sorry to get a second part of the question, but I want to understand also your impressive rebound in margins in the quarter came through. Even looking at your prepared remarks, you mentioned raw material and packaging, you still ahead of 540 basis points negative impact. So I'm thinking about the cadence of this inflation, if you can comment and then how we can expect that from here? I know you reiterated margins up, but I just want to see to the P&L, what would be the puts and takes there? Thank you.

Sure, thanks, Andrea, and good morning. Regarding our above the line expenses, in a setting characterized by inflation and rising costs, adjusting pricing through list prices or revenue growth management necessitates reallocating promotional funds for two reasons. First, it is crucial to ensure that when implementing list price increases, those prices are recognized in the market and that we maintain consistent execution across the retail space. This aspect was vital to the price adjustments we made in North America during the second quarter. To achieve this, we had to scale back on certain promotional efforts, primarily because some of those promotions were not profitable. As I mentioned before, our focus in North America is on enhancing brand health and consistently achieving share growth through advertising and innovation, while reducing our dependency on promotions. Perhaps we may have scaled back too much, but we will be careful moving forward about how we reintegrate grocery net into the North America business to ensure we continue to grow margins and share simultaneously. This will be a priority for the latter half of the year. I assure you that we will approach all categories related to promotions thoughtfully to maintain margins on the profit and loss statement. Worldwide, we have been consistent regarding list price increases and managing promotions. We expect some easier comparisons for volume in the back half, though pricing will be more challenging. Overall, I anticipate a better balance between our organic growth as we progress through the latter half of the year, while still experiencing some price adjustments as mentioned earlier. On the margin front, we are pleased with the advancements we are making in both gross profit and operating margin. It's important to note that our gross profit does not account for logistics and cost of goods. When considering logistics, we had a strong quarter regarding gross profit growth. Additionally, our selling, general, and administrative expenses decreased even with a 20% increase in advertising. Now, I’ll hand it off to Stan to provide more insights on how we are anticipating raw material phases for the remainder of the second half.

Thanks, Noel. So raw materials, as we look towards the second half, we will see these moderate. But there are pockets that are actually going up, and predominantly, they're impacting Hill's. So around ag and proteins, those continue to escalate. So while on a year-on-year basis, these will moderate slightly coming off of the first half, they still will be a headwind in the second half of the year. Now we continue to drive funding the growth savings. The teams have done a really nice job on driving that productivity and we will carry that through the back half of the year as well. So we do expect margin to improve in the second half and continue that momentum. And then obviously, just as we look at FX, it's going to bounce around here a bit. And in particular, we've seen pressure in Africa, Eurasia countries as well as Asia-Pacific. So overall, we do expect margins to improve in the back half of the year.

Thank you. Could you elaborate on the impact of logistics for comparison with your peers? Also, regarding the U.S., please discuss your path forward. You've mentioned the challenges related to volume, but what actions are you planning for the second half? Are you considering relaxing the pullback and possibly reinstating some promotions or other strategies for the U.S.? Thank you.

Sure. Thanks, Olivia and good morning. I'd ask you to reference the Q on details on logistics. There's a lot more detail in there. And if you're not finding what you need, obviously follow up with John and Stan afterwards. On the volume cadence, certainly, as you look at the back half, as I mentioned, the comps get much easier. But despite that, we're going to be very deliberate in how we think about volume creation in the back half. We’re going to be thoughtful, as I mentioned, continuing to focus on the structure of the P&L, which we believe is absolutely imperative for the long-term sustainability of the company. We think that we can keep the gross margin accelerating, we’ll keep the advertising in the P&L and not simply chase unprofitable volume. So we’re going to be very focused on that. That being said, we do expect a slightly heightened promotional environment in the back half. As costs tend to level out, we’ll see probably a little bit more promotions. I will say that around the world today, we have not seen an elevated promotional environment. We are recently starting to see more volume being sold on promotions but not the frequency of promotions or the depth of promotions in the market. So that’s an important aspect. But we’re going to be very deliberate in how we think about the promotional cadence in the back half, probably a little bit more in the U.S. But the rest of the world will be very targeted where we see competitive needs to put more money there. But so far, it’s been quite constructive. And we continue to believe pushing our brands through innovation and top – and advertising is the healthiest way to grow the business longer term.

Hey. Good morning, folks. Thanks for swapping me in. Stan mentioned earlier the elevated degree of inflation that's continuing to impact, but also the new price increases. How should we expect them to translate into margins? I mean, it's good to see the moderation in gross margin expansion this quarter. But we're still down a lot from where we were. What is the right level of profitability for that business on a normalized basis and what is the pathway to getting there?

Thank you, Jason. We are implementing aggressive pricing strategies across the Hill's business, as reflected in recent quarters, while still facing some inflationary pressures in agricultural prices. We do not anticipate this trend to persist into 2024, but we aim to continue adjusting our pricing this year to recover that. We do not have a specific target number; our focus is on a careful approach. We see significant opportunities to enhance both gross profit and operating margin at Hill's in a sustainable manner quarter after quarter, especially with the pricing adjustments expected to positively impact the latter part of the financial results and with a hopefully more stable cost environment. We are also leveraging mixed opportunities as we launch the new Tonganoxie facilities and expand wet capacity, which should support margin improvement. We are pleased with our productivity as the plants operate more efficiently. Additionally, as the private label business declines, we anticipate a natural organic improvement to both gross profit and operating profit. We are committed to maintaining competitiveness in our pricing within the market and will continue to uphold high levels of advertising for the Hill's business, as seen this quarter. Overall, we are optimistic about the progression of gross profit improvement moving forward.

Hey. Thanks, and good morning. I wanted to ask more of a general question on the state of the advertising industry as you see it. You talked obviously making increases, the 20% increase this quarter. I guess the question I'm left with is just how you're seeing the efficacy of that advertising. Do you believe the efficacy is up commensurate with the increased dollar investment or is there inflation or other dynamics cutting into that efficacy just as you the environment today as you plan ahead?

Thank you, Steve, and good morning. Reflecting on CAGNY, Eve showcased our digital advancements and transformation, emphasizing how our focus on digital advertising is resulting in significantly higher ROI, which we can now measure more effectively. Our copy effectiveness has improved, leading to better brand health metrics that I mentioned earlier. We're investing more in generating first-party data, enabling us to analyze the market more comprehensively and target our media more effectively, which has been outstanding. As I noted earlier, the increase in non-promoted volume share in the U.S. is a crucial indicator for us, showing that our advertising is successfully boosting non-promoted share. We experienced a rise of about 100 basis points in non-promoted share, which is excellent and aligns with our goals. While we may have reduced promotions slightly too much, we'll find the right balance moving forward. Overall, we're very pleased with the efficacy, which is evident in our global market share performances supported by elevated advertising, especially for some non-Colgate brands like Sanex in Europe and our Suavitel and Axion businesses in Mexico. In summary, we're achieving a healthier balance of advertising across our categories, and this will drive more sustainable growth over time.

Great. A quick follow-up and then my other question. Where your volumes are down, particularly in the U.S.? Has that gone to competitors or is it more of a function of consumers postponing purchase or orders being postponed? So that's just kind of the follow-up. And then my main question is, where you see yourself in digital and e-commerce. Arguably, a few years ago, you were unsatisfied and have made a lot of investments and they're certainly panning out particularly in China. Do you believe that you're kind of where you need to be, to be fully competitive globally in digital and e-commerce now? Thank you.

Thanks, Rob, and good morning. Regarding the U.S. volume, we noticed a decline in our promoted share in several categories since we reduced promotions and set new pricing. This has led to some customers shifting to competitors who have maintained their promotional efforts. Typically, consumers respond to promotions, such as coupons, and while it won't be difficult to win them back, we aim to do so in a more sustainable manner moving forward. This strategy is crucial for improving the overall structure of the U.S. profit and loss statement, and it holds true globally as well. When we reduce promotions, we attract a more price-sensitive consumer, necessitating us to provide value consistently. We'll find the right balance. Regarding our digital transformation, we weren't where we needed to be three years ago, but we are now very pleased with our progress. An external study we conducted with BCG evaluates our digital capabilities compared to peers. Three years ago, we were below average, but now we have surpassed our peers. Although we haven't reached the best-in-class status yet, we recognize that there's still more to achieve. Brigitte, Diana, Prabha, and all the operating units are focused on this, and we have strong plans to continue our advancement. Our goal is to become best-in-class.

Great. Thanks. Good morning. I was hoping to maybe talk a little bit about Latin America. I know it's a market where you've been putting a lot of premium innovation in place. It's been a core part of the strategy, particularly in Oral Care. And yet there's significant inflation in some markets. So I was just curious for an update there maybe on premiumization versus affordability, what you're seeing in terms of consumer trends outside of the reported results, but kind of what the dynamics are from a consumer environment standpoint and how you're managing those two ends of the pricing ladder. Thanks.

Yeah. Thanks, Lauren and good morning. So you saw the results, another really strong organic sales growth for Latin America. And pleasingly, after five quarters of double-digit pricing, we saw volume improve in Latin America. And I think this is a good proxy for as we think about pricing in other markets and coupling that with strong advertising, ultimately the volume will come back. It's a quite resilient consumer. They're accustomed to inflationary pricing. But as long as you’re bringing a collection of strong innovation and continuing their brand support, which is vitally important to come out of these tougher times with stronger brands, you see the volume return to the category. So both Mexico and Brazil delivered volume growth in the quarter and both had very strong growth organically given the fact that they also took pricing. So overall, really pleased with what we’re seeing in Latin America. And likewise, we’re seeing the velocity and the turns improve more than we anticipated given some of the inflationary pressures in those markets. Now we shall watch it very carefully as the inflation continues to mount. But overall, structurally the P&Ls are in good shape, and the consumer seems to be quite responsive to the innovation and the pricing that we’re putting in the market. So overall, we feel we’re in a very good place.

Thank you and good morning. I wanted to ask about the Hill's business and your observations from a category perspective. While we can see some data from the U.S., I'm interested in your thoughts regarding global trends, particularly since volumes seem to be a bit weaker overall. To what extent do you think this is due to the pricing strategies employed by you and your competitors? Is there a sense of hesitation within the category following a period of strong growth and adoption over the last couple of years? Looking ahead, how do you view the relationship between price, mix, and volumes for this business over time? Additionally, how do these factors contribute to improving margins compared to our current position? Thank you.

Yeah. Thanks, Mark. So clearly, another strong quarter for Hill's, double-digit organic sales growth despite lapping. And I remind everyone that we're lapping 18% growth in the year ago period. So obviously, a really strong quarter. And the quarter a year ago was mid-single digit volume, so ultimately, a good quarter. And on a two-year stack, we were up. So looking quite strong. Categories softened a little bit towards the end of the quarter. You would expect that given the amount of pricing that’s gone into that over the last three or four quarters. But overall, Europe continues to be very strong. U.S., strong despite very high comps. We anticipate that we’ll see a little bit of sluggishness as we move forward in the categories, only because of all the pricing that’s been taken. But that will be more around the discretionary items in pet specialty than food. Nutrition seems to be okay. I walked stores with some of the CEOs of the big pet specialty retailers recently, and they seem quite bullish relative to the nutritional and particularly the premium segment of the market, where you don’t see a live elasticity in terms of when consumers trade off of diets, particularly on our prescription side. But we’re going to have to watch that quite carefully because there’s been a lot of pricing that’s going into the category. Emerging markets continue to be a real growth opportunity for us. It’s small for us right now, but we need to continue to focus on those opportunities, particularly in Latin America and in Southeast Asia, to a certain extent. So overall, you’ll see us focus on those moving forward. But the categories continue to be quite robust, particularly given the growth headwind – growth head space that we have in emerging markets given we don’t have high penetration there. So overall, we feel pretty good, but we’re cautious on ultimately how the category continues to evolve from a volume standpoint as we see a lot of pricing going in those categories. But again, getting the P&L structured right, getting gross margin up consistently over the next couple of quarters will be very important for us to maintain the high advertising levels that are so critical to drive penetration in that category.

Hi, good morning, everyone. I have a couple of quick follow-up questions. First, I apologize for focusing on North America, but I want to ensure we set the right expectations moving forward. It seems like promotions are returning, but your primary focus is on achieving a more sustainable total P&L. It’s possible we might experience some volume pressure until we see the effects of the strategic adjustments you made. Am I understanding that correctly? Second, I’d like to clarify something regarding freight. Olivia asked about it, and the 10-Q mentioned the year-over-year change. Dan, you noted that freight was 9.5% of sales in Q1 and anticipated it would trend in the low 9s for the remainder of the year. Did that occur in the quarter? Thank you for addressing these two items.

Let me have Stan answer the logistics question, and then I'll address your North American question.

Yeah. So logistics is playing out like we expected and improved slightly from the previous quarter. And we expect that, that improvement will also continue in the second half.

Chris, regarding North America, I believe you captured it well. We are intentionally working to enhance the structure of that P&L as we progress. The main goal is to improve brand health, so we will definitely continue to invest in advertising. We will be selective about how we approach elevating promotions to regain some of the promotional share. Our emphasis is on increasing non-promoted share moving forward, but we must be cautious not to pull back too much in that area. We will keep a close eye on this as we advance. I anticipate some volatility in the gross margin line from quarter to quarter as costs stabilize and we evaluate pricing and mix. However, we are optimistic about the latter half of the year concerning our ability to continue expanding operating margin. It's important to note that the North America HPC business constitutes about 20% of our overall business. The strength of the Colgate business lies in its global diversity, allowing us the flexibility to support opportunities in North America or Asia by drawing resources from various regions worldwide. We are well-positioned in that respect, and I believe North America has a solid plan for the second half, with careful consideration of spending and a focus on recovering some market share lost during the previous quarter.

Thanks, operator and good morning, everyone. So I wanted to just circle back to the top line growth, which the second half organic sales guidance is still relatively wide and implies a decent slowdown, which makes sense as you start to cycle pricing. Can you maybe just talk about the moving pieces that would put organic revenue growth at the higher end or the lower end of that range as we move forward here? And maybe specifically, you mentioned several times throughout this call the sequential improvement on a two-year stack for volume. And just given the step up in investment innovation, should we expect that trend to continue as we move into the back half of the year? Thanks.

It's difficult to predict exactly how the balance will turn out, so we'll need to monitor it closely. The situation will vary by category and region. However, the comparisons will become easier in terms of volume in the second half of the year. I mentioned around 500 basis points, which should provide a nice boost for us. At the same time, the comparisons for pricing will become a bit tougher as we progress, but we are confident in the guidance we've provided and believe we can meet those goals. We'll have to see how the categories respond, especially considering the unpredictable nature of consumers globally. Promotions have been quite favorable, and we've seen strong resilience in places like Latin America and, to a lesser extent, Africa, where we have implemented significant pricing increases. We'll keep a close eye on North America as well. We believe we have a solid position with the Hill's business as we enhance penetration and market share, which is noteworthy since I haven't mentioned shares for Hill's. They have been performing very well with share growth this quarter across most of our recipes, which is encouraging. We feel positive about our guidance and will see where it ultimately lands. If there is potential for upside, we'll take it, but we are comfortable that we’re within a reasonable range to maintain the structure of the profit and loss statement. The second part of your question was related to advertising, correct?

No. It was just the sequential improvement on a two-year stack basis. Just recognizing that the comps get easier, if the two-year stack improves, what does that actually imply? Because it would seem to imply it does improve that there could be some nice improvement in return to volume growth in the back half of the year?

Yes, exactly. I believe we will begin to experience a return to volume growth in the latter half of the year. The two-year comparisons, as I noted earlier, have continued to improve. My expectation is that you might see some moderation as we progress through the second half, but overall volumes will enhance. Additionally, we are still benefiting from some pricing adjustments that were implemented this year, which will contribute positively along with some residual effects from last year. Thus, I anticipate a more balanced mix as we advance through the latter half of the year.

Great. Well, thank you, everyone, and thanks for the questions this morning. We continue to appreciate your interest in our company. Clearly, we had a strong quarter and I hope you agree, the strategies and the plans in place to deliver consistent compounded profitable growth are there and that will allow us to drive increased shareholder value. We couldn't do this without the incredible efforts from Colgate people all over the world who continue to focus on execution of our strategy and the consistency of delivery. So I thank them and I look forward to talking to everyone in the third quarter.