Colgate-Palmolive Company (CL) — Q3 2025 Earnings Call Transcript

Thanks, Drew. Good morning, and welcome to our third quarter 2025 earnings conference call. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to our third quarter 2025 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on Colgate-Palmolive's website for a discussion of the factors that could cause actual results to differ materially from these statements. Our remarks will also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, 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 third quarter 2025 earnings press release and is available on Colgate-Palmolive'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 Q3 results and our future plans, and then we will open up for Q&A. Noel?

Thanks, John, and good morning, everyone. Thanks for joining us today as we discuss our Q3 results and more importantly, the steps we are taking to accelerate our performance in this volatile operating environment. Importantly, we are focused on the priorities and actions set out in our 2030 Strategy. As you will hear today, consumer uncertainty, tariffs, geopolitics, high cost inflation, and other factors are all pressuring sales and profit growth across the consumer sector. Despite these headwinds, we are operating with determination and focus. We have healthy brands in growing categories with strong market shares and a diverse global footprint with nearly 50% exposure to faster growth emerging markets and a best-in-class global supply chain to service that demand. We remain committed to our goals of delivering organic sales growth, net sales growth, and dollar-based EPS growth, and to our capital allocation priorities to drive total shareholder return towards the top end of our peer group. We have done that over the past 5 years and have confidence in our ability to continue to do that. What drives this confidence is our ability to execute on our 2030 strategy to accelerate change as we adapt to this complex and changing environment. Coming off our 2025 strategic plan, we have improved our innovation, built and scaled our capabilities, improved our organic sales and market share performance, and delivered consistent annual dollar-based EPS growth. This is the perfect time for our strategic transition as we're coming off our 2025 plan, which built the organizational muscle necessary to execute our strategy and focus on global alignment. This is not wholesale change but rather we are working to accelerate the rate of change as we embark on our 2030 Strategy. We have made and are continuing to make the changes that are required to drive outperformance. And over the strategic time horizon of our 2030 strategy, we will emerge a stronger and more effective company. As I outlined in September, we are taking concrete intentional steps to accelerate our growth going forward, steps that will drive performance in any market environment, but particularly important now. These include a new innovation model with additional resources focused on delivering more impactful science-based innovation across all price tiers. This new model includes investment in people, process improvement, and resources and tools, including AI to make us faster and better able to prioritize the innovative products and packaging that matter most to our customers and consumers. We are focused on omnichannel demand generation, including upskilling our commercial organization to be more consumer-centric by adopting how we deliver the right products with the right content, with the right message to the right people at the moments that matter. This will help continue to build the strength of our brands and drive brand penetration. Having scaled new capabilities we prioritized as part of our 2025 Strategy, including digital, data, analytics, and AI, we will drive more dynamic change by accelerating our investments and efforts in areas like revenue growth management and agentic AI, working to drive efficiency, disrupt our own processes, and integrate new ways of working across the company. We are using predictive analytics and automation more and more across our supply chain to deliver personalization at scale, drive optimal asset utilization, minimize downtime, improve our service levels, and enhance our quality systems. Underpinning many of these initiatives is our strategic growth and productivity program. While this program will enable us to fund incremental investments and deliver savings to drive dollar-based earnings growth, it is even more vital as a strategic enabler to facilitate the changes in behaviors and processes needed to accelerate organizational change, making us more flexible and simplifying our processes to increase speed and efficiency. Because of these actions and the fundamentals of our business, we believe we are well positioned to outperform in the context of the current global category slowdown for several reasons. The strength of our business in emerging markets gives us the ability to drive faster category growth as developed markets remain sluggish. Hill's underlying performance remains very good in a softer category given our robust innovation and our ability to gain market share in low development segments like cat, wet, and small paws. The health of our brands across categories following years of investment provides us with opportunities to drive pricing to offset raw material inflation. Across our business units, we continue to have well-funded advertising and innovation plans. And we're operating with an even greater focus on revenue growth management, particularly with prescriptive analytics and AI. And we continue to generate strong cash flow to invest in the business and help drive total shareholder return. The timing for us to be kicking off our 2030 Strategy could not be better. We are seizing this moment as the 34,000 Colgate-Palmolive people around the world work to deliver on the change needed to reaccelerate growth and outperform. And with that, I'll take your questions.

So clearly, a difficult operating environment here in terms of category growth in household products, as you mentioned, Noel, with all the consumer pressure points. Can you just give us some perspective on if you expect the category softness to linger as we look out to 2026? You also highlighted a number of focus areas for your own business in 2026 within that landscape. So just how impactful and quickly do you think those levers might be in improving your own organic sales growth performance, again, as we look beyond this year? And if I can just slip a Part B, can you just review Hill's specifically, volume mix dropped off in the quarter. I know there's some factors exaggerating that, but it did look like the underlying performance was perhaps weaker. So just an update on pet category trends and Hill's market share performance specifically would also be helpful.

Thanks, Dara. There's a lot of market volatility this quarter, with surprising month-to-month fluctuations. August was particularly challenging, but September shipments improved, although not enough to offset the softness we experienced in August. Reflecting on my earlier comments outlining our business strategy for both the short and long term, we believe we are in a strong position. We are making progress with the changes we've initiated leading into 2025 and adapting to the current environment, which we anticipate will remain sluggish in the near term. The SGPP will strengthen our organizational structure and capabilities while enabling us to invest more into driving dollar-based earnings per share growth. Looking globally at the operating environment, North America performed slightly better this quarter, especially when excluding skin health products, though we still have work to do. I'm encouraged by Shane and John Coyman's efforts in addressing our business opportunities. Though the North American categories were a bit weak in Q3, we saw sequential performance improvements and expect that trend to continue, particularly outside of skin health. Consumer sentiment remains relatively weak across North America, with increased couponing, decreased Hispanic traffic, and softer category takeaways in the U.S. than anticipated, especially in September. As for Europe, we're observing less pricing pressure than before, with volumes meeting or slightly falling short of expectations. Western Europe has performed better than anticipated, while Eastern Europe, particularly Poland, has shown some weakness. In Latin America, while Mexico and Brazil have seen mid-single-digit organic growth, Colombia and Central America are experiencing economic and political challenges that are affecting consumption. Turning to China, the situation is mixed. Colgate is performing well, driven by e-commerce and innovation, seeing mid-single-digit growth. However, Darlie is facing challenges, especially in the premium e-commerce segment. We're actively working on improving our innovation and e-commerce presence there, but progress is taking longer than expected. In India, results were softer, although we anticipate improvement moving forward. The GST introduced some benefits but also created additional challenges as we concluded the quarter. We're focused on executing key core innovations and promoting our premium products, especially in urban markets where we've noticed some sluggishness. Regarding Hill's, while the overall category remains a bit soft, we observed a decline in dog dry food but an increase in cat food. Growth in the U.S. slowed somewhat, affected by reduced e-commerce inventory and some softness in Canada. Nonetheless, we are pleased with Hill's performance, especially when excluding private labels, as we're gaining market share in nearly every strategic growth segment. Our past strategies and increased capacity, particularly in wet products, are paying off, and we still expect some sluggishness in the category in the short term. However, growth opportunities, especially in faster-growing segments like cat food and wet products, remain promising. Despite a slower-than-expected growth in our categories this quarter, we are still achieving positive dollar-based earnings per share and strong cash flow, which aligns with our expectations for the business's onward trajectory.

I wanted to ask on Latin America. So I just wanted to ask on Latin America. So first, just the prepared remarks, there was a comment regarding a decline in oral care due to the replacement of trade inventories in connection with the formula change. So can you just give more color on what happened there? And is there a way to quantify the impact that had on the quarter? And then second and related, growth in the region has been more in this low single-digit range this year as pricing has moderated. And Noel, your commentary to Dara's question was helpful. But just as we look ahead, would you expect more of the same? Or do you see an opportunity for growth to improve from here?

Sure. Thanks, Peter. Latin America organic growth was 1.7%. However, this figure includes a negative impact of 150 basis points due to the volume effects from the Colgate Total replacement, which I'll explain shortly. We are pleased with the performance in Mexico and Brazil, both showing improvement around 4%. Overall, these markets continue to do well. Pricing is getting better, but it's somewhat affecting volume, which has been sluggish in our categories, not surprising given the prolonged price increases we've implemented. Regarding Colgate Total, it has been performing well globally through the third quarter, contributing to organic sales growth and premiumization as we have been able to increase pricing with this significant innovation. We have launched it worldwide with new regimen claims across toothpaste, mouthwash, and toothbrushes, and we are seeing good share growth globally, which is encouraging. In Latin America, there was an increase in consumer complaints earlier in the year, mainly about temporary mouth irritations, primarily from those using the clean Mint variant, often from people brushing their teeth several times a day. We identified that this was mainly due to the new flavor, so we modified the formula, and in partnership with Brazilian health authorities, we voluntarily replaced the affected variants in Brazil with a reformulated product. As a result, we have observed a recovery in Colgate Total market shares following this adjustment. We are also in the process of replacing the affected variants in other Latin American markets. The gross margin effect we mentioned previously was around 40 to 50 basis points. Although we did not encounter the same level of complaints in other markets, we are proactively modifying the formula for affected variants worldwide. Additional costs may arise, but we believe that most costs have already been accounted for. Returning to the categories in Latin America, growth is still occurring but has slowed recently, primarily driven by volume, while we continue to see price increases in the categories. This slowdown is particularly noticeable in Andina and Central America, where price competition has intensified. We are making the necessary adjustments and focusing on refining our price points to enhance our volume shares. Overall, volume shares for our total Oral Care business in Latin America have remained flat, with a slight decrease in value, partly due to the Total replacement. However, we are beginning to see those shares recover nicely.

We'll go to the next question. The next question comes from Filippo Falorni with Citi.

On the Asia Pacific business, Noel, you mentioned the GST tax change, obviously, impact on India. Any sense of quantifying that impact also? And you mentioned an improvement going forward. Is that the main driver? Are you expecting also an improvement in the macro conditions there? And any comments on the local competition in that market would be helpful.

Yes, let me address India first. As you saw from the Indian company results, organic growth was down in the mid-single digits. Demand in India, especially in urban areas, is somewhat sluggish, while rural areas appear to be holding up reasonably well. We faced challenging comparisons, but the situation is set to improve, and we have solid plans in place for the future. We anticipate better performance in the fourth quarter and a return to growth in 2026. The GST tax in our categories, particularly for oral care and toothpaste, decreased from 18% to 5%. This change has led to some price reductions and inventory disruptions, but our team managed the transition effectively and cleared up those issues as we enter the fourth quarter. Looking ahead, we expect the GST reduction to positively impact consumption in the category, which has been affected by inflationary pressures. Therefore, we see this as a net positive for us. We are also focused on addressing the sluggishness in rural areas and have a strong premiumization strategy to grow our market share in modern trade, particularly in urban settings. We will be reviewing this business in detail with our teams next week, and we’re excited about the strategic opportunities and long-term growth potential in that market.

First, could you provide an update on market shares in Latin America following the relaunch, and your thoughts on how the formula change has affected that? What is the outlook for 2026? Also, I’d like to discuss the challenges in the U.S. drugstore channel, which seems weak and not very consumer-friendly, with products kept under lock and key. How are you managing these challenges? Additionally, elmex has performed really well in Europe, but the U.S. drugstore channel doesn't seem ideal for it. How do you view the situation, considering both the weaknesses of the drugstore channel and the potential for elmex in the U.S.?

Thank you, Rob. I’ll address your points one by one. First, regarding Colgate Total, we launched it successfully, and we've seen incremental growth in market shares. We closely monitor consumer feedback and made a flavor adjustment to resolve complaints about certain variants. The good news is that the new product is currently being rolled out in Brazil, Mexico, and the surrounding region, and early signs indicate an encouraging return in market shares. We have a solid marketing strategy for the current quarter, which gives us confidence that the business will see a positive rebound. In Latin America, we experienced about 150 basis points of negative organic growth this quarter, contributing to a 40 to 50 basis point impact on total gross margin. However, we feel optimistic about the future of Colgate Total. In Asia, we are witnessing strong results for Colgate Total, which is encouraging. As for the drugstore channel, it faces challenges, but we've restarted discussions with retailers on how to increase traffic to their stores. CVS recently reported improved results, which gives us hope that they are focused on enhancing their middle store offerings. Our whitening products are performing well in that segment despite the challenges. We're collaborating closely with retailers to enhance category dynamics through revenue growth management strategies and by introducing high-end therapeutic innovations. Regarding Elmex, it's performing exceptionally well in Europe, achieving record market shares. We are exploring opportunities to expand this brand into other key pharmacy markets globally, which will require a strong professional foundation for successful launches. As we plan to introduce this bundle to new markets, we will keep you and other investors informed, as there is significant growth potential.

I noticed in the script that in the U.S., you mentioned some increased competitive activity, getting more promotional. You described it as fairly rational. Can you be more specific as to the degree to which it's intensifying and what you expect going forward?

Yes. Thanks, Rob. Yes, we've seen a slight uptick in promotional weights, more couponing, a little bit more volume on deal but nothing that would suggest that we're back to pre-COVID levels and higher. It's still, in my view, quite constructive. But you can imagine, as we've seen some volume slowdown in the categories in which we compete, I think all of the retailers and all the competitors are looking for solutions in order to drive more turn and more velocity in store. And ultimately, that turns to volume. What's interesting is when you look at the volume characteristics in the U.S., we still see the premium and the super-premium growing very, very nicely. It's the value-oriented brands or SKUs or segment as well as the mid-price segment that seems to be suffering. And importantly, as I outlined in our 2030 strategy, we are very deliberately looking at more core innovation across our franchises to stimulate more demand, particularly at the lower end, while we continue to focus on the significant growth opportunity we have in the premium segment around the world. So the strategy is much more intentional in getting more innovation out to stimulate demand, not only here in North America but around the world.

Just wanted to ask about the pricing environment in Europe. We've had a few years, obviously, post-COVID where there's pretty constructive pricing. This quarter is still positive. But just curious about kind of the longer-term outlook and ability to keep driving positive price in Europe.

Yes. Thanks, Lauren. So clearly, as we've said, we're really pleased with continued pricing in Europe. And I think we've learned a lot in the last couple of years on how to manage price effectively, notwithstanding the fact that it will continue to be a challenge in the longer term getting positive pricing every quarter but we have certainly built a much stronger muscle on the importance of ramping up our innovation. And again, I come back to the SGPP and the focus we have on putting more resources into innovation, and that's going to allow us to take price-based innovation particularly at the premium side of the business, and that will be our focus. Overall, the retailers have to be pleased with the category growth they're seeing on dollars and our ability to get pricing in the category but it's going to be a balance. We need to bring real science-based innovation to drive the premiumization and take more pricing. I would expect that pricing, our anticipation is that we can keep getting positive pricing as we move forward but it will certainly be a little bit more challenged given the prolonged inflation that we've seen in the categories and our need to balance both pricing and volume growth moving forward.

I had a question on your implied Q4 organic sales growth. I guess for the full year, guidance assumes a step-up in Q4 at the midpoint. So I guess, just hoping you could talk through the puts and takes for Q4 to get there. I guess I'm asking in the context of the still subdued end market backdrop and certainly the greater headwinds from private label pet food exit.

Bonnie, it's Stan. So yes, let's talk a little bit about Q4. So we said in our guidance that Q4 organic or that full year organic will be roughly in line with the year-to-date. So if you look at the year-to-date, we're roughly at 1.2%. So getting to the full year would indicate that we'd improve over the performance in Q3. If you think about the drivers that would help there, we had an impact that Noel articulated earlier around total to the total company. That's going to improve here as we go. And you also heard in both our prepared commentary and some of the questions thus far that there was some destocking in certain markets and certain products. And so as that levels out, that also becomes a benefit here heading into Q4. In addition, on private label, the impact that you saw in Q3 year-on-year will roughly be about the same impact that you'll see in Q4 as we have completely exited the private label business but we still have that year-on-year impact. So right now, as we look at Q4 and coming off of Q3 and the momentum that we see, we feel pretty good about that in line for our guidance of roughly in line with the Q3 year-to-date, which is around 1.2%.

Noel, a question for you. I wanted to kind of take a step back and get your thoughts on the top line challenges. How much of this you believe is cyclical versus how much you believe maybe are Colgate-specific challenges, 1% organic sales growth in the quarter. I'm sure you're not pleased with it. It's levels that investors are less accustomed to seeing from Colgate. So number one, at a global level, where do you see industry growth at the moment, kind of rolling up everything and looking across your business relative to the 3% to 5% longer term? And then two, how much of this do you see as cyclical versus how much is company-specific and you think you can address with the strategy that you've outlined so far on the call?

Thanks, Kevin. Let me start with the categories. They have indeed slowed down in the third quarter globally, especially in developed markets. The initial slowdown was influenced by lower pricing in many categories, but while inflationary pressure has eased, we haven't seen a return in volumes. There is a constant uncertainty among consumers. When we talk to them worldwide, it's not about their confidence but rather the uncertainty stemming from various factors and ongoing discussions. Currently, categories are growing around 2% globally, perhaps closer to 3% in the first half. This growth is slower compared to the 4% to 5% exit rate we had anticipated for 2024. At this point, volumes are mostly flat with pricing up about 2%. Historically, these are low levels of market growth over the past decade, significantly below historical averages, whether viewed as cyclical or not. We expect improvements, but I want to emphasize that if conditions do not improve, we are preparing our plans and strategies to enhance our growth in this environment, focusing not just on top-line growth but also on improving margins and EPS. We are taking proactive steps now to accelerate organic growth moving forward.

I wanted to ask a little bit on the gross margin performance in the quarter. I know you called out maybe the acceleration in palm oil costs. And I just wanted to understand, a, how much of that is just base period effect? I mean the raw material pressure in the margin build clearly stepped up versus the second quarter. So I just want to understand, is that base period effects? Or is that something else? And then b, Noel, I know there's a lot of kind of geopolitical noise around it but obviously, we have some Southeast Asia trade deals. We have political unrest in Indonesia, a lot of places where you source from. So maybe just the latest and greatest on what you're seeing kind of in the live market from a palm oil perspective.

Let me start with the gross profit. First, gross profit margin was down year-over-year in the quarter versus Q3. But I would point out Q3 of last year was the highest gross profit margin we've had since 2020. So the year-on-year impact is primarily driven through greater-than-anticipated raw materials inflation, and that is fats and oils is the biggest driver there. The impact of lower volumes on our fixed cost leverage from our production facilities, tariffs and the transactional FX. We also saw an impact that we talked about earlier from a formula change in Colgate Total in Latin America, as we mentioned in the prepared commentary. For our guidance, what we've laid out is that our year-to-date margin is 60.1%. We expect the full year gross margin to be roughly in line with that, which would put Q4 at 60% plus or minus. The sequential improvement for Q4 versus Q3, we're confident in because we expect that there'll be less material inflation on a year-on-year basis, transactional and Colgate Total impact will be partially offset by a slightly greater tariff impact. So we're confident on the gross profit improvement as we go quarter-to-quarter, which would deliver us a gross profit margin for the year that's roughly in line with the year-to-date.

Just to clarify, were there any anomalies in Q3 gross profit that we expect to ease from this point, aside from the increasing commodity backdrop? I wanted to clarify that quickly. The main question is about advertising spending. Colgate has increased its ad spending over the years, which supports a strong investment in your brands. I'm also aware that some of your competitors are using AI and automation to save on advertising costs. You discussed AI extensively in your prepared remarks. Given the current sales and category performance, is there any inclination to approach advertising spending more strategically in the future, perhaps focusing less on percentage of sales? How can the organization enhance the efficiency of this spending to achieve better returns? I'd appreciate your thoughts on this.

Yes, Chris, let me start with the gross profit. So just again, the kind of quarter-to-quarter anomalies as we think about what will drive that. From the total impact that we talked about in Latin America, that was roughly 50 basis points or so margin. And we believe that most of that is behind us. So that would be a benefit. And then we do see materials, gross materials easing a year-on-year basis. So that will also be a help. And now we're completely out of private label. So that does not going to impact the current period GP. Obviously, it's still in the prior year. So we're confident in the GP improvement here as we go quarter-to-quarter.

Yes, let me address the advertising question, as it's something I'm dedicating considerable time to. As we outlined in our 2030 Strategy and discussed in previous meetings, the role of AI and its application throughout our company is strategically crucial. We have been investing in this area over the past three years and will continue to accelerate our investments. Year-to-date advertising spending is similar to last year’s record total, and we anticipate that the fourth quarter will also align with our year-to-date spending. While advertising expenses are slightly down year-on-year as we compare to last year’s strong spending, we are still robustly supporting our brands, albeit with some reductions in markets where consumers are facing challenges. We have also postponed some innovative launches to a later date, adjusting our spending accordingly. Nonetheless, we are still focusing our spending on achieving a return on investment by leveraging media efficiencies for better overall returns. We expect advertising to remain approximately flat this year as a percentage of sales moving forward. Additionally, the savings from our SGPP will help fund advertising and enhance our brand-building efforts. Regarding AI, I hope our investors have noticed that we have been proactive in this area, as I mentioned at CAGNY. It is a critical focus and a key strategic enabler for both growth and productivity as we approach our 2030 goals, and we are very enthusiastic about it. Over the last two years, we have invested significantly in training and upskilling our teams in horizontal AI to drive higher productivity. Independent surveys show that we are making substantial progress compared to our peers in applying AI across the company. We have established AI hubs utilizing leading generative AI models to provide our teams secure access to advanced AI capabilities. This represents a significant opportunity to enhance productivity throughout the organization. Moving into the next phase as we approach 2030, we will focus more on vertical applications to reengineer processes and increase efficiency. We are particularly excited about advancing AI in areas such as marketing and content, where generative AI will play a crucial role in transforming our digital strategies. We aim to elevate consumer engagement with compelling visual storytelling created through AI-generated content. Some pilot projects in key markets are already demonstrating promising early success. Another primary focus will be on innovation, where we plan to enhance both the quality and quantity of our innovations using AI for more efficient generation of consumer-centric concepts that can be tested and validated much faster. As we consider collaboration for future Agentic commerce, we are looking to work closely with major retailers like Walmart, OpenAI, and Amazon. This collaboration will allow us to unlock the potential that Agentic commerce offers, and we are strategically planning to ensure our brands take a leading role in the changes we anticipate in shopper behavior. AI is central to our strategic growth for the 2030 plan, and we believe our investments over the past few years have positioned us well to capitalize on the trends emerging from this exciting technology.

You covered a lot already. There are positive developments to note. I have a couple of quick questions regarding pets. Cats are increasing their share of the U.S. pet population. You mentioned some innovation in the EU. Is there a similar trend there that favors cats? You also indicated a gain of 20,000 distribution points in the U.S. Can you provide details on the timing and how much of this will be reflected in 2026? Additionally, regarding inventories, you mentioned some pressure. Are they currently at appropriate levels, or should we anticipate further retailer reductions?

Yes. Thanks, Michael, for the question. So let me more broadly cover Hill's again, and I'll address in turn some of your specific questions. Overall, given the category slowdown and impressive quarter for Hill's in what I would characterize as pretty tough circumstances. Overall, we delivered 2.5% organic excluding private label, and that came with some e-commerce inventory reductions we saw at the end of the quarter from some of our retailers. Therapeutic, which I didn't talk about in my upfront comments, continues to be a real growth driver for us. The Prescription Diet business is doing exceptionally well with market share growth, which is obviously helping our mix and gross margin and operating margins on that business moving forward. We saw a greater impact, as we've mentioned in the upfront comment on private label this quarter to the tune of about 300 basis points. Clearly, strategically, we're not in the business for producing private label. So this is going to get cleaned out as we move through the fourth and into the first half of 2026, which will be terrific for the business, allow us to really focus on the short-term growth opportunities and longer-term strategic growth opportunities that we've talked about. So if I go back to the year-to-date and importantly, the third quarter, we grew organic sales in almost every combination of wet, dry, treats, cat, dog, prescription diet, and science diet. So it was very broad-based strength despite the slowing category. So we're really pleased with the underlying structure of the business. Continued strong margin performance on the business, that's driven by the fundamentals, aided to be sure, by a little bit lower private label but we're obviously getting more leverage through the P&L as we continue to optimize the supply chain, and we're able to do that despite obviously softer volumes in general. And as the category remains sluggish and ultimately should come back medium and longer term, we'll get obviously more leverage moving through our facilities. We're gaining share across channels as well, which is terrific. The science-based innovation that we're bringing behind the increased brand investment is clearly working. Active biomes, multipacks, a series of price pack architecture moves, getting better assortment in store, particularly on the growing segments like cat and wet are generating real benefit for us. And my compliments, obviously, to the supply chain that with all the changes that we've executed over the last couple of years, our supply chain now really seems to be executing well. Our ramp-up of Tonganoxi, obviously unlocking a lot of opportunities for growth in the West segment and driving more efficiency. So overall, a pretty strong performance despite the slowdown in the market. And I think longer term, as we've always said, the dynamics of this category continue to be excellent. Even though we're seeing some slowdown, the strategic growth segments are growing fast, and we have an opportunity to get our fair share in those segments. And lastly, I would say is the Prime acquisition that we made in Australia continues to perform really, really well ahead of expectations. We're learning a lot about fresh in that market, and we will continue, obviously, to fuel that growth in Australia and learn from that important segment.

Are you planning any selective pricing to offset the additional commodity headwinds? And then a second part of that is that with FX coming in better than anticipated, isn't it positive, sorry, for especially Lat Am transactional FX into 2026 and even in the fourth quarter as you phase out the total impact?

Yes. So Andrea, why don't I take the first one. So on the pricing, as you go through, Noel's covered pricing here and what we would look at. The pricing actions we have in place try to address in balance with competition as well as the commodities that we see. And FX clearly did come in favor here over the past quarter. And if it stays in the current place, should be a tailwind for us heading forward. At the current spot rate, we still see it as a flat to low single-digit negative impact for the year but Q4 would be more favorable than Q3. Europe has the biggest marginal benefit but most currencies in general have moved favorably. And in fact, you mentioned Latin America currencies. Those have also moved recently, which is a benefit to the business. So FX becomes a bit of a tailwind here at the current spot rates.

Yes. And the other thing, Andrea, I mentioned is that we were positive pricing in every single division in the third quarter, which, again, I think is a clear indication that our brands are strong. The investment we put behind them over the years is allowing us to offset some of the commodity inflation and some of the foreign exchange inflation that we've had in the first half. But overall, we're encouraged with that, and we will continue to look for pricing opportunities as we move forward, certainly as we look to balance the volume component of the business in the medium and longer term.

Can you talk a little bit about offset EPS unchanged. Gross margin guide obviously came in 50 basis points but you're maintaining the low single-digit EPS. Are you expecting to be on the lower end of the range? Or is there some kind of offset that we should be mindful of? And then as we think about this more challenged environment, is there more that should be done with respect to restructuring given the current backdrop?

So let's talk a little bit about the guidance on EPS. So if you kind of go back and look at the overall guidance, we said that we still expect net sales to be up low single digits, and that's including a flat to low single-digit negative impact from foreign exchange, though that improves as we get to the back half of the year. We updated our organic sales growth to be roughly in line with the year-to-date, which would indicate to be around 1.2% for the year. And that includes a 70 basis point impact from the exit of private label. So as you're thinking about run rate going out, it's important to keep that in mind. And then on gross profit margin, we said we'd be roughly in line with the year-to-date gross profit margin of 60.1% and including advertising roughly in line with the full year of last year. And we've held our EPS guidance. And I think if you step back in our commentary the last few years, we've made significant changes to the business model. The strength of that business model enables us to weather the challenges that we had here in Q3 and still deliver bottom line dollar-based EPS growth, and we expect to be able to continue that here for this year. On the restructuring question, for our sales growth and productivity program, this is designed for 2 facets. First, we're doing this, we believe, from a position of strength to enable us to fund incremental investments as well as the second piece is delivering savings to continue to deliver dollar-based earnings growth. It facilitates the changes that help us make us more flexible, simplify our processes, increase our speed and efficiency. Now the program is consistent with what we announced last quarter with estimated charges of $200 million to $300 million and concluding by the end of 2028. And we anticipate those kind of first charges to start to roll through in the fourth quarter. So we're doing a lot of planning. We're going to execute this carefully because we're changing the way we work, not just slashing costs. So it's important that we're looking to design and allow the future fit for our organization, which aligns with our 2030 Strategy. That's going to include investments in things like omni demand generation, increased innovation, scaling our capabilities, and Noel just covered AI and agentic AI, deep investments in those areas and educating our teams at the same time to be able to execute that. This also will help us continue to drive flexibility and personalization in the supply chain. We talked about those investments that we made, and we think that will continue to benefit us going forward.

Olivia, if I can just add one thing to what Stan said. We spent a lot of time over the last 12 months talking about building flexibility into the P&L. And I think that is the key thing from that standpoint, which is we worked all through '24 to build that. We used some of that. We're still building flexibility in the P&L. So again, when we think about achieving our targets, we're still continuing to think about that. And I think if you look at the '25 results, we've had incremental tariffs. Year-over-year, we have foreign exchange. We've had higher raw materials, the category slowdown, what have you. It's that focus on the flexibility that allows us to get to that. And yes, we're going to use that up as we go through the year to deal with headwinds, but that's really the focus of building that up in the first place.

And I guess picking up on some of that. So Noel, when you step back and you think about the initiatives that you opened with and that Stan just walked through in support of SGPP, new innovation model, omnichannel diversification, RGM, et cetera, all underpinned by AI and predictive analytics. Those all seem like the right points of emphasis. But I guess a couple of questions around that. How do you think about the upfront costs of all those things in the aggregate, number one. Number two, to what extent are they really points of category acceleration or points of Colgate-specific differentiation versus more just the cost of doing business these days? Because if I was going to be devil's advocate, I'd say that thematically, that's what a lot of companies are doing. And I guess all of that in terms of how that plays into your '26 planning, if you could?

Thank you, Steve. We want to view these developments as a means to secure a competitive edge in the market while also leveraging our capabilities to foster additional growth for both our retailers and ourselves. To start with, innovation is key. We're gaining valuable insights on utilizing technology to speed up our innovation process and deliver improved premium offerings to the market, which we can validate more quickly than in the past. This approach aims to enhance our partnerships with retailers by introducing better innovations more rapidly and in greater volumes than ever before, ultimately helping us accelerate our competitive advantage. It's crucial to understand how to effectively implement agentic AI, which can enhance premiumization and increase purchase intent, thereby leading to more revenue, more households reached, and higher volume. This allows us to tailor our messaging to be more personalized, driving increased consumption within the category. If executed correctly, in collaboration with our retailers, this should result in stronger category growth. Beyond the top line growth, we aim to use AI to improve productivity within our organization. For instance, in demand planning, we can utilize AI to automate planning and replenishment processes, thus generating more cash and reducing working capital requirements. This presents us with a significant opportunity to gain a competitive advantage. Similar to our undertaking of the SAP journey two decades ago, we believe that technology will provide us with a substantial competitive edge, and we're ensuring that we invest in the necessary training and resources. We've been focusing on this for the past three years, as noted by John regarding some flexibility in the P&L. Our teams are well-prepared to apply technology effectively, and with our strong cash flow, we're investing appropriately to set ourselves up for future success.

Yes. And I'd just pick up on your question on the upfront cost. We're not starting. We're well underway and have been for some time. And in fact, as we look at our 2030 strategy, one of the things that's changed over the last few years is while the total number of investment you see may look relatively static, under the covers, we're practicing good resource allocation. So we are driving productivity, getting more efficiency, using AI to help us drive that and then making strategic investments, which we've been doing over the last several years on data, digital, AI, those investments on educating our people all help enable this going on. So it's not like we're going to come and say we have to make this big, large incremental investment. We're reallocating resource, making strategic investments and have been for some time, and we'll continue to do so as part of our 2030 strategy.

Yes. Noel, I wanted to return to China. I guess it's another quarter of familiar trends with growth at Colgate China and then challenges at the H&H subsidiary. Can you talk about what's going on at the latter and how you're looking to turn around performance? I mean, is it as simple as a bricks-and-mortar business essentially losing share to online?

Yes. Thanks, Ed. So clearly, we're not pleased with the overall performance in China. We see real opportunities for longer-term growth. Clearly, that market is challenged from obviously a little bit slower growth and a more intense competitive environment/ And a pretty transformational transition into e-commerce, which our Colgate business has managed exceptionally well. And our Holly & Hazel business now is putting the right investment in place to get the premium side of their business, which is what's driving that marketplace right now. So we spent some time, as I alluded to in previous calls, as you well point out, getting the go-to-market fixed on Holly & Hazel. And I think the go-to-market, particularly in brick-and-mortar, is quite advanced now, and we'll start to see benefits of that in the next couple of quarters. Where we're really doubling down now is on building the brand more effectively through our online communication and how we do that and move from both from basically a more transactional business today with some of these strong online platforms to a more strategic basis on how we advertise top of the funnel, what we talk about to build the brand and ultimately drive ultimately persuasion and conversion. And that's going to require a more deliberate focus on how we spend our money online, with intentionality in my view, and a better understanding of how Colgate has done it successfully, which we're sharing those learnings. And then more importantly, getting the premium side of the Holly and Hazel business stepped up and excited that we've got a pretty significant premium innovation coming in the fourth quarter, which they will introduce, and they're really ramping up the 2026 grids to ensure that we have much more online e-commerce-ready products to launch to that segment of the market, which seems to be growing quite nicely.

So thanks, everyone, for your questions. Not a lot more to add. But obviously, while the external environment provides challenges, I hope you feel we are very confident in our ability to continue to execute against our strategy. We're particularly excited about the changes we're making to adapt to the current environment to ensure that we accelerate growth both for Colgate-Palmolive and for our retailers. And let me make sure I thank again the incredible tireless effort by Colgate people all around the world to continue to drive our results, and we look forward to talking to you again in the first quarter. Thanks, everyone.