Colgate-Palmolive Company (CL) — Q4 2025 Earnings Call Transcript

Thanks, Betsy. Good morning, and welcome to our fourth quarter and full year 2025 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. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on our website for a discussion of the factors that could cause actual results to differ materially from these statements. These remarks also include a discussion of non-GAAP financial measures which excludes certain items from reported results, including those identified in tables 4, 6, 7, 8, and 9 of the fourth quarter earnings press release. Full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release, which is available on our 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 his thoughts on our results and our 2026 outlook. We will then open it up for Q&A. Noel?

Thanks, and good morning, everyone, and thanks for joining us today as we discuss our stronger-than-expected Q4 results, and more importantly, our outlook for 2026, which marks the beginning of our new 2030 strategy. I'll give some brief thoughts on 2025 before heading into why I'm excited for what 2026 could bring despite a very volatile environment as we enter the year. We delivered organic sales, net sales, gross profit, base business earnings per share, and free cash flow growth in 2025 despite lower-than-expected category growth, higher-than-anticipated raw material inflation, and the impact of higher tariffs. I believe our ability to deliver dollar-based earnings per share growth in a year with that much volatility is a sign that the flexibility and resilience we have built into our operating model is working effectively to drive value for our shareholders. Encouragingly, we are exiting the year with improved momentum with organic sales growth in all four categories in the fourth quarter and sequential improvement in organic sales growth versus the third quarter in every division, except North America. We delivered modest volume growth in Q4, excluding the impact of both the Prime 100 acquisition and the planned exit of the private label business. Last year, we completed our 2025 strategy as we added $5 billion in sales, and this year marks the transition to our new 2030 strategy, which we believe provides the building blocks to accelerate change at our company to continue to drive top-tier growth and total shareholder return. The five key areas where we're focused on are: First, we have strong brands with global reach. We believe this provides a competitive advantage. For example, the Colgate brand is the most penetrated brand in the world, and this helps us drive distribution for our portfolio, particularly in emerging markets. Second, we are accelerating our investment in new innovation models with additional resources focused on delivering more impactful science-based innovation across all price tiers with greater investment in key strategic growth markets. Next, we're harnessing the power of best-in-class omnichannel demand generation by adapting how the right products with content and messages are delivered to the right people at the moments that matter in order to drive purchase behavior. The goal is to deliver consistency of this consumer-centric model around the world to build brand strength and penetration. Fourth, we're continuing to double down on and accelerate investments in scale capabilities, digital, data, analytics, and AI including our efforts in revenue growth management and AI-driven innovation to generate faster growth, higher return on investment, efficiency and productivity, and to integrate new ways of working across the company. We are also executing on our plans to optimize our supply chain through predictive analytics and automation to handle customization and personalization in a new dynamic environment. This is intended to deliver personalization at scale, drive optimal asset utilization, minimize downtime, improve service levels, and enhance quality systems. Finally, anyone who has worked for me knows how much I believe in culture as a competitive advantage. We are laser-focused on continuing to develop a high-impact culture by aligning key performance indicators in our training and development programs. We also announced our strategic growth and productivity program which should unlock the organizational changes and funding necessary to help us deliver on our new strategy. Combined with our fund growth initiatives, which delivered another strong year in 2025, we believe we are well-positioned to invest to grow our brands, build our capabilities, and deliver productivity to help offset cost inflation and drive margin expansion. We have several reasons for optimism in 2026. Our new strategy and the resilience and strength of our operating model give us the ability to adapt to this volatile environment. Emerging markets where we have significant exposure continued to perform ahead of developed markets. We delivered improved momentum on our business in Q4 in terms of organic sales growth and market share, and we have seen stabilization of category growth rates as we exit 2025, but we still face significant uncertainty. While category growth may have stabilized, growth rates remain low. This is difficult in and of itself, but also could lead to higher levels of promotion and other competitive activity. Foreign exchange is favorable right now but has been a negative impact for eight of the past ten years. The geopolitical environment, including tariffs, is volatile, particularly in Latin America, and the U.S. market remains sluggish. While we think trends will improve, we're not building in a big rebound. Because of this uncertainty, we're giving a wider range than normal in our net sales and organic sales growth guidance to incorporate various levels of category growth. So to finish up, I'm confident in our ability to navigate through this uncertain environment. I believe we have the correct long-term strategy, very well-designed 2026 plans, and, of course, the best people and culture so that we can continue to deliver value to all of our stakeholders through achieving our long-term ambitions. And with that, I'll take your questions.

So nice sequential progress on organic sales growth in Q4. 1% to 4% guidance for '26 is a wide range, understandable in this environment. But Noel, I'd just love to get your perspective on category growth within that guidance as you look at key regions around the world, where we sort of stand here at the beginning of the year. Obviously, a difficult '25, but you talked about improvement in Q4, where we saw that clear sequential improvement. So just does that give you more confidence here? How do you see Colgate as positioned also within that industry framework just from a market share standpoint and as you look to drive greater marketing effectiveness? I think the point blunter is really just trying to understand how you think about landing within that OSG range in '26, an improvement versus '25 with the points you made around optimism versus the uncertainty. And then if I can slip the second one in, Stan, it's just been so long since we've seen favorable FX. Can you just talk about the flex on the earnings line relative to the top line dynamics I just asked about and how you manage the business in terms of spend and the way you manage that business relative to that FX benefit?

Yes, thank you, Dara. We're pleased with the momentum as we close the year. On an underlying basis, excluding private label, we experienced organic growth of over 3%. While this is a strong figure that positions us well, the market environment remains challenging and volatile. The categories appear to have stabilized, albeit at lower rates than we historically expected, likely between 1.5% and 2.5%. We’re observing significant month-to-month fluctuations in the U.S., as reflected in our Candidacy, and we're also experiencing some downward pressure on inventories due to slowing categories. The volume issue, particularly acute in the U.S., has resulted in negative growth in some of our core categories. We anticipate slight improvements, but we are not projecting significant enhancements in the U.S. in the coming quarters. Overall, we believe North America performed slightly better this quarter, although it’s still below our goals. Our strategy for 2026 is more refined than in 2025, featuring easier comparisons, a stronger innovation pipeline, and improving execution, which we observed strengthen as we progressed through the latter half of the year. In other regions, Europe is experiencing lower pricing than previously, and volume has been somewhat better than expected. Western Europe showed improvement, which is encouraging, although we continue to see weaknesses, especially in Eastern Europe, with Poland standing out in that regard. Latin America showed strong results, particularly in Mexico and Brazil. Both the Andina and Central America regions have improved, though they remain challenging in terms of category performance. Asia has shown sequential improvement, with India returning to growth. Hawley & Hazel is on the mend but not fully recovered yet, though we noted some positive developments in e-commerce driven by a successful new product launch. With the Chinese New Year approaching in the first quarter, we anticipate further improvements there. Across Asia, we’re seeing solid growth, notably from our premiumization strategy. Hill’s had an excellent quarter despite sluggish overall category performance, and we saw a nice rebound in the U.S. with strong growth for Hill's, excluding private label, exceeding 5%, and positive volume as well. We're pleased with our continued progress, particularly concerning share growth in the prescription diet segment, despite some challenges in Canada. Overall, we're satisfied with our momentum and believe that we’re on the right path towards our 2030 strategy, which we believe addresses many market challenges we currently face. The resilience and flexibility we demonstrated this quarter, along with the SGPP initiative we announced, will help us build our brands and capabilities for the future. Now I'll hand it over to Stan for the FX question.

Thanks, Noel. So we saw in Q4 that FX was slightly favorable versus our expectations. As Noel highlighted, FX has only been favorable on an annual basis, two of the last ten years, and we know it can change quickly. As we look at 2026, we see it as a low single-digit benefit to revenue in 2026, focused on primarily the first half of the year. On the bottom line, we use that as part of our flexibility in our business model, using it to invest back into the business as well as contribute to the bottom line. At current rates, Europe is the biggest marginal benefit, but most currencies have moved favorably and Latin currencies have been stronger most recently, which is also good for us. I guess I'd close with FX, our teams are very experienced. They're really good at dealing with currency in a volatile environment. So they'll deal with it through RGM, through pricing and make sure that we don't try to take too much advantage of it and use it as flexibility in the business model. So I think our teams will execute this well.

Dara, you asked a question on guidance in terms of the wide range. Let me provide a little specificity in terms of what went into that thinking. So it's pretty simple. If categories get worse, we're at the low end of that guidance range, if categories stay where they are, then we're in the middle of that 1% to 4% range. More than likely if category strengthens, we hope to achieve more towards the higher end of that range. But as we've outlined and as you've seen, significant uncertainty all around the world, categories have stabilized but remain at lower levels.

So I wanted to follow up on Hill's. I wanted to ask about Hill's, and you kind of alluded to this now a strong quarter on the volume front despite a pretty tough category backdrop. But can you maybe just speak to the performance in the quarter relative to your expectations? Where were things stronger than expected? Were there any pockets of weakness? And then I guess, as you noted, the category remains challenging. But as you look ahead, I'd be curious what you expect from a category standpoint and just your ability to continue to deliver this level of outperformance?

Yes. Thanks, Peter. Again, as you mentioned, strong quarter for the business on a backdrop of pretty tough category. Private label was a 360 basis points negative impact on volume. Despite that, if you take that out, on an underlying basis, we grew volume 2%, which is terrific. That growth was pretty broad-based with the exception of the softness we continue to see in the category behind dry, but we grew across all of our core strategic segments. That's terrific to see. The volume improved on a two-year stack basis, which is also encouraging. Therapeutic continues to be a big growth driver for us. The Prescription Diet business is growing very, very nicely with improved market shares, and that clearly helps the mix in the operating margins and gross profits. We're gaining share across all channels as our strategy of science-based innovation clearly continues to deliver growth for the category and our retailers. So we're pleased with that. But clearly, a little bit of softness on pet adoptions is driving some of the sluggishness we're seeing in the categories. Science is winning, and we clearly continue to see upside in terms of our opportunities to grow the category for some of the premiumization and innovation that we're bringing into the category. We've also gained shelf space as we exited 2025, which we think will help us as we move into 2026 in a more challenged environment. We've got a real benefit in the supply chain as we ramped up a lot more innovation going into 2026. Our pet food plant that we've talked about has greater flexibility now to deliver more wet product around the world. We continue to see across all of the key retail environments growth of the Hill's brand. Very competitive categories we saw exiting the back half of the year, but the good news is we continue to drive incremental growth, and we continue to fund that business with increased brand advertising.

Great. You had a tremendous amount of success turning around and then growing the Colgate brand in China. I'm wondering if you could kind of reflect on the learnings from that, to what extent you can transfer those learnings to Hawley & Hazel. And I think you had mentioned that, that brand is starting to do a little bit better. And are there really learnings that are transferable outside of China to the rest of Asia and even in the U.S.?

Yes, Rob, thank you. It's interesting you asked about the transferability. In fact, we've seen so many interesting learnings coming out of our China team, our Colgate China team, that we've sent all of our key leaders and marketing directors over to China for immersions into the commercial strategies that they've deployed over the last couple of years, which have clearly been at the center of our omni demand generation. They've really learned how to deliver in an omni demand world with very strong brick-and-mortar, but equally important is a very strong e-commerce and online business, and that learning is clearly getting transferred around the world as we speak. The underlying objective of that business has been to transfer a lot of our success over the years in brick-and-mortar over to a rapidly growing online business. Despite a significant amount of competition online, we've been able to bring a lot of innovation into the category, and we've learned how to personalize the message on a much more fluid basis, which we're getting at the right time and the right place to drive a lot of that share growth we’re seeing on the Colgate side. Specifically regarding your question, that's exactly what Hawley & Hazel now is trying to replicate. They have substantial widespread, downscale distribution business, and we want to continue to leverage that, but we realize the category continues to evolve to e-commerce. Our ability to exploit the learnings that we've had on Colgate onto the Hawley & Hazel business will ultimately prove the long-term success of that. As you mentioned and as I stated earlier, we had a great new product entry on the super premium side online with Hawley & Hazel, a dual-chamber technology that's quite unique for that market. We're seeing great uptake on that as we exit the quarter. That will clearly be the business model that we need to continue to execute on moving forward. We've also made some pretty significant structural changes within that business to better set us up for where the environment is going and where we anticipate the go-to-market should end up in the next couple of years.

I had a question on your ad spend. The consumer backdrop remains challenged and your ad spend was slightly down last year following increases in the prior couple of years. So I guess with category growth still below historical levels, curious if the decision to spend more on A&P this year is because you want to improve your market share in certain categories. If you could touch on that, that would be helpful. I'm also wondering how much flexibility you ultimately have to maybe pull back on A&P spend, I guess, if necessary, to deliver on your EPS guidance?

Thanks, Bonnie. Clearly, a lot of the success we've had over the couple of years has been behind building our brands, and our advertising acceleration has been a key driver of that. That being said, with the sluggishness that we saw in the back half of the categories, it was prudent for us to scale back a little bit of the advertising given some of the headwinds that we saw in the categories. That being said, we spent a lot of time in the last six to nine months really deploying the omni demand generation capabilities that I talked about as part of our 2030 strategy, which is allowing us to get much more focused on driving efficiency through our spending. While advertising as a percent of sales was down a little bit in the fourth quarter, it was still up 5% on a dollar basis year-on-year, which is good in terms of the number of impressions and the impact we're getting in the market. So moving forward, there will be a real focus on optimization and efficiency, but we have areas of the world and brands that we believe will continue to benefit immensely from improved advertising and increased levels of advertising in the market in order to drive not only our market share and penetration but to drive the categories as well.

Noel, I wanted to dig into your comments a little bit on North America specifically. As I look at the holistic portfolio, right, you've got pretty much every region moving in the right direction. North America seems to be the last ship to turn around here, particularly, I think you called out Personal Care as maybe one of the weaker points within that bucket. So would just love some comments from you around the planning, whether it be innovation and market execution for North America specifically as we get into '26 to kind of write that ship so that, hey, maybe organic sales can come in even a little bit more accelerated than you saw in Q4.

Thanks for your question, Peter. This quarter has been challenging for North America, though there has been some improvement compared to the third quarter. As you've heard, category growth remains slow, which has been difficult for many. October and November were particularly affected by the government shutdown and the holidays. December showed a slight improvement, but we shouldn't get overly optimistic about it just yet. We're still observing a continued decline in category growth figures. In the U.S., nine of our categories experienced volume drops in October, and ten did in November, with six in December indicating a bit of recovery. The Home Care category has seen notable declines, particularly in fabric softeners, both experiencing mid-single-digit volume decreases. The industry is facing numerous headwinds, primarily due to consumer uncertainty regarding market conditions. Consequently, consumers are holding back on stocking their pantries and opting for promotions more than before, resulting in a decline in their engagement with certain categories. However, there's strong growth in the super premium segment, which is promising, and we are observing some movement toward value products. We have significant opportunities in North America, especially in Oral Care, to enhance our focus on the super premium sector. There's a discrepancy between organic growth and consumption patterns, potentially tied to recent couponing trends and downward inventory pressures linked to slower category growth, in addition to some weakness in non-Nielsen categories. Overall, the North American landscape is quite uncertain. In response, we are enhancing our innovation pipeline as we prepare for 2026, which you'll see develop over the next quarter. We're also ensuring that our revenue growth management strategies are properly implemented, as there will be a strong push for volume. We need to stay vigilant regarding competitive actions; thus far, competitors have been relatively constructive, with some increasing their couponing efforts. Our strategy revolves around enhancing value through premium innovations across our categories. The Skin category has been sluggish, particularly as we integrate it into the North American business. Recent decisions made in China have also affected our skin health segment as it pertains to North America. We're optimistic because we have strong strategies and have gone through significant restructuring in that business. We're confident that our focus on innovation and emerging markets worldwide will lead to improved results in the future.

I want to touch on the emerging market business that saw a pretty significant improvement in Q4, especially Latin America and Africa, Eurasia. Maybe can you first talk a bit about what you're seeing from a macro standpoint, especially in big countries like Brazil and Mexico? And then longer-term, still a lot of contribution from pricing. How should we think about the balance of pricing and volumes in emerging markets as the FX turns potentially more favorable going forward, as you mentioned before?

Yes. Thanks, Filippo. As you probably saw, emerging markets broadly were quite strong. Taking aggregate, emerging grew at about 4.5% organic growth in the quarter with a good balance between price and volume, which is encouraging. You specifically called out Latin America, which had a very strong quarter. We were up in both Mexico and Brazil, high single digits, and we had strong growth across all three of our categories. We also had solid growth, as I mentioned, in the Andina region in Central America, but those regions continue to be challenged by heightened competition. We continue to execute our strategy and grow the business. Similar movements are observed in Latin America, with some sluggishness, but they're growing faster than the developed markets across the world, both in Latin America as well as Asia and Africa, which we think bodes well for us, given our strategic exposure to those categories worldwide. FX has certainly helped us a little bit in the short term. We'll see where that goes ultimately longer-term, but volatility is clearly there. The good news in our emerging markets is that we're very focused on executing against very strategic growth markets in our 2030 strategy and we will see investment in those markets where we can capitalize on the stronger category growth rates we're seeing overseas, and that will be a clear focus as we move through the balance of 2026.

Hoping you guys could talk a little bit about India, just with the GST change and just some volatility there have been in that market overall, not just for you guys on demand, consumer and so on. Would love an update there.

As you saw in India, company results, which we recently announced, organic was up in the quarter and sequentially better than expected. However, underlying demand in India, mostly in the low-income urban consumer segment, continues to be rather soft. Our strategy, along with our focus on innovation, is to grow the premium side of the business in the urban market. We have some aggressive new product introductions, Colgate Total, launching Colgate PerioGard through the profession and our Optic White purple brands are all moving through distribution as we speak. We will continue to focus on the premiumization of the urban market while we defend against the impacts of the GST changes. We are mostly through those changes, and we think execution will improve as we move through 2026. Overall, we are still quite bold on India long-term; it’s a very important market for us where we've had great success. The team has a strong plan for 2026 with the changes and interventions we made during 2025 that we think will play out in '26 for a much stronger year.

I guess digging into maybe even a little bit more on what's behind the slowdown in the category. You mentioned a bit of pantry destocking, but for how long can that continue? Maybe there's a little promotional activity. But I'm sure we have dug into sort of what's maybe going on more specifically on the category that historically has been very consistent, seems to be slowing down. And then on FX, just to confirm, I think, Stan, you had mentioned the benefit on the top line. Is it fully intended to be reinvested? Or was the comment more related to not expecting any leverage from the benefit on the top line down the P&L?

So on the U.S. and the categories, it's unusual for everyday use categories to see these sluggish trends. Clearly, I think as consumers gain more certainty around where their futures and the economy are headed, we're going to see those categories come back. It's incumbent upon us to ensure that we're bringing the right innovations across multiple price points with the real value orientation associated with them. We know consumers react to compelling new product ideas. We have to accelerate our innovation to bring a little more vibrancy to the category. We have pricing opportunities as I laid out earlier on whether it's through revenue growth management or going after the premiumization segment. But right now, I believe it's largely driven by uncertainty. As a result, we've seen softness in Hispanic cluster markets that we've talked about, and you've heard others speak about. But we anticipate that the category has bottomed out and expect a gradual return over the balance of this year. As we introduce more innovation in the market, we should see the North American market come back noticeably. By deploying our premiumization strategy, we believe opportunities for growth still exist there.

Yes, on FX, we said in 2026, we see a low single-digit benefit to the top line, focused largely in the first half of the year. On the bottom line, what I said was that this would be part of our flexibility in the business model. We use it to invest back in the business, as well as contribute to the bottom line, which is all incorporated into our overall guidance on both top and bottom. We'll utilize this and see how it evolves. The other thing we know is that it will be volatile as we progress through the year. It has been volatile through January, and we expect that to continue. That’s why we view this through a flexible model, which is how we've designed our guidance.

I was hoping you could provide more details on the outlook for Latin America. Clearly, you experienced a reacceleration in the quarter, with strong volume growth. I’m interested to know if you can break down the impact in Brazil due to the reformulation. Is there any reload in the inventory at this time, and what are you projecting for category growth globally in Latin America? There are some supportive factors, such as potential elections in Brazil and the recovery in Mexico, which you've noted as the largest contributor to volume growth. I'm curious if Brazil's growth was also volume-driven.

Yes. Thanks, Andrea. Yes, a good quarter for Latin America coming off a slightly softer quarter in the third quarter, which is somewhat unusual given their long-term success. Clearly, some of the strategies we're executing are starting to prove out in terms of the growth and volume which was terrific to see in the quarter. As we look forward, obviously, the total issue that we had in 2025, we'll lap some of that moving into 2026, and the execution of our strategy will hopefully drive some incrementality to what we've seen, given the softness we experienced. The category seems to be behaving okay, albeit down versus historical levels. We're still able to get pricing given the strength of the brand and some of the inflationary aspects we've seen, particularly on fats and oils in the region. We've been able to take some pricing in that market and will continue to do so moving forward. Our focus is on a strong innovation pipeline across multiple price points and we believe we can continue to drive volume executing against the clear price points. We are seeing some of the middle getting squeezed in Latin America as well, where the super premium continues to grow quite nicely. The value segment is growing while the middle is getting squeezed. We need to enhance our innovation across all price points to secure better volume growth across the board. Both Brazil and Mexico are contributing very nicely to the growth, and we anticipate that will be the case as we move through the balance of 2026.

Noel, in response to the plans for driving growth in the U.S., you're really focused on the premiumization strategy. However, you also said that economic uncertainty is a problem, especially among Hispanics who just tend to have less purchasing power. So can you talk a little bit more about the U.S. and how does your strategy take into account improving performance, I guess, for lower and middle-tier priced products? That seems to be where your competitors are increasingly focused as well.

Yes. Thanks for the question. Listen, it's a combination of many things in terms of how we strategically deploy our go-to-market. For the lower end of the market, individuals are obviously price-sensitive. We need to implement our couponing strategy effectively. We need to adjust our price pack architecture accordingly. We have very strong core base businesses in the U.S. and around the world. Our ability to innovate against these and bring new offerings will create excitement in the category. Executing the planogram successfully as we move through '26 will be crucial, making sure we're providing growth stories to our trade and the ability to drive value in the middle price segments as well. Critically important to driving growth in the U.S. across all price points is an effective promotional strategy combined with aggressive innovation. We will certainly match any competitive activity that arises but are focused on driving the category much more through innovation. I hope that the constructive changes we've observed in the category throughout 2025 will manifest similarly in 2026.

Just if I could follow up on Rob's question. Just how do you think about portfolio construction in this kind of K-shape world we're living in? I'm not talking about kind of what's going on here and now. I mean, income bifurcation globally has been going on for 40 years, right? So I would assume that it's going to continue. So when you think about portfolio construction or just product construction, low-end versus high-end, how do you think about that over the next couple of years? That’s just a quick follow-up on the K-shape. The real question is just some of your larger competitors have announced and probably will announce soon organizational design changes that are less category-centric and more solutions-centric. I’m just thinking about the world we're living in right now and how you think about Project 2030 or your business plan going through them? How do you think about organizational structure? Do you think that any changes might make sense given how the world is evolving?

Yes. Thanks, Nik. Let me talk about our portfolio composition. Something we've discussed relative to our 2025 strategy has been the importance of our core business. It's interesting; many staples are now talking about revitalizing their core. We've been on that journey for three to four years, really elevating our core businesses, relaunching them with science-driven innovations and driving greater value. This strategy will continue as we move through 2030. We've learned the importance of making sure that we do not neglect our large core businesses and instead focus on line extensions and super premium innovations. This could lead to peril. Our core business and the strategy we've been deploying have played out well through 2025. We have exciting relaunches for our core businesses lined up as we move into 2030. You've heard me discuss our global under-indexing in the super premium side extensively. Focus will be on gaining more of our fair share in super premium markets and for the last several years, we have developed robust science-based innovations that we believe can effectively capitalize on premiumization opportunities. You've seen this success particularly in the Hill's business. We need to replicate this across our other categories more successfully. This will transpire as we progress through the 2030 plan. Regarding organizational structure, the strategic growth and productivity plan is aligning our company for shifting trends. Key to this is structuring our organization for what we call omnichannel demand generation. We will remove silos between our e-commerce operations and brick-and-mortar, as well as indirect trade distribution, creating a unified commercial organization that pursues strategies for success in our omnichannel space. This will be a significant focus for us as we build on the SGPP plan.

I just wanted to return to North America pricing. You've gained some steam there and it was positive again. You've touched on just the need for flexibility and the consumer uncertainty. But maybe can you give a sense at a high level what your expectations are in 2026? You touched on some of the RGM capabilities. But maybe I just want to clarify if you meant more that to manage price realization or if you meant that more as driving value for the consumer. I’m sure it would be a bit of both. Should we expect a little bit more pricing momentum to continue or any watch-outs there?

Yes. Thanks for the question. Clearly, we've always indicated that we need a balance between pricing and volume. Efforts and capabilities we've developed over the past five years in revenue growth management, where we now have AI helping us make prudent decisions around price pack architecture and the promotional environment, play a key role in executing against pricing in the category. There is a need to establish pricing in the category, and clearly, our teams are very focused on that. We'll scrutinize our promotional strategies to maximize pricing. Our pricing and innovation must align to ensure that we are bringing substantial value to consumers. The U.S. may face a tough environment for the next couple of quarters. But as we move through the back half of the year, we anticipate that our competitors will introduce more innovations into the categories, allowing us all to see the market steadily improve post-elections. We intend to enhance our penetration and share in that evolving environment.

I know you mentioned FX has only been a tailwind in two of the last ten years. But can you remind us what happened to pricing promo in the past in emerging markets, whether price pushback is a concern? Is there any risk that price pushbacks could happen led by consumers or competition? Also, the flex provided but at a greater magnitude to try and chip away at your shares in international markets? Assuming there is flex, are there plans for programs you intend to implement? Is it more evenly spread across incremental advertising, investment, and promotion? Lastly, you briefly touched on a nationalistic view in Canada impacting results. Are you seeing that anywhere else globally? Or how do you view the risk of that potentially increasing?

Let me address the last question. Currently, nationalism is mostly a Canadian issue. We haven't seen it necessarily spread to other parts of the world, but anything can happen, and we will have to monitor that. I'll let Stan provide specifics regarding foreign exchange. Given that favorable FX has only been a tailwind two of the last ten years, we do not plan, and we do not build our strategies with FX being a benefit for us. Clearly, we have our funding for growth programs, productivity drivers, and we challenge our teams to effectively pursue pricing in the category, driving value and a return on our investment. So all of these initiatives will continue. We do not ease pricing due to foreign exchange fluctuations. Prices necessary based on product formulations will be maintained according to market demand. Our proven revenue growth management capabilities have supported that. Let me give Stan the opportunity to address foreign exchange and additional questions.

Yes. On the FX matter, if you reflect on the two years where FX was favorable, we executed pricing those years as well. Our experienced global teams know how to navigate these markets. Local competitors may try to exploit foreign exchange opportunities for short-term gain, but I return to highlighting flexibility in the P&L. We'll employ this flexibility, whether through advertisements, product placement investments, etc., to optimize for the currency environment we operate in. I would expect that we're still able to exert pricing leverage. It may not occur in every geography, but our historical performance demonstrates our capacity to execute effectively.

Congrats on the results. Noel, I wanted to pivot back to the pet food business, but thoughts specifically around fresh, really from a couple of angles. One, your learnings so far from the prime business commentary on how the brand is performing versus expectations and your ability to further expand that. But then two, and perhaps more broadly, just kind of taking a step back, your updated thoughts on the attractiveness of that subsegment within pet food and how Hill's will play a role.

Thanks, Kevin. Let me discuss Prime 100, the acquisition we made recently for those who may not be familiar. Our results have consistently exceeded expectations, and we are very pleased with how the team is executing the plan and surpassing our forecasts. As you might remember, it’s a science-based, veterinarian-approved brand. This fits well with our strategy for sustaining long-term growth in businesses, especially through professional networks. Their formulations add significant scientific value to the fresh category, which we believe has potential in the market. We are eager to learn more from this segment and are dedicated to leveraging this learning to find potential applications in other markets as we progress. For now, our focus is on building a successful business in Australia.

Can segue actually into the question that I wanted to ask. The balance sheet is in very good shape. Leverage is reasonably low or very low. I guess I just wanted to ask what is the kind of the state of the union on how Colgate is thinking about using the balance sheet, perhaps more specifically with M&A? Does the impairment today change your views on the sorts of categories that you'd like to play in? I guess just taking a step back, what is the desire for M&A? Just give us a bit of flavor on whether your thought process is evolving on the sorts of assets or categories that you might be interested in.

Yes. Chris, it's Stan. I'll begin, and Noel can offer additional insights. Over the past several years, we’ve focused on business model improvements. This has significantly benefited our balance sheet and cash flow. If you examine 2025, we ended the year with record operating cash flow of $4.2 billion. Free cash flow is also up. This improvement stems from generating cash profit but also a strong performance in net working capital. A robust balance sheet translates to operational efficiency, which offers sufficient flexibility. Notably, our debt structure looks favorable moving forward. With strong cash flow and low leverage, we have enough dry powder for our capital allocation. Our first priority remains investing in the business. This is reflected through investments in facilities, research and development, and capabilities. We notably exhibit excellent discipline in this area. The second priority will be returning value to shareholders. Historically, we’ve provided dividend increases and share buybacks. M&A opportunities will be assessed based on their potential to enhance our portfolio. Today's impairment signals necessary business adjustments, but we remain confident in the long-term benefits of our core businesses and their place in our portfolio. We're always on the lookout for strategic acquisitions that enhance our market position. We had opportunities predominantly in Hill's and have recently made investments in Red Collar and Prime 100. We are pleased with the Prime 100 acquisition, and will explore opportunities to optimize our total portfolio and execute as the environment allows.

Well said. There's not much I can add to that. Our global teams are searching for opportunities to optimize their portfolios. We discuss these strategies up to the Board level. If we identify suitable opportunities to leverage our balance sheet, we will proceed with those acquisitions. We're proceeding with caution and seeking to navigate through this uncertain environment diligently to emerge in a stronger position. Prioritizing reinvestment into the business where growth potential exists will be our focus. It's advantageous to be in a position where our leverage remains low, and our cash generation is robust, as this provides flexibility to respond to market changes and optimize our portfolio at the right moment. With that, I’d like to thank everyone for their questions and specifically thank all the Colgate people around the world for their tireless efforts and the results delivered in 2025 despite the challenging environment. Looking forward to seeing everyone at CAGNY in a couple of weeks.