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Executives

Ian Cook - Chairman, Chief Executive Officer and President

Bina Thompson - Vice President of Investor Relations

Analysts

Caroline Levy - CLSA

Lauren Lieberman - Barclays Capital

Constance Maneaty - BMO Capital Markets U.S.

William Chappell - SunTrust Robinson Humphrey Capital Markets

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

Alice Beebe Longley

Joseph Altobello - Oppenheimer & Co. Inc.

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets Corporation

Wendy Nicholson - Citigroup Inc

Douglas Lane - Jefferies & Company, Inc.

Andrew Sawyer - Goldman Sachs Group Inc.

Linda Weiser - Caris & Company

Christopher Ferrara - BofA Merrill Lynch

Colgate-Palmoliv (CL) Q1 2010 Earnings Call April 29, 2010 11:00 AM ET

Operator

Good day, everyone, and welcome to today's Colgate-Palmolive Company First Quarter 2010 Earnings Conference Call. Today's call is being recorded and is being simulcast live at www.colgate.com. At this time, for opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Bina Thompson

Thank you, Dana, and good morning, everybody, and welcome to our first quarter 2010 earnings release conference call. With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Elaine Paik, Treasurer.

This conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements. For information about certain factors that could cause such differences, investors should consult our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions "Risk Factors" and "Cautionary Statement on Forward-Looking Statements."

We'll discuss our results and outlook excluding the one-time charge of $271 million related to the transition to hyper-inflationary accounting in Venezuela as of the 1st of January 2010. We'll also discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures.

A full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the Investor Relations page of our website at www.colgate.com. And we'll be glad to answer any questions you may have including or excluding these items as you wish.

We are really delighted with our results. We started off the year with good momentum and strong financials. Our financial strategy, which we have been deploying for well over a decade, continues to deliver a healthy P&L, solid balance sheet and good cash flow with increased volume and gross margin while containing our fixed expenses, which has allowed us to invest generously in advertising, while at the same time, growing the bottom line.

We had told you last year that 2009 would be a transition of balancing price and volume. And in each successive quarter, volume growth increased while pricing played less in the role. We've seen that shift again in the first quarter with volume increasing solidly in nearly every operating division.

Of particular note, as Ian said in the press release, is our 170 basis point increase in gross margin. And as you can see, this is as a result of our cost-savings efforts including many Funding the Growth programs around the world rather than from pricing. This is consistent with how we have achieved gross margin increases over many years.

You'll hear as we go through the divisions how market shares have increased in many categories. And as always, new products play an important role. Our very healthy increase in advertising of over 30% has allowed us to support both new product launches as well as our ongoing businesses.

Cash flow was good, and our working capital remains at very low levels. And as you may recall, we recently announced the dividend increase of 20% effective this quarter along with the renewal of our share repurchase program. We expect our strong cash generation will allow us to fund these activities while maintaining a low level of debt.

And as we indicated in our previous guidance, the tax rate in the first quarter was below the first quarter of 2009 due to the devaluation in Venezuela. Also included in the quarter was a $9 million one-time charge related to the elimination of the tax deductibility of the Medicare Part D Retiree Drug Subsidy. Our expectation going forward is that the tax rate will be between 32% and 33% for the remainder of the year.

And as previously disclosed, first quarter results were also impacted by the currency devaluation in Venezuela. A gain of $59 million or $0.11 per diluted share is included in net income to the quarter related to the remeasurement of the Venezuela balance sheet and lower taxes on accrued but unpaid remittances. This gain was partially offset by the impact of translating our Venezuela financial statement at a lower exchange rate, resulting in a reduction in net income of approximately $30 million or $0.06 per diluted share.

As mentioned in the press release, the company continues to estimate that the full year impact of the devaluation will be a net reduction of $0.06 to $0.10 per diluted share. The impact for the quarter and full year is in line with guidance we provided in January of this year.

So let's turn to the divisions starting with North America. Results in North America was solid with healthy volume growth and excellent operating profit growth. We told you about a number of new products last quarter and the new product growth continues. Most recently in the Oral Care area, we'd introduced Colgate ProClinical toothpaste, a product which brings cosmeceuticals to oral care. Colgate ProClinical is a new line of professionally inspired daily toothpaste formulated with clinically-proven technologies that provide health and beauty benefits. It started shipping at the end of the first quarter when media and online activity also began.

Colgate Wisp continue to perform well. A second variant with Plus Whitening was launched in March. Trial for the product continues to grow monthly, exceeding our initial goals, and importantly, the repeat rate continues to grow as well. It's considerably ahead of where Colgate 360°, the best-selling toothbrush in the U.S., was at a similar time frame following its launch. This has resulted in the excellent market share as referenced in the press release.

Distribution into new channels is increasing as well including convenience stores, gas stations, airports and college campus bookstores. And we told you last quarter about a new deodorant product, Speed Stick Stainguard. Initial shipments were strong, and a very comprehensive integrated marketing campaign is in place to support this launch. We're combining TV media with a targeted sampling program as well as in-store activity. And we also have a partnership with Hanes T-shirts, a sampling program which highlights that Speed Stick Stainguard is designed to help fight yellow stains on white T-shirts.

So looking ahead, volume in North America is expected to grow mid-single digits for the second quarter and full year. Organic sales are expected to grow low- to mid-single digits for the second quarter and full year. And operating profit is expected to grow double digits in the second quarter, up absolutely and as a percent of sales and should grow at least mid-single digit for the full year, up absolutely and as a percent of sales.

Europe/South Pacific. We're very pleased with the continued momentum in our European business. Although macroeconomic conditions remain somewhat fragile, successful new products backed by healthy advertising have resulted in good volume and organic sales growth. Across the region, our market shares increased in toothpaste, manual and powered toothbrushes, mouthwash, bodywash, liquid hand soap, bar soap and fabric softeners.

We're continuing our introduction of Colgate Sensitive Pro-Relief throughout the region. Results are very encouraging. In the U.K., one of our initial markets, our toothpaste market share is now over 50% and Colgate Sensitive Pro-Relief has added incremental share. In the Sensitive segment, the gap between Colgate and the leading sensitive toothpaste has been cut almost in half. In Greece, after four months in the market, we'd now taken leadership in the Sensitive segment at 8.5%, over 2.5 points ahead of our nearest competitor. In Italy, where Total Advanced Clean was named new product of the year for 2010, our toothpaste share is up almost two points year-over-year.

We're excited about new products in other categories as well. We told you about our new bodywash, Palmolive Nutra Fruit which began shipping late in the first quarter. Even before advertising the product, consumer response has been excellent which bodes well for the second quarter when media support will begin.

Other new products into the Home Care category. We will be building our existing equities of Ajax cleaners, Palmolive dish liquids and Soupline fabric conditioners under the brand Natura Verde. Targeted to consumers who are eco aware who desire uncompromised efficacy, these products ingredients of natural origins, and their formulas are biodegradable while still offering strong performance, the kind of performance which these leading brands are already known. Early trade reaction has been extremely encouraging and the products are shipping now.

So looking ahead, we expect volume and organic sales to be up mid-single digit for the second quarter and the full year. Operating profit is expected to be up double digit for the second quarter and full year, up both absolutely and as a percent of sales in each period.

Latin America. We're especially pleased with the continued strong performance in our Latin American business, particularly given the challenges we and other companies are facing in Venezuela. And as noted in the press release, we saw strong volume gains in most of our markets and continued good performance in our market share.

In toothpaste, our latest exciting innovation, Colgate Sensitive Pro-Relief is being rolled out across the region. It is now selling in Brazil, Mexico and the Southern Cones, and has contributed to year-over-year market share increases in all of those geographies.

In Brazil, where our overall toothpaste share was up year-over-year, Colgate Total reached a record level of over 18%. In Mexico, despite heightened competitive activity, our toothpaste market share is up 20 basis points year-over-year to over 85%. And in Venezuela, our toothpaste share increased 3.6 share points to a record 93.7%.

As you know, Mouthwash is another critical area of focus for us in many parts of the world. Across Latin America, our share is up over two points year-over-year to almost 30%, nearly halving the gap with the leading manufacturer that existed in 2007. We gained two more share points in Argentina, consolidating our leadership position to over 50%. The gain was achieved through growth in our base Plax business as well as the recent launch of Plax Whitening.

In bar soaps, we've maintained the leadership position across the region we established in 2008, and our 2010 year-to-date share is up 20 basis points. And in fabric conditioners, our share was up 50 basis points to over 50%. Our most recent innovative new product, Suavitel GoodBye Ironing, helped increase share. New TV testimonial advertising reinforced the key benefits such as wrinkle reduction on clothes and time saving.

So looking ahead, volume in Latin America is expected to grow mid-single digits for the second quarter and full year, with organic sales growing double digit for both periods. Operating profit in the second quarter is expected to decline modestly from the very high level for the second quarter of 2009. Full year 2010 operating profit is expected to be basically flat due to the negative currency translation effect in the Venezuelan business.

Greater Asia/Africa. Results in this region were very strong, continuing the momentum with which we exited 2009. Toothpaste shares across the region was strong. In China, our share was up 120 basis points to almost 33% and with over 33% in the most recent period. Part of this was driven by the launch of Colgate Sensitive Pro-Relief in key cities. In Russia, our year-to-date share was up almost a full point. And you may recall, we launched Elmex, a GABA product, in this market last year and that has contributed to the growth along with our Colgate business. Colgate Sensitive Pro-Relief has now been launched across the region, and in the second quarter, we will be shipping a whitening version in addition to the original variant, thereby increasing presence on the shelf.

We maintained our leadership share in toothbrushes across the region. In India, our share is up 400 basis points year-over-year to over 40%. And in Russia, our share is now over 51% up 220 basis points on a year-to-date basis.

Another category which has been very strong is mouthwash. As we continue our focus on this category in markets outside the U.S. Our shares increased in every market we are present in, more than doubling in a number of markets.

Our shower gel shares are up almost two points across the region. New products supported by increased advertising drove our Palmolive franchise in Russia and Turkey. And in Thailand, a new thematic campaign for Protex accompanied by impactful in-store activity drove our share up two points year-over-year.

So looking ahead, we expect volume and organic sales to continue to grow at high single-digit levels for the second quarter and full year. Operating profit is expected to increase double digit for the second quarter and full year, up both absolutely and as a percent of sales.

Turning then to Hill's. We're encouraged by the improvement in our Hill's business from the fourth quarter of 2009. As we told you, we've been working around the world to ensure that our pricing is competitive in the marketplace through a combination of price reductions as well as rightsizing. And that process, which began in September of 2009, should be substantially complete by the end of this quarter in the U.S. and by the third quarter in Europe.

In conjunction with this, we've been building brand awareness via an integrated marketing communication plan. The print and online campaign leverages powerful testimonial to communicate nutritional efficacy, strong visuals to showcase new lower prices and includes the tag line, "Vet's #1 Choice to Feed Their Own Pets."

We're already seeing the benefits in the marketplace. Monthly scanner data through March indicates that consumption of those right-sized, right-priced products in U.S. large-format retailers has increased as compared with the prior six months average. And in addition, we are seeing veterinary endorsements returning to their historically high levels.

A number of new products initiatives are helping to restore growth in market share. We told you last quarter about our launch here in the U.S. of Science Diet for small- and toy-breed dogs. We began shipping in February and have achieved excellent distribution and overall consumer response.

So this quarter, we'll be launched in the small and toy breed in Japan. We've customized the product for the region with even smaller kibble sizes and smaller package sizes. This is a great opportunity in a country where 65% of registered dogs are five kilos or smaller in size. And in Japan, these dogs are considered precious and treasured family members that require food specifically tailored to them.

Another new product launched recently across Europe was Science Plan for healthy mobility canine. Following this success, we're now launching the product under the Science Diet brand in the U.S. in June with a very comprehensive support plan, including the healthy mobility challenge to improve a pet's mobility in just three days.

And just this month in Europe, we're launching a wellness product which will be sold exclusively through the veterinary channel. Initial reaction has been very positive. This should help drive brand recommendation as well as market share.

So looking ahead, volume at Hill's is expected to be essentially flat year-over-year in the second quarter and should be up low- to mid-single digit for the full year. Organic sales are expected to decline modestly for the second quarter with growth for the full year in the low single digits. Operating profit is expected to be up mid-single digits for the second quarter and full year, up absolutely and as a percent of sales.

So in summary, we are very pleased with the way 2010 has started. Clearly, the momentum in our business which we enjoyed as we exited 2009 is continuing this year. Our strategies are working. Our ongoing Funding the Growth programs are helping to increase gross margin significantly. Our worldwide focus on increased advertising is resulting in excellent sales and volume growth. And our market shares are healthy and increasing around the world. So we look forward to sharing our progress as we go through the remainder of the year.

And now, Dana, I would like to turn it over to question please.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Alice Longley with Buckingham Research.

Alice Beebe Longley

Could you tell us, given what's in the news, what percentage of sales in the Europe, South Pacific regions are generated roughly in Spain, Portugal, Italy, Ireland and Greece altogether?

Ian Cook

I don't have that number at the top of my head, Alice. I must say if I do this, it is relatively modest on a global basis. You'll have to connect with me separately.

Alice Beebe Longley

But probably below 5% of sales?

Ian Cook

It is modest. I prefer not to guess the number.

Alice Beebe Longley

And then could you give us an update on your advertising or media ratio to sales plan for this year? And also, for your promotional activity coming off of sales, is that going to be a bigger chunk less sales or less than last year?

Ian Cook

I mean just sort of taking a little bit of a step back, I think as we worked our way through last year and talked about this year, we said that we were very comfortable with the strategic initiatives that we had, starting with the consumer and obviously, driving growth with that consumer with new products and with advertising. And we said that we would be increasing our advertising both absolutely and as a percentage to sales in 2010. And of course, we have started quite strongly in the first quarter and been pleased, not just by the financial results, but if we look at our market shares around the world, as you may have seen in the release and heard from Bina's comments, we're seeing good share progress in all of our major markets, particularly in the emerging markets around the world. So as we look forward for 2010, we continue to estimate that our advertising will be up both absolutely and as a percent to sales in subsequent quarters, and of course, for the full year. As I said before, that really is media advertising, digital advertising and sampling and professional programs we have for quite a time, when we've spoken about it for quite a time, moved our advertising emphasis into activity at the store level. That continues to be very effective in terms of engaging and connecting with consumers, and we continue to increase our focus there. And as you say, that comes between the gross and the net line and is on top of the advertising I have just spoken about.

Alice Beebe Longley

But that deduction from sales is going to expand a little bit this year?

Ian Cook

Modestly.

Alice Beebe Longley

You do tend to give some guidance for EPS growth, and you confirmed that you think EPS will be up double digits in share overall. Of course you have this big increase in the first quarter. Are willing to say that your EPS will be up double digits through the remainder of the year, in the latter nine months of the year?

Ian Cook

Alice, I think we've been very clear on this since the Venezuela matter started in January of this year. And we put out, I think quite promptly, releases, both with the devaluation and when the accounting change happened. Focusing on the devaluation, this is a subject that we have encountered many times over many years in several of the Latin America countries. We planned for it from an operating point of view, and then we executed. That's what we did in the first quarter. It has always been, and it will continue to be, a combination of the remeasurement of the balance sheet and the ongoing translation impact that will affect the subsidiary. That's how we've always done it, positive or negative, and that's how we have done it in 2010. So as we said then, I would repeat now, that the double-digit progress assumes the way we have operated Venezuela this year, which is with all of the impacts of the devaluation in.

Alice Beebe Longley

But your results, aside from that, were better at least than I thought in this quarter. So I think the general idea is your earnings will not be up double digits through the latter part of the year because of Venezuela. And should we be more optimistic than that?

Ian Cook

Again, I repeat, Alice, what I said. Double digit with Venezuela treated the way we have treated it. And circling back to your very first question, the countries that you mentioned are less than 4% of our global sales.

Operator

And we'll go next to Joe Altobello with Oppenheimer & Co.

Joseph Altobello - Oppenheimer & Co. Inc.

On pricing, it seems like that was most acute, at least it'd be downward pressure was in your developed markets, North America and somewhat in Europe. Which categories are you seeing the most pricing pressure on?

Ian Cook

First let me back up a little bit on price there, Joe. Yes, pricing was essentially flat on the quarter. You will know by looking back at history that, that compares to a price up, 80% in the first quarter of last year. So over that timeframe, our pricing is indeed up, and the comparisons, as you work through the second half of this year, become easier given relative pricing in prior years. So putting it in an overall context, we're expecting pricing to be more favorable as the year unfolds, with the full year in our historical 0.5% to 1.5% increase worldwide. Secondly, the gross margin, as you know, was up in the first quarter, 170 basis points, notwithstanding flat pricing, and we expect that gross margin to continue to increase as the year unfolds. Now when we think about pricing, there are really three contributory aspects. One is those things that you do to create trial for new products, the coupons that are used in the United States which go to price. Second are the promotional activities that one adopts to manage our ongoing business. And third, any actions that needs to be taken to manage competitors. Our portfolio is very much focused on the Hill's, the Oral Care, the Personal Care and then our Home Care businesses. And if you take a snapshot around the world, you would see that the pricing of competitors in the more volume-oriented Home Care categories has been somewhat sharper. So if you focused on categories, it would, from a competitive point of view, be more in the Home Care area although we have responded in a targeted way to light activity in other categories as well. But the strong bias would be to the more volume Home Care businesses.

Joseph Altobello - Oppenheimer & Co. Inc.

So it sounds like you expect a sequential improvement in pricing throughout the year?

Ian Cook

We do.

Joseph Altobello - Oppenheimer & Co. Inc.

It looks like gross margin, at least sequentially, was down a little bit. You've talked about a 60% gross margin this year. It sounds like some of that's going to come from pricing. But are you still comfortable given that we've got some headwinds in the back half of this year on the commodity side that, that 60% number is still doable?

Ian Cook

We think by the end of the year, getting to 60% is still doable in 2010, Joe. And we continue to put great focus and get a great return from our traditional Funding-the-growth program, and that is the cornerstone of our progress for 2010. And that is having built into our forward-look projections with the rise in commodity pricing, and also the increases in oil. So pricing a bit, but more the traditional Funding the Growth initiatives.

Operator

And we'll go next to Bill Chappell with SunTrust.

William Chappell - SunTrust Robinson Humphrey Capital Markets

It sounds like you're in Latin America, Europe and Asia or at least part, but can you kind of help us -- were you there kind of at the start of the quarter or was this more of it's roll-up period so we'd see the full benefit in 2Q? And then also any updates on where it will expand in maybe the second half of the year?

Ian Cook

You'd almost have to go country by country. It is a -- there are lot of different timings, so that's not an obvious -- it all started in January or February. Secondly, I think we have made the point before that this is a long-term journey for us. We are very encouraged by the initial share reactions with the superior technology that is Colgate Sensitive Pro-Relief. We're particularly encouraged by the early trial and repeat data that we are seeing in some of the lead markets like the U.K. and Taiwan, but there is a very strong competitor in that segment. And we have said that this is going to be a multiyear journey to accomplish our overarching goal which is leadership in that $1 billion segment. In terms of our global expansion, we expect to be in about three quarters or shall we say the sensitivity world by the third quarter of next year. That's our plan and we continue to be on that plan.

William Chappell - SunTrust Robinson Humphrey Capital Markets

Just to follow-up, so it doesn't sound like Pro-Relief was a meaningful driver of the top line this quarter?

Ian Cook

No.

Operator

And we'll go next to Ali Dibadj with Bernstein.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

You talked a little bit about the competition you're seeing in Home and Personal Care, we just heard from another one of your competitors, actually in oral care, talking about 40% growth in Mexico. And clearly, that's from a smaller base but large growth. Being the overall leader in oral care in Western Europe, Brazil being very successful and more push us benefits us but we believe potentially in India going forward. Can you comment a little bit on than that? What are you seeing? How are you reacting? How are you planning to react about what's out there?

Ian Cook

Well, let me talk about the markets and give you our perspective and observations on what we see. India, as you saw in the release, market share up over 51% now and continuing to grow. And there is only one established competitor in India. China, our market share is up quite meaningfully over a point. Business was up double digits and our leading competitor in the number two position, their market share is down in China. In Russia, our market share is up over 33%. The number two competitor in Russia is less than half of that share and the market share is down. Turn to Mexico, our market share is up, competitor is flat to modestly up. In Brazil, we have the highest market share we have had in over 10 years, continuing into the first quarter of this year. I think as may have been said, the volume growth that is being talked about there is largely to do with geographic expansion in the country when we look at the market shares in whether it's the pharmacy, whether it's in Fortaleza, they continue to be around that 5% level that I have quoted before. In Western Europe, we continue to lead in every segment, with the exception of powered toothbrushes, which is the smallest Oral Care segment in Europe. Our toothpaste share is 3½x the competitor that you had mentioned. We lead in manual toothbrushes and we lead in mouth rinses. As you know, toothpaste and manual toothbrushes are by far the largest segments of oral care in any market in the world, certainly true in Europe. So we continue to comfortably lead that market in market shares in all cases. I'm talking here Nielsen market shares. And even here in the United States, we continue at least in terms of Nielsen, all outlet share to lead here in the United States as well. So our response to activities in any market are what you would expect from a traditional marketing point of view, starting with our loyalty and market shares that we have the overwhelming professional recommendation advantage that we have, and a strong linkage with the next generation consumers through the stores programs. And then of course, there is the offense in those markets of the sensitive Pro-Relief, which in Brazil, is off to a terrific start and indeed Sensitive Pro-Relief on its own with the scan Nielsen data in three months is ahead of the share, the Pro-Health product launched in over a year. So that's what we see around the world, Ali, in terms of our market shares provided by Nielsen, whether scan or outlet. And our responses will continue to be respectful. But leverage the strength, we believe we have built with consumers and customers over many years and not take any of this in any way lightly.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

In terms of what you anticipate going forward and I'm sure you guys have market intelligence. I mean, are you prepared for anything more aggressive? Are you expecting anything more aggressive even though some of that obstacle conflicts and everyone says they're gaining share? The goal at least is for everyone to gain share. So I mean how do you anticipate what's going to happen around the corner or do you think not going to be very impactful to us?

Ian Cook

We will react to what we actually see in the marketplace. We have had a lot of experience of dealing with competitors in the oral care area, whether they are local, regional or multinational. We think we know what we are doing in this category in order to both growth it. And if we defend it, and we will react accordingly. So that would be my answer.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

And I guess ask then in the context of -- what we saw on pricing this quarter and expectation of improved pricing going forward. I asked you in that context, I guess.

Ian Cook

That's why I said it early on the call, we have clearly worked all of it. That's true. And are estimating and we feel comfortable with this dance we are taking on pricing in our categories.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

Sensitivity, so probably it's in the U.S. If you mentioned it, I apologize, any update there?

Ian Cook

No, none, Ali. We're in the normal process of reviewing this with the Food and Drug Administration, and that is proceeding as it does customarily and when we have any news, you will probably be the second to know behind our customers.

Operator

We'll go next to Doug Lane with Jefferies & Company.

Douglas Lane - Jefferies & Company, Inc.

Is there any way you could quantify -- we've seen a lot of raw material cost movement and shipping rates looking to go up. Is there anyway you can sort of give us an order of magnitude on the cost side between shipping, energy and raw materials? What kind of headwind you're looking at now versus maybe back in January when we talked?

Ian Cook

Well, what I can say, Doug, is that we have reflected in our go-forward estimating the prevailing oil prices at around the $85 level. And we have taken account of the headwind and now being faced with some of the key commodities that we buy. And that is built into our plan for the balance of the year. And that plan continues to see our gross margin continue to expand sequentially and for the full year.

Douglas Lane - Jefferies & Company, Inc.

Are you up to your assumptions on the pricing front since January to try to recover some of these cost pressures?

Ian Cook

As I said earlier, Doug, our pricing expectation for the year is between ½% to 1½% that we have historically seen from pricing. And the bulk of our gross margin expansion for the year is forecast to come from our funding the growth program, which has been the driver of gross margin expansion for us for many, many years.

Douglas Lane - Jefferies & Company, Inc.

And then just lastly, looking at the U.S. specifically where we're looking at numbers where toothpaste market share is down a point or two. Is there a specific strategy in the U.S. to recapture lost toothpaste market share this year?

Ian Cook

Well, the -- modestly down from an all outlet point of view. The strategy is innovation and reaching consumers where we have great loyalty, which in the U.S. is particularly the Hispanic consumers where we do very well.

Douglas Lane - Jefferies & Company, Inc.

Do you expect to have the sensitive product out this year? Is that more of a 2011 event in the U.S.?

Ian Cook

I can't really say, Doug. As I mentioned earlier to Ali, we're in active discussions with the Food and Drug Administration following normal models there. And I don't have any insight or projection to give you.

Operator

And we'll go next to Bill Schmitz with Deutsche Bank.

William Schmitz - Deutsche Bank AG

Can you just talk about that your category growth assumptions are as the year progress? I mean, you're expecting a category -- I know they never really slowed remarkably. But are we going to start getting back to those sort of like 4% to 5% growth rates we saw, maybe 2007-2008 timeframe?

Ian Cook

Well, I think we're certainly going to see low- to mid-single digits on a constant dollar basis. And that is going to be led, Bill, by the emerging markets which we are seeing running at a double digit cliff. And the developed world is lagging, and they are running. And we're estimating low single digits for both Western Europe and the United States. And you know, pleasingly, when we look at our categories, we've seen our Oral Care business up organically double digits for the first quarter and our Personal and Home Care businesses up low- to mid-single digits, which we're quite pleased with in that context.

William Schmitz - Deutsche Bank AG

And then just in terms of some the price force going on, especially India, and obviously not PNG yet, but that's a speculation. Are there signs that you're starting abate a little bit because I think that's kind of how we picked up in the last couple of weeks?

Ian Cook

Where? In India?

William Schmitz - Deutsche Bank AG

Yes.

Ian Cook

Well, no, our Indian financial performance has been very healthy and our market shares continue to grow in both categories. So our pricing was -- there's a classification we're certainly not looking at in our categories in India, no.

Operator

And we'll go next to Andrew Sawyer with Goldman Sachs.

Andrew Sawyer - Goldman Sachs Group Inc.

I wanted to follow-up on your guidance were flattish profit in Latin America for the full year. I just wanted you to parse out what portion of that was Venezuela and how it look without Venezuela? And is there things going on from a margin perspective outside of Venezuela that we should be aware of as well?

Ian Cook

Andrew, it hasn't been our custom to get to that level of detail on a division basis. If I tell you Latin America in total, we continue to expect good growth as we have said. And our gross profit modestly impacted by Venezuela are in totality, maybe down 80 basis points or so.

Andrew Sawyer - Goldman Sachs Group Inc.

A then just a quick follow-up on the second line, do you see that gross margin bridge that you typically do?

Ian Cook

Yes, happy to do so. So this is first quarter gross profit, Andrew. And you saw first quarter 2009 with 57.5%. And then as you work your way through pricing 0.1%, funding the growth, a healthy 1.1%. Material prices favorable 0.4%. And then all other mixed investment and et cetera, 0.1% and that takes you to the 59.2%.

Operator

And we'll go next to Connie Maneaty with BMO Capital Markets.

Constance Maneaty - BMO Capital Markets U.S.

In Venezuela, have you been able to price to recover the inflation impact?

Ian Cook

We are moving forward with pricing, Connie. That does partially that. And that is in place and moving forward. And I would also comment that we are continuing to get access to dollars at the 2.6 rate for raw materials on our products with the majority of our products in Venezuela made in Venezuela.

Operator

And we'll go next to Lauren Lieberman with Barclays Capital.

Lauren Lieberman - Barclays Capital

You touched a little bit on pricing in Home Care. But I was curious, if you could talk a little bit more broadly about the competitive environment there? And then specifically, I maybe missed it when Bina was walking through some description of the equal friendly Home Care products. Is it a totally new brand or is it a sub-branded underneath your existing home care portfolio? How will it be priced? Kind of what's already in the Western European market in that category?

Ian Cook

Yes, let's start with the second one because it's pretty straightforward. It is a sub-brand, but it basically ties together strong equities that we already have in Europe. So our fabric softener, our Ajax All Purpose Cleaner and our dish liquid. So it ties them all together. It is a modest premium and it is moving around Europe, but too early to comment on market share. Results, reaction from the trade has been really quite positive. So coming back to the subject of Home Care and activity in Home Care, again, you will remember that, I guess in 1988, we took the strategic view that HDD was a category that was not going to be a priority for the company globally and now have less than 3% of our business remaining in that category. And what we observed around the world that there is a lot of pricing activity in home care, specifically in the Laundry Care segment which we don't compete in. But we have also seen activity in fabric softeners and in dish liquid in some selected markets. And we have, where necessary, responded to do that. And as I mentioned earlier, we're quite happy with the mid-single digit growth rate that we have accomplished. And practically margins that are quite pleasing with category margins on our Home Care business are up healthily versus prior year.

Operator

And we'll go next to Wendy Nicholson with Citi Investment Research.

Wendy Nicholson - Citigroup Inc

I just wanted to go back and follow-up to Andrew's question about the profit growth in Latin America. First, and I know that you don't like to comment on specific markets, but it's fair to say that the bulk of the pressure on the Venezuela profits this year, Latin America is in fact Venezuela, I mean profit are still going to be up, for example, Brazil, year-over-year, right?

Ian Cook

It is strictly Venezuela.

Wendy Nicholson - Citigroup Inc

My second question have to do with the U.S. business and the fact that there seems to be an increasing divergence, if you will from the results that you post and what you see from Nielsen. And I know there's always been a GAAP because of what's not tracked. But is there anything that's changed just from within the U.S. marketplace where the Nielsen measure accounts, grocery stores in particular are particularly weak from a pricing perspective that's where a lot of the investment has to go. And that the non-track channels are actually much more whether it's rational or robust, however, you want to put? Because it just seems you're doing a lot better on netting out volume and price in the U.S. than what we see from Nielsen?

Ian Cook

Yes, I don't have a mathematical tie-in on that, Wendy. It is simply that there is a large part of the business in the United States that is non-tracked channels, which we do pick up in that so-called all outlet share, which as you know, a Nielsen sort of pantry tied measure. I guess the only thing that you could say in terms of the various channels is that the super -- the grocery stores, the supermarkets tend to have more of a high-low strategy from a promotional point of view than some of the other non-track channels. So you may see some more period-to-period choppiness there than you would in the other channels. But beyond that, I can't offer any other deeper insight.

Wendy Nicholson - Citigroup Inc

And you don't see a marked difference, if you will, in terms of your market share performance given your relative category pricing in one channel versus another?

Ian Cook

Not related to pricing, no.

Wendy Nicholson - Citigroup Inc

Did you give guidance or have you given it for a targeted share level -- a share buyback level for the full year?

Ian Cook

We have not. But now you asked, yes, you saw perhaps what we bought in the first quarter, which was around $500 billion, between $450 billion and $500 billion. And I think you could expect to see us buying forward at or around that level And this is in different quarters [ph].

Wendy Nicholson - Citigroup Inc

Per quarter?

Ian Cook

Yes.

Operator

And we'll go next to Jason Gere with RBC Capital Markets.

Jason Gere - RBC Capital Markets Corporation

With the pricing, I think you're back in January, you're saying pricing was going to be 2½% to 3½% of sales and obviously, it's a bit lighter now. I'm not sure if you said this, but you're still comfortable with the 6% to 8% organic sales for the year?

Ian Cook

Yes.

Jason Gere - RBC Capital Markets Corporation

And just another question, more clarification I think, you're talking about the gross margins, it sound like you're saying 60% by the end of the year. And I think the commentary was around 60%. Is there anything in there? You're saying funding is going to be a little better. Is that just going to be the upside there or offset by some incremental commodities, so we shouldn't expect anything better or worse on the gross margin?

Ian Cook

I'm glad you added the around, Jason.

Jason Gere - RBC Capital Markets Corporation

And with that being said, I guess it leads to the next question, just on advertising, I think in the past, you were looking for advertising up 50 bps for the year. Obviously, the first quarter had a nice big upswing. How should we think about that going forward with the gross margin still expected to be a nice increase the rest of the year? Obviously not as great as the first quarter, but should we look at like half the rate of gross margin reinvested back into advertising?

Ian Cook

I think what I would say, Jason, is that the advertising quarter-on-quarter versus prior year is going to continue to be up both on an absolute basis and a percentage to sales basis. And therefore, the same for the year. But I think, we stepped up in the first quarter to quite a healthy ratio in terms of our advertising spend.

Operator

And we'll go next to Chris Ferrara with Bank of America Securities.

Christopher Ferrara - BofA Merrill Lynch

I was wondering if you can comment a little bit about what you're seeing in the retail underwriting. Obviously, you're not going to comment specifically on retailers, but we're certainly see and hearing a lot of commentary about rollbacks at Wal-Mart. What kind of pressure or suggestion or anything that you're seeing from retailers with respect to increased promotional spending? Do you think the trade is trying to drive volume with increase promotion? Or do you feel like a lot of this, this sharper price points are coming more from competitors, if there's a way to parse that out?

Ian Cook

Difficult, Chris. It becomes a little bit chicken and eggs, such a discussion. I think everybody is seeking two things. One, a better understanding of how to connect with the consumers in order to grow. And I think, things that can influence that our new products, advertising, sampling, professional recommendation and applied properly selective promotional activity. And I think we are seeing all of those at play in the marketplace. And I wouldn't like to try and parse out whether it's coming from a competitive through a retailer or from a retailer.

Christopher Ferrara - BofA Merrill Lynch

I guess putting it on another way, I mean are retailers approaching you guys now with the hope to generate more promotional spending more today than they have been over the last couple of quarters?

Ian Cook

I think people are coming at us and others looking to grow and the question is, "What is the best strategic and tactical answer to that question?" Pricing is an answer, but pricing is often a non-sustainable answer. And I think it's the responsibility of manufacturers who understand brands and consumers to create growth where price is a component, but not the only driver.

Christopher Ferrara - BofA Merrill Lynch

And then just on another note, I mean, I think you said raw materials swung to being a positive impact on gross margin over the last couple of quarters. And I think you've also said in the past that your FX and the transaction dragged or helped associated with the commodity purchases in some of your international market has kind of lumped into that same line. Can you give us a sense for how we should think about the breakdown between commodities, like strictly raw materials inflation, deflation to that line versus the FX piece of it? And was FX transaction a positive this quarter? Is that a big part of why the swing went positive?

Ian Cook

Again, Chris, I'm not sure I want to get into that level of detail. I think you could say from a macro point of view that material cost in and of themselves were a favorability in the first quarter and as we look to the balance of the year, the material prices themselves, we expect in some key raw material categories are going to go up. That is built into our forecasting. And also we have the obvious transaction drag from Venezuela, which is a component as well. So fuel costs are going to start -- raw material costs are going to start going up over the balance of the year.

Christopher Ferrara - BofA Merrill Lynch

And where does the Venezuelan hit come into play in the margin drag? Is there a hit in the raw material side from a change in parallel rate and how things are trending in Venezuela right now? Is that incorporated into that raw materials break out?

Ian Cook

It's in raw materials. It's in cost, it's in margin.

Operator

And we'll go next to Caroline Levy with CLSA.

Caroline Levy - CLSA

I'm not sure if you mentioned mix, either geographical product mix and the impact on the top line. And then the other is around your dividend handout strategy going forward. Taxes on dividends are going to be going up very dramatically next year. And is there something you're discussing in terms of looking at the balance between share repurchase and dividend?

Ian Cook

Well, Caroline, we just discussed on the latter point, we discussed that all the time. We having just announced the 20% healthy dividend increase this year. We haven't yet turned out planning to what we will decide to do, assuming continues healthy cash generation for next year. But obviously, we would take that into consideration and put them in rediscussions, have already started on it. In terms of mix, I think I said earlier that our Oral Care business was up, outpacing our Personal and Home Care businesses, double-digit organic growth there compared to mid-single digits on the other two businesses. But we don't tend to go beyond that.

Caroline Levy - CLSA

So geography, you wouldn't comment on what the impact of mix was geographically?

Ian Cook

Yes, pricing is in volume. So we have a dollar weighted pricing, yes. And mix is in pricing in our case.

Operator

And we'll take our final question from Linda Bolton Weiser with Caris.

Linda Weiser - Caris & Company

Just another question on Latin America and the pricing, I guess last quarter, in the fourth quarter, it was 12% positive and it was 6.5% this quarter. What is the reason for that? Is it just the general competitive situation or what exactly?

Ian Cook

It's less Venezuela in the mix. The pricing towards the end of last year was very much driven by Venezuela. Thank you very much for being on. Thank you very much for your questions. Thanks to all the Colgate people around the world for the hard work. And we look forward to reconnecting after the second quarter. Goodbye.

Operator

Again, that does conclude today's presentation. We thank you for your participation.

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Source: Colgate-Palmoliv Q1 2010 Earnings Call Transcript
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