Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Colgate-Palmolive Company (NYSE:CL)

Q3 2007 Earnings Call

October 30, 200711:00 am ET

Executives

Ian Cook – President, CEO

Steve Patrick - CFO

Dennis Hickey - Corporate Controller

Ed Filusch - Treasurer

Bina Thompson -IR

Analysts

Connie Maneaty - BMO Capital Markets

Ali Dibadj - SanfordBernstein

Bill Schmitz - Deutsche Bank

Bill Chapell - SunTrust

Lauren Lieberman - Lehman Brothers

Wendy Nicholson - Citi

Justin Hott - Bear Stearns

Alex Patterson – RCM

John Faucher - JPMorgan

Amy Chasen - Goldman Sachs

Chris Ferrara - Merrill Lynch

Linda Bolton Weiser - Oppenheimer

Alice Longley - Buckingham Research

Operator

Welcome to today’s Colgate-Palmolive Company third quarter2007 earnings conference call. Today’scall is being recorded and is being simulcast live at www.colgate.com. Just as a reminder, there may be a slightdelay before the question-and-answer session begins due to the websimulcast.

At this time for opening remarks I would like to turn thecall over to the Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Bina Thompson

Good morning, everybody. Before I get started with my remarks I think you all know one of ourcore values is continuous improvement at Colgate. We are trying to make our call moreefficient. So today we are going tolimit questions to one question per person and if you have a follow-up, we willask you to get back into the queue. Whenwe say one question, we don’t mean multi-part questions. We mean one question.

Good morning and welcome to our third quarter earningsrelease conference call. With me thismorning are Ian Cook, president and CEO; Steve Patrick, CFO; DennisHickey, Corporate Controller; and Ed Filusch, Treasurer.

We will discuss the results of the third quarter thismorning excluding charges relating to the 2004 restructuring program, $36.3million after-tax, and a $10 million non-cash after-tax pension charge underSFAS 88 as a result of lump sum payments of normal retirement benefitsassociated with a non-qualified retirement plan in the U.S.The reported GAAP results reconciliations to the results excluding therestructuring and pension charges are included in the press release and accompanyingfinancial statements, and are posted on the investor relations page of our website at www.colgate.com.

Comments about expectations will also exclude restructuringcharges and during the Q&A we will answer any questions including orexcluding these items as you may wish.

We are very pleased that the momentum of our first half hascontinued into the second half. Ourrestructuring and business building programs are on track, volume and salesgrowth have continued to be strong cross our divisions. Our ongoing Funding the Growth program aswell has contributed to a good growth profit increase along with a decrease inour fixed expenses. This has allowed usto continue to support our business with a double-digit advertising increase inevery region while growing the bottom line double-digit as well, as per ourplan.

As you know, our gross margin increased 80 basis pointswhich is within our target range, even after absorbing 40 basis points relatedto very steep increases in agricultural commodities costs by our Hill’sbusiness.

The worldwide implementation of our Colgate businessplanning and the savings to be generated from that gives us further confidencegross margin will increase in our target range of 75 to 125 basis points forthe remainder of this year as well as for 2008.

We told you on the last conference call that our advertisingincreases in the second half would be somewhat below those of the firsthalf. That’s just what hashappened. Advertising increased ahealthy 12% versus over 20% for the first half to support our many new productlaunches around the world, as well as our base business, resulting in very goodmarket share increases in every division.

Our balance sheet is strong as well, which gives us comfortin the current uncertain credit environment. Our cash generation continues to be solid, allowing us to continue ourshare repurchase program on a consistent basis. Our return on capital is at 34.3%, up from 27.6% in the year-agoperiod. As in previous quarters, ourvolume growth is greater in our higher margin categories which have a higherstrategic priority. While worldwide ourvolume in the quarter grew 6.5%, oral care volume grew over 11%.

So let’s turn to the divisions. Our big business in North Americaremains solid and as referenced in the press release, we achieved record sharethis quarter in a number of categories. The substantial benefits from the restructuring we are beginning to seehere in North America have resulted in a gross profit increase significantlyabove the company average which allowed us to both increase advertising anddeliver very strong operating profit growth.

We have said on our previous conference call that we wouldincrease our spending behind our toothpaste franchise and that has in fact happened.Our most recent all-outlet monthly share as tracked by A.C. Nielson was at37.4%, up 1.2 points from a year ago period and up over 3 points from the priormonth. The latest advertising featuring BrookeShields is just now coming on air, Day in the Life, with a message that ColgateTotal fights germs for 12 hours day and night. Consistent with our integrating marketing approach, this theme will alsofeature in print, internet and in-store advertising.

Our manual toothbrush business exhibiting very good momentumwith an overall year-to-date share and a new record. The Colgate 360 Degree toothbrush alone nowhas a 7.7% market share, benefiting from the incremental share provided byColgate 360 Sensitive. But notably ourtoothbrush franchise extends beyond Colgate 360 with baseline growth forColgate adult toothbrushes across all price tiers. Our manual toothbrush strength isparticularly noteworthy this quarter given the launch of a number of competitivenew products and we will be launching some exciting new products in thiscategory in the beginning of 2008 to build on the existing momentum.

New product activity across all our categories is expectedto result in continued solid results in North America. For the fourth quarter, we expect volumegrowth around third quarter levels, with operating profit in increasingdouble-digit, up absolutely as a percent of sales. Looking into 2008, we expect volume in thisdivision to grow mid single-digit accompanied by solid operating profitgrowth.

Europe/South Pacific. Europe’s solid mid single-digit volume growth wasaided by a high consumer confidence level in Western Europeand strong economies in Central Europe. GDP growth for next year is expected to beroughly at current levels which bodes well for continued strong results. Our regional market shares are upyear-over-year in toothpaste, manual toothbrushes, mouth rinse, liquid bodycleansing and hand soap. Our toothpaste businessacross the region is doing well. In France,where the overall market is virtually flat our sales increased double-digitsand our market share increased a full point year-over-year. Colgate Max Fresh has helped these goodresults.

Through our shopper insight work we learned that many youngmen at Francestill live at home and that their mothers frequently do their shopping forthem. As a result, the subsidiaryconducted a very strong marketing campaign not only towards the targeted useryoung males, but also their mothers. InGermany Max Fresh contributed to an almost 3% increase in our toothpaste share. In the U.K.the launch of our new Colgate Total Weekly Clean continues to perform well. Theirmarket share has been largely incremental and trial rates have been verygood.

Looking ahead, volume in Europe/South Pacific is expected tobe up mid single-digit both for the fourth quarter and full year 2008. Operatingprofit is expected to be up mid to high single-digit for the fourth quarter aswell as 2008.

Turning then to Latin America. Business across this region continues to bevery robust. We are seeing excellentmarket share gains in virtually all categories. Macro economic climate in those countries is also positive, furtheradding to the strong momentum. Our strategy to trade the consumer up tohigher-priced value-added products is meeting with great success. A good example is Colgate total which nowrepresents 20% of our regional toothpaste business.

We also have been renewing our efforts behind our mouthwash businessresulting in exceptional growth. Brazilhas been the lead market on this initiative with the launch of Plax AlcoholFree and Plax Ice earlier in the year. The most recent share is almost 30% and at a record level. We expect to see similar results through theentire region as these variants are rolled out.

In Mexico,our largest subsidiary, our toothpaste share has risen to 84% in latest period.Total Professional Clean was launched in this market and now has over a 3share, more than half of which is incremental. In the shampoo category, we introduced a line extension of PalmoliveCaprice along with a new bottle and better aesthetics which has resulted in ourtaking brand leadership. In bar soaps,Palmolive has now become the number one soap brand.

In fabric conditioner, our market share is up 2.5 points versusa year ago period. Solid performanceacross all our Suavitel lines, new line extensions and a strong the commercialplan in both the direct and indirect trade have contributed to these results.

So prospects for this region continue to be strong. We expect volume growth for the remainder of thisyear and next to continue in the high single-digit range. Operating profit for the fourth quarter ofthis year and full year 2008 should increase double-digits.

Greater Asia/Africa/ As elsewhere, new products supported byfocused advertising contributed to the strong results in this region and asreferenced in the press release our toothpaste share was up 11 of 14 countriesand is up 100 basis points year-over-year to almost 40%. In toothbrushes our share increased in 11 of12 markets up 240 basis points from the year-ago period to over 36%. The strong share growth in toothbrushes wasmainly driven by the excellent on the ground execution of other 360 Degreetoothbrush anniversary campaign as well as the growth of the basebusiness.

Volume in Greater China increased double-digit continuingthe good momentum we have witnessed throughout this year. Our market share is up year over year at over31%. A recent launch of Max Whitetoothpaste is doing well, and in addition we are now just shipping ColgateHerbal Gel, the first major gel launch in a lower-priced segment, and thisshould bode well for future share gains.

In Russia,our market shares are up in five of eight categories. In toothpaste our share is up almost 4 pointsto over 33% driven by both base business and new products such as Max White andHerbal Tea [inaudible]. Our toothbrush share is up over 2 points to over 35%.

In India,which also continues to exhibit solid volume growth our shares are up in bothtoothpaste and toothbrushes, with 48.2% and 34.6% respectively.

Looking ahead. volume in Greater Asia/Africa is expected toincrease at current levels for both the fourth quarter and full year 2008. Operatingprofit is expected to increase double-digits both for the fourth quarter andfull year 2008.

Hill’s, both our domestic and international businesses atHill’s had a good solid mid single-digit volume growth in the quarter. New products both in the Wellness and Therapeuticsegments have contributed to the solid growth. This, of course, has helped us increase market share. Year to date, our share is up 20 basispoints, and is even higher in the recent monthly readings almost up a fullpoint year over year.

In August, in response to strong customer and consumerdemand we introduced a new line of hypoallergenic treats to complement ourexisting prescription diet products which are designed to combat adverse foodreaction in pets. As a result, that lineof products increased volume double-digits, further helped by focused programsto gain distribution among clinics as well as trial among pet owners.

Our international business is doing well as well and wecontinue to make further distribution gains in Russiawhere our volume is growing very strongly. So looking forward we expect volume at Hill’s to increase mid single-digitfor the fourth quarter and full year 2008. Operating profit is expected to increase mid single-digit for the fourthquarter and double-digit next year.

So in summary, we are very pleased with the continued strongresults across our divisions. Our fourstrategic initiatives with which you are all familiar -- getting close to theconsumer, customer and professions; effective and efficiency in everything wedo; innovation everywhere; and a focus on building strong leadership -- are allworking well. We feel confident we havethe people and programs in place to continue to deliver solid double-digit earningsgrowth for the balance of this year as well as in 2008.

Sheila, that’s the end of my prepared remarks. We can now open it up to questions.

Question-and-AnswerSession

Operator

Your first question comes from Connie Maneaty - BMO CapitalMarkets.

Connie Maneaty - BMOCapital Markets

Given that you know what your shipments to Wal-Mart andCostco are, can you give us an indication of what your market share in toothpastein the U.S.would be on an all-outlet basis as opposed to just what we can see from Nielson?

Ian Cook

Our market share on an all-outlet basis would be up similarto the Nielson share; would be slightly lower than that share but stillup. I think talking to the U.S.business in general, let me make a few remarks. We are really quite pleased with our performance in the U.S.this year. We have a business that’s upjust over 5% on a volume basis on top of a strong 7% last year. As I said on the last call, we are verypleased with our innovation stream on toothpaste with the Colgate TotalAdvanced Clean having one of the highest repeat rates we have ever seen. We are beginning to build trial on that withthe advertising and marketing programs that Bina mentioned, and seeing it inthe Nielson and the all-outlet share. And of course, we have adjusted ourpromotional activity which is just now beginning to impact themarketplace.

I think going forward, what is pleasing in the U.S.when you look at the categories in which we do business, particularlytoothpaste, we see growth rates very much in line with historical levels, noslow down. We see private label at thelowest level in many years, under half a percentage point. So we feel very confident about the futuregrowth of both our toothpaste business and our U.S.company.

Operator

Your next question comes from Ali Dibadj - SanfordBernstein.

Ali Dibadj - Sanford Bernstein

To continue on the U.S.theme, I wanted to understand the interaction between the top line, again beinga little lower than we would expect; I think your guidance was flat, as far asI understand, on volume at least and then the increase in operatingmargins. What is the interplay there? Howwould you describe that going forward?

In particular, you mentioned that you were just now seeingsome of the impact of increased promotions that you are putting intoplace. Did you see that towards the backend of the quarter? How you should wethink about that going forward?

So the interplay at the top line and company marginexpansion story here in North America.

Ian Cook

I think the answer to that, Ali, is gross profit. We have seen in our U.S. business, as Binasaid, a combination of restructuring benefits, our trading up strategy, theColgate business planner and our traditional Funding the Growth programs, agross profit expansion in the United States substantially ahead of the worldaverage. While for the year, ouradvertising will be up double-digit and on a ratio to sales basis, that stillallows for the expansion in operating margins that you are referring to.

Operator

Your next question comes from Bill Schmitz - DeutscheBank.

Bill Schmitz -Deutsche Bank

Can you just give us an update on the restructuring savingsin the quarter and also the Colgate business planning savings? And also, what the outlook is for Colgatebusiness planning for the full year and next?

Ian Cook

Let me remind you of the total program, Bill and then cometo your specific questions. Totalprogram now on an after-tax basis has the charges at 675 to 775 and the savingsat 300 to 350, which you will be very well aware of.

In terms of the restructuring savings, after-tax in thisquarter around $23 million; for the year we expect between $90 million and $95 millionthis year, and of course the balance about $100 million to $105 million in2008. Restructuring is on track. All of the major programs are well-managed,and the savings as I’ve just outlined.

Colgate business planning, turning to that again, continuesto be very much on plan. As I said thelast time, we will have the full Colgate business planning solution supportedby the SAP software in about two-thirds of our company’s sales by the end ofthis year. It will be in over 70% of thesales as we enter next year. We havedone many of these so-called deep dive analytic programs in ten of our majormarkets, accounting for 50% of our trade spending. This year you will recall, Bill, we said thatwe thought the savings from CBP would be around $50 million. It turns out the savings are coming in nearer$75 million than the $50 million. Youwill recall also that we said that we expected $100 million of savings fromColgate business planning in 2008. Weare still sticking with that, although perhaps a little bit more optimisticgiven the performance this year.

Operator

We will take our next question from Bill Chapell - SunTrust.

Bill Chapell -SunTrust

Kind of simplistic question but in the past you said that everydollar change in oil is a penny to EPS. If I look at the $20 move over the past three months does the math notstill work that way? Is restructuringjust fully offsetting that? When you look at double-digit EPS growth next yearis it just lower double-digits versus higher double-digits?

Ian Cook

Let me go through the gross profit, if I can find it. Bill, if I take the third quarter, just to dothe traditional roll forward that we do just to put it in perspective,obviously last year the gross profit was 56.5%, now 57.3% this year, or up 80basis points. Essentially we faced aheadwind of about 2.1 percentage points of material prices, which was acombination of our traditional Funding the Growth savings, restructuring andthen the pricing mix benefit, which can trace to CBP offset that and more tothe tune of the 80 basis points difference.

So as we look going forward, we remain based on thebudgeting activity we have conducted thus far, we remain confident of the 75 to125 basis points expansion increase in our gross profit for next year.

On the average, we are looking at about $75 a barrel for oil. That will see our raw and packing materialcosts up between 5% and 6%, but with all of the programs we have inrestructuring, Funding the Growth and CBP we see ourselves offsetting that andstill being within the 75 to 125 basis points increase that we have talked to.So that’s getting it right down to the planning level.

I think as we have evolved our discussion on oil, we havesaid that about one-third of our business is directly affected, about one-third;half and about one-third not really affected. So from a detailed modeling point of view we feel quite confident withthat projection next year. I would add one thing. That when we had previously talked of this,it was oil up by $2, is a penny of EPS.

Operator

Your next question comes from Lauren Lieberman - LehmanBrothers.

Lauren Lieberman -Lehman Brothers

I think I didn’t really catch all that, actually. So as I understood it, you are budgeting oilat $75 right now for ‘08.

Ian Cook

On the average, yes.

Lauren Lieberman -Lehman Brothers

Can you go through the more specific components of grossmargin? Could you give us the big bucketof raw material costs being a minus two-tenths?

Ian Cook

Right.

Lauren Lieberman -Lehman Brothers

Usually we get a Funding the Growth bucket, a price promotionbucket and so on.

Ian Cook

Happy to give you that, Lauren. Start with the same 56.5 lastyear. From a material price, as you say,negative 2.1; Funding the Growth, positive 1.4; Restructuring, positive .6, and then pricing half a point; mix, etcetera,0.3.

Operator

We will take our next question from Wendy Nicholson -Citi.

Wendy Nicholson -Citi

My question has to do with Latin Americaprofit margins. It seems like so many ofthe other regions are seeing huge margin increases but that’s a region where wehave seen margins go down two quarters in a row. I’m just wondering, is thatbecause that region is so incredibly profitable to begin with and there has notbeen that much restructuring there, we should sort of expect margins to flattenout, or is there something going on from a competitive standpoint that you areneeding to spend more in that region?

Ian Cook

Nothing from a competitive point of view, Wendy, that is outof the ordinary. I think as we discussedon the last call, we are seeing a very robust market growth dynamics and we areinvesting to grow this business. So theadvertising is up and part of that is related to the timing of activity behindwhich we are putting that advertising. Ithink from an operating margin point of view, we are going to see the operatingmargin back up again next year; at least that’s our estimate.

Operator

We will take our next question from Justin Hott - BearStearns.

Justin Hott - BearStearns

Ian, as you think about the categories you have done anamazing job the last couple of years in oral care, delivering great results andthe organization really sounds like it is hitting on all cylinders.

When you think about where you want to go, do you feel theorganization is better equipped now to expand into other categories, whether ornot you need that growth that you have built a better organization now with allthese initiatives? If you want to go,you would be stronger company for doing it and be better equipped to do it?

Ian Cook

I don’t know what you mean by other categories, Justin. If you mean new categories?

Justin Hott - BearStearns

New categories.

Ian Cook

New categories to Colgate, the answer is we don’t see a needfor that. We believe that if you look atthe oral care, personal care, pet nutrition and home care categories that wehave boundaries for ourselves. There are very good growth and profit expansionopportunities remaining. We continue, ona global basis, to take advantage of that going forward.

I continue to feel that the focus we have on being expertsat understanding the consumers, the professionals that recommend our productsand the customers that we sell to in those categories, being more expert byfocusing there, gives us an executional focus and advantage, which we canbenefit from for many years to come.

Operator

We will take our next question from Alex Patterson -RCM.

Alex Patterson - RCM

Ian, I wanted to get a sense, the reinvestment spending youhave been doing into the operations structural stuff, you have talked about thedevelopments and then part of the original restructuring was the development ofsales and feet on the street in developing markets. Are we seeing a lot of that playing into howthe SG&A is coming out this year and, if so, how does that look going outinto ‘08 and ‘09?

Ian Cook

Well, if you look at the SG&A and break down the componentelements, obviously advertising is up. Overhead with logistics in is flat. Fixed cost with logistics out is actually down slightly on a ratiobasis. But that still does includeexactly as you say, more resources on the ground, particularly in thedeveloping markets.

Going forward, I think we would expect to see our percentageoverhead, excluding logistics down next year, as we get the full benefit of therestructuring. That still includes theinvestment in the incremental resources thatwe did indeed say we were going to do.

Operator

We will take our next question from John Faucher - JP Morgan.

John Faucher - JP Morgan

Quick question, looking at your guidance for next year on aregional basis, it looks like emerging markets you expect another strong yeargoing out there. Is there anywhere whereyou would say over the last couple quarters you ever seen either marketaccelerating or decelerating in terms of markets we should keep an eye out forover the next 12 months. Thanks.

Ian Cook

I would say nothing of any significance, John. Perhaps mostof the press and media coverage these days is about, you know, the U.S.and whether or not there will be a slowdown and will that slowdown be arecession? Pleasingly, at least in thebusinesses that are important to us, we do not see from a consumer point ofview, a slowdown in the purchasing of our products, particularly in thepersonal and oral care categories; maybe a tad of slowdown in some of thehousehold product categories.

As I said earlier, perhaps most encouragingly, year on yearwe are seeing no increase in private labels. So no other countries around the world to call out neither particularlytroubling nor positive, and in the U.S.quite pleased with how our categories are performing.

Operator

We will take our next question from Amy Chasen - GoldmanSachs.

Amy Chasen - GoldmanSachs

I’m still not clear on why North American volume came in aslow as it did relative to your going in expectations? Was it a particular category, was it aparticular channel? Can you just kind offlush that out for us a little bit more?

Ian Cook

Yes, I think as we said, Amy, and I did answer this earlierwe have been pleased with our U.S.business over this year. 5.5% for thenine months. We expect that to continuenext year. We are beginning to see thebenefits of the new products we have launched and the increased consumerpromotion that we said we would put behind that business.

Our oral care business is up double-digit in the U.S.and importantly, the month of October is off to a very nice start in our United States business. So we feel good about that. If you focus on the number of the quarter,perhaps some channel effect as we began to put our promotional activity inplace; but confident about going forward.

Amy Chasen - GoldmanSachs

What do you mean by channel effects?

Ian Cook

The timing of getting promotionals executed in all thedifferent trade channels leaving some to grow more aggressively than others.

Amy Chasen - GoldmanSachs

When you say that your oral care business was updouble-digit, can you tell us what was down? What was the weaker category, because something was obviously muchweaker?

Ian Cook

The weaker category was home care which is exactly in linewith our strategic priorities, as you know. It is oral care, pet nutrition, personal care and home care.

Amy Chasen - GoldmanSachs

Which channels were weaker?

Ian Cook

I am not going to go into the specifics of each of thechannels, Amy.

Operator

Your next question comes from Chris Ferrara - Merrill Lynch.

Chris Ferrara -Merrill Lynch

A repeat question for every quarter, I guess. The fact that the overall advertising didn’tgo up as a percentage of sales this quarter I understand it was in line withwhat your expectations were, but does it give anymore insight how you view thatoverall 12% going forward?

Ian Cook

The 12% continues to be our target, Chris. As I said a little bit earlier on the call,we expect for this year our advertising to be up double-digit and north of 11%as a ratio to sales.

Our preliminary look at our 2008 budgeting stance, althoughnot final, shows continued double-digit it increase in our advertising andcontinued progress towards the 12% goal we have established for ourselves. So that continues to be very much our gameplan.

Operator

We will take our next question from Alice Longley -Buckingham Research.

Alice Longley -Buckingham Research

Is it reasonable to expect with the oil prices doing whatthey are doing, that Hill’s will be taking further pricing for next year?

Ian Cook

The Hill’s cost pressures of course stem from agriculturalcommittee cost increases which can indeed be the bio-fuel and therefore, atleast indirectly oil-related. You areexactly right, Alice, as you knowthis year we took pricing in the first quarter of the year around 4% on ourHill’s business and have announced for the fourth quarter of this year, furtherpricing to the tune of between 6% and 8%, depending on the line ofproducts. That’s here in the U.S.and of course we are doing that internationally as well; the intention ofcourse being to rebuild the Hill’s gross profit through the fourth quarter andinto next year.

Alice Longley -Buckingham Research

And you have heavy shipping costs for Hill’s as well. Right?

Ian Cook

Yes.

Alice Longley -Buckingham Research

Are there any other categories where you think you shouldtake pricing?

Ian Cook

We are reviewing that on a category-by-category basis. We have pricing factored into our preliminarybudget position between a percentage point and percentage and a half. And obviously where we see the need as youwork through each of the commodities and the raw material impacts, which oftentimesare lagged, as you know, Alice,where we need to we will take pricing.

Operator

Your next question comes from Linda Bolton Weiser -Oppenheimer.

Linda Bolton Weiser -Oppenheimer

Could you talk a little bit about what you have done withthe Tom’s of Maine brand sinceyou acquired it? I believe the natural dentist might be a new entrant innatural toothpaste after being in natural mouth rinses; do you think that’s athreat to the Tom’s of Mainebusiness? Could you talk a little about that.

Ian Cook

We are really pleased with the Tom’s business havingacquired it. A couple of comments to make. The business was up in the third quarter strong double-digits, I think reflecting the increased marketingsupport we have put behind the business and the distribution we are buildingwith the business.

The market share actually is continuing to trend upwardshistorically from a Nielson point of view running at around 1.4%, 1.5%, now upto 1.7% and growing. As I mentioned onthe call the last time, we had very clear expansion plans for this business inthe developed world starting with the UK,moving through Western Europe and obviously down toAustral-Asia.

So good expansion plans in place, and I think given thescale of opportunity in naturals, I don’t see a particular new entry as athreat. I think there is room for Tom’sto continue to grow quite healthily.

Operator

Your next question comes from Alex Patterson - RCM.

Alex Patterson - RCM

Any way you can put more illumination some of the newproduct pipeline? You have suggested it as being more robust than normal as weget into the beginning of ‘08?

Ian Cook

I would offer no illumination, Alex, other than to say wehave organized ourselves to continue what we have always believed is a healthyflow of relevant innovation. We havethat this year. I think you will see as next year unfolds,some interesting innovation come into the business that will be consumerrelevant and continue to build our top line and our market shares.

Alex Patterson - RCM

But in aggregate are you suggesting it’s more than we haveseen previously or about in line with what ‘07 showed?

Ian Cook

I would say it will be what it will be. I’m not calling a sharp uptick. It will be what it will be.

Operator

Your next question comes from Lauren Lieberman - LehmanBrothers.

Lauren Lieberman -Lehman Brothers

I was hoping you could also touch on operating marginexpansion in the Greater Asia/Africa business because that was the other realstandout in addition to North America and I would thinkthat the investment spending there would have been also going up prettysignificantly. So just major drivers ofmargin expansion in that business.

Ian Cook

The expansion traces largely to the gross profit again,Lauren. While we don’t quote the specifics of the gross profit expansion, wehave in Asia seen a fairly meaningful increase in ourgross profit, which again like the U.S.,as you perhaps would expect given the operating margin expansion is ahead ofthe world, or ahead of the world average. That is at the same time as we have continued to increase ouradvertising support behind growing those businesses at a double-digit level.

Lauren Lieberman -Lehman Brothers

Is it a mixed shift that’s happening within the businessthat’s the biggest driver of the gross margin there or is it restructuringsavings are disproportionately impacting that business?

Ian Cook

It is a combination of all the things I talk about,Lauren. It is the trading up strategythat Bina mentioned that works very successfully for us, the Total example in Latin America equally applies to Asia, so it ismix. It is trading up. It is Funding the Growth. It is Colgate business planning and it’srestructuring.

Operator

Your next question comes from Connie Maneaty - BMO CapitalMarkets.

Connie Maneaty - BMOCapital Markets

I do have a follow-up question and it relates to what otherpeople have been asking about. Theregional development of profit margins, I mean, given that they were up sostrongly in North America and Asia/Africa this year does it make sense thatnext year because of the projects in place we would see that sort of jump inthe regions where there was not that kind of expansion this year?

Ian Cook

Connie, we have not tended to give forward guidance inoperating margins. I would say that wecontinue to feel very comfortable with the expansion in gross profit that Italked to between the 75 and 125 basis points. That would translate through the divisions in terms of the commercialpriorities and flow its way to the bottom line.

Operator

At this time we have no further questions. Iwould like to turn the conference back to Ms. Thompson for any additional orclosing remarks.

Bina Thompson

I will turn it to Ian for the closing remarks.

Ian Cook

Thank you very much for joining the call and your questionsand support. We look forward to comingback and continuing the dialogue as we close the year. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Colgate-Palmolive Q3 2007 Earnings Call Transcript
This Transcript
All Transcripts