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Colgate-Palmolive Company (NYSE:CL)

Q3 2007 Earnings Call

October 30, 2007 11:00 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 - Sanford Bernstein

Bill Schmitz - Deutsche Bank

Bill Chapell - SunTrust

Lauren Lieberman - Lehman Brothers

Wendy Nicholson - Citi

Justin Hott - Bear Stearns

Alex Patterson – RCM

John Faucher - JP Morgan

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 quarter 2007 earnings conference call. Today’s call is being recorded and is being simulcast live at www.colgate.com. Just as a reminder, there may be a slight delay before the question-and-answer session begins due to the web simulcast.

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

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

Good morning and welcome to our third quarter earnings release conference call. With me this morning are Ian Cook, president and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Ed Filusch, Treasurer.

We will discuss the results of the third quarter this morning excluding charges relating to the 2004 restructuring program, $36.3 million after-tax, and a $10 million non-cash after-tax pension charge under SFAS 88 as a result of lump sum payments of normal retirement benefits associated with a non-qualified retirement plan in the U.S. The reported GAAP results reconciliations to the results excluding the restructuring and pension charges are included in the press release and accompanying financial statements, and are posted on the investor relations page of our web site at www.colgate.com.

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

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

As you know, our gross margin increased 80 basis points which is within our target range, even after absorbing 40 basis points related to very steep increases in agricultural commodities costs by our Hill’s business.

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

We told you on the last conference call that our advertising increases in the second half would be somewhat below those of the first half. That’s just what has happened. Advertising increased a healthy 12% versus over 20% for the first half to support our many new product launches around the world, as well as our base business, resulting in very good market share increases in every division.

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

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

We have said on our previous conference call that we would increase 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 at 37.4%, up 1.2 points from a year ago period and up over 3 points from the prior month. The latest advertising featuring Brooke Shields is just now coming on air, Day in the Life, with a message that Colgate Total fights germs for 12 hours day and night. Consistent with our integrating marketing approach, this theme will also feature in print, internet and in-store advertising.

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

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

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

Through our shopper insight work we learned that many young men at France still live at home and that their mothers frequently do their shopping for them. As a result, the subsidiary conducted a very strong marketing campaign not only towards the targeted user young males, but also their mothers. In Germany 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. Their market share has been largely incremental and trial rates have been very good.

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

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

We also have been renewing our efforts behind our mouthwash business resulting in exceptional growth. Brazil has been the lead market on this initiative with the launch of Plax Alcohol Free 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 the entire 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 3 share, more than half of which is incremental. In the shampoo category, we introduced a line extension of Palmolive Caprice along with a new bottle and better aesthetics which has resulted in our taking 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 versus a year ago period. Solid performance across all our Suavitel lines, new line extensions and a strong the commercial plan 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 this year and next to continue in the high single-digit range. Operating profit for the fourth quarter of this year and full year 2008 should increase double-digits.

Greater Asia/Africa/ As elsewhere, new products supported by focused advertising contributed to the strong results in this region and as referenced in the press release our toothpaste share was up 11 of 14 countries and is up 100 basis points year-over-year to almost 40%. In toothbrushes our share increased in 11 of 12 markets up 240 basis points from the year-ago period to over 36%. The strong share growth in toothbrushes was mainly driven by the excellent on the ground execution of other 360 Degree toothbrush anniversary campaign as well as the growth of the base business.

Volume in Greater China increased double-digit continuing the good momentum we have witnessed throughout this year. Our market share is up year over year at over 31%. A recent launch of Max White toothpaste is doing well, and in addition we are now just shipping Colgate Herbal Gel, the first major gel launch in a lower-priced segment, and this should 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 points to over 33% driven by both base business and new products such as Max White and Herbal 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 both toothpaste and toothbrushes, with 48.2% and 34.6% respectively.

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

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

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

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

So in summary, we are very pleased with the continued strong results across our divisions. Our four strategic initiatives with which you are all familiar -- getting close to the consumer, customer and professions; effective and efficiency in everything we do; innovation everywhere; and a focus on building strong leadership -- are all working well. We feel confident we have the people and programs in place to continue to deliver solid double-digit earnings growth 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-Answer Session

Operator

Your first question comes from Connie Maneaty - BMO Capital Markets.

Connie Maneaty - BMO Capital Markets

Given that you know what your shipments to Wal-Mart and Costco are, can you give us an indication of what your market share in toothpaste in 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 similar to the Nielson share; would be slightly lower than that share but still up. 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 up just over 5% on a volume basis on top of a strong 7% last year. As I said on the last call, we are very pleased with our innovation stream on toothpaste with the Colgate Total Advanced Clean having one of the highest repeat rates we have ever seen. We are beginning to build trial on that with the advertising and marketing programs that Bina mentioned, and seeing it in the Nielson and the all-outlet share. And of course, we have adjusted our promotional activity which is just now beginning to impact the marketplace.

I think going forward, what is pleasing in the U.S. when you look at the categories in which we do business, particularly toothpaste, we see growth rates very much in line with historical levels, no slow down. We see private label at the lowest level in many years, under half a percentage point. So we feel very confident about the future growth of both our toothpaste business and our U.S. company.

Operator

Your next question comes from Ali Dibadj - Sanford Bernstein.

Ali Dibadj - Sanford Bernstein

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

In particular, you mentioned that you were just now seeing some of the impact of increased promotions that you are putting into place. Did you see that towards the back end of the quarter? How you should we think about that going forward?

So the interplay at the top line and company margin expansion 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 Bina said, a combination of restructuring benefits, our trading up strategy, the Colgate business planner and our traditional Funding the Growth programs, a gross profit expansion in the United States substantially ahead of the world average. While for the year, our advertising will be up double-digit and on a ratio to sales basis, that still allows for the expansion in operating margins that you are referring to.

Operator

Your next question comes from Bill Schmitz - Deutsche Bank.

Bill Schmitz - Deutsche Bank

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

Ian Cook

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

In terms of the restructuring savings, after-tax in this quarter around $23 million; for the year we expect between $90 million and $95 million this year, and of course the balance about $100 million to $105 million in 2008. 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, continues to be very much on plan. As I said the last time, we will have the full Colgate business planning solution supported by the SAP software in about two-thirds of our company’s sales by the end of this year. It will be in over 70% of the sales as we enter next year. We have done many of these so-called deep dive analytic programs in ten of our major markets, accounting for 50% of our trade spending. This year you will recall, Bill, we said that we 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. You will recall also that we said that we expected $100 million of savings from Colgate business planning in 2008. We are still sticking with that, although perhaps a little bit more optimistic given 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 every dollar change in oil is a penny to EPS. If I look at the $20 move over the past three months does the math not still work that way? Is restructuring just fully offsetting that? When you look at double-digit EPS growth next year is 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 do the 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 80 basis points. Essentially we faced a headwind of about 2.1 percentage points of material prices, which was a combination of our traditional Funding the Growth savings, restructuring and then the pricing mix benefit, which can trace to CBP offset that and more to the tune of the 80 basis points difference.

So as we look going forward, we remain based on the budgeting activity we have conducted thus far, we remain confident of the 75 to 125 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 material costs up between 5% and 6%, but with all of the programs we have in restructuring, Funding the Growth and CBP we see ourselves offsetting that and still 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 have said 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 with that 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 - Lehman Brothers.

Lauren Lieberman - Lehman Brothers

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

Ian Cook

On the average, yes.

Lauren Lieberman - Lehman Brothers

Can you go through the more specific components of gross margin? Could you give us the big bucket of 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 promotion bucket and so on.

Ian Cook

Happy to give you that, Lauren. Start with the same 56.5 last year. 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, et cetera,0.3.

Operator

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

Wendy Nicholson - Citi

My question has to do with Latin America profit margins. It seems like so many of the other regions are seeing huge margin increases but that’s a region where we have seen margins go down two quarters in a row. I’m just wondering, is that because that region is so incredibly profitable to begin with and there has not been that much restructuring there, we should sort of expect margins to flatten out, or is there something going on from a competitive standpoint that you are needing to spend more in that region?

Ian Cook

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

Operator

We will take our next question from Justin Hott - Bear Stearns.

Justin Hott - Bear Stearns

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

When you think about where you want to go, do you feel the organization is better equipped now to expand into other categories, whether or not you need that growth that you have built a better organization now with all these 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 - Bear Stearns

New categories.

Ian Cook

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

I continue to feel that the focus we have on being experts at understanding the consumers, the professionals that recommend our products and the customers that we sell to in those categories, being more expert by focusing there, gives us an executional focus and advantage, which we can benefit 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 you have been doing into the operations structural stuff, you have talked about the developments and then part of the original restructuring was the development of sales and feet on the street in developing markets. Are we seeing a lot of that playing into how the SG&A is coming out this year and, if so, how does that look going out into ‘08 and ‘09?

Ian Cook

Well, if you look at the SG&A and break down the component elements, obviously advertising is up. Overhead with logistics in is flat. Fixed cost with logistics out is actually down slightly on a ratio basis. But that still does include exactly as you say, more resources on the ground, particularly in the developing markets.

Going forward, I think we would expect to see our percentage overhead, excluding logistics down next year, as we get the full benefit of the restructuring. That still includes the investment in the incremental resources that we 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 a regional basis, it looks like emerging markets you expect another strong year going out there. Is there anywhere where you would say over the last couple quarters you ever seen either market accelerating or decelerating in terms of markets we should keep an eye out for over the next 12 months. Thanks.

Ian Cook

I would say nothing of any significance, John. Perhaps most of 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 a recession? Pleasingly, at least in the businesses that are important to us, we do not see from a consumer point of view, a slowdown in the purchasing of our products, particularly in the personal and oral care categories; maybe a tad of slowdown in some of the household product categories.

As I said earlier, perhaps most encouragingly, year on year we are seeing no increase in private labels. So no other countries around the world to call out neither particularly troubling 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 - Goldman Sachs.

Amy Chasen - Goldman Sachs

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

Ian Cook

Yes, I think as we said, Amy, and I did answer this earlier we have been pleased with our U.S. business over this year. 5.5% for the nine months. We expect that to continue next year. We are beginning to see the benefits of the new products we have launched and the increased consumer promotion 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 in place; but confident about going forward.

Amy Chasen - Goldman Sachs

What do you mean by channel effects?

Ian Cook

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

Amy Chasen - Goldman Sachs

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

Ian Cook

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

Amy Chasen - Goldman Sachs

Which channels were weaker?

Ian Cook

I am not going to go into the specifics of each of the channels, 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’t go up as a percentage of sales this quarter I understand it was in line with what your expectations were, but does it give anymore insight how you view that overall 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, although not final, shows continued double-digit it increase in our advertising and continued progress towards the 12% goal we have established for ourselves. So that continues to be very much our game plan.

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 what they are doing, that Hill’s will be taking further pricing for next year?

Ian Cook

The Hill’s cost pressures of course stem from agricultural committee cost increases which can indeed be the bio-fuel and therefore, at least indirectly oil-related. You are exactly right, Alice, as you know this year we took pricing in the first quarter of the year around 4% on our Hill’s business and have announced for the fourth quarter of this year, further pricing to the tune of between 6% and 8%, depending on the line of products. That’s here in the U.S. and of course we are doing that internationally as well; the intention of course being to rebuild the Hill’s gross profit through the fourth quarter and into 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 should take pricing?

Ian Cook

We are reviewing that on a category-by-category basis. We have pricing factored into our preliminary budget position between a percentage point and percentage and a half. And obviously where we see the need as you work through each of the commodities and the raw material impacts, which oftentimes are 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 with the Tom’s of Maine brand since you acquired it? I believe the natural dentist might be a new entrant in natural toothpaste after being in natural mouth rinses; do you think that’s a threat to the Tom’s of Maine business? Could you talk a little about that.

Ian Cook

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

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

So good expansion plans in place, and I think given the scale of opportunity in naturals, I don’t see a particular new entry as a threat. I think there is room for Tom’s to 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 new product pipeline? You have suggested it as being more robust than normal as we get into the beginning of ‘08?

Ian Cook

I would offer no illumination, Alex, other than to say we have organized ourselves to continue what we have always believed is a healthy flow of relevant innovation. We have that this year. I think you will see as next year unfolds, some interesting innovation come into the business that will be consumer relevant 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 have seen 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 - Lehman Brothers.

Lauren Lieberman - Lehman Brothers

I was hoping you could also touch on operating margin expansion in the Greater Asia/Africa business because that was the other real standout in addition to North America and I would think that the investment spending there would have been also going up pretty significantly. So just major drivers of margin 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, we have in Asia seen a fairly meaningful increase in our gross profit, which again like the U.S., as you perhaps would expect given the operating margin expansion is ahead of the world, or ahead of the world average. That is at the same time as we have continued to increase our advertising support behind growing those businesses at a double-digit level.

Lauren Lieberman - Lehman Brothers

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

Ian Cook

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

Operator

Your next question comes from Connie Maneaty - BMO Capital Markets.

Connie Maneaty - BMO Capital Markets

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

Ian Cook

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

Operator

At this time we have no further questions. I would like to turn the conference back to Ms. Thompson for any additional or closing 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 questions and support. We look forward to coming back and continuing the dialogue as we close the year. Thank you.

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