Edited Transcript of CL earnings conference call or presentation 26-Apr-19 3:00pm GMT

Importantly, the composition of the growth gives us comfort that we are returning to a more sustainable trajectory. On an organic basis, we delivered both volume and pricing growth for the first time in over 2 years with volume and pricing growth in all 4 of our categories: Oral Care, Pet Nutrition, Personal Care and Home Care.

We delivered geographically balanced organic sales growth with emerging markets and developed markets both up 3%. And we delivered breadth in our organic sales growth with more than 75% of our hubs delivering organic sales growth in the quarter.

Our focus on driving the core through innovation, attacking adjacent segments and expanding the availability of our brands in new and higher growth channels and markets is beginning to pay off. Coupled with our increased brand support, we are optimistic that we can continue to deliver against the expectations for 2019 that we laid out on the fourth quarter earnings call.

On a GAAP basis, our gross profit margin was down 130 basis points year-over-year. Excluding the impact of our Global Growth and Efficiency Program, it was down 110 basis points year-over-year. For the quarter, our 200 basis points of pricing provided a 70 basis point benefit to gross margin. Raw materials cost, including foreign exchange transaction cost, were a 320 basis point drag on gross margin year-over-year.

Our productivity programs led by our Funding the Growth initiative provided a 150 basis point benefit to gross margin. Other was a 10 basis point drag. On an absolute basis, advertising investment was up 3% year-over-year. On a percent of sales basis, advertising was up 60 basis points year-over-year with increases on a percent of sales basis in every division.

Excluding charges resulting from our Global Growth and Efficiency Program and advertising spending, our SG&A expenses were down year-over-year in the first quarter on an absolute basis and as a percent of sales, benefiting from our productivity programs.

On a GAAP basis, diluted earnings per share of $0.65 were down 10% year-over-year in Q1. Excluding charges resulting from our Global Growth and Efficiency Program, diluted earnings per share were down 10% to $0.67. Our free cash flow in the quarter was $534 million which was up 7% versus Q1 2018.

Taking a look at the divisional results. North America delivered 3% net sales growth and 3.5% organic sales growth in the quarter with 2% volume growth and 1.5% pricing growth. We saw strong sales growth in toothpaste in the quarter driven by Colgate Total SF, Colgate Optic White, Colgate Essentials and Tom's of Maine. Club and e-commerce delivered particularly strong toothpaste growth this quarter. The Colgate Total relaunch is proceeding in line with our expectations as Total's market share is up year-over-year since the launch.

In the U.S., we took pricing through a downsizing, and this should lead to a shorter repurchase cycle which should accelerate unit growth going forward as consumers come back more quickly.

North America also benefited from the strong growth in the Elta MD and PCA skin care businesses we acquired during Q1 of 2018. These brands are delivering very strong growth across a number of channels, including professional, D2C and e-commerce.

Europe's net sales were down 7% in Q1 driven by negative foreign exchange. Organic sales were up 0.5% in the quarter as volume growth of 1.5% was mostly offset by negative pricing of 1%. While categories in Europe remain sluggish, our market shares were up or flat in 7 of 10 categories.

We delivered strong volume growth in Northern Europe with the U.K. and Scandinavia both up on the back of the Colgate Total relaunch. We have reintroduced Colgate Total in Scandinavia and it is driving strong incremental market share gains in that region. We also launched meridol Pur in several markets in Europe in Q1 which brings our top therapeutic gum offering into the naturals space at a premium price.

In personal care, we continue to drive significant share gains behind the Sanex body wash business. In France, Sanex's body wash share is up more than 100 basis points year-to-date behind Sanex Zero% and the Sanex physiologic brand.

Latin America. We are pleased with our acceleration in organic sales growth in Latin America in Q1. Net sales declined 4.5% in the quarter as 10.5% negative foreign exchange more than offset 2.5% volume growth and 3.5% pricing growth in the quarter. Importantly, the growth was broad-based as we delivered organic sales growth in every hub. We are particularly pleased with the sequential improvement we saw in Brazil in the quarter versus Q4 2018 as we delivered both pricing and volume growth. Encouragingly, category trends in Brazil do seem to be better, although the market remains very promotional. Our recent innovations in oral care are paying off nicely as we are seeing market share gains for our Colgate Natural Extracts toothpaste line, our Colgate Gard franchise in pharmacies in Brazil and the Colgate Slim Soft Advanced toothbrush.

Net sales in Asia Pacific were down 8% driven by negative foreign exchange of 5.5%, a 2.5% decline in volume and flat pricing. Our results in China remain challenged by the difficult steps we are taking to reorient our portfolio in an oral care category that is rapidly premiumizing and shifting into e-commerce. As we indicated in January, we still expect trends to improve in the second half of the year. Encouragingly, we saw strong growth in both volume and pricing in India with growth coming on both the Colgate Max Fresh and Colgate Vedshakti franchises. In order to drive penetration of Vedshakti, we recently gave away 30 million samples at the Ardh Kumbh Mela festival in India.

Our Africa/Eurasia business showed solid underlying business momentum in Q1 despite the negative impact of foreign exchange. FX was a 13% drag on sales growth in the quarter, offsetting 7% pricing growth and flat volume. Our Eurasia hub delivered a strong mixture of pricing and volume growth in the quarter driven by Russia. Our North Africa, Middle East, Turkey hub also delivered volume growth in the quarter despite significant pricing to offset foreign exchange. In order to help continue this momentum, we launched the full meridol regimen, toothpaste, toothbrushes and mouth rinse, in the pharmacy channel in Turkey in the first quarter. We also launched Palmolive Micellar Care shower gel in Russia this past quarter, taking advantage of a big personal care trend.

And finally, Hill's. Our strong growth at Hill's continued in Q1. Growth was led by the United States with particularly strong growth in e-commerce, pet specialty and farm and feed. Internationally, our growth was very broad-based. We delivered both volume and pricing growth in Canada, Europe, Australia, Asia and Latin America.

As we discussed at CAGNY, Q1 marked the beginning of our relaunch of our Science Diet brand with the new packaging on shelf as we speak. Initial response has been positive as Science Diet market share trends continue to increase year-over-year in Q1. The relaunch will continue across the globe through the first half of 2020.

We have also significantly exceeded our subscription target for our Hill's to Home service which allows pet parents to realize the benefits of home delivery while maintaining contact with the veterinarian.

Moving on to full year guidance. We continue to expect net sales to be flat to up low single digits. We continue to expect organic sales to be up 2% to 4%. Based on current spot rates, for the full year, we still expect gross margin to be up year-over-year on both a GAAP basis and excluding charges related to our Global Growth and Efficiency Program. We expect the benefits of pricing and our productivity programs to offset an overall increase in raw material costs which includes the impact of transactional foreign exchange.

We expect our advertising spending to be up notably year-over-year on both an absolute basis and as a percent of sales. We would expect advertising as a percent of sales for the full year to be fairly consistent with the Q1 level.

We continue to expect our full year 2019 tax rate to be between 25.5% and 26.5%, both on a GAAP basis and excluding charges related to our Global Growth and Efficiency Program in 2019 and 2018, and the charge related to U.S. tax reform and the benefit from a foreign tax matter in 2018.