Colgate-Palmolive Company

Good day, everyone, and welcome to today's Colgate-Palmolive Company Fourth Quarter 2020 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. For opening remarks, I will turn the conference over to the Chief Investor Relations Officer, John Fauché. Please go ahead, John.

Thanks, Shannon. Good morning, and welcome to our 2020 Fourth Quarter and Year-End Earnings Release Conference Call. This is John Poche, Chief Investor Relations Officer. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2019 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate's website. Joining me on the call this morning are Noel Wallace, Chairman, President, and Chief Executive Officer, and Stan Satula, Chief Financial Officer. I will provide commentary on our Q4 and full-year performance, as well as our 2021 guidance, before turning it over to Noel for his thoughts on how we are planning to sustain our growth momentum into 2021. We will then open it up for Q&A. As usual, we request that you limit yourself to one question so that as many people as possible get to ask a question. If you have further questions, you are welcome to reenter the queue. We finished 2020 in very strong fashion with our highest level of quarterly organic sales growth in over 10 years. and our highest annual organic sales growth since the depths of the financial crisis. Importantly, we continue to deliver balanced growth, which we think is the key to sustainable strong performance. For both the quarter and the year, we delivered both volume and pricing growth, organic growth in all four of our categories, oral care, personal care, home care, and pet nutrition, and organic sales growth in every division, with both emerging markets and developed markets performing well. Our strategy to deliver more impactful premium innovation is still in its early stages, but we believe the results are beginning to show. Importantly, this growth is driving our income statement. We delivered strong gross margin expansion for both the quarter and the year, which allowed us to deliver profitable growth despite significant investments for future growth and the headwinds from foreign exchange. Our net sales grew 7.5% in the quarter. Organic sales growth of 8.5% was driven by 5% organic volume growth and a 3.5% increase in pricing. The impact of acquisitions added an additional 100 basis points to volume growth, while foreign exchange was a 2% headwind. In the fourth quarter, our gross profit margin was 61.1% on both a GAAP basis, where we were up 100 basis points year over year, and a base business basis, where we were up 90 basis points. For the fourth quarter, Pricing was 130 basis points favorable to gross margin, while raw materials were a 320 basis point headwind, driven by increases in the cost of raw materials like fats and oils and the transactional impacts from foreign exchange. Productivity was a 280 basis point benefit. On a GAAP basis, our SG&A was up 260 basis points as a percent to sales for the fourth quarter and 100 basis points for the full year. On a base business basis, In the fourth quarter, our SG&A was up 310 basis points on a percent to sales basis. This was primarily driven by a 210 basis point increase in advertising to sales as we drove strong activation on brand building, innovation, and e-commerce. Our SG&A ratio was also impacted by increased logistics costs, primarily in the U.S., and investments behind growth and innovation. For the full year on a base business basis, our SG&A ratio was up 150 basis points driven primarily by a 100 basis point increase in advertising to sales and increased logistics costs. For the fourth quarter, on a GAAP basis, our operating profit was up 4% year over year, while it was up 3% on a base business basis. Our EPS was flat on a GAAP basis and up 5% on a base business basis. For the full year, our EPS growth was 14% on a GAAP basis and 8% on a base business basis. We delivered 18% growth in free cash flow for the full year. As we discussed at the beginning of 2020, we used some of the free cash flow to pay down debt primarily related to the Florida transaction with the balance used for dividends and share repurchases. A few comments on our divisional performance. North America delivered 10% net sales and 8.5% organic sales growth in the quarter, driven by premium innovation and increased consumption in categories impacted by the COVID pandemic. We also benefited from a rebound in performance by our skin health businesses in the quarter. Our e-commerce business in North America finished the year strongly, with sales in the fourth quarter more than double last year's sales. North America saw significant increases in brand support behind the Hum by Colgate electric brush, the Colgate optic white overnight teeth whitening pen, our toothpaste business, and Irish Spring. Latin American net sales were down low single digit. as double-digit organic sales growth was more than offset by the negative impact of foreign exchange. The strong organic sales growth performance was broad-based, as we delivered organic sales growth in every hub for both the quarter and the year. Oral care innovation has been a key growth driver, with Colgate Total Tartar Control, Luminous White Charcoal, and our Natural Extracts line all driving incremental growth. Europe delivered double-digit net sales growth in the quarter. Organic sales growth of 4.5% was driven by volume growth across all three segments, oral care, personal care, and home care, and in every hub. Strong oral care volume growth on the Colgate and Elmex brands was accompanied by significant brand building investment in traditional media and digital. We were also encouraged by a return to organic growth for Felorga, where strong China growth more than offset weakness in the travel retail channel. We delivered 7% net sales and 5% organic sales growth in Asia Pacific, led by volume growth across our biggest hubs, greater China, India, the Philippines, and South Pacific. In India and China, our growth strategies are driving improved toothpaste performance through Colgate Miracle Repair in China, Colgate Bed Shakti in India, and our relaunched Colgate Anti-Cavity business across the division. Our personal care and home care businesses also benefited from COVID-related demand in the South Pacific region. Africa-Eurasia net sales declined 1.5% due to significant foreign exchange headwinds as the division delivered organic sales growth across all three categories and in every hub. Food-based organic sales growth was led by Colgate-Herbal, Colgate-Max Fresh, and Colgate-Total. Meridol also delivered strong growth as we look to gain share in the pharmacy channel. Pills finished the year with another quarter of strong net sales and organic sales growth despite continued difficult comparisons. Organic sales growth was again led by the U.S., with e-commerce up significantly, but Europe also delivered double-digit growth. Encouragingly, we are seeing a reacceleration in our prescription diet business as vet channel traffic continues to improve. And now for guidance. We expect organic sales growth to be within our 3% to 5% long-term target range. Using current spot rates, We expect foreign exchange to be a low single-digit benefit for the year, although we expect currencies to remain volatile. We expect net sales to be up 4% to 7%. We expect our gross profit margin to be up year over year in 2021, despite difficult comparisons given our performance in 2020, increases in raw materials, and the continuing uncertainty associated with COVID. Advertising is also expected to be up on a percent-to-sales basis, although less so than in 2020. Our tax rate is expected to be between 23.5 to 24.5 on both a GAAP and base business basis. We point out that our guidance range does not account for any changes in U.S. corporate tax rates given the recent change in administration. On a GAAP basis, we expect earnings per share growth in the low to mid single digits. On a base business basis, we expect earnings per share growth in the mid to high single digits. Obviously, this is a wider range than what we normally provide, which we think is prudent given what we consider to be a heightened level of uncertainty as we plan out the year. There are several factors that could impact where we fall within this wider range. First, COVID-related consumption. In the categories where consumption has risen during the pandemic, primarily liquid hand soap, dish soap, and cleaners, we are expecting lower rates of growth or even decline year over year in 2021 depending on the market. However, we expect overall consumption in these categories to remain elevated versus 2019 levels. Also, particularly in emerging markets, movements in foreign exchange could impact our ability to take pricing. We are optimistic about our pricing plans for 2021 and believe they are appropriate given recent raw material trends, the competitive environment, and foreign exchange. Raw material. We have budgeted for increased raw material costs, but we do highlight that many raw material prices are accelerating faster than anticipated. If this continues, it could put pressure on gross margin expansion, depending on our ability to take pricing or drive additional productivity. Finally, logistics. We've seen a further rise in logistics costs over the past few quarters, particularly in the US, but also related to shipping containers in Asia. We expect these costs to remain elevated in the near term, but to moderate later in the year.

And with that, I'll turn it over to Noel. Thanks, John, and good morning, everyone.