Colgate-Palmolive Company

Good day and welcome to today's Colgate Palmolive Company first quarter 2022 earnings conference call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to Chief Investor Relations Officer, John Fauché. Please go ahead, John.

Thanks, Christina. Good morning and welcome to our 2022 first quarter earnings release conference call. This is John Fauché. 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 2021 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 five and six 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. Noel will provide you with his thoughts on our Q1 results and our 2022 outlook. We will then open it up for Q&A.

Noel. Thanks, John, and good morning to all of you. Given the release of the prepared commentary this morning, I'll keep my remarks fairly short as I'm certain you have a number of questions. Obviously, 2022 is shaping up as a more difficult year than we anticipated, with greater than expected increases in raw materials, as you've seen from others, particularly fats and oils and logistics. This is offsetting what we think will be a very solid year for organic sales growth, Now that we are seeing our global supply chain stabilize following COVID related lockdowns and stress in logistic networks around the world. Sales growth for the balance of the year. First off, we knew that Q1 would be the most difficult quarter given comparisons, supply chain issues and pricing negotiations. We exited the quarter with high single digit pricing as we took more pricing in developed markets starting in February and continuing into April. We believe this is more indicative of the pricing we will see for the balance of the year. Elasticity seemed to be either in line or better than expectations, and this should help limit incremental volume weakness from the higher pricing over the balance of the year. Encouragingly, as we said in our prepared remarks, volume and organic sales performance improved in February and March versus January, and organic sales growth has continued to accelerate in April. Importantly, we are beginning to see the benefits of the stabilization in our global supply chain network with the impacts of COVID-related factory closures behind us and the opening of the global logistics capacities. Our guidance does not assume further COVID-related lockdowns in the balance of the year that would impact our ability to manufacture and distribute our products. Our U.S. on-shelf availability for toothpaste has been below normal for several months, as we dealt with the same supply chain challenges you've heard about from other companies. By tapping into our global supply chain, we were able to restore shipments, and our availability is now back to normal levels, which you are seeing reflected in better market share performance in toothpaste. And with the improved share performance in manual toothbrushes in the U.S., where our share is up 4.5 points year-to-date, we feel better about the trajectory of U.S. oral care. Combined with increased advertising through the balance of the year, significant innovation, particularly around whitening in the U.S. and in Asia, and the relaunch of two important core brands, our Holly and Hazel brand in China and the Hills Prescription Diet business, we feel confident in our forecast for an acceleration in organic sales growth for the balance of the year. This gets us to our new guidance of 4% to 6% organic sales growth. Temporary in this outlook, obviously, is the difficult cost environment. Our entire cost factor has risen over the past few months, but the biggest impact has come in the area that we call fats and oils. That's palm oil, palm kernel oil, soybean oil, tallow, and others. This has historically been our second biggest area of raw material spend behind only resins. Although given the inflation we're seeing this year, our spending in the second half on fats and oils will equal our spending on resins. These ingredients are used in every category we compete in, and we expect a more than 60% increase across fats and oils this year. And while you know our global supply chain is a strategic advantage, the global nature of our supply chain is adding to costs in the current environment. Freight rates from Mexico to the U.S. are up 30% year over year, and ocean freights have basically doubled. We continue to take significant steps to offset these headwinds. We are taking additional pricing, and we are launching premium innovation. We established our 2022 global productivity initiative to drive further cost savings for this year and next year while accelerating our funding to growth initiatives. We've reduced our overhead X logistics spending by $30 million in the quarter versus the first quarter last year already. So as we open it up for your questions, we know we need to execute during the balance of the year, and we're very focused against that. While we know our guidance is below our previous expectations, we believe that our cost forecasts are prudent and that our plans are well thought through and well supported to deliver on our organic sales growth guidance, while leaving us well positioned as we look to return to profitable growth. Thanks, and I'll be happy to take your questions now.