Colgate-Palmolive Company

Welcome to today's Colgate-Palmolive Company Second Quarter 2022 Earnings Conference Call. This call is being recorded and it's being broadcast live at www.colgate-palmolive.com. Now for opening remarks, I would like to turn the call over to the Chief Investor Relations Officer and Senior Vice President M&Q, John Forshe. Please go ahead, John. Thank you.

Thanks, Caroline. Good morning, and welcome to our 2022 Second Quarter Earnings Release Conference Call. This is John Fauchet. 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 earnings materials 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 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. Noel will now provide you with his thoughts on our Q2 results and our 2022 outlook. We will then open it up for Q&A.

Thanks, John, and thanks to all of you for joining us this morning. I'm delighted to share with you our second quarter results. On the first quarter call, I talked about my confidence that our organic sales growth would accelerate from our first quarter results. Some of this was due to the improvement in trends in February, March, and April that we discussed on the call. But what really gives me confidence is the fundamental changes Colgate people have made to drive growth, which is why we are raising our organic sales growth guidance to 5 to 7% for 2022. Our second quarter results, including double-digit organic sales growth in oral care and pet nutrition, show that the growth strategies we put in place three years ago are delivering on our objectives and how the power of our global portfolio is working. We're delivering growth across all of our divisions and all of our categories. We're showing the ability to take pricing because we have built healthier brands. We have built up our innovation capabilities so we can deliver more breakthrough and transformational innovation that can drive both category growth and market share. We have accelerated our digital transformation across the company by leveraging the capabilities we have built at Hills and in China and other developed markets to lead e-commerce in our markets where this important growth channel is underdeveloped. And crucially, in this operating environment, our revenue growth management tools are driving positive pricing and mixes our efforts to offset the significant raw material and logistics inflation we are seeing, along with the productivity and our ability to improve our price mix, which will enable us to rebuild our gross margin moving forward. And looking at the quarter, the second quarter marked our 14th consecutive quarter with organic sales growth either in or above our long-term target range of 3% to 5%. And that growth is broad-based. We delivered organic sales growth in all six of our divisions. We delivered organic sales growth in all four of our categories, oral care, pet nutrition, personal care, and home care, with all four categories either in line with or above our long-term target range of 3% to 5%. As we discussed on the first quarter call, our execution on revenue growth management and premium innovation allowed us to deliver a 500 basis point sequential acceleration in pricing growth. Encouragingly, despite this pricing, our volume performance also improved sequentially in the quarter on both a one- and a two-year basis behind strong marketing plans, innovation, and improved supply chain performance. Our market share performance continues to improve with our global toothpaste and manual toothbrush share now up on a year-to-date basis. We continue to deliver on productivity with another strong quarter of funding the growth, which is vital to our plans to regain lost gross margin. As we enter the back half, we are just beginning to see early benefits from our 2022 global productivity initiative. Over the next 18 months, this program will help drive operating leverage. But we are still dealing with a very difficult cost environment. We now expect $1.3 billion in raw material and packaging inflation, with higher logistics costs as well. Foreign exchange has become a bigger headwind since our first quarter earnings release. The euro has moved to parity with the dollar and most other currencies have weakened as well. But we will continue to invest in our brands. Advertising spending was up on a dollar basis with continued shift to working from non-working and a higher focus on digital spending. We are investing our capital to drive future growth as well. We're building capacity to meet strong consumer demand particularly for hills, but also for other projects like our recyclable tube, which we continue to roll out across the globe. As we look to the balance of 2022 and into next year, we are focused on executing our strategies with the right innovation, brand support, revenue growth management, and capital plans to deliver on our long-term growth targets while we're working to rebuild our gross margins and deliver sustainable, profitable growth in all four of our categories.