Colgate-Palmolive Company

Third Quarter 2022 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now, for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Fauche.

Thanks, Alison. Good morning, and welcome to our 2022 Third 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 related prepared 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 provide you with his thoughts on our Q3 results and our 2022 outlook. We will then open it up for Q&A. Noel?

Thanks, John, and thanks to all of you for joining us this morning. We continue to execute our growth strategy as we deal with an operating environment that remains very volatile. In the third quarter, we delivered high single-digit organic sales growth with growth across every division. We also delivered growth in all four of our categories, including high single-digit growth in oral care, pet nutrition, and personal care. I know elasticities are a big topic of conversation this quarter. While our volumes were negatively impacted by retailer inventory reductions and Hill's supply chain constraints in the quarter, underlying elasticities remained in line with our expectations and we would expect volume performance to improve sequentially in the fourth quarter as these headwinds abate. We delivered strong pricing growth through revenue growth management and healthy productivity through funding the growth and the initial benefits of our 2022 Global Productivity Initiative. This helped us drive a sequential improvement in gross margin in the third quarter, despite further increases in raw material prices. The headwinds we face, whether from foreign exchange, raw packaging materials and logistics costs, or macroeconomic uncertainty are significant. But we believe we are well positioned to deal with these issues. We have taken the difficult steps necessary to meet these challenges head on through pricing, productivity, capital deployment, and other actions. These actions leave us well positioned to benefit when our markets stabilize. The first reason is our portfolio. We have a focused portfolio of leading brands in growing categories competing across multiple price tiers. Consumers use the vast majority of our products every day when they shower, when they clean their homes, when they feed their pets, and hopefully when they brush their teeth after every meal. We believe this high frequency of usage combined with the strength of our brands help with our elasticity despite significant pricing. This has been particularly true in oral care. And our categories generally have low private label market shares compared to many other HPC categories where we don't compete. Consumers look to trusted brands to provide value, and we have built brands over time that deliver value to our customers and our consumers, particularly given our breadth of offerings across price tiers, from entry-level to ultra-premium. And our professional recommendation model in several of our largest categories also helps to provide added value and differentiation to consumers, which builds brand loyalty. And we have high market shares with number one or number two positions in many of our key segments across all four of our categories. We're also well positioned because we are building capabilities and then scaling them across the company in order to drive growth, both now and in the future. Our most important capabilities are focused on science-led innovation. Particularly in a time when there is so much pricing in our categories, it is vital to add consumer-identifiable value. You can see our progress here on brands like Colgate Optic White, Hills Prescription Diet, Elta MD, and many others. It is also helping to drive improvements in our market share trends. I spent a lot of time at Barclays talking about our digital transformation. an area that is impacting every facet of our business, our e-commerce performance, the ROI of our advertising, a digital-driven supply chain, the use of AI in new product development, and even how we're doing our training around the world. Revenue growth management is another capability we are scaling across the organization. We are putting the full force and effort of our data and analytics team into our RGM planning. We believe this is also helping us to make RGM's decisions to help to lessen the impact of elasticities. So as we head into the Q&A, I want to reiterate that our strategy is working. And through an environment that remains uncertain and volatile, we believe we are well positioned with strong brands, scaling capabilities, and most importantly, great people. So I'll turn it over to the Q&A now.