Colgate-Palmolive Company

2023 Second Quarter 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 Executive Vice President, M&A, John Poche.

Thank you, Allison. Good morning, and welcome to our second quarter 2023 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 Q2 2023 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2022 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website for 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 4, 6, 7, 8, and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the Q2 2023 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 some thoughts on our Q2 results and our 2023 outlook, and we will then open it up for Q&A.

Noel? Well, thanks, John, and good morning, everyone. So a few quick thoughts this morning on our strong quarter of top and bottom line growth, and clearly along with the improved 2023 outlook we provided. On the first quarter call, you'll recall I highlighted three priorities for the year, driving organic sales growth as we face tougher comparisons, executing on productivity and revenue growth management to fund brand investment while also delivering on our earnings targets, and improving our cash flow performance. But not without its challenges, in Q2 we made strong progress on all three of these. On organic sales growth, Q2 showed the strength of our global portfolio as we delivered our strongest quarterly growth on a two-year stack basis since Q3 2008, with both organic volume and pricing growth accelerating on a two-year stack basis. We delivered organic sales growth in all six divisions, and each of our categories grew in the mid-single digits or higher. We are laser-focused on returning to balanced organic sales growth, and we believe the investments we are making, combined with easier comparisons, give us a path to improved volume growth going forward as we leverage increased brand support and innovation while still delivering profit growth. The strength of our revenue growth management efforts combined with our progress on funding the growth drove improvement in our gross margin, both sequentially and year over year. Our base business SG&A was down 30 basis points in the quarter, a strong sales growth, lowered logistics costs, and the benefits of our 2022 Global Productivity Initiative drove operating leverage even as we increased advertising spending by 20%. Combined with our gross margin expansion, we delivered 60 basis points of operating margin expansion in the quarter. This enabled us to deliver upside versus expectations in the quarter despite continued pressure from below the line items, including the impact of higher interest rates and tax. As you've heard me say, it's this virtuous combination of growth-driven leverage, revenue growth management, cost containment, and productivity to drive investments in capabilities and brand building which drove the strong quality of this quarter's results. We believe it also lays the groundwork for our performance across the balance of the year and into the future. And finally, our strong cash flow performance continued in the quarter, which is helping us offset some of these below-the-line headwinds. Free cash flow was up more than 50% in the quarter and is up more than 80% year-to-date through net income growth and improved working capital performance, and pleasingly, particularly in inventories and payables. So I'm pleased with how we started the year, but I'm also well aware of the challenges and uncertainty ahead of us. Our goal is to deliver consistent, high-quality, compounded top- and bottom-line growth to drive shareholder value. And I believe Colgate-Palmolive has the brands, the global footprint, and the people to deliver. So with that, I'll turn it over to the Q&A. Thank you.