Q3 2019 Earnings Call

Please standby we're about to begin.

Good day and welcome to todays Colgate Palmolive Company third quarter 2019 earnings conference call. This.

This call is being recorded and is being simulcast live at Www dot.

<unk> Palmolive Dot com.

Now for opening remarks, I would like to turn the call over to the senior Vice President.

Mr Relations John So Shane Please go ahead John .

Thanks, Paul.

Good morning, welcome to our third quarter earnings release Conference call. This is John O'shea Senior Vice President for Investor Relations.

Today's conference call will include forward looking statements.

Actual results could differ materially going these days.

Please refer to the earnings press release, and our most recent filings with the FCC, including our 2018 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 and able to beat and nine 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 this morning, and all wallets, President and Chief Executive Officer in any Jochumsen Chief Financial Officer.

I will begin with some thoughts on our performance before discussing our updated 2019 guidance.

Well then open it up for Nols QNX fashion.

The third quarter marked a further staffing our plan to return to sustainable organic sales growth.

Throughout 2019, we have focused on innovating around the core of our business driving growth in adjacent segments.

Expanding our availability in faster growth markets in channel.

Along with higher levels of consumer facing spending these strategies are paying off in broad based growth across our businesses.

Q3 marked the third quarter in a row, where we delivered a combination.

But volume and pricing growth on an organic basis.

Volume was up in every division and pricing was positive in every division except for one.

Our revenue growth management strategies are driving pricing growth as we focus on premium innovation.

On a geographic basis, we saw organic sales growth and vital Arssix division.

Importantly, we.

Returned to organic sales growth in Asia Pacific, including delivering organic sales growth in greater China region.

We grew up with a combination of developed market growth, plus 3.5% and emerging markets Grad plus 6%.

And from a category standpoint, we again delivered organic sales growth across all four of our businesses oral.

Their personal care home care and penetration.

In order to drive this growth, we continue to invest behind her business.

Total advertising spending was up nicely in the quarter.

I think though I would point to hills word significant increase in spending over the past few years behind our purpose driven marketing it's been a key driver of the organic sales growth.

We were.

Im pleased to close the Florida transaction on September 19, continuing expansion of our personal care portfolio into skin health.

Although we point out the floors results from the acquisition date through quarter end were immaterial to our results of operations and were not included in our Q3 results.

Well I'm sustainability front, we received recognition.

From the Dow Jones worldwide sustainability index, taking the lead in our industry sector for the first time.

Back in September and oldest gastar, new recycle toothpaste too.

We're currently in production and it will be on shelf under the times brand in November .

Moving to our Q3 results our net sales grew 2% in the quarter.

We delivered 4.5% organic sales growth with 3% unit volume growth and 1.5% favorable pricing.

This was partially offset by foreign exchange impact at minus 2.5%.

On a GAAP basis, our gross margin with even with Q3 2018.

Well it any impact of our global growth and efficiency program.

He was down 20 basis points year over year.

Pricing was a positive 70 basis point impact to gross margin in the third quarter, while our productivity programs drove a 240 basis point benefit.

This was offset by 310 basis point drag from raw material inflation, which included foreign trend foreign exchange transaction.

Oh.

Other primarily mix was unfavorable by 20 basis points.

Our stronger growth in emerging markets relative to our developed markets business put some slight pressure on our krestmark.

On an absolute basis advertising investment was up 7% year over year.

On a percentage of sales basis advertising was up 50 basis points year over year.

Excluding charges, resulting from our global great and efficiency program and advertising spending our XT eight and a expenses were up year over year in that quarter on an absolute basis, but down at the present to sales because we were able to offset higher compensation and other cost savings from our productivity programs.

On a GAAP basis diluted earnings per.

Chair of 67 cents were up 12% year over year in Q3.

Excluding charges, resulting from our global growth and efficiency program in 2019 and 2018.

Acquisition costs in 2019, and a charge related to U.S. taxi, forming 2018 diluted earnings per share were down 1.5% to 71 cents.

Our free cash flow through the first nine months in 2019 was 1.9 billion, which was up 3% versus prior year.

Taking a quick look at the divisions.

North American net sales grew 1.5% in the quarter, driven by 1% pricing growth in 0.5% volume growth.

There was no FX impact in the core.

And then e-commerce , where we continue to see strong share growth and other non measured channels was partially offset by declines in food retail.

We also remain very pleased with the performance of our skin health businesses held to N D in PC skin.

Our focus in North America continues to be on the Premiumization of our oral care portfolio through innovation.

Colgate total less apt and Colgate optic white drug pricing growth in the quarter and we have further innovation to calm in the next few quarters, particularly on optic white.

You are posted a 5% declining net sales with organic sales flat in foreign exchange minus 5%.

Growth in northern Europe behind the relaunch of Colgate total and our whitening brands with.

Offset by weakness in Western Europe , where the retail environment continues to be difficult.

As with North America, we expect significant premium innovation to drive improved price mix going forward.

Calendar natural innovation in the first half of 20 Twond.

Latin American net sales were up 3% that's four point.

5% volumes and 3.5% pricing were only partially offset by 5% negative foreign exchange.

Our 8% organic sales growth was broad based because we saw organic sales growth in every hub for the third quarter in a row.

While Brazil benefited from a year ago comparison, which included some impact from the truckers strike.

The underlying business remain solid and pricing was up nicely driven by premium products like Protex face and Colgate total 12.

Net sales in Asia Pacific were up 2.5%.

Volume growth was 2% pricing grew 1%, while foreign exchange was minus 0.5%.

Organic sales growth.

With a 3% was our first positive result in six quarters.

Importantly, we delivered organic sales growth into greater China region in the quarter driven by improvements in both volume and pricing.

Well they try to improvement in the third quarter was ahead of our expectations. We remain laser focused on executing our plan to return the business to sustainable.

Total gross through improved go to market capabilities, China specific innovation and improve brand marketing.

Asia Pacific growth was led by toothpaste particular, naturals portfolio and Colgate anti cavity toothpaste.

The after Eurasia Division delivered 5% net sales growth in the quarter. Its best result in.

Several years.

Organic sales growth of 6% consisted of 4% pricing grid and 2% organic volume growth.

FX was a 2% drag on net sales growth, while our newly established joint venture in Nigeria was a 1% benefit to net sales and binder.

Your organic sales growth in Africa Eurasia was.

Consistent across all hogs, and we're particularly pleased with our strong performance in your raised during the quarter, we're focused on faster growth channels like discounters is paying off.

Well I mentioned on our pet food business continued in Q3, it kills deliver an 8.5% net sales growth and 10% organic sales growth.

Hills is six point.

5% volume growth was their best result, since 2006.

Our team was positive and 3.5%.

While foreign exchange was negative it might it at minus 1.5%.

Our core innovation strategy continues to deliver robust growth in North America and is now beginning to pay off internationally as we roll out the science.

Relaunch around the globe.

In August Hills partnered on NBC Universal annual cleared the shelter pet adoption campaign in the U.S.

This year's campaign with its most successful ever with over 160000 pads adopted over the course of the campaign, an increase of 57% versus last year's program.

Ill turn it over.

Over 9000 displays which helped drive the strong U.S. volume growth in the core.

Moving on to guidance.

We continue to expect net sales to be flat to up low single digits.

We have raised our organic sales growth target, two plus 3% to 4% with the full year growth rate roughly in line with year to date growth.

We now expect.

Our full year gross margin to be down slightly on both the GAAP basis and excluding the I just referenced in the earnings press release.

We do expect gross margin to be up year over year on both the GAAP and non-GAAP basis in the fourth quarter.

We would expect advertising as a percent the sale to the full year to be fairly consistent with year to date level.

We.

We now expect our full year 2019 tax rate to be between 24% in 24.5%.

But on a GAAP basis, and excluding the items referenced in the earnings press release.

Our previous guidance was for 25% to 26%.

This change, including the recent reduction in corporate taxes in India.

As mentioned on the Q2.

You call, we will moderate our share repurchase activity for the next several quarters in order to return to a leverage ratio more in line with our ratio before the Florida transaction.

Based on current spot rates, we expect to GAAP earnings per share to be down low single digits for the year.

Excluding the I just referenced in the earnings press release, we still expect earnings.

For share to declined mid single digits for the year.

And with that I'll turn it over to know for the QNX.

Paula.

Today's question and answer session will be conducted electronically for the telephone audience. If you would like to ask a question you may do so pressing the star or as tricky followed by the did.

<unk>.

On your Touchtone telephone.

We also asked that if you're listening to the conference on the Internet that you. Please turn down the volume on your computer speakers when asking question.

Once again, if you would like to ask a question press star one.

First of all go to.

Strikes <unk> would you be yes.

Hi, good morning [noise].

So I know.

Question on the gross margin in for John as well, how do we think about what caused the what caused the weakness in Q3 and gross margins sequentially from the last quarter and what changes if anything to drive deposit.

And in Q4 and into next year. Thank you.

Sure. Thanks, Jade I. So yeah, we're disappointed with the gross margin in the third quarter, a couple of things that happened that that we weren't expecting obviously the sales mix as John outlined well with more growth coming with emerging markets.

Soften the impact on the margin line.

This.

Significant growth we saw in the health business, which quite frankly was extraordinary we're very pleased about that obviously the mix more toward science diet versus prescription diet, obviously compressed the margin a bad raw materials are slightly worse than we were expecting as we went through the quarter as was foreign exchange slightly worse than we were expecting as we went into quarter. So overall a couple of.

Prices that came through.

Focused on the Premiumization, we're focused on accelerating funding the growth through the back half through the fourth quarter excuse me.

And obviously getting the mix right across a across the regions and that's where we'll we'll focus our attention going into fourth quarter. So we're confident we'll see fourth quarter margins rebound as we finish out the year.

Sure.

Next we'll go to Lauren Lieberman with Barclays.

Thank you.

I'm just curious if you could talk a little that trend in in North America, and I know Nielsen data currently does not tell the full picture of your oral care business, but then seeing their results this quarter it feels like.

It's still very.

More price makes have even volume has he said he can talk a little bit about how that total relaunches is progressing what you're now seeing in terms of repeat.

And if it you know maybe a thought that the pricing has gone up possibly a little bit a little bit too far on that brand. Thanks.

Thanks, a lot and yeah, let me talk.

Broadly on Colgate total obviously, we're really pleased with the relaunch our shares are up on a global basis versus where they were pre launch as you know we took a 10% price increase on that business globally.

Particularly as it relates to the U.S., we took a 20% price increase on that business. There's been some elasticities that we've seen come through where our shares down about two weekends.

So but share point versus where we were before we started the relaunch a little bit disappointed we expected it to be flat to up we're in niche Mitch that looking at our messaging to ensure we get that corrected as we continue to accelerate investment behind that business moving forward, but please given the significance of the price increase that were slightly down but more important we'd like to see that turn.

And as we get some of the go to market and some of the marketing plans.

More sharpened a in the balance of the year a globally pleased as I mentioned.

That we've gotten a 10% increasing we're growing share is there a little progress for said and we'll continue to put the investment behind that business as we move through the balance of this year and into the first half.

The next year, it's consistent with our with our strategy to get the core business is moving and well look to relaunch. Some other core businesses in 2020 won't start to outline that as we move into the into the first quarter press release somebody excitement that we have on some of the innovation coming down that they will come with more pricing as we as you would expect and.

Our Premiumization is all in all I think we're pleased with Colgate total overall the U.S. wasn't was a bump. This this quarter for sure we were expecting a little bit more it's been a tough promotional environment in the U.S. or other channels non tracked channels continue to do well, but not as well as they we had in the second quarter, so get lumpy in that regard.

We're very focused in the U.S., specifically on premium innovation and getting that right as we move into 2020, our revenue goes management principles that we're starting to embed across the entire commercial organization, we see the discipline coming behind that and we're quite optimistic that well see gross margins continued prudent between moves through the balance of 20.

28, and we'll see the shares come back as we start to put the premiumization strategy in place.

Moving on we'll go to Steve powers with Deutsche Bank.

Yes, thanks, so tremendous some top line performance in pet again this quarter I guess the question for me is how does that compare to how did that compare to your.

Your plan coming in and how does that influence your thinking if at all going forward. It's really diddley. When do you think you might see more of a profit in flux in that business commensurate with the topline momentum.

And then you know if I could talk on a follow on to Steve's to cool his question.

That's the open.

And I hear you.

The puts and takes on gross margin in the quarter, but just as a follow up on that how might this quarter influencers thinking about realistic gross margin objectives looking into 2020, because I'm. Just wondering on team represents I think the fourth time at about 4005 years that colgate's come into a you're targeting material gross margin improvement only to finish.

Effectively flattish or down on the year and I get the macro pressures, but I also see there's a there's a recurring trends so just.

How do you protect against being kind of overreaching again in 2020, and and having to of course correct midyear. Thanks.

Thanks, Steve Let me get addressed.

Hills first obviously, an extraordinary quarter for the Hill's business.

The science diet relaunch.

Which is largely driven by the U.S. right now we're in the midst of rolling that out through the rest of the world. So we're quite excited about what that will bring.

Moving forward, but the U.S. had just an exceptional quarter, particularly behind science diet.

I think everything that we've been talking.

About in terms of driving the core increasing the advertising getting the pricing right on that business getting to go to market and new channel distribution right. In fact, we were up 14% in farm and feed in the quarter and that just just as a result of increased focus on some of these emerging channels. Our ecommerce shares grew eight tenths of a sharepoint dark pet specialty.

<unk> share grew eight tenths of a share points to all of this bodes well for sustainable growth moving forward. We see the continued growth in the pet category prescription diet has a significant amount of innovation coming in 2020, and well see that continued to play through through the business that all but she plays out in a much higher margin for the business or the gross.

We will improve as we can afford we were surprised the bed again on the gross margin and the raw material increases that we saw on vitamins and other agricultural products in the quarter.

The business is taking price increases at the beginning of the quarter behind both the science diet business and the prescription diet business in order to recover that and bill gross margins moving forward So odd hills.

I'm very pleased though it's sustainable it's broad based and we've got the good news coming in in terms of international expansion of SD and some good innovation coming on prescription diet is all all bodes well there.

On your margin question, you know, obviously coming back to the core of our strategy, which is driving the core businesses with price increases in innovation.

Getting adjacency right. Obviously, we're very pleased with how the portfolio shaping up around skin health and the significant margin accretion over the long term that will bring to our business into growth that will bring to our business. The adjacent segments that were going into particularly around a products with natural ingredients, particularly around.

Sensitivity and gum around the world will bode well channel expansion into pharmacies, where we under index. Likewise, we have significant expansion opportunities in that channel, which will drive improved gross margin moving forward. So listen we're disappointed we know our history has been about consistent gross margin improvement we are laser focused.

On delivering the productivity through the personnel to make that happen moving forward and I think as you see the topline continued to grow which we've been focused on throughout this year, you're going to see the gross margins come behind that is going through 220 20.

And Jason English with Goldman.

Sats has our next question.

Hey, good morning folks thanks for so I mean I appreciate it.

And to build off of both of those points real quick on on Pat you I see your your incredibly strong numbers and congrats on that I also see nicely strong numbers not its legacy premium brand.

The U.S. it does beg the question of whether or not we're seeing a broader market movement.

Pivoting back away from grain free to some of the products, you're offering and nestle's offerings, well I'd love. It if you could comment on that particularly in the wake of so those DCM concerns out there and then coming back to gross margin real quick.

I hear you on the.

Opponents, but I'm I'm, Nonetheless, really surprised when we delve into North America, and see 220 basis points. So gross margin compression despite sort of an easy comp me a sequentially your margins eroded a lot more in that market inflation pressure stepped up a lot, which seems to defy the broader cost curves were looking and frankly it leaves me.

EBIT confounded and I love It if you could delve deeper there and just just a ILLUMENATE what's happening there and so we can better understanding.

Oh sure again, let me take the Hills question first obviously DCM has had an impact I mean, I think there has been a return.

Particularly to products like ours, which are very shy in space then there's tremendous.

Trust that we built over the years behind our brand and as John mentioned.

Really moving a lot more advertising through our purpose driven advertising I think has created great credibility in resonance with begins with the consumer and the pet owners and you've seen that translate into growth. Obviously, you know, we're very premium priced the broader market.

Which is obviously you see some of the competitors move into grocery. We think that's also afford an opportunity for us to continue to differentiate yourself, which I think talks to more long term sustainability for that business moving forward and the innovation pipeline as I mentioned this is rich and robust and a their bold on the pricing. So I expect that business will continue to be a.

Performed very well for us not especially specifically on North American margins, obviously, a very disappointed with what happened in the quarter, both volume and pricing was a little below our expectations next worked <unk> worked really well against us in the quarter. Both on a chat on the channel standpoint from a sizing standpoint from a category standpoint, So we had all three movies.

Against us in the quarter and we need to address that the team has put plans in place for the fourth quarter to get that turned around and ensuring as we move into the budget plans for 2020 that we addressed that manufacturing cost likewise were a little bit higher that was a surprise, we're all over that and we'll address that as we move into 2020, we expect Q4 to be up in north.

Okay.

There will be a since continued headwinds as we get the channels and the sizes. The sorted out in terms of where we see the business. The likewise, we think a as we've seen across the total business that we'll see margins improve in the fourth quarter. The other areas you are seeing lift on promotion not delivering what we expected obviously, you slightly more competitive environment, where some of the.

Other brands in the category and I think as we continued to accelerate our spending particularly in digital where we can gain I believe in advantage, we're going to see that Oh, we translate back to bigger brands growing faster. So those are the components were on it we're not pleased at all with it.

Likewise as we go.

Into North America, as we continue to accelerate the skin business that will bode well for margins over the longer term.

Moving on we'll go to Wendy Nicholson of Citi.

Hi, just just following up on that first on the skin care business, you know you've got three acquisitions it sounds like.

Like you're pleased with each of them that sounds like to each kind of fell a different niche, but but can you comment on sort of any further appetite. There do you feel like you kind of our where you want to be in skin with those three different businesses, but then my bigger question. So that's really just a follow on my bigger question. If you talked about on maybe expanding.

Sort of relaunch.

And you should have a program like you have a total unhealthy sheer into some new categories next year. So bottom line I'm wondering well operating margin go up next year I care less about gross margin I care more about how much you plan to spend on marketing. Thank you.

Thanks, Wendy Yang on your on your second question we're.

And the guide yet on 2020 as we get into the first quarter. We will give you a deep transparency in terms of how we're thinking about.

Margins and operating margins, but overall, if you take out where we've been historically I think you can interpret that we would obviously like to see all those moving into right direction I specifically on.

On the skin care.

As you said, we're really pleased I I just returned from a a two week trip around the world needing what's in the floor got people walking them into the Colgate family, both in Europe , and in China, and I was deeply excited from what I saw from a quality of talent standpoint from the plans.

They haven't place from the growth are delivering and the significant gross margins are that they have on those businesses. The plans are solid they're focused in terms areas that we believe we can went in and where they believe they can win on the Florida business. So I'm pleased to not trying to stretch themselves into different areas, they're very focused on the pharmacy.

Channel the very focused on online and obviously building their travel retail business out would show, which is exciting on Elton and appreciate again terrific growth in the quarter for Fourq for the business and we're now looking at the 2020 plants in terms of how we want to expand those businesses, which will be exciting obviously the margins.

Allow us to have a lot more flexibility as we move forward and the growth in the category. That's terrific. So overall, we're quite pleased with what we have I'd never say never but our focus is to continue to accelerate the growth on those businesses from a topline and bottomline standpoint.

Next we'll go to Robert.

And Stein with Evercore ISI.

Great. Thank you very much I was wondering if we can return to to oral care. Ah. You. You mentioned that you were very pleased with the Colgate total relaunch I was wondering first if you can give us a sense of how much kind of global sales are up for that.

Franchise.

And then perhaps go into little bit more detail globally on how you're doing with therapeutics.

You know, how our Elmex Emeril Dol doing what markets are they been gaining traction in and maybe maybe how much those are up and then touch on naturals.

You know, particularly in the.

And in countries that you know there have been issues and opportunities in China, Russia and India.

Thank you.

Yes, we won't comment specifically on the the sales numbers I will tell you that the toothpaste organic growth in the quarter was the highest we've had in six quarters, which is terrific for us.

So the growth obviously accelerate as we roll total across Latin America.

Mexico, and Brazil, our two largest markets. We've had significant success on the rollout of Colgate total in those markets our premium share of the toothpaste segment in both Mexico, and Brazil is up.

The shares on the Colgate total in Brazil are up about.

At a point and a half in Mexico about half a point so they look terrific and driving obviously more of our business into the premium space.

Overall, the the shares but the good on Colgate total and we're pleased with what we're seeing a relative to the second part of your your question on pricing.

The pricing I can't remember.

You asked me Robert.

On this and Elmex married on that also on the now trends here. Thank you yeah Elmex as you heard a previously we launched it in <unk> and Latin America, <unk>, specifically in Brazil that business is doing well, we launched it in the pharmacy channel a across both toothpaste toothbrushes and.

Mouthwash is seeing great growth on toothpaste in really good growth on toothbrushes mouthwash has been a bit soft I. Likewise, we launched in China online that we generated about a six tenths of a share point in China on that business, which given the number of brands online that is a that is a good result for us.

And though we launched it in the Naamit region, Northern Africa region, and that continues to do well.

Other area was in Turkey law with Merit, all which I think we talked about little bit in the second quarter call. How pleased we are with the performance of that business in Turkey that it's taken us taking the business to market leadership with the success we've had behind both.

Merit doll and Colgate. So overall, we're pleased with that and we're in the midst of thinking about the key markets will expand in 2020.

Next we'll go to Ali Dibadj with Bernstein.

Hi, guys. So I just have one kind of broad question, taking a step back a little bit and we see kind of among your peers that you're kind of the anomaly with a little bit of difficulty certainly relative difficulty taking pricing, particularly with such a big innovation rollout with total and commodities.

Yeah.

Should have been allowing you to take prices up.

It was tougher for you than others why do you think that is is there, particularly lead different cadre competitive dynamic.

For example, a sensodyne parent company gone public next couple of years and I guess, the later to that you've in the past been pretty adamant about saying that.

You are investing enough and 2019 is kind of a one year reinvestment year, rather than a multiyear investment here that does anything you've seen so far.

Again, the cat carried competitive dynamic the ROI did gun on the promotional spend you mentioned a moment ago anything at all that gives you pause on the.

And previously that this isn't a multiyear reinvestment phase for Colgate and I guess underlying that whether you're gonna have to increase reinvestment even further into 2020. Thanks.

So let me kick the pricing.

A question first dollar we're really pleased with the pricing on a a you know we've had on the for two year stack we've had up.

Four quarters, a sequential growth on pricing or so it looks terrific force and I think in an environment that we compete in today, a which is certainly very competitive around the world to get that pricing through not only a colgate total but across our franchise is it's terrific.

Focusing on the core business, bringing real value to consumers into the trade.

And delivering increased prices do that we believe is working and that will be the continued strategy moving forward on your second point on advertising and investment listen we need to continue invest behind our business and we need to continue to accelerate share growth across the world. We've got a a robust pipeline of innovation coming we're going to continue to support that we've got.

Core relaunches coming that will support, but obviously getting the gross margin going and a continued productivity across the PML is where our we're laser focused on right now and that's how we'll construct the personnel for 2020 in terms of how we look at using operating margin both from a gross margin and then and B O standpoint to help fund.

The advertising that will need to drive the topline.

Moving on we'll go to Olivia Tong with Bank of America.

Great. Thanks. Good morning, first just on the optic White innovation North America, I would imagine that that's smaller than the total relaunch. So can you talk about other things that you're.

Linda can do in the market to help.

Offset the.

The higher base.

And then just a follow up on the advertising you've been you.

You've been increasing advertising spend for four consecutive quarters now organic growth has been steadily improving but.

Like.

Where or how are you going to improve return on your spend because you have some marketing brands that have really kicking off I killed and you said you were going to improve in China and you did but then north American growth is now decelerate so.

It is there need to potentially increase investment even more aggressively from here or what's going to improve the.

Rely on that thank you.

Sure. Thanks, Libya, so on the North America questioned a they've got a great pipeline behind optic white in terms of some innovation coming.

What you will include Premiumization as you can imagine a that likewise, a well be looking at premiumization around the world on optic White in fact, Oh, we have introduced.

Hey, 20 pound toothpaste behind the optic white and UK I could give you a sense of the boldness of how we're thinking about some of the premiumization strategies. Likewise, when you take the trend towards natural ingredients in the U.S.

You'll see a expansions across the Colgate portfolio was obviously a step up on our Tom's of Maine.

Business as well, which we think will be important in terms of driving more premiumization in the North America business and driving more share growth.

Relative to two pricing and what we need and advertising around the world listen let me come back to revenue growth management, and how we're trying to embed that across across the world across the commercial.

As Asian, we've talked about it a bit but as I travel I'm getting more encouraged by the fact that it's taking on deep commercial ownership. So historically, we would take pricing.

And the director for that came out of the marketing organization now, we're taking AARGM across the entire commercial enterprise and holding I wouldn't want accountable for delivering.

Seen opportunities moving forward not just the marketing calc. So this is gonna be shared responsibility to really go after how we drive A.S.P., which will ultimately bode well I think for the margin and the spending that will need around the world to continue to fund the opportunities that we have so.

On the advertising and the night.

The piano dynamics are 2020, well come back to you in the first quarter and give you a lot more clarity on how we're thinking about things. The return on investment, we'll see really coming through as we continue to focus on these big core businesses, which we need to get turned around and that's where we're going to get the best return on investment putting a lot more support behind data analytics and particularly in the.

A little space, where we have the ability to really colt cultivate learning in terms of what's working what's not and that will obviously improve our lives when Newport.

And Kevin Grundy with Jefferies has our next question.

Great. Thanks, Good morning, guys [noise].

No question on the North America, and specifically the competitive environment currently and looking forward. So in the context overall, there's a consensus view that industry participants had been relatively rational from a pricing and promotion perspective over the past 12 months with pricing that was put into place before but as the industry starts to cycle this pricing and with commodity headwinds now.

Saunderson, they've been be great to get your updated thoughts on the promotional environment and specifically the potential for competitive intensity to pick up here potentially detachment of the profit pool. So any thoughts there would be helpful. Thank you.

Sure Kevin Thanks, Yeah, I think that environment's been more rational to be sure around the world, particularly North America I would say the one exception wouldn't be Brazil.

All where we've seen some some odd pricing some of the categories. It just doesn't make any sense.

But specifically as it relates to North America, we've seen obviously.

A lot of our competitors working together with the trade everyone is looking to drive category value and that's what we need to do we need to ensure their innovation is premium we need to ensure that does that is.

Driving category dollars.

And that's where a everyone wins in that regard that we've seen certainly over the last six months to nine months' say up a little bit pick up in some of the smaller branch of the trade picking up or some of those and pushing knows but in the long term. My view is the big brands as they get more of dialed in on.

All they get more dialed in on how they do.

Data driven marketing, you'll see opportunities for the big brands to continue to increase the residents and they relate ability that we have with consumers and that's what's key as we compete against some of these smaller brands. So overall, a rational competitive environment, a little bit more competition from smaller brands are you seeing.

The promotional lifts not as high as they used to be at but I don't see sales on promotion, increasing which is a good news. So we need to get the innovation right in the Premiumization right in North America, and will or will be offered races.

Moving on we'll go to Bill Chappell with Suntrust.

[noise].

Thanks, Good morning.

Just a little bit follow up on Mexico in particular, but but all of letting them. We've certainly heard from.

So most of your peers multinationals that there's some slowing there and so I guess.

Maybe what you're seeing a for the key market and then also.

Your ability to us.

In line with all the rest of the questions today take price as we go into next year without a mine.

Sure.

So let me take the two big markets, Brazil, and Mexico take Brazil, first Brazil, obviously up versus where we were last year, a little slow down in the third quarter, but the consumer.

Continues to be a pretty robust there.

Our business was up double digits in the third quarter, obviously, a slightly easier comp versus where we were with the trucker strike, which partially hit us in the third and the third quarter last year.

But again as I look at Brazil, and quite frankly, Latin America, good pricing good volume following good.

Pricing that we took in the second quarter of 20, a 19. So after aggressive pricing we saw volume come back very nicely across the region and we think that really bodes well for the <unk> underlying health of Latin America.

Specifically, Brazil looked pretty good Mexico on the other had a little softer.

We saw little softness in in the quarter versus.

What we've seen in the first half of the year I think there's some uncertainty in terms of a political and economic me where things are going there. Our strategy is the same we're focused on premiumization as I mentioned earlier, the total business is performing exceptionally well in that market.

We're pushing naturals natural ingredients into the portfolio as well we've seen that it is.

Significant A.S.P. premium to the market I, we're pushing sensitivity in that market seems a nice growth on that as well. So overall, it's it's a premiumization strategy across the region, but as we see some of the market slowed specifically, Mexico will dial that up.

Next well go to Andre this year.

With JP Morgan.

Oh, hi, Thank you for squeezing me in it you can speak a little bit on Asia Pac. Its it showed the sequential improvement on the headline but not in a two year stack, but particularly on the volumes I think you kind of Ah you know you flagged into volumes there in New York.

Right it.

Is that related to the can we read into the a that China de stocking and improvement that you called about you know into second half is that how he sees that according to plan anything you'd call out China Asia Pac in particular, thank you.

Sure. Thanks.

Oh, Yeah. We're pleased obviously is as John mentioned with Asia, It's a little has our expectations.

We saw growth across every one of our hubs. It was broad based and a strong in terms of volume and price and we feel that the momentum we have across age. It will continue what would the particular call out was China.

Obviously a journey.

To get here and we feel the strategies, we put in place in terms of I'll go to market changes our portfolio changes, how we're working across the different retail environments are particularly online and the structural changes that we made in that organization all starting to pay off as we saw China deliver rich first a positive organic sense that.

Q4 of 17, so again, it's been a a while to get there, but we feel we're in a very good place and we'll continue to see that growth.

Accelerate as we move into the fourth quarter and as we look at the 2020 plans or we would certainly hope to see that business continuing to grow a we realized that Oh I love our competitors are getting significant growth out of China.

So this bodes well that we continue to see our business accelerate and the strategies that we put in place starting to work.

Moving on will go to Mark Astrakhan with Stifel.

Thanks, and good morning, everybody up to one of my questions. I guess, one is just on hills, maybe talk about.

How you're thinking about sustainability, maybe was there any.

And if it from incremental channel fill from from some of the new product launches in the U.S. in particular, and just kind of how you're thinking about that and then back to gross margin I guess.

I'm, a little surprised youre surprised.

At.

What what happened in the quarter, you talked about taking pricing on hills early in the quarter. So you had some idea there. It seems that there was going to be some pressure North America was the category that her the geography that had the most pressure in kind of in your backyard. So when we were on the phone at the end of July I mean, how much of this did you know at that point and what kind of.

As ability then do you have at this point to tell us that you expect improvement in Fourq, you and going forward.

So let me talk about the the sustainability Hill's business. First then we'll talk about pricing and margins again, obviously on hills that business is hitting on all cylinders right now.

They're expanding our presence in store I think because the trade cheese.

The sale instead, the brand and how important it is to consumers in terms of how we're positioning them the brand itself in the messaging in the benefits that come with that.

The pricing is stuck on the pricing you mentioned.

Mark I was not in the second quarter, we've just taken pricing in the fourth.

Order so at the end of September . We took addition around the pricing on that both our Hill's science diet business as well as the prescription diet business. So that will that will hit us more in the fourth quarters, we see that the benefits of that coming through the P. and now we're in the midst of rolling out the science diet business globally, or where we started a in Latin America.

It's moving at the age in Japan.

As well as Europe , and we've seen early indications are like we've seen in U.S., so that bodes well for the sustainability of that business moving forward. What I also mentioned earlier is that we have really dialed up our innovation and are focused on the prescription diet part of the business.

Which is you'll see start to see those.

Hands unfold and 2020 and well, we're certainly confident that that business is going to continue to drive a good results. Obviously the quarter was exceptional I'm not suggesting we're gonna see double digit growth or in the fourth quarter or 2020, but we'll see it good strong growth as well as margin expansion as we move into 20.

Hey, listen on the on the mix issue with their surprise for us or Mark. We you know if you look back historically, we've always had positive or no impact on mix relative to our business. We saw some geographic issues. We saw some category issues in the quarter and we didn't anticipate that as we moved in its moved to the second quarter discussion.

As we moved ended the quarter it looked fine as we went through the balance of the quarter. It got a little bit more challenging and so we're on that we're addressing that had the right discussions with the teams are moving forward, we obviously a little bit more FX that came through the PML than expected as well that was a surprise to us we were all hopeful that given the strong.

No FX hits that we had last year that we'd see a more benign environment that picked up in the quarter. The good news is that's drop back and we see spot rates are coming back today, and we're hopeful that those spot rates will hold but the surprise there was both mix and FX and as I mentioned earlier, some of the raw and packing materials and we saw come.

The piano as well.

And I'd like to turn it back to our presenters for any additional or closing comments.

No. Thanks, a again I appreciate the questions. We're on the gross margin discussion 90 days a they went through the quarter, we'll get that address that moving forward.

Obviously, the topline sequential growth looks terrific for the business.

Yes, it's broad based across all of our categories.

As well as both emerging and developed markets.

As we look to the first first quarter, we'll come back to you is obviously a lot more specificity in terms of guidance for 2020 I. Let me again, thank God that 35000, Colgate people, who have worked so hard to deliver that sequential growth in.

Personnel, which looks terrific and we look forward to continue discussions as we are we moving into the fourth quarter and at first quarter call. Thanks, So much.

And that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.

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