Q1 2020 Earnings Call
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Ladies and gentlemen, you're currently on hold for today's conference call. At this time I must demonstrate audience and plan to get underway. Shortly BP sheet your patience and teams remain on the line.
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Good morning, welcome to Colgate Palmolive first quarter Twentytwenty earnings Conference call. This call is being recorded and if you thought Castlight Sww, Josh Colgate Palmolive Dotcom no for opening remarks projects.
During this quarter, which chief Investor Relations Dr. John Soichi. Please go ahead.
Thanks Mary.
Good morning, and welcome to our first quarter earnings release Conference call. This is John <unk>, Chief Investor Relations Officer.
Today's conference call will include forward looking statements.
Well results could differ materially somebody statements.
Please refer to the earnings press release, I know most recent filings with the FCC, including our 2019 annual report on form 10-K.
And subsequent SEC filings all available on colgate's website or 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 people six would be on suppressive.
A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release, that's available on Colgate's website.
Please note that starting today about the press release on the conference call. We are now using the term based business to refer to non-GAAP measures exclude certain items in both occurring in year ago parents.
Joining me on the call. This morning from their homes or no Wallace Chairman of the Board President and Chief Executive Officer, Anthony Dockets, and Chief Financial Officer.
It will start off with his thoughts on the current operating environment and how we're adapting to the uncertainty about covert 19 and Utah.
I will then discuss our Q1 performance and provide some context around twentytwenty before opening up for QNX.
Given the Big conference call schedule today requested you limit yourself to one question.
But as many people it's possible get to ask a question.
Further questions you're welcome to reenter the queue.
Now I'll turn it over to know.
Thanks, John and good morning, everyone first I hope that you and your families are safe and well under an easy Unprecedent times.
Obviously, we're operating in a difficult environment, and we expect things to stay difficult for some time.
Just one thing you should know about Colgate Palmolive in the 34000 people at the heart of our company read our best when times are difficult.
I want to thank all the Colgate people around the world. Many of them are listening to this call was killed enormous obstacles to keep our business running and to deliver the results that we reported today.
We drive in difficult times, because we were at the heart the local company with global brands, It strategies and best in class execution or locally based operating model financial discipline and sound balance sheet helped position called me to emerge from this crisis and even stronger company, we produce and sell products that people rely on every single day.
Keep themselves and their families, including their pets safe and healthy our responsibility to our employees our customers are consumers in our communities has never been greater we treat this responsibility with the utmost seriousness and intend to do our best for all of our stakeholders, including our shareholders that said despite strong.
In Q1 results, we've chosen to withdraw annual guidance for 2020. This was not an easy decision for US however, given the combined uncertainties around into future impact to covert 19 and government actions demonstrate the virus. We believe this is that correct choice is checking in third quarter effects of this prices do economic.
Stressed var supply chain retail partners and consumers are difficult to predict at this point, particularly as they are intertwined as we proceed to year, we hope to ride you've updated guidance when it proves feasible.
In that light I want to focus on what your man, how we're managing through the crisis to give you the context of what we're facing but also some confidence in how we are meeting this head on.
Discussed three topics.
I think true to our values and purpose is helping us navigate this environment, how we're adapting our strategies in executing with agility and how we're managing through the crisis with an eye towards the future.
True to our values and purpose is vital in the current environment as it impacts with our people and our brands.
Number one priority round the world is the health and safety of our Colgate people and their families.
Did you do deliver on that we have to implement many policies and procedures to enhance health and safety standards within the company.
We have advanced for safety and screening protocols and made adjustments to our work processes for social distancing where possible. We're expanding these policies for third party partners. Additionally, we are expanding our health and wellness programs for our people, including counseling paid time off to care for family members and flexible schedules to adapt.
The change in family circumstances.
Talk to a lot over the past years about brand purpose and consumers' preference for brands and give them something to buy into the results. We have seen in the marketplace show that consumers are responding to this crisis that focusing on trusted brands. Our marketing teams are created new programs in adapting existing ones to lean into our brand purpose.
Getting them to year, we'd be glad to rollout in equity campaign for Colgate toothpaste based on the inherent optimism about the brand the central ideas powerful using Colgate toothpaste gives people confidence to smile on regardless of the challenges the questions. They faced.
We've adapted this campaign and digital Chinese to highlight how important smiles are in a world, where we can't be with the people most important to us. So these days, it's your smile, whether on Google hang else Zhu interface time that lets people know that you feel about how that most people know how you feel about them.
We know here in Washington, as a first line to defense against the Corona virus and we're very proud of our work with World Health organization to promote handwashing by distributing 25 million free bars, and so we initiated initiated this program to support Wthr always hashtag say pass campaign in or partnering as say the children in care to distribute the product.
Particularly in emerging markets, where the need is most acute we're also donating 20 million bar dollars' worth of health and hygiene products to help consumers and hard good areas in New York City or hometown, you've been donating part to healthcare workers in first responders all over the city.
The second topic is executing our strategy is even greater agility distraction discussed with you over the past two years is working as evidenced by a reacceleration in organic sales growth during that time, but we know that simply executing our existing plants isn't enough we need to be even more agile in this new world.
Still focused on our core brands innovation in faster go segments and expansion in high growth channels and markets. We will make some shifts in priorities and timings are key focus areas not need to change.
Delivering on our core brands will be bought while over the foreseeable future consumers wants to know that products, they are buying or effective and provide good value. This aligns with our portfolio as our core brands are often at base and mainstream price point.
We expect to become bigger focus areas for retailers and consumers I see economic pressures have increased unemployment Matt.
Our core innovations gradually bring news to these big segments and is intended to bring added value during a period, where price increases maybe difficult to take.
Well also continue to focus on innovation in faster growth segments. Our plans for 2020, and 2021 will still makes a significant premium innovation as it is often innovation that drive store traffic.
As part of her efforts to expand our business business and faster growth channels, yeah focused even more aggressively on E commerce and direct to consumer.
There's supposed to learning that we took from our experiences in China in the first quarter, which helped us to shift resources towards channels that will benefit from disruption in our markets. We saw significant ecommerce share gains in toothpaste in the U.S. into first quarter behind the launch of optic white renewal and hills work with the brick and mortar partners to accelerate their E commerce.
Offerings, you know were offset losses for traffic.
Overall, our ecommerce business was up more than 50% in the first quarter and our North American Division E Commerce sales more than doubled in the quarter versus prior year.
Our professional teams of learn new ways to engage their customers and socially discipline.
World.
Similar to what we do with hills to home PCH screen is helping their spot customers by having that then book orders for direct to consumer shipments are they can still drive revenue.
Agility isn't just executing our strategy to say wait we had planned in this current environment to be part of streamlining our processes and making decisions more quickly. So that we can get better better respond to our customers and consumers needs.
There's no better example, vistana global supply chain has the crisis hit we mobilized our supply chain teams to offset lost production in China increased manufacturing elsewhere.
I have a strict safety procedures in China, which allowed us to reopen our factories in a safe and efficient manner now we're operating in over 100% of our expected capacity in many of our Chinese plan, which is helping to maybe a pressure in countries, where Kobe, there's still a developing problem.
Taking these procedures around the globe, we helped our angio entity planned stay open throughout the crisis delivery, 40% more volume in March than initially anticipated.
After realizing the scale of increased demand for many of our health and hygiene products, our marketing and customer development teams worked with our retail partners to develop streamline product offerings that allow our supply chain to produce fewer skews for longer runs which increased capacity to meet consumer demand.
We also identified alternate formulas materials packaging designs and product artwork to give us flexibility as we prepare for further disruption in our networks.
We have also become more digitally oriented by transitioning 10000 people to work outside the office. Thanks to the resilience of our global networks. Our quarterly closing process is one of the smooth distant memory. Despite the fact that all of our shared service centers in Mexico City, Warsaw, Dubai, all working 100% remotely.
And all of this happening just nine weeks since I presented to you at the Cagney Conference. This great work has helped us deliver the results that reported today.
[laughter] capacity for generally well continues we encounter ongoing impacting the crisis economic uncertainty and foreign exchange headwinds.
Our third parties balancing having managed to get to the crisis, ensuring that we can win when it's over.
We have established art, we reestablished our topline momentum over the past two years, we need to sustain that momentum and adapt our financial plans to deliver in a very difficult 2020.
Leaving ourselves well positioned for growth when markets normalize.
We'll continue to support our grass to impactful marketing programs, we know that compelling advertising behind strong brands is crucial to maintain and long term organic sales growth, which is the key value driver for our company.
He also need to further invest into capabilities, there driving growth digital E commerce, and analytics will not fall behind and building the skills needed for when the economy comes back.
Productivity is always a priority for us and each time from the work even harder to take cost out of the P. now to help offset some of the additional pressure that will come from cold and mitigation foreign exchange and the weakening economy. Our funding the growth initiatives are wrapping up to take out discretionary cost it may be unnecessary given the current business environment.
Using analytics to identify and eliminate promotional programs, they're not generating value given the consumer environment, we find ourselves.
I will finish up by reminding you of our strategies around in cash flow in liquidity, which remain unchanged. We have historically generated significant amounts of free cash flow a trend that continued in the first quarter. Our priorities for uses of cash include capital investments for her to productivity in future growth paid dividends to our shareholders, which we have.
Consistently for 124 straight years and acquisitions to accelerate growth, we generally allocate the balance of our cash flow to share repurchase consistent with prior comments, we have moderated our share repurchase activity as we focus more of our cash flow, while reducing the debt from the Florida and Hello transactions.
Into liquidity, we'd be issuing commercial paper throughout the crisis, we remain committed to our double a minus debt rating and as at the end of the first quarter. We had cash cash equivalents on hand that are more than three times, our long term debt maturities over the next 12 months. We also have access to visor credit should we need them.
So those are our priorities, although there was tremendous amount of uncertainty right now I'm confident that we get the right priorities the REIT strategies and most of all the right people Colgate people to navigate through the crisis that emerged stronger on the other side and now I'll turn it over the jobs discuss our Q1 results and provide some context thoughtful 20.
20.
Thank you know.
We delivered strong growth in net sales organic sales operating profit earnings per share in cash flow in Q1, 2020, because we responded aggressively to the cobot 19 pandemic around the globe.
We delivered a combination of volume and pricing birds with organic sales growth across all four categories and then every division except for Asia Pacific, What China, and India were negatively impacted by the Panda.
Well pantry loading due to cope with 19, obviously provided a benefit to the quarter, our sales and profit trends were strong through January and February.
There's no mention our underlying growth strategies are working and we believe they will continue to benefit us going forward, even as we adopted a new reality.
On a GAAP basis, our gross profit margin was 60.2% up 130 basis points year over year.
On the base business basis, our gross profit margin for the quarter was 60.3 person, which was up 110 basis points. Our gross profit margin was up in every division.
For the first quarter pricing was 70 basis points favorable to gross margin well raw materials were a 130 basis point headwind, including the transactional impact from foreign exchange.
Productivity added 150 basis.
Mix with a 20 basis point benefit in the core.
On a GAAP basis. Our S. You name regime was up 90 basis points as a percent to fail.
On a base business basis, our restaurant a ratio was up 100 basis points in the quarter driven by an increase in advertising to sales as our advertising spending was up 13% year over year.
Excluding advertising our rest of your name was up slightly year over year, driven by an increase in logistics costs as we work to meet heightened demand.
On a GAAP basis, our operating profit was up 8% year over year, while it was up 6% on the base business basis.
He asked was up 28% on a GAAP basis and up 12% on a base business basis.
It's all matching we delivered strong cash flow growth in the quarter up 28% year over year due to net income growth favorable working capital performance lower tax payment and the lapping of a voluntary pension contribution in New York out period.
North American delivered strong growth in the quarter aided by increased consumer demand across all categories, particularly liquid hand soap and dish soap and household cleaners.
There's no mentioned, we're particularly pleased with the performance of Colgate optic white renewal to pace, which is driving share gain for the optic white franchise, both online and in brick and mortar.
Latin American net sales were flat in the quarter strong volume and pricing growth were offset by significant foreign exchange headwinds.
All three categories delivered strong organic sales growth in the first quarter led by oral care.
Well, its Mexico and develop the liberty good mix of volume and pricing but.
Colgate total delivered strong growth in the quarter, helping to drive our premium portfolio.
Our digital marketing campaign that don't mention because reached over 135 million users across multiple platforms with engagement and do you through rates well about CTG norms.
Europe's double digit net sales goes in the quarter was driven by 8% organic volume growth the inclusion of Florida, minus 1.5% pricing and negative foreign exchange.
Europe's high single digit organic volume growth was driven across all categories and every huh.
Palmolive liquid hand soap in Ajax cleaning products drove strong sales growth across the division.
Well Sanuk body wash reached peak market shares.
In the UK, our premium toothpaste business behind Colgate total and Colgate Max White Ultimate.
Organic sales growth and market share gains for the Colgate brands.
The first quarter was a difficult one for the Asia Pacific Division.
We saw significant impact on China from the code that 19 pandemic throughout the quarter, while India was impacted by country wide shutdown that began in late March.
In China, we have begun to feed the country open back up and trends are improving in Q2, but we caution that the country by country still is not back to pre crisis levels.
We continue to focus on innovation, particularly premium price points in E Commerce channel.
Our Colgate Miracle repair toothpaste with concentrated amino acid.
The biggest driver of growth for Colgate ecommerce business.
And it's helped drive a more than 20% increase in average selling price for our ecommerce business in China.
In India, we're still experiencing disruptions to both our supply chain and our retail network consistent with what you heard from other companies.
Trends that started to improve and our plants are beginning to ramp back up.
We still expect an impact on the crisis in the second quarter.
In Africa Eurasia, our strong net sales and organic sales growth was driven by volume growth across every hub.
Our focus on faster growth channels continues to pay dividends, particularly in terms of discounters in Russia and Turkey.
We saw continued improvement in our South African.
Our protex brand, which delivers anti bacterial and anti drug benefit.
Uniquely position because the current environment and drove significant growth in Q1 in South Africa.
And many other markets around the world.
And I was kind of Sabal trail.
Which continues to deliver excellent result.
Those remains an example of how execution of the consistent strategy around brand purpose core innovation and a focus on past would like channels.
Can deliver growth in any market.
There was growth was led by North America, where continued double digit growth before the pandemic was augmented by consumer pantry loading late in the core.
The ecommerce business was up by more than 50% because we drove strong growth across all platforms.
In Europe.
It was delivered its fastest net sales growth and organic sales growth in many years.
With growth in advance to be impacted the pricing.
Prescription diet drove the growth in the quarter, we're beginning to see the benefit from the science plan relaunch.
While we're not providing guidance we want to provide some context around certain factors that you should consider you work on your models for Twentytwenty.
Our organic sales momentum continued into April although foreign exchange continued to worsen as we benefited from the rebuilding the retail inventories and increased demand in certain categories.
Offset by weakness in some emerging market.
As we mentioned them across at least based on current spot rates.
We expect foreign exchange had a mid single digit negative impact on net sales for the full year.
We now expect our tax rate to be in the range of 21% to 22% on a GAAP basis.
Well I want to base business basis.
We now expect our tax rate to be in the range of 23 and a half to 24 now.
Also as mentioned, we continued to plan for less benefit from share repurchase and here as we focus more of our cash flow on reducing the datsun, the Florida and Hello transactions.
And with that Mary can you open it up the question.
[noise] face question answer session with different Dr. <unk> first the telephone audience, if you'd like to ask a question you may do so what that seem to share our asked chick keep trying to plays it did you want on your touched on telephone.
So I said, if you were listening to the conference on the Internet [laughter]. That's you piece turned down the volume on your computer speakers and asking a question once again, if you'd like to ask a question that star one.
We can take our first question from Gary <unk> with Morgan Stanley. Please go ahead.
Hey, guys are good morning, hope you're all well.
So you mentioned a potential negative impact on uncovered category growth in this New York Barbara.
No I was just hoping you could be a divorce the surgery because your expectations. It some of the key emerging markets countries or are we looking at such a magnitude that significant in your burdens or or more modest, but perhaps you can compare and contrast to the situation. We saw in the last recession, a little more than a decade ago and then also for revenue perspective.
What are the unique aspects of Colgate is the professional recommendation was whether it be better veterinarians are dermatologists now. So can you just help us understand or how much of an impact the lack of office because it's you think could have going forward or on marketshare and ultimately relative thanks.
During the morning, Dara you don't let me, let me start with taking a step back on it you referenced 2008, 2009, and you know reaffirmed some of the strange that that allowed us to immerse do that crisis stronger.
The the portfolio our business is very strong and be sessions as you well no we have price points across the full continue and particularly our core businesses.
Playing on your comment around the professional endorsement that historically played very well for us and we'll continue to play very well for us during this crisis, particularly given the scientific nature of our products and the efficacy of our products and I wouldn't expect given that some people will not be visiting the profession and the strength of the brand will be alternative.
Any way during that period. The brand continues to be very very strong in our endorsements from the profession all over the world continued to be strong. So I don't anticipate that will have any issue certainly some of our business moving through the profession will be impacted in the short term, but long term the brand strength well continue to prevail in this in this period of time.
Moving onto the categories. So listen we've seen a lot of volatility in the category since one of the reasons that we pulled guidance. There's a lot of uncertainties things jump up and down but rest assured and people are still brushing their teeth and as you've seen people are still taking a lot of showers and washing their hands in some categories, we expect to behavior changed too.
Be a quite consistent over the next couple of months liquid hand, so far so for cleaners, we've seen a real acceleration in consumption in those categories in our anticipation as those will continue oral care has been a negative or some of the pipeline comes out from a February and March and April, but we expect that category will come.
Yes economies start to loosen up and you get more and more traffic coming back into stores.
You've seen we've had tremendous growth in E. Commerce <unk> that was what we discussed academy of Big Big focus area for us over the last nine months, we put a lot of resources into that space, We're really learning all but she's a hill's business is best in class for transferring those learnings around the world. So we're getting consumption in the categories that are yours.
Gene that quite weak in brick and mortar coming through in E. Commerce, now and certainly that will play well for longer terms to overall categories will come back log volatility right now in emerging markets or I was on the phone. This morning, with our Asia team and that they're seeing things come back quite nicely. We're about 75.
5% and where they work be pre crisis, but that is stepped up meaningfully over the last six weeks or so and so overall, we'll see categories come back, but it's about getting shore traffic back and they're getting so many economies to loosen up but overall looking okay.
And we can now take our next question from Andrea checks yet JP Morgan. Please go ahead.
Thank you good morning whole, probably well so even sounded very positive. She buys question on consumption trends, especially soaps. So no I was hoping you can comment a little bit of course concern and what's happening in April I used to working on replenishing that sounds sort of get benefit.
From stockpiling.
Ooh, primarily I would say, probably North America, and Guy and that's in Europe or are you, saying since you accelerate as you go away how much production capacity are you being able to keep up.
On a couple days or in other parts of the world.
Sure.
Thanks, Andrew So, let's take North America first obviously significant spikes in March.
Relative to consumption a lot of the panic buying but more importantly, some of the trends I I calculated earlier around how we're seeing consumption increase in certain categories like barstow like liquid hand soap like floor cleaners and that has continued through through April as Sean said, we've seen a strong category growth and no specific areas.
Obviously some of the this the momentum that were seen in Naples, replenishing inventories that were at very low levels coming out of March, particularly in those high demand categories or Conversely in categories, where we sell pantry loading like oral care and we've seen the categories come down in consumption as you would expect given the pantry load it was in May.
Arch and no specific reason why consumers would be brushing their teeth more so it would be what you expect categories, where consumers are using them more good consumption and categories that were were driven by some of the panic buying has had slowed down in fact or negative in April and that would be consistent for both Europe.
And the U.S.
And we can now take our next question from Wendy Nicholson 52 piece go ahead.
Hi, I'm just one housekeeping issue on helps keep my guess what percentage of that business is E com and I know you said the whole business. The whole company. He told was up 50% for the quarter, but can you tell us a sense of how much kills me. He called business was up but then my real question is more structurally actually.
On China, where I know you had some market share challenges over the last couple of years I'm just curious because I know that's a very fragmented market down there. So many local brands an oral care category do you think you've done anything structural in that category, So big you're going to emerge from to cope with Chrysler.
Well the stronger market share position I'm, just wondering if the crisis it sort of help wash out making some of that local competition. Thanks.
Sure. Thanks Wendy.
Let me take Hill is obviously as John mentioned the hills success. Once again in the corner was extraordinary and I think it really points to the underlying strength of that business one great core innovation too great efficacious scientific brands that play really well in the marketplace and three a and B credibly.
Adept organization around winning digitally and winning the online specifically on line to your question their business was up.
In excess of the company growth, which was around 50 455 for total Colgate Hills was up 57% in in the quarter and saw good progress across.
Particularly some of the key initiatives they implemented with some of the brick and mortar retailers, which was a unusual given some of the struggles those that retail environment had the overall great growth on hills, it's a it's a high its in the teams in terms of percent of sales it continues to grow.
Obviously and the success, we've had with some of the science diet relaunch, particularly in some of the bridge the pure play retailers has been quite notable.
Moving onto to China, or all the strategies Wendy that we put in place that we've talked about over the last 18 months or so a repositioning the portfolio convert moving significant structural changes relative to moving from brick and mortar to online both and we sourcing capabilities all of that is play.
Laying out really well for us we've stepped up our innovation, particularly in the online space you heard John talked about Miracle repair I didn't get some good news. This morning that a the darlie franchise as we turn to the number one share market brand in the country or we had last year market to union by all the local local play.
Where we have returned to the two leadership in March which is terrific shares are off for both Colgate and Darlie in March overseeing good progression there, particularly in the online space more work to do on coal that however, the significant repositioning of the portfolio will happen in the back half of this year, but structurally we've made at all.
The changes that we think are necessary to win in <unk> and I mentioned earlier I think big brands are going to win in this environment or whether it's in Asia or anywhere around the world. The proven efficacy positioning the scientific knowledge that we have and how we communicate that in our brand purpose, particularly around our core businesses will bode well moving for.
I wouldn't be can now take her next question from Steve powers with Deutsche Bank. Please go ahead.
Great. Thanks.
I know, maybe just to build on that.
Spoken about what you're seeing today on the ground generally in emerging markets, but.
Pretty good little more insight into how you're thinking about the go forward just comparing where you just said there about China to what you expect over time in India versus Eastern Europe versus Brazil, Latin America I guess.
Whether in terms of the Shaker consumer demand the competition or marketshare outlook and specific to Latin America. Your confidence in your ability to realized pricing, where where those FX transaction cost pressures are probably gonna be most most acute over the next couple of quarters. Thanks, Sir.
You know this historically a we've we've.
Handle these these crisis is quite well in emerging markets given the pricing power that we have to listen to talk a little bit about our strategy right now with which we think we'll modify slightly as we see some of the recessionary pressures come obviously, a lot of opportunity for us in the premium side of the business. We've been discussing that with you for the last.
18 months, just tell how and how much upside we have on premium innovation that will continue to happen as I mentioned, but we will dial up more of our core innovation, particularly given the price points that we have and the size of those businesses in emerging markets and those tend to be the opening price points in many and many big markets, whether its Mexico, Brazil.
Or India, so you'll see more innovation coming in that space and we're doing a lot of things very very quickly to adapt to some of the consumer behavior changes, we've we've see particularly around the importance of health and hygiene and how that plays out with some of our products interesting as we've gone through the last couple of months.
Our focus on the total relaunch, particularly the anti bacterial positioning and long lasting antibacterial benefit that that product provides has benefited us greatly in the last six weeks, we've seen some of our big markets, whether it be Brazil, Mexico U.K., we've seen the premium innovation on total working so moving forward a little bit more on costs.
Our continued to focus on on a on the premium side, but we think we're positioned well for the emerging markets. Now obviously, we can't anticipate how much a unemployment will be in some of these markets are potential lockdowns that will keep coming from co bid, but the portfolio at least our positioning it will be well positioned for the emerging.
Transit, we'll see their likewise the same in India in Eastern Europe, There will be no change to strategy will be consistently executed around the world locally adapted as necessary, but we don't see that changing based on a end user markets in China would be that perhaps the exception given some of the portfolio strategies that will be adopting in the back half.
After the specific needs and that of that market.
Your second question around last 10 pricing again, you know, it's obviously the devaluation has been significant instantly got a couple of things that we're looking at obviously, we've taken pricing. It's all that in the first quarter, we will continue to take pricing for them and get a little bit more difficult, particularly in the current environment, we've had opportunities to dial back on promotions and some of those markets as we see.
He obviously store traffic down so we've been quite prudent on how we're thinking about promotional spend a lot of work on revenue growth management and price pack architecture, particularly now as we move into a recessionary environments to we'll see more of that happening and little bit more benign pricing environment excuse me material pricing environment moving forward, we think the.
Combination of all of that will allow us to continue to maintain a the integrity of the last Tempe email and maintain the investment would you still important for us to emerge stronger coming out of this.
We can now take care and next question from Olivia Tong with Bank of America. Please go ahead.
Good morning, So I'm talking about ships in your view in terms of innovation will allow given obviously you know there's a lot of stock up already reception coming and then just marketing around that I've seen a marketing was particularly strong this quarter. So it's important to still pretty high but just wondering I do think about the west.
We are and where consumer countries I'm criticism consumer pantry, how you think about innovation marketing. Thank you.
Takes Olivia.
So as I just mentioned you know were we've been doubling down on innovation.
For the better part of 18 months now.
And it's interesting as a management team as we've gone into this we've obviously been looking specifically at what innovation is right for the current environment, we will be moving some things around as necessary, we're dialing up some areas a weve.
Orchestrated a series of teams internally to work specifically around some of the column intrusive routine, particularly in the health and hygiene spaces, one how we adopt our portfolio into how we accelerate innovation.
Moving into this what's interesting is we have just a a long history of a great clinical studies in claims in science behind our products that we think we can pull out of the doors in use in this current environment, great formulations with great Science and claims that will play into health and hygiene. So we think very appropriate for us to look at our innovation.
Okay, and modified as necessary moving forward and that the key focus for us years agility in doing this really really quickly do you start to see some of that innovation come a come to the market in the back half of the here already that wasn't necessarily there before some of the bigger premium innovations as I mentioned, we'll say we will alter those based on some of the spacing.
Whether it's moving out later in the third quarter, so to speak versus earlier to allow some normalization, particularly in some of our key markets, where we see store traffic down quite considerably right now so that will happen continuing to support the business. We've always done that during tough times and we've come out a bit stronger as a result, the brands have emerged stronger.
Oh, we see competition spending quite a bit it's at least on the media side a lot more movement for us in the digital in E Commerce pace, which we're putting a lot more money and is that I think you can see the results that we generated in the first quarter, certainly that a that shifted resources and spending in D. Congress is paid out for so marketing spending will be prudent.
And thoughtful moving forward to be sure, but we'll continue to support our brands, which we believe isn't the best interest of generating the long term growth that we we want to deliver.
And they can now take our next question from Kevin Grundy of Jefferies. Please go ahead.
Thanks, Good morning, everyone and hopefully good well no question on on consumption trends and specifically those increases in consumption that are more transitory and the current environment gross versus those that you see is more lasting given changes in consumer behavior. So we're already seeing a move towards greater working.
No I think there's every expectation that's going to persist heightened emphasis on health and wellness accelerated shifts E. Commerce just to name a few what do you think about your portfolio Cross oral care home care, a personal care that can can you discuss whether you see a change in consumption trends longer term. There that are more last thing you'd be it. So do you see <unk> costs.
It it for your portfolio. Thank you.
Oh sure Kevin and listen the obvious is we have a very large so so business globally, a one of our bigger categories. We obviously have a large liquid hand soap business, particularly in Europe and U.S.
We don't talk a lot about her home care business, but we have a very strong homecare business in Latin America as well as in Europe, and growing really quickly in North America. All those businesses worse, we're seeing a behavior changes that we think.
Well sick moving forward I mean consumers will wash their hands more because people staying at home will be cleaning their floors more.
Obviously people washing the clothing more star fabric softener business will benefit from that.
So categories, where we see behavior change we compete in quite a few of them, obviously people aren't going to stop brushing their teeth and that will continue to be obviously your growth opportunity moving forward for says we don't see us any sizable changes there what keep more volatility in the oral care space I think because you probably see more pantry loading up in terms of.
How people are buying products are coming in and out of the category less frequently.
So obviously as you think about innovation will have to time that innovation quite carefully and be quite prudent on that so overall, our categories our position quite well.
She skin health is an area, where we've seen quite a bit of disruption in whether it be travel retail or some of our pharmacy business in Europe.
As well as our derm business here in the U.S. and we're working very closely with those teams, particularly in the area of Tele health working on opportunities to continue to engage those communities. So they can serve their or their customers with with product online we talked about the hills to home model that we though.
We've been driving over the last a year, what you've done a very very well for hills, where expanding that into our skin health business in order to stimulate demand it both the S in as to tissues and sports as well as Derms. So overall, we'll see that category can go through us a bumpy rather we think over the next couple of months six months or so but if you.
Go back to 2008 in 2009, you know it took more or less nine to 12 months for that category to come back the basic fundamentals for skin health long term are still really really good. It's a highly profitable category. So long term, we're very comfortable with where we are but we'll make the necessary changes in the short term and skin health.
And we can now take our next question from finish up kind of Suntrust. Please go ahead.
Thanks, Good morning, and again I Hope you are you in your family are well.
Though.
Just a question on the supply chain certainly.
Remarkable as I'm sure, you're well aware that you and your peers can kind of have.
Manufacturing plants running at 80, 90% capacity.
On a regular basis all the sudden take the surge of the business and really have limited the out of stocks since I'm just trying to understand what that so what near term if that.
Arguing accretive business.
If you're.
Going even faster or is that you have to incremental costs. It will ease as you go forward and then longer term you know what does that tell you about your supply chain that you can handle that much more capacity or when you thought they were already get 80% to 90% utilization.
Yeah. Thanks, Bill. So you know again as I mentioned in my prepared commentary you know, it's been inspiring to watch our supply chain around the world deal with this and.
We remark we had discussions internally how important some of the crisis management meetings that we have throughout the year to deal with contingency planning and risk mitigation and all of that really prevailed. During these difficult times, it's a global supply chain and the standardization that we have in how we operate it while global he's very.
Still very local we're able to shift resources very very quickly so as I mentioned.
Right out of the gate when China started to struggle, we shifted resources into Europe.
Immediately and were able to supply everywhere and that everywhere, the China, which we're supplying out of Europe, Likewise, as Europe or started to be challenged or Latin America. U.S. started to be challenged we were able to shift back to Asia. So there's a lot of flexibility in our supply chain into credit to the team a lot of work goes into that.
Sure.
Some of the incremental volumes that we've seen obviously, we push to contractors that comes out of the lower margin.
Moving forward as we worked on some of these standardization opportunities that I mentioned for instance, working with some of our key trade partners to simplify our portfolios that will allow us to reduce the skews that we're producing and bring some of that production, but back in house, where we can elevate capacity based on the simplification efforts that come through that obviously strategic.
Basically we're also looking at investing some of these categories a to expand capacity is required moving forward to ensure that we can meet the demand that we see ongoing so short term Oh, we anticipate that there's some margin implications with with the costs associated with coal bed, whether its logistics or some of the contract.
We have longer term or will bring that back in house and find ways to continue to deliver out the margin the degree of to them to the business.
And we can now take our next question from speech I know P.S. teams go ahead.
Hi, Good morning, Nolan John Kim.
A question on the incentive structure back to 2019, when no new took over as CEO. It seems like there's a greater index waiting to organic sales jumped a some market share performance. So within that how do you think about the most visible pockets of opportunity over the next two three years and specifically how can colgate.
There is volatility in the current marketplace and kind of lean in what investments to emerge stronger.
During this during this period of time and John quick clarification for the FX implication to sales how should we think about the multiplier effect is what that could be to EBIT dollars group, yes. Thank you.
So Steve as I as I mentioned, you know these though we've been around for a long long time, though Colgate, we've dealt with a lot of crisis and depression.
And even pandemics at one point in time. So this is obviously very unusual and there was alive unpredictability, which is obviously you've heard.
In the print throughout the last two weeks, but we continue to focus on the fundamentals, which we've been building for the last two years strengthen our business.
They'll be brands with purpose and that's the reason why we will continue to invest behind our brands. We've always found that our ability to innovate and invest in there in difficult times allows us to emerge with strong brands and strong income statements in it as we come out of this and we'll continue to do that we've stepped up our productivity measures as you've heard me talking.
Not quite often are we using digital very differently across the company the collaboration tools that we put in place.
Going into this.
Based on the Google Suite of tools has been just quite frankly extraordinary to get 10000 people working day one.
Virtually a was I think a testament to our T. organization and what we've been able to do their likewise using technology to drive more productivity in our closings. So all of that will continue to dial up as we go through this relative to the instead of structure will continue to be focused on organic sales and obviously bottomline profitability that.
Continues to be the focus for the company Weve, you've seen next reacceleration of our business over the last six quarters, even with some of the pantry, we accelerated organic sales in the quarter, both from a hill standpoint, and from a Colgate standpoint, so the underlying fundamentals for the business. We believe are quite strong and.
Continued to invest in them continuing to build capabilities as I mentioned earlier and spaces like digital E Commerce and analytics, we believe will position us extremely well coming out of us.
Yeah.
And we can now take our next question from Lauren Lieberman of Barclays. Please go ahead.
Great. Thanks, good morning.
On Oh, I want to talk a little bit my other talked about Latin America quite a bit, but one doesn't thinking about it didnt need to wait somewhat shaaban. He bought outline that's probably a longer clung farmer on camel They Shannon.
Assuming a child I'll.
Probably this is about following them category growth and what we tend to maybe some of the ball how cold chain Shan daily usage strong.
I'm going to plateaued at some level off there's an opportunity, but the pace of development. That's pockets is going a little while [noise].
So.
You know we go in Chile can deal with SAP Stan in loans region.
Just sort of the growth of the market slow or go back into that.
People are trying to.
Leverage to accelerate the growth.
Just to get lots of stuff getting in term of some of the upturn or am I missing something in terms of there's more opportunity conversation are such that keeps it Michael correct. So popular.
Yeah. Thanks, so it really depends on the category I mean, obviously some of the ones I mentioned earlier like a liquid hand soap and bar soap and you know we will expect in emerging markets for instance, liquid hand soap penetration to grow those are fundamentally barstow markets, but the efficiency and an hygiene nature of liquid hand soap and they lend itself to increase back.
Penetration.
Products are like spray cleaners, and wipes, we'll see more penetration grow and we're expanding knows as well so there's certain categories, what where she certainly the opportunity to grow penetration, particularly ones that are I'll provide inefficiency or an added value and that will be our focus consumption in those categories. Likewise, we'll probably all.
Offset some of the pricing pressures that you'll see in some of those markets. We typically found not significant trade down in recession, but you do get some for sure and we've been able to deal with deal with that with revenue goes management, obviously, a focus on innovating behind the core which is a as I mentioned earlier, usually at opening price points about.
It allows us to take pricing in those categories price pack architecture in recession has always worked quite effectively force. So it really depends on on the category and the market overall, we'll probably see a little slow.
Slowness or or a reduction in terms of value growth, but volumes as I mentioned people don't stop brushing their teeth and categories, which we mentioned in Q, we impact think we'll see an increasing consumption.
Moving through this.
And we can now take our next question from our Mack assertion Stifel. Please go ahead.
Yeah, Thanks, and good morning, everybody.
Quick quick follow up so one just on Latin America in terms of Hi, how are you thinking about pricing.
In a market, especially some of the bigger countries, where inflation is actually below.
Recent historical levels, I mean, I recall or pricing completion as opposed to.
Maybe just some thoughts there and then.
Finally, I'd just to remind ground input costs and the ties to oil kind of Directionally and how we should think about that potentially being offset by some of the higher costs that you mentioned before on manufacturing other things you're doing around coated.
So you know nothing on the pricing on the pricing front, obviously in some of the emerging markets and we're going to be quite prudent cost us on on how we're looking at pricing. Although historically, we have been quite aggressive in taking we took pricing in the first quarter that will obviously translate through through the balance of the year, we have plans to contain you'd look at.
Pricing and we'll do that a quite creatively either through managing our gross to net much more efficiently, particularly given a store traffic being down a we'll do that some of our channel focused as well would do that to some of our innovation in terms of a price points or price points.
Innovation at different price points. So we have different mechanisms that will be using we obviously will gauge what competitors are doing but given some of our leadership positions in most of the emerging markets. Our intent will be to lead pricing and we've always done that but we'll be mindful of how we do that particularly given the sensitivity in the current environment.
On the cost side, we see you know obviously costs being a little less of the headwind than they were a year ago period, we've seen resins, obviously come down but on the flip side tallow prices have gone up AG prices have gone up but net net well see a less headwinds than we saw in the back half of last year.
And we'll watch all very carefully as you've heard most others talk about there's typically a six to nine month lag between the drop in oil prices in where we see the basket moving to a through the p. now, but by and large what we'll see a better environment in the back half of the year and as I mentioned earlier, we'll start let's start to see some.
Are those costs from coal bed side, particularly as we bring some of that production in house and some of the panic buying becomes a little bit more predictable difficult at this stage to say that but we expect it to become a little bit more predictable, which allow us to get a better line of sight on how we want to handle capacity planning for our facilities and.
Contractors.
Bear in mind.
One other point is obviously some logistics cost associated with this we're doing everything we can to deliver.
Customer service that Archer our partners our customers are looking for and there'll be some added logistics costs. So that will come up in year ago period as well associated with this.
And we can now take our next question from Oh Peace tea and for cardiovascular Bank. Please go ahead.
Great. Thank thank you very much guys no John I want to call you guys out a little bit. They are the press release is very conservative or your withdrawing guidance, but you know kind of everything I hear on this call is it's very pause it on April was strong.
You're raising advertising, 13%, you're gonna dialogue marketing your crushing and E Commerce, China is getting better you're getting significant what you see as ongoing increases in your cleaning and ER and sanitary products, you're getting pretty good volume in pricing in Mexico, Brazil.
And your cost outlook in the second half for the year.
He said he is very encouraging so I'm I'm a little confused.
In terms of the caution in the press release and taking a wait guidance you know all things considered and and you know obviously very very tough environment out there, but the commentary so far it's been so positive I'm I'm confused.
So I'll, let Jim it's straight to what we said in the commentary the unpredictability of what we're seeing a across the world is at a level that weve never seen before obviously as you know India, we didn't anticipate would shut down like it shut down.
We had plans to distribution channels shut down for almost two weeks there obviously coming back online as we speak but that had a significant impact at the back ended the quarter and has had a significant impact in April.
And we can't predict exactly where it's going to happen. Obviously, we've seen things creep up in terms of the number of instances in Brazil. So what happens there going forward. So again, it's the unpredictability of what we're seeing all around the world and you combine that with the continued.
Strengthening of the dollar around the world and the foreign exchange headwinds that it gives us pause and we've seen obviously a lot of volatility likewise in 70 consumption numbers that we've been talking about throughout the call their jumping all over the place right now and so it's very difficult to get a line of sight on how things are going to ultimately unfold yes.
Fundamentals of our categories are good long term, but the uncertainty with government regulations in disruptions moving forward.
We think it's the prudent thing to hold our guidance at this stage, we'll come back to you seem to be can we have little bit more confidence on where things are headed.
And we can now take our next question from Chase English of Goldman Sachs. Please go ahead.
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Oh performs well congrats to you in your federal for navigating this fall situation. So what you have so far.
I want to come back to the last question because I thought it was a great question.
You have responded to the part about why why pull the guidance I get it but I think route I had to say the same reaction to the press release. It lets say conflicting interpretation of this call so far.
I want to zoom in on one why did the press release that maybe I've read too much into <unk>. In there you say you expect government actions consumer behavior related to cope with 19, if he kind of kind of certainty to reduce category growth in many markets C.I. I read that I interpret that as unequivocal deceleration on the forward.
Maybe you were just simply referring to the exceptional growth in the first quarter, but when I listen to you walk through your expectations.
Ah each category Mark I hear a lot that puts and takes up skin care, a little softer maybe able to trade down oral care of all the security offset by my personal and home standardization cleaning.
Exactly right interpretation that it could it be choppy and slowed or the first quarter, but as you think about underlying growth rates well. There's a lot of uncertainty you don't really have a reason to think that your category is going to get materially surgical at four.
Yeah, just listen the if you look at the Weeklys or the monthly is on the categories all around the world and I've got him here in front of me that they're all over the place on on categories like oral care, obviously you machine.
More consistency in categories like liquid hand soap and bar soap and cleaners, you know the biggest unknown force in our view is the degree of the recession that we're gonna see all around the world and you combine that with the foreign exchange headwinds that we're faced with right now and ability to take pricing, which has always been a challenging it in an environment like this.
Although we've had great success. There just is unique in a bit different. So it's really the uncertainty that were seen in the disruptions that we're seeing so again, you know a big markets start to get have more locked down is that creates a significant headwind for us it creates a significant headwind for the category. If we see unemployment jumped 10, 15% in certain markets, we've not dealt with.
With that in the past that we'll have some impact on the value orientation of our categories as well. So all in all there's uncertainty moving forward, we're trying to position ourselves as well as we can we got good experienced on this but there is significant unpredictability based on what I've outlined earlier.
I mean, if no further questions over the phone at this time I would like to excuse todays question and answer essentially no hunts back to your speakers for any closing additional Max.
Well. Thanks, everyone. Obviously, you know unusual an unprecedented times I want to once again, thank all the Colgate people its inspiring.
To work with second is incredibly talented organization were greatly benefited by having a management team that is a dealt with this level of uncertainty and Ah, but obviously working hard to continue to deliver the results and we look forward to having more discussions with everyone moving forward thanks, everyone be safe.
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