Q2 2020 Colgate-Palmolive Co Earnings Call
Although liquid hand soap dystopian bleach remains buoyant.
We plan for this weakness in Q2 and have shifted our marketing plan to take advantage of what we expect to be improved category growth in the second half of the year as we believe consumers are well along in this destocking process.
Net sales were down 3% in Asia Pacific with volume declines in negative foreign exchange, partially offset by higher pricing as the division returned to modest organic sales growth in the quarter.
China returned to growth in the second quarter and continues to improve as ecommerce drives significant growth.
Well, our net sales into organic sales in India were down in the quarter.
Trends have improved since the nationwide shutdown that negatively impacted March and April.
There's still some disruption to the retail networks consistent with what you heard from other companies.
In Africa Eurasia net sales were down in the quarter is foreign exchange more than offset low single digit organic sales growth with strong performance in South Africa, which was driven by volume growth.
We took pricing in many markets, including Russia to offset the foreign exchange headwind.
Growth in hills remained strong.
Driven by a combination of underlying category growth.
Market share gains due to the Hill's science diet relaunch.
E commerce strength in a rebuild the retail inventories following a very strong first quarter.
Once again hills ecommerce business grew more than 50% in the quarter.
As we said in the press release you ended the continued uncertainty surrounding the potential business impacts from coven 19, and the related macroeconomic volatility, we're not providing guidance.
However, as we did on the first quarter call, we want to provide some context around certain factors that you should consider as you work on your models for Twentytwenty.
We believe that consumption for certain of our categories like liquid hand soap just so far so and household cleaners remained elevated.
And that this should continue going forward.
In other categories like to pace and pet nutrition, we believe the consumption rates are stable and that some of the first half broke that resulted in increased pantry inventory may need to reverse in certain geographies in the back half of year.
As we mentioned in the press release, we still expect foreign exchange to have a negative mid single digit impact on net sales for the full year.
Based on current spot rates, we would expect the impact to be at the low end at that range.
We continue to expect our tax rate to be in the range of 21% to 22% on a GAAP basis.
On a day business basis, we continue to expect our tax rate to be in the range of 23 and a half to 24 now.
We continue to plan for left benefit from share repurchase in the year as we focus more of our cash flow and reducing the debt from the Florida and Hello transaction.
While we pause share repurchases under our repurchase program in the second quarter, our full year share repurchase plan have not changed.
And now I'll turn it over to know.
Thanks, John and good morning, everyone.
Let me start by saying I hope, everyone is staying safe and healthy despite the challenging circumstances I.
I thought I start off and given a couple of thoughts on the quarter and then I'll provide you a quick update on where we stand relative to the focus areas that we laid out on the Q1 call.
So good quarter, we continued to deliver.
And what I would say a very difficult operating environment in the second quarter. Despite the uncertainty around covanta, which is quite substantial.
Particularly including the accelerated a case raised it we're seeing in many of our largest market.
And the impact that John mentioned, the economic activity that we're seeing around the world. We delivered very strong organic sales growth above our long term target of 3% to 5%.
I importantly, strong gross margin expansion I.
Oh that obviously delivered through strong funding the growth in productivity measures and some really good pricing or that was broad based across our categories and geographies.
That allowed us to increased advertising, which has been a consistent theme for us over the last couple of quarters and importantly, expand our operating margins in the end.
And again and that's despite dealing with significant headwinds on foreign exchange, particularly in Latin America, you saw the foreign exchange hit it was around 6%.
Unfortunately, the headwinds from the crisis, so we see them continuing and the rising number cobot cases.
Particularly some of our key markets means that the possibility of a larger disruption will continue to exist.
Whether it'd be by the virus itself or what we've seen in some markets government actions to stem the virus and those continue to be quite elevated in that remains our number one concern as we look at the back half of the year.
That said underlying demand for our products remained solid, particularly in certain categories like liquid hand soap and dish barring cleaners, and those with the health and hygiene orientation to where we compete quite successfully across the world.
We're delivering premium innovation in the quarter as well you'll hear a let me talk a little bit about the success of optic white renewal, which is our highest price 0.2 phase here in the U.S.. It's been a great success. We continue to focus on high growth channels, we've had substantial growth in our E commerce business and some of our discounters and club business as well.
And we're obviously you're dealing with.
With a digital environment, where consumers aren't leaving homes and quite successful and how we're delivering content in our advertising.
That's consistent with the App the strategy that we've been discussing for the last 18 months that strategy about focusing on our core business.
Strategy is focused on adjacent <unk>, particularly in the premium side of the business and the strategy just focused on truly elevating our participation in faster growing grow channels like ecommerce.
And that's what's in late enabling us that you've seen to deliver consistent top line growth, which is the necessary absolutely necessary for the long term health of our business and we're delivering that growth, which is broad based across our categories and broad based across geographies and we need to do that with volume and pricing consistently throughout the year.
It's that broad based organic sales growth through allows us to expand the gross margin we've been particularly focused on that this quarter are doing that despite the significant headwinds that we've seen from foreign exchange and headwinds we've seen for mix, particularly the mix than some of the categories that are elevated in the quarter.
That's allowed us to expand our gross profit pool and this allowed us to both on the increases in marketing spending and capabilities and deliver the marketing the marketing activity the operating margin expansion.
To drive EPS growth, so that quarter. So I thought I'd now spend the rest of my opening comments around the balance of 2020 and looking a bit more into 2021.
So let me come back to the three focus areas. We discussed in the first quarter call and they were staying true to our values and purpose, which is going to help us navigate through this environment.
How we as a company or adapting a a strategy that we've been consistently deploying for the better part.
18 months and how we're executing that strategy was more agility and that's been a capability that we've integrated across the company and how we're managing through the crisis with an eye importantly towards the future and I'm. Most pleased quite frankly with how the company dealing with the short term issues that come weekly around the crisis, but more importantly, very focused.
On ensuring that the long term health of the business and how we deploy our strategy over the next year to two is being executed. So let me start with how we're staying true to our values and how that's helping us now navigate through a through the challenges of this environment. Our number one priority as you've heard continues to be the health and safety of Colgate people.
And their families all around the world Oh, we continue to enforce home policies across the board where possible. Although some of our offices have began to open up our global supply chain team has delivered remarkably well given the volatility they've seen in spikes of demand for our products and the challenges with Ah suppliers all.
Over the world were sustaining our manufacturing capacity in many cases, elevating that and we're dealing with the increased demand of products that had been excessive in certain categories in doing that exceedingly well.
And importantly is coming back to values and purpose is making sure that we're giving back to the communities that we serve.
Through our hashtag safe hands program that we talked about in the first quarter a partnership with the World Health organization, we distributed free bars of hand, stoked over 28 different countries now to promote handwashing techniques. So which is obviously the first line in defense and fighting Coven, 19, and where our teams are extraordinarily proud of the efforts that.
We put in place in that regard.
The second focus areas, how we're adapting our strategy and executing with agility. The current strategy I've outlined is working core adjacent to each faster growth channels, we'd be seeing consistent performance across our categories and geographies against that strategy, but we realized in the current environment that we need to continue to be agile and we need to adapt.
Our marketing strategies, where necessary for example, a you've seen the continued success we've had on our on our Hill's business. We've been we're partnering with some of our lead specialty pet specialty retailers were moving money from in store promotions to digital content to help elevate not only the brand itself across all ecommerce platforms.
But to drive foot traffic back into their stores that help us obviously drive shares during the quarter and continue to have a very successful growth on the E Commerce business.
For the hills up for the Hills category.
We look at the back half hour, we're obviously getting much more data as we build our digital capabilities, we're using that to supplement our AARGM efforts. So you saw significant pricing in the quarter and I'm very pleased with how the team has really brought on AARGM tactics and using data and analytics to drive pricing will use that as we think about redeploying.
Wayne more money in the back half into a promotion environment that will likely be more competitive.
So all the all consistent with the strategy that we've talked about and enabling us to obviously to deliver the balance growth.
That you see.
So I'll, let me move onto the third a third area of focus managing through the crisis with an eye towards the future. Obviously, we want to emerge from this stronger than we went in so we'll continue to invest quite aggressively in the back half of this year. We've got strong plans both on above the line advertising as well as in store promotions in the back half that will come.
Element a good innovation grid that we've adjusted to deal with the current behaviors that were seen in the market will be particularly focused on digital which has helped obviously drive another very successful quarter of ecommerce, which you heard John say up 50% in the quarter driven by hills, but more importantly, driven by our U.S. business, which was up over.
200% in the quarter. So again very successful not only driving topline growth in that are a bit driving share growth as well and as I mentioned on the last quarter productivity will continue to be key for us our funding the growth over delivered in the quarter for US we continue to offset some of the incremental cost we've seen from co bid. So so far so good.
But productivity is a never ending journey for us and we'll continue to be a key focus as we move forward. So those are our priorities and although there's tremendous amount of uncertainty right now I'm confident that we have the right priorities the REIT strategies, and most importantly, and incredibly engaged organization deploying and execute on.
Due to navigate through this prices and ultimately emerge stronger.
On the other side, so with that I'll open it up to questions.
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And we'll take our first question from there I'm a halcn from Morgan Stanley.
Please go ahead.
Hi, guys, who bodes well.
Sarah corporate pricing number really accelerated in the quarters, a three to have for sub level was the best we've seen in recent history was that more related to sustainable price increases or are the AARGM efforts, but could you guys mentioned that have to put in place, particularly in emerging markets, which look like it drove the corporate pricing.
It was it more variances specific to the quarter, such as promotional spending et cetera that you guys mentioned.
How sustainable or the drivers behind this pricing strength in the quarter as you look going forward.
And perhaps you can just talked about demand elasticities emerging markets from the perfect. Thanks.
Yes. Thanks, Sara So you know obviously as you as we were coming out of the the first quarter we talk.
About the significant headwinds, we're facing around foreign exchange out, particularly in some of the emerging markets and.
As you've seen consistently over the years our teams on the ground or look to recover the transactional impact of those foreign exchange very very quickly and get that pricing into the personnel.
You saw it all of it manifests itself through through the pricing across the company largely driven by emerging markets, where we sell most of the foreign exchange headwinds. So I'm really pleased with the fact that the teams got ahead of this in the quarter in the sense of that we now have the ability to use that pricing that we have in the p. and now have to off.
We continue to drive course gross margins moving toward a but if necessary invest in the business move in the back half and that gives us maximum flexibility, which is what we were looking for going into the third quarter or there was some pullback in promotions in the quarter. Obviously, we were we were very disciplined with foot traffic was.
Down a certain our ease around the world.
Lockdowns in some markets, we naturally pulled back a with a disciplined to ensure that we can move that money into the back half of the year Oh, those promotional slots to elevate the volume that we're looking for in the back half. So we believe sustainable a we obviously took the pricing early that gives us the most.
The best ability to control that moving board and though we intend to obviously as I said spend in the back half, but we're comfortable with where we are in terms of our ability to manage some of the foreign exchange volatility that we've seen.
And our next question will come from Wendy Nicholson with Citi.
Please go ahead hi.
Hi, good morning.
I'm, a little bit more about gross margin because I know you you called that out as a specific area focus in the second quarter, but I'm trying to get a sense of how much of the improvement you just mentioned a reduction in promotional spending how much of it was sort of structural funding the growth cost savings that we should think are here to say versus sort of short term.
You know crisis management type that thanks.
Sure well, where you obviously saw significant transaction moving through and fight that we were able to recover that with strong pricing in the quarter and again, we saw elevated price elevated foreign exchange headwinds coming out of the first quarter and very much elevated as we went into April and that allowed us to take the pricing early in the.
Quarter and get the full benefit of the pricing as we went through the quarter. Likewise, our funding the growth and productivity efforts have been very very strong I think you know certainly as we've stepped back and manage the complexities associated with a the disruptions we've seen on the supply chain. Some of the portfolio changes we've made obviously the leverage.
We're seeing coming through the personnel all of that is assisted us to drive more efficiency through our plants and get that a deliberate on the gross margin mines. So overall, we felt very good about where the gross profit was obviously the pricing early in the quarter helped and the funding the growth that came through the balance of the quarter Likewise help but again.
As I mentioned to Dara Wendy we obviously, we're very selective in where we were spending money at the promotional line in the quarter.
We did pull back in some areas as we didn't see the ROI there that we would've expected given the foot traffic down was down as we see foot traffic come back in the in the back half of the year. Our we have full intentions to ensure that we are competitive and we continue to drive drive volume in the year to go.
And next we'll hear we will hear from Andrea Teixeira from JP Morgan. Please go ahead.
Yeah, I think you I hope all is Oh, no. If you can comment a bit on the supply chain in comes up like how much of your capacity could include a over the quarter and then this stockouts themselves who feel now neutral to.
To consumption will keep thinking we think that's around the low double great. Thank you.
Sure in general obviously as I as I had in my upfront.
Comments to supply chain is performed exceedingly well the demand in some of our categories has been a significant at levels that weve never seen before that forced our teams very early on.
To look at how we simplify and optimize our portfolios in order to drive throughput in our factories I think thats been well received by our trade partners in order to ensure that we improve.
We improve our case still numbers, but with them you know that being said, we still have some categories, where we're not meeting demand liquid hand soap would be one of those the demand is in excess of our capacity we brought on capacity through contractors.
Obviously, we saw some of the impact of that in the U.S. that at the margin mine.
But that's allowed us to deliver against the service levels that are retail partners are expecting we're in the midst of obviously looking at how we we put more capital into certain of our facility due to elevated because we see some of these categories will have elevated demand we've done some very innovative things relative to our packaging a this allowed us.
To to use other line stuff for specific categories that were not used before a that would allow different types of packaging to move to sue the through the category that is also elevated our demand right now so in <unk> on top line basis, we're meeting pretty much all of our demand with exception of a couple of categories liquid hand soap would.
To be one dish if it would be another where we're still trying to catch up and we anticipate that we'll see that oh come to fruition and in the back half of this year as we bring on more capacity and do more efficiently with some of our contractors.
Oh, okay.
And our next question will come from Olivia Tong with Bank of America.
Thanks, Good morning.
Thank you good morning, everyone trial two questions first if you could just talk through growth across the categories driving movies and even a couple of little better numbers behind that and then one topic more specifics emerging markets and picking in Latin Americans just recession, because obviously the volume numbers have come in but pricing is going up.
Pretty dramatically. So if you could you talk about you know what you think your categories are growing at underlying underbelly of managed to incremental township macros. Thanks, so much.
Sure. Thanks Olivia.
So broad based categories in aggregate are up versus a year ago, obviously different by the significant demand of some of the health and hygiene products and the categories in which we compete.
We've seen no real gyrations in the categories. So to speak as we've gone through the year. Some categories. We saw the pantry loading in the first quarter or things like oral care, where we saw significant spikes that have come come out in the second quarter and we anticipate will continue to come out in the back half of the year, but overall the.
If you take it on a year to date basis, most of the categories continue to be obviously up we've seen elevated demand into categories that we highlighted liquid hand soap bar soaps cleaners, and dish and we anticipate that most of that demand will continue quite frankly as behavior has changed in people work from home I would.
Show, which obviously AIDS in the consumption of our products will continue to see that.
Through the back half of the year relative to specifically oral care across the board. We've seen good numbers on oral care in an aggregate basis again, largely driven by the first the first quarter slowed in the second quarter, particularly driven by last time and some of the pricing that we took a but we see that starting to.
Prove as we went through the through the quarter and anticipate with the activity that we're bringing to the market, particularly in toothpaste in the back half it will continue to see a good.
Good demand relative to a lifetime, specifically you know we've gone through many many recessions in last time, our teams are very well prepared for this.
Some of the models, we views lets get out in front with pricing, which we've done in the quarter that gives us the maximum flexibility as we move in through a tougher environment. We have as you know a very competitive portfolio of products, where we innovate across price points, particularly in last time, if you take a if you break our toothpaste.
Business down.
Between premium mid price in value, we do 50% of our business in mid price. So another 25 and value and as we've talked have real opportunities in the premium and particularly the super premium side, but as consumers move into a recession, we're very well positioned.
For that environment, given the SKU of our portfolio, so and we and as we mentioned inherent to our strategy is continuing to innovate behind our big core businesses and we have some big core innovations coming into next 12 months. So we think we're well prepared to handle the recession, a we'll see how deep it is obviously the sir.
My sense is that we're dealing with.
Around a the spread of the virus, particularly in lab, Pam is concerning and gives us pause or relative to being cautious.
As we see a the categories evolve over the next six to 12 months. So we'll watch that very carefully about we're prepared to deal with it as it comes.
Next we'll hear from Jason English with Goldman Sachs.
Please go ahead.
Hey, good morning folks congratulations on strong results.
No I think I think a response last question I heard you mentioned that throughout the quarters trends at least the to fix the oral care in Latin America improving.
I was hoping you could put a little more ti on my comments right and it's always good to go some quantification, though specificity on how your overall business was performing in Latin America month on month, and maybe how is tracking as you actually the quarter or so far in in July and.
The possible love to hear the same type of figures for your developing markets overall.
Great.
I'm not sure understood. The first Jason I think it was around the volume calm and pricing comment for for lab Tam.
Let me just talk in broad strokes last time for the quarter and hopefully all dressed up most of your questions.
By a large a really good quarter for Latam.
The fact that they face to a significant issues in disruptions and when I say disruptions.
You had a large part a of the mom and pop trade in certain countries completely shut down a big department stores traffic would shut down and so as a result of that.
You saw the shopping occasions decline in the quarter and despite that the team delivered across the board shares were good across our categories in which we compete.
As I mentioned earlier, they got the pricing the pricing was significant in the quarter and there's no question when you take that level the pricing.
And you couple that with the disruptions you're seeing in the marketplace.
Relative to retail environment being closed a you're going to see some volume of fall off and that's exactly what happened and as we moved through the quarter. A we started to see a bit more traffic coming back into the stores and we anticipate that will start to continue to see that in a in the back half year that being said.
You read the same press that we read that obviously the virus or the rates of infection continue to accelerate a particularly in big markets like Brazil. So we need to be very mindful on the implications and the decisions governments may take a to continue to contain that moving forward and that usually involves mobility and the availability of people to give.
Back into stores.
So overall lactam care as good a volume a little soft, but understandably given the issues that we saw around mobility in stores and likewise strong pricing that we took but we'll see strong investment in lab M. In the back half of the year.
Both on the on the advertising line at to support a good innovation grid and likewise the discipline on the promotion mine to ensure that we're getting the right return on investment there.
And our next question will come from powers.
Please go ahead.
Hey, Thanks, good morning.
Maybe go back in some of the topics you just got some of the would there will be at the start coming out from a slightly different perspective, if I step back and just look at the composition of European Ultra the first half its very healthy despite all the volatility gross margin solidly above 60%.
The BMP investments running at about 11. After some sales can you talk about some of these key enablers, there and I mean, there any notable reason to think about general composition changes meaningfully in the back half because listening to you so far I'm not sure I I see one but I just want just my thinking on that.
Sure again, let's come back to the strategy that we've been deploying a focusing on core innovation, that's a big part of our portfolio and as we focused on core innovation, we take pricing. That's obviously you see that translating through the personnel a we have been.
Quite disciplined and getting out ahead of foreign exchange, particularly in some big markets that obviously delivered in the quarter through through the gross margin expansion that we've seen the channel expansion. The that we've seen its been significant I mean, we've had a significant growth both on E commerce and some of the untracked channels or that we do.
And talk a lot about clubs and discounters.
And that again, it's consistent with the strategy that we've been deploying for the last 18 months and.
And quite frankly, the whole challenge behind co, but it's been a catalyst for executing our strategy and we talk about adjacent he's been a third or the third vertical for us and we've been aggressive engaging adjacent into the market very quickly throughout the crisis, we saw behavior change.
We put more antibacterial products in the market, we put more health oriented in hygiene oriented products into the market and again I think that that level of of agility that we've demonstrated is all of that is between core Jason sees and channels. It's helped obviously prop up the a the organic growth and get more consistent balanced growth volume and pricing.
As well as delivering the gross margin, which allows us to invest in into categories.
That being said, we do anticipate the back half to be competitive I think as more and more markets slowly open up and again I'd say that with a caveat that things can change very quickly there, but as they open up I anticipate that we'll see more investments going back in stores and.
Hence the reason why we wanted to get out in front of that with pricing in the quarter and a in it dawned on mentioned in his upfront comments, we have increased advertising in the back half or to deal with that and to continue to build momentum. So that's how we're looking at things, but it's.
It's a it's challenging to be sure a the uncertainty that we see a coming out of some of the large markets the volatility that we see in categories.
And the immediacy that governments are taking sometimes to contain the virus has implications and we have to deal with those though so we remain cautious as well relative to how we see things unfolding.
Our next question will come from Lauren Lieberman of Barclays.
Please go ahead great. Thanks, Thanks, good morning.
So I wanted to talk a little bit about cock beyond you know you talk again about multiple activity back.
In General you know last year's talk more about executing to get ready Intel on an economy that quite a bit on the revenues right.
One thing as you navigate it the first few months and Thats quite that.
And interesting is that maybe you have uncovered in the way that you operate the way you're structured the cops resides in the PNM and the new organization I don't know keeney conditioning, but are there areas that you're finding that maybe are ripe for a.
Further.
Efficiency and 'cause it that come out stronger applies to cost structure not just top line. Thanks.
Sure. Thanks.
So a couple areas, obviously, we've been talking productivity or beyond just the the this success we've had with funding the growth over the years and as an organization culturally we really opened up all line items now.
Think about productivity very differently. So beyond just the typical cost structure of our products, which we do extremely well. We're now interrogating all areas of the business and quite frankly as we've come into the crisis. It's opened our eyes to two opportunities or is that we can go after in inefficiencies that we have.
Throughout the income statement. So let me talk about a couple of those.
No obvious ones you would expect obviously, our travel our travel budgets with operating 200 countries around the world were significant and digital transformation, we've been under and connecting everyone digitally and our ability to day, one moved to a virtual workforce have allowed us to obviously.
<unk> substantial amounts of money under traveled outside and Theres no question that behavior and some of what we've learned will continue to Oh to deliver savings force moving forward and will change how we think about that there's no better way than to learn the pulse of the business and being on the ground and that's a big part of who we are as the company but.
We've learned to use a virtual tools in a very different way, whether it's a technology that we have in our plants, where we don't have to send maintenance people to the plants anymore that they can work through a two different systems to see actually what's going on in a plant virtually and address issues from a thousands of miles away versus.
Moving on an airplane haven't me, having a business view meetings with teams. So we're getting better and better that I think that behavior will continue.
Portfolio, obviously going into this we always have a long tail and we've had this strategy.
We've been executing for the last couple of years on grow the hadn't cut the tail and as we went into the crisis, obviously cutting the tail became essential in order to meet the demand and that has allowed our throughput in the efficiencies.
And the case, Bill and our plans to grow quite significantly and there's a lot of learning. There now we have cut some skews did have very select and unique consumers that we need to look to how we are ultimately optimized moving forward, but I do not anticipate that we'll get back to the full breadth of the portfolio that we had before as we work with great Julie.
Optimize it and then secondly, I think where we've learned a lot is how do you manage an omni channel environment and do that in effective way that allows us to map to consumer journey understand where though you need consumers are and if there are unique and their shopping online, perhaps we expand the tail online.
Versus doing it through the brick and mortar shelf and we've learned to leverage that more effectively as we move forward.
You know the other area would certainly be on on and looking at the overall cost structures of our offices and what we're doing around the world and making sure that we think about them differently in the long term to ensure that we maximize effectiveness of our teams on the ground and we're looking at at the core.
Often a way that we have an opportunity to potentially a.
Generates some savings there and then the last it's obviously elevating funding the growth and as we look at at our products in our innovation strategy. We're looking at more platform ideas Lauren across the board, where we're getting more synergies.
With respect to into our formulation development and using that more successfully on a global platform.
The last would be a strategy that is now underway are being led by our supply chain, which is really looking into segmentation of our facilities little bit differently, and that's taking big facilities.
And making them even more efficient in the long run and looking at how we use other facilities that will become far more agile and flexible to deal with a smaller runs to deal with innovation very differently to deal with a direct to consumer brands that we may be a we may be incubating and do that in a very cost.
Active way and complementing that excuse me with a.
I would think track manufacturers' tragedy that might be more efficient.
[laughter] excuse me so a multitude of things on the productivity side Loren and I think you'll continue to hear more about that as we move forward.
Our next question will come from Kevin Grundy with Jefferies.
Hi.
Great. Thanks, Good morning, everyone and congratulations on strong result.
No I wanted to pick up on a on Jason English is line of questioning around the decision.
Me around Latin America, but mind, it's really around the decision not to reinstitute guidance and and the takeaway here for investors. So understanding that lat am at the bigger portion of your portfolio relative to the peer said I know, it's not lost when you guys that we've seen Kimberly Clark in Proctor in church and Dwight This morning, Reinstitute, the practice proctors looking out and tire.
Full year with their guidance John gave a number of directional guidance.
Guidance points, if you will strong organic sales grew up in the first half a year for basically through July I think the tone on but on the call here has been pretty positive and it sounds like you guys can be resuming share repurchases. So.
It's all a big wind up here, how much you got to liberate on that's what are you seeing in July specifically in the message here really this is more about conservatism related to the pandemic and probably specifically Latin America as opposed to any sort of sequential weakness in July but the market should be concerned about that.
Oh, yes, thanks, Kevin.
Let me start with July we're going to avoid getting into a precedent a you know despite the fact that I I am very sensitive and understand and the absence of guidance that you know the externally everyone's looking for more and more information about what we don't want to do is get into every a every earnings call talking about current month that we were in.
I will say that July is it's coming in as planned relative to guidance again I'm not much to add versus what you have in the print.
Typically the unknown to the unknown. So I mean, we've seen anything versus where we were in the first quarter. We've seen the virus. Unfortunately expand a we've seen a case counts to accelerate particularly in some of our larger markets.
We see increasingly more disruption in some of those markets relative to retail closures or at least temporarily closures are we seeing consumer behavior modified which is <unk> manifest as its way through a significant volatility from week to week into categories, which makes it very difficult to predict and plan a effectively.
So with that as the backdrop Ah we continued to hold our position in that regard and we understand.
Moving forward to that though we would prefer to provide guidance and as we get more and more information and get more confidence in terms of the way, we see things moving a we will certainly could come back and have that discussion again.
Next we'll hear from Bill Chappell Suntrust Robinson Humphrey.
Hi, this is going on for Bill Thanks for taking my question.
Had one on hills and specifically the volume gross.
Hoping you guys could kind of break that out a little bit more is it more consumers coming into the franchise from.
Perhaps a different brand are you seeing more consumers, adding dogs.
Finally in their household amid they've increased consumption at home and then kind of looking out going forward. How do you see that growth playing out over the renews year. The next few years was your stepped up investment in kind of the most momentum you have doing right now thank you.
Right. Thanks so.
So here's another very strong quarter and again, let's come back to the fundamentals the great core innovation behind the science diet relaunched which continues to perform extremely well and is now it at the tail end of its a have a global rollout and getting a significantly stepped up advertising support behind that.
We've seen a huge agencies as we moved into fast growing.
ER segment, particularly the wet segment, which has been a quite buoyant around the world and obviously the channel expansion strategy that we've seen a that weve executed across the Colgate business put in very much was led by a the learning that we have coming out of the Hill's business their ecommerce business up another 50% shares are up a we're getting better.
And better at understanding that channel, particularly around the digital complements to come behind that you saw significant step up in advertising investment in the quarter, we'll see that Ah that level of spending continue in the back half of the year, specifically behind the following a fundamentals there.
Frank continues to have very very low brand awareness, 3% as an example in the U.S.
So our ability to continue to drive awareness.
Behind the premium aspects of the brand and the science and the biology based nutrition is a significant growth opportunity for the business and we've we've done that they advertising has allowed us to expand it get more distribution in our portfolio, obviously look at it other rapidly growing channels and drive distribution there.
Turning to Premier eyes, and take pricing, where we can so the volume growth has been a function of obviously a the share growth that we've seen a the channel growth that we've seen the premiumization, which obviously comes through more on pricing and likewise, you did see a little bit of pantry loading in the first quarter, a as consumers where phase.
Potential locked down, particularly in North America, we did see some elevated purchases that we start to talk soft start to come out in the second quarter anticipate that we'll see a little bit more of that come out in the a in the second half, but by and large the business is pretty solid looking longer term, obviously continued strong innovation predicted behind our for sure.
In dime diet business looking at new digital platform is that we've talked about the hills home idea, which is allowing that.
To provide a there a their pet owners with supply of our product delivered directly to their home.
Looking through different innovation ideas, whether it using digital platforms or a innovating across our prescription diet business in the back half and moving into 2021 that will be the key focus for that business moving forward. So again, a strong fundamentals behind that business.
Pet ownership or you've seen a is a pet.
Adoption accelerates significantly in the first half the year. Our estimation is that will that will slow quite a bit in the back half, but there's no question there more dogs to be fad.
And we're going to do everything we can to ensure that the feeding them hills.
Your next question will come from Mark.
Yes.
Thanks, and good morning, everybody.
Wanted to ask a related question on the guidance and then kind of.
Related.
Equally from that so I guess I'm still struggling a little bit with with why you're not providing guidance. Obviously, you alluded to what's going on the world but.
What is different but you're seeing or was it wouldn't more difficult.
In terms of looking out that you can pause to.
We are seven month through the year years kind of how we see it didnt.
Sort of related maybe one of the pieces the each year from folks most.
Looks often on the stocking the story to grow market share continues to underperform. So are those two somewhat relieved do you have some sort of visibility over market share begins to improve I get some of it has do with translation on foreign exchange that should in theory now start to look better assuming dollar holds where were.
It is so maybe you're kind of the first comment to the second point and you're really kind of how do you think about the market share trends progressing as new over the next six to 12 months as much as you can provide there would be helpful.
Thanks, Mark Let me come you know, let me come back again on the on the guidance discussion now you know not much more to add there, but let me.
Sure. The team there is tremendous complexity and volatility week to week based on what's happening with Cove. It and you get decisions made in countries, whether its shutting down borders or you have been incredibly complex supply chain second and third order derivative effect effects of implications in one market to another.
Oh, you've obviously seen the escalation of of Kate counts in big markets for us the namely Brazil.
India and Mexico.
And all of those are very difficult to predict and they're all kind of intertwined and when you get the triangulation of though is to create significant uncertainty relative to how things can unfold that being said, we're executing against it very well, but I assure you. There's a lot of work that goes behind the day to day and making sure.
We continue to operate and deal with the circumstances that they confront us and that those circumstances make it very difficult to predict exactly which weighs things are going to go so not much more to add on the guidance or on the guidance question on on market share overall market shares were okay in the quarter, but we're not that piece quite frankly.
Yeah, you mentioned the translation impact that was a big impact on our total shares obviously with last time, having such strong share as their shares were actually up half share point in the year to date bases, but given the translation impact of those currencies on a global basis, we saw our shares come down a U.S.
Little soft in the quarter I talked a little bit about pulling back on some promotions, though we feel comfortable where we are relative to the promotional environment. A there were some still surprised me some aggressive couponing going on a that we quite frankly didn't follow and that we would like to try to avoid.
In the future. We don't think that's an effective use of of money, but we have the right promotions.
Generated through our revenue growth management efforts that we see ready to go in the back half of coupled with strong innovation you know I would say that the launch of optic white renewal in the U.S.. It's been very very successful I mentioned earlier, that's our first $7 price point hit a to share 50% of that incremental it's been a the most successful.
New product launch in the categories since the launch of optic white.
10 years ago. So again, I think we're getting great confidence in our ability to premiumize the category and as we move into more recessionary environment as we discussed earlier.
We'll have a a strong base business strong core innovation a plan to address that you know if you look across the other categories, you know by and large pretty good share performance. So many of those categories quite frankly, driven share driven by demand your ability to supply the shelves, whether it be liquid hand soap or dish, which we.
We have not necessarily met the demand at this stage insurers suffered a little but where we're focused and where we're spending our money. We're gaining share growth. We will we are not pleased quite frankly with some of the share performance in the U.S.
But again, we believe that was somewhat circumstantial and we've got strong plans and investment in the back half to to change that.
And our final question will come from Rob Rob Fine with Evercore.
I had.
Great. Thank you very much I'm I'm wondering if you we can kinda dialed back to you know some of the pre co bid priorities or do you have just to kind of get a sense of.
How you were doing on those.
As the world changed and specifically or some of the Premiumization efforts outside the U.S. the into the competition against local natural brands a in in China, and India, a the expansion of L. next married at all you know basically if you could give us a rundown of those initiatives.
And they have you may and maintain kind of the foot on the pedal on those how you're doing and are they still is relevant as before.
Yeah, Thanks, Robin and good morning, So you know again.
I talked about in many respects the Oh the strategy that we had put in place 18 months ago quite frankly, we when did the crisis.
And interrogated it we felt it was perfectly suited for.
For the behaviors and the dynamics were seen in the category I mean, we needed to continue to innovate behind the core business.
The Ajay age or were there and that allows us to rethink some of the <unk>, our core businesses and how we get into rapidly growing segments. So take floor cleaner for cleaners, where we've expanded the portfolio into more hygiene antibacterial related products.
And and likewise the focus we were on for quite some time to truly elevate our digital commerce business and you've seen a consistent growth both from a topline performance as well as their performance in E Commerce and a lot of that a capability is being driven by the success Weve.
Hadn't hills, and obviously ramping up capabilities across the company both in the <unk> digital area as well as the commerce phase and that we've done that through.
Developing our internal talent as well as bringing in outside talent.
We think has been a a real boots for the organization to help us think a little bit differently. So strategy working and ER nothing that we feel we need to change continue to be agile as we move forward I think some of the learning we've had on the utility side is that we can innovate much much faster than we have in the past and that we intend to two systems.
Is that we as we move forward to make sure that we capture that learning on an ongoing basis Premiumization has been big part you know I mentioned earlier in the call Oh, we do roughly 50% of our toothpaste business in mid priced another 25 in value and the balance in the balance in premium and if you take the premium.
On the fastest growing part of the market has been the ultra premium where we have not competed the launch of optic white new renewal as an example, $7 taking that bundle them moving out around the world is an opportunity for us and I think it's certainly again, giving us confidence.
Notwithstanding the fact that it is tough to launch premium bundle successful about giving us confidence we have now a lot of the capabilities necessary to puts more aggressively on premium and we've learned throughout the history and particularly the last recession await O. Nine you may recall, Rob that one of the most successful launches during that period.
It was optic white and that was an affordable luxury and we understand that Theres still is a segment of the market looking for premium value oriented bundles bundles that provide a significant point of difference in renewable is one and so we'll balance that very carefully as we move into a more challenged macro environment and we'll do that with.
Super premium innovation in the right markets as well as continuing to focus on our core.
Naturals or to your question there we're excited about our natural strategy or Toms. It's got some terrific plans ahead of it.
Weve, Cragun, and dubinsky and and Lori and the team from Hello are doing an outstanding job opening our eyes to opportunities in Nashville to cross category. Our Hello brand continued to expand in the U.S. and is delivering nice growth and I think at that category. We know long term will be very very beneficial.
Could consumers continue to be extremely interested in purpose driven brands, particularly brands with a strong sustainability profile and while the short term in the crisis. We saw fall a fall off of natural brands, we've seen that category start to rebound and we expect a longer term it will continue to be a healthy growth opportunity for.
Your last comment I think was on the Elmex expansion again as we've talked about a we've been very selective with that strategy on where we move elmex.
And married to all into markets with a high for mystique or retail environment and we're doing that very successfully Brazil was the early launch a great results coming out of that through the pharmacy expansion plan. We have there. This is not a short term volume strategy, we want to build a long term therapeutic business in pharmacy in the pharmacy channel.
And doing that with strong therapeutic brands like Elmex, the mirror at all and you're going to see that continue to unfold as we increase investment and continue to build and long term sustainable business for.
The markets drove the expanded that we'll have a couple more to expand in as we move into 2021. So.
Hopefully that answers your question, Rob and I guess that brings us to the N. So let me to sum it up I think overall, a quality quarter, but we all recognize we've got more work to do and a lot of challenges still in front of us I want to thank 36000, Colgate people around the world, who continue to be extraordinarily resilient a well focused on.
Executing our strategy building new capabilities across the organization and winning on the ground and the success of the quarter a that goes to goes out to them. So thanks, everyone and look forward to catching up with everyone too.
And this concludes today's conference. Thank you for your participation and you may now disconnect.
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