Q4 2020 Colgate-Palmolive Co Earnings Call

And year end earnings release conference call.

This is John So Shea Chief Investor Relations Officer.

Today's conference call will include forward looking statements.

Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2019 annual report on form 10-K.

And subsequent SEC filings all available on Colgate's website.

For a discussion of the factors that could cause actual results to differ materially from these statements.

This conference call will also include a discussion of non-GAAP financial measures, including those identified in tables, eight and nine of the earnings press release.

A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate's website.

Joining me on the call. This morning are Noel Wallace, Chairman, President and Chief Executive Officer, and Stan for Tula, Chief Financial Officer.

I will provide commentary on our Q4 and full year performance as well as our 'twenty 'twenty one guidance before turning it over to Noel for his thoughts on how we are planning to sustain our growth momentum into 'twenty and 'twenty one.

We will then open it up for Q&A.

As usual, we request that you limit yourself to one question so that as many people as possible get to ask a question. If you have further questions. You are welcome to reenter the queue.

We finished 2020 and very strong fashion with our highest level of quarterly organic sales growth and over 10 years and our highest annual organic sales growth since the depths of the financial crisis.

Importantly, we continue to deliver balance growth, which we think is the key to sustainable strong performance.

For both the quarter and the year we delivered.

Volume and pricing growth for.

Organic growth and all four of our categories oral care personal care home care and pet nutrition.

And organic sales growth in every division.

With both emerging markets and developed markets performing well.

Our strategy to deliver more impactful premium innovation is still and it's early stages, but we believe the results are beginning to show.

Importantly, this growth is driving our income statement, we delivered strong gross margin expansion for both the quarter and the year, which allowed us to deliver profitable growth despite significant investments for future growth and the headwinds from foreign exchange.

Our net sales grew seven 5% and the quarter for.

Organic sales growth of eight 5% was driven by 5% organic volume growth and a three 5% increase and pricing.

The impact of acquisitions added an additional 100 basis points to volume growth, while foreign exchange was a 2% headwind.

And the fourth quarter, our gross profit margin was 61, 1% on both a GAAP basis, where we were up 100 basis points year over year, and a base business basis, where we were up 90 basis points.

For the fourth quarter.

Pricing was 130 basis points favorable to gross margin, while raw materials were a 320 basis point headwind.

And by increases and the cost of raw materials, like fats and oils and the transactional impact from foreign exchange.

Productivity was the 280 basis point benefit.

On a GAAP basis, our SG&A was up 260 basis points as a percent of sales for the fourth quarter and 100 basis points for the full year.

On a base business basis, and the fourth quarter, our SG&A was up 310 basis points on a percentage of sales basis.

This was primarily driven by a 210 basis point increase in advertising to sales as we drove strong activation on brand building innovation and E Commerce.

Our SG&A ratio was also impacted by increased logistics costs.

Primarily and the U S.

And investments behind growth and innovation.

For the full year on a base business basis, our SG&A ratio was up 150 basis points, driven primarily by a 100 basis point increase in advertising sales and increased logistics cost.

For the fourth quarter on a GAAP basis, our operating profit was up 4% year over year.

And it was up 3% on a base business basis.

Our EPS was flat on a GAAP basis, and up 5% on a base business basis for.

For the full year, our EPS growth was 14% on a GAAP basis, and 8% on a base business basis.

We delivered 18% growth and free cash flow for the full year as.

As we discussed at the beginning of 'twenty and 'twenty, we use some of the free cash flow to pay down debt primarily related to the Florida transaction with the balance used for dividends and share repurchases.

A few comments on our divisional performance.

North America delivered 10% net sales and eight 5% organic sales growth and the quarter driven by premium innovation and increased consumption and categories impacted by the Covid pandemic.

We also benefited from a rebound and performance by our skin health businesses and the quarter.

Our E Commerce business in North America finished the year strongly with sales and the fourth quarter more than double last year's sale.

North America saw significant increases and brand support behind the hump by Colgate Electric rush for Colgate optic white overnight teeth, whitening pen, our toothpaste business and Irish spring.

Latin America, and net sales were down low single digits.

Is double digit organic sales growth was more than offset by the negative impact of foreign exchange.

The strong organic sales growth performance was broad base.

We delivered organic sales growth and every hub for both the quarter and the year.

Oral care innovation has been a key growth driver with Colgate total tartar control luminous white charcoal and our natural extracts line all driving incremental growth.

Europe delivered double digit net sales growth and the quarter orgs.

Organic sales growth of four 5% was driven by volume growth across all three segments.

Oral care personal care and home care and and every hub.

So on oral care volume growth on the Colgate and IMAX brands was accompanied by significant brand building investment and in traditional media and digital.

We were also encouraged by a return to organic growth for Florida for a strong China growth more than offset weakness in the travel retail channel.

We delivered 7% net sales and 5% organic sales growth and Asia Pacific.

Led by volume growth across our biggest hubs greater China, India, the Philippines and South Pacific.

And India and China, our growth strategies are driving improved toothpaste performance through Colgate Miracle repair and China, Colgate that shocking and India.

And our relaunch Colgate anti cavity business across the division.

Our personal care and home care business has also benefited from COVID-19 related demand and the South Pacific region.

Africa, Eurasia, and net sales declined one 5% due to significant foreign exchange headwinds as the division delivered organic sales growth across all three categories and and every hub.

And you pay for organic sales growth was led by Colgate herbal Colgate Max fresh and Colgate total.

Meridor also delivered strong growth as we look to gain share in the pharmacy channel.

Sales finished the year with another quarter of strong net sales and organic sales growth. Despite continued difficult comparison.

Organic sales growth was again led by the U S with ecommerce up significantly, but Europe also delivered double digit growth.

Encouragingly, we are seeing a reacceleration in our prescription diet business as that channel traffic continues to improve.

And now for guidance.

We expect organic sales growth to be within our 3% to 5% long term target range.

Using current spot rates, we expect foreign exchange to be a low single digit benefit for the year, Although we expect currencies to remain volatile.

We expect net sales to be up for years to 7%.

We expect our gross profit margin to be up year over year and 2021, despite difficult comparisons given our performance in 2020 incur.

Increases in raw materials.

And the continuing uncertainty associated with Covid.

Advertising is also expected to be up on a percentage of sales basis, although less so than in 2020.

Our tax rate is expected to be between 23, and a half to 24 and a half on both the GAAP and base business basis.

And we point out that our guidance range does not account for any changes and U S corporate tax rates given the recent change in administration.

On a GAAP basis, we expect earnings per share growth and the low to mid single digits on.

On a base business basis, we expect earnings per share growth and the mid to high single digits.

Obviously this is a wider range than what we normally provide which we think is prudent given what we consider to be a heightened level of uncertainty as we plan out the year.

There are several factors that could impact where we fall within this wider range.

First COVID-19 related consumption.

And the categories, where consumption has risen during the pandemic, primarily liquid hand soap dish soap and cleaners.

We are expecting lower rates of growth or even declines year over year and 2021, depending on the market.

However, we expect overall consumption and these categories to remain elevated versus 2019 levels.

Also particularly in emerging markets movements, and foreign exchange could impact our ability to take pricing.

We are optimistic about our pricing plans for 'twenty and 'twenty, one and believe they are appropriate given recent raw material trends.

The competitive environment and foreign exchange.

Raw materials, we have budgeted for increased raw material costs, but we do highlight that many raw material prices are accelerating faster than anticipated.

If this continues it could put pressure on gross margin expansion, depending on our ability to take pricing or drive additional productivity.

Finally logistics and they've.

And we've seen a further rise and logistics costs over the past few quarters, particularly in the U S.

But also related to shipping containers and Asia.

We expect these costs to remain elevated and the near term, but to moderate later and a year.

And with that I'll turn it over to Noel.

Thanks, John and good morning, everyone. Like me I Hope you and your families are safe and healthy and to share some sense of optimism there and we can return to a more normal existence over the course of this year.

I want to welcome stands for tubular to the first Colgate Palmolive earnings call and joined US back in November we announced.

And obviously, we're deeply excited to have him here he has hit the ground running already.

And I reflected on 'twenty, and 'twenty and 'twenty I'm, so proud of the Colgate people around the world and what they've accomplished our first quarter call I'll discuss three topics related to how we plan to manage through the crisis. These three topics, we're staying true to our values and purpose and helping us navigate a very difficult environment adapting.

Our strategies, where necessary and executing with agility and importantly, managing through the crisis with an eye towards the future.

On the first topic, we've implemented programs to keep our employees safe and healthy while keeping our supply chain and our laboratories up and running and delivering record output from our facilities and our R&D organization and.

And nothing is more important and the safety and health for Colgate people and we will continue in 2021 to keep them as our first priority.

We worked with the World Health organization, this year and local hospitals to distribute free health and hygiene products to people all over the world.

Stop the spread of Covid and enable people to live healthier lives programs that Colgate people are deeply proud of.

And the second area, we continue to execute on our growth mindset strategy to drive sustainable profitable growth through more impactful premium innovation, which you'll hear more about at Cagny and increasing our brand building globally and executing against our digital transformation.

And as Jon laid out we did this all while delivering strong and balanced growth and organic net sales net sales operating profit earnings per share and free cash flow.

To achieve those results. Despite many operating challenges, we confronted and a sizeable and negative impact from foreign exchange.

But most importantly, while we've been delivering on 'twenty and 'twenty results. We have been very focused on positioning ourselves for growth and 2021 and beyond by taking advantage of our momentum and that was the third topic managing through this crisis with an eye towards the future.

So now I'll provide some thoughts on why I believe we did what we did last year leaves us well positioned to continue our growth journey in 2021 and beyond there are three reasons. The first is that as an organization. We are truly change how we think about growth as a company with leading brands, we have to be focused on driving category growth.

And we can drive this growth in many ways of course, we can increase the number of people buying our products. We can increase the price that people are willing to pay for our products and we can increase the frequency and how often people use our products.

So we have strengthened existing tools and importantly, built new capabilities to drive this growth.

For example on hills for each and a much larger group of consumers through increased advertising to broaden our reach and improving our digital targeting and so we can raise brand awareness and household penetration on what is truly a differentiated brand and think about this is finding the right person with the right message at the right time, its not just spend.

And bore but spending smarter and Latin America, we had used revenue growth management tools to drive value with price mix improvement and a very difficult operating environment for instance, our share of the premium segment and toothpaste and Brazil has expanded by three points and the last two years all driven by.

Tactful and strategic revenue growth management.

As I discussed at the Barclays Conference, we have disrupted our innovation processes to focus on breakthrough and transformational innovation, which will enable us to increase the frequency of how people use.

And our products and purchase our products.

Superior performance, new forms delivery systems, and innovation for new channels, all allow us to expand our availability to the consumer so they can choose our products more frequently.

And given the Colgate brand has the highest household penetration of any consumer brand and the world. We have a unique ability to leverage our presence and to faster growth.

The second reason is that we're developing a balanced view of how we deliver profitable growth.

We know that in order to deliver a <unk> debt is in the top tier of our peer group. We can't just grow the top line, we need to deliver profitable growth you can see this and our 2020 results, where we delivered 8% earnings per share growth despite negative foreign exchange, while increasing brand building and investing in capabilities across the.

Entire organization.

We're doing this by pulling on all the levers premium innovation revenue growth management funding the growth disciplined on overheads and laser focus on our cost elements throughout the income statement looking.

And looking forward, we have to do more than offset the expected increases in raw material costs and logistics and and other areas. So that we can continue to invest and this transfer and the transformational capabilities that were deployed and that will rely on paring growth and productivity more effectively.

The third reason is that we're making the necessary transformation to our culture to unleash the true potential of Colgate people.

As anyone who has come here from the outside can tell you the desire of Colgate people to win is unmatched and 2020, we took several steps to accelerate the rate of change to build an organization for future growth.

To that and we made real progress on E Commerce, where we have broad and more external talent, while upskilling existing talent across the enterprise launched more online specific innovation like the optic white pen and the miracle repair serum and invested broadly behind enhanced digital capabilities and all of this.

Paid off and more than 50% online growth and the fourth quarter and will exit the year with E commerce at a double digit run rate as a percentage of total sales and.

And lastly.

It's building out the right team you need to provide the right tools to them the right technology to digitally transform the organization, we continue to invest and systems to enable this transit transformation like.

Our transition to SAP, four Hana, it's giving us better system speed far better reporting and streamline processes and simplify transactions. We've developed our cloud capabilities, which has given us far more agility speed and capability building, our ability and out to develop applications and much faster and realize the value.

Those applications must faster and with our partners building support for our data and our analytics journey ahead.

We also recently rolled out a new global system with our Colgate business planning process. You will remember that was called CVP that will significantly reduce the process time required for our providing greater opportunity for our teams to do analytics, particularly and the commercial area and particularly around revenue growth management.

So to sum it up while I look back at 2020 is a year, where our company battle through uncertainty to deliver really strong results. I will also look back at a year, where we elevated our performance and capabilities and positioned ourselves to deliver sustainable profitable growth into the future and with that I'll be happy to take your questions.

<unk>.

Thank you ladies and gentlemen, today's question and answer session will be conducted electronically for the telephone audience.

I'd like to ask a question you may do so by pressing the star our Astra Keith I'll It back and did you one on your Touchtone telephone.

Also asks for listening to the conference on the Internet that you. Please turn to on the volume on your computer speakers when asking a question.

Once again, if you'd like to ask a question. Please press star one.

And our first question will come from Dot Dot on Muffin, Ian with Morgan Stanley.

Hey, guys.

Hey, there so you've been able to realize some pretty significant pricing and the last few quarters of 2020, you mentioned optimism on pricing for 2021 also mentioned the rising raw material environment. Clearly so just wanted to understand the balance between pricing and volume and your.

And 3% to 5% organic sales growth outlook.

How much pricing, you're assuming and perhaps you can touch on your ability to take further pricing and emerging markets and a weaker dollar environment.

And given the state of the consumer and then and the U S. The promotional environment and also relative to 2020 and just for the question and sort of.

Look at the robust organic sales growth outlook relative to last year. So just trying to understand what gives you confidence versus a tough comparison and how pricing plays into that.

Thanks.

Yes, Thanks, Dara, let me, let me come back again.

I guess over arching in terms of strategy for us because it plays into obviously, our ability to deliver sustained profitable growth, which is a balance between volume and price and obviously you can look at the details with volume and price across all divisions and cash.

Categories, certainly suggest that the underlying momentum and strategy seemed to be working.

But let me come back and reiterate some of the focus areas that have built that momentum. This year, obviously, the refocus and orientation around premium innovation.

And just aside from recovering.

Some of the transactional elements that move to foreign exchange, we've been very focused on getting premium innovation and the market have been very focused on delivering revenue growth management discipline and teaching our commercial teams to execute that differently, we've addressed adjacencies and certain markets, which tend to give us more margin and value and the categories as well we've talked.

About our core strategy, which likewise on some of our big businesses around the world Great Superior technology going into the market, allowing us to take more value as we move up and obviously the discipline that we've historically had around just taking pricing to recover foreign exchange transaction and <unk> seen that particularly in the back half of this year and so we will have good flow through.

And of that as we see and environment that you talked about with increasing raw material prices, particularly over the last couple of months. So again, it's our ability to deliver balanced growth getting the pricing, where we need to but making sure that the innovation is there to continue to drive both volume and price and we see it both on the.

<unk> as well as developed markets across the board relative to your question on the promotional environment, certainly we've seen a slightly more benign promotional environment through the year. Obviously, we had some low points, but if you take the back half just as example, and toothpaste.

Looking now at running the category for categories, you're running at about 28% to sales our promotion pre COVID-19. It was running 31 32, so it's back to where it was kind of a previously and my sense is there's discipline and the market will see what happens post COVID-19 as consumers move back into stores and foot traffic increases and retailers decide to dial up for.

Promotion piece, but right now it's more disciplined and that will continue to manage that going for it but again I think it comes back to the core strategies of innovation, how we're thinking about premium core and Adjacencies and then the other piece of this is a lot of good work around revenue growth management across the across the world.

And that's allowing us to get better balance and better quality pricing and the marketplace.

Thank you and we'll take our next question from Andrea Teixeira of Jpmorgan.

Andrew.

And Andrew Please go ahead.

Yes, sorry.

No problem.

And just making sure and Hello on.

And I apologize for that for the problem.

I was just for my question is more.

On shipments I guess consumption.

So if you look at on the fourth quarter and how it flows through in the first and perhaps the second quarter I understand what some of the on when we look at Nielsen and especially in U S. We can't.

And so you see how shipments I guess consumption.

And pet food and all the other categories. So as we're looking in <unk> 'twenty 'twenty, one and how we should be thinking as you as you see your outlook for for volume. Thank you.

Oh sure two aspects there I think behind the question is kind of where our inventories relative to two of the trade and and consumers you know certainly following the pantry load that we saw on the first quarter, we saw those inventories come out in subsequent quarters.

And second third and in the fourth and trade inventories, obviously I think are well on line a little discontinuity in the fourth quarter and into January I think as retailers came out of the Christmas season, and they overloaded and some commodity categories and they are looking to balance that across the board, but by and <unk>.

Large, we're where we want it to be the replenishment of some of the high demand categories.

Is basically there and we think we're in a good place relative to where we stand we still have some opportunities and in categories like liquid hand soap and dish given the heightened demand, but overall inventories.

Or not and a place that has any concern to us I think what's interesting of another point behind your question is obviously that our consumption are on.

Our shipments are running ahead of some of the market share trends, we see around the world and that again comes back to the point that we've talked about before that our focus has been and driving top line organic growth getting to our consumers are shopping and the high growth that we've seen obviously and ecommerce and other channel.

And that are non tracked is obviously and our shipment numbers and not necessarily reflected and the consumption numbers given that the non tracked are growing at a significant multiple to the track channels today, so by and large I think the strategies are continuing to drive balanced top line growth across the growing channels.

Certainly delivering the acceleration that you've seen in the back half of this year, which has obviously been underpinned by strong advertising support and brand building.

Thank you and we'll take our next question for Nick <unk> of RBC capital markets.

Yes, good morning, everyone.

No I wanted to ask you a question about.

Self diagnostics and health care, and then either increasing trends, especially on the population ages COVID-19 is with kind of a highlight on that and so I just wanted to get a sense of kind of how you know given colgate's credentials and science and a strong brand name.

And an area that you think you can kind of explore and create a mood coming and its growth.

And then just kind of piggybacking off of that how would you do that would it be through M&A.

Could you do it through organic means.

Yeah interesting question, Nick on strategically when you start looking at some of the behavior changes that we've seen and categories like oral health and skin health.

Let me start with oral health, where we're at we obviously have a very strong relationship with the professional community and understanding how they've begun to embrace telehealth and what's interesting is go back two years and telehealth was very much nonexistent and obviously COVID-19 has accelerated trends.

Necessary and the ability to look at monitoring systems and how those relationships between the dental practitioners and consumers are elevated as a space that we think very very interesting.

The new product that we launched online this year the harm electric toothbrush, which gives you diagnostics life through a through a consumer app on exactly how you're brushing your teeth.

And the areas of improvement and we see that as an ongoing trend relative to connecting.

And building education at home and you can start to piece. It together long term. How you then connect that with the profession in terms of a fully integrated end to end process, Likewise and skin health and the same thing we're starting to see obviously telehealth expand there, we're seeing and do it yourself procedures being done.

More at home and consumers are much more open to taking part and things like <unk> as an example, where we've launched a new entry level skin feel for PCA.

Debt that allows us to do more do it at home.

Relative versus having to come to the Derby officer, obviously for the more sophisticated procedures, we continue to partner with consumers to get them and at the profession to do that so there is certainly a trend there we've got people working on that and and opportunity to continue to elevate our partnerships and obviously bring a new new growth.

<unk> to the business as we think about connecting.

Both the profession with the consumer with integrated devices.

Thank you and our next question will come from Olivia Tong with Bank of America.

Great. Thank you good morning.

And just kind of a little bit on detail on Tuesday morning, and and the key puts and takes tickets and a three to five organic sales target.

Obviously volume versus price and contribution to the top line and given the promotion should continue to normalize and obviously FX turning to a contribution.

And then just a little bit of a view in terms of growth by product segment oral care personal care and <unk>.

Homecare and health and I'm just.

Trying to get a better sense and your level of visibility and where the flex points might be given how much of the current environment is evolving.

And then as you think about what spending is already and the base, particularly for SG&A versus what you're planning for 'twenty 'twenty one.

2021, where do you think the areas are for potential.

And downtime thank you.

So, let's talk a little bit more on the categories.

Obviously, the uncertainty that we have and the categories is exactly when.

The you'll see the categories normalized relative to some of the accelerated consumption, you've seen particularly and COVID-19 related categories on.

Like liquid hand soap like dish liquid and our assumptions and plans as we built the 2021 budget whether that we would see those begin to normalize and the back half of 2021, albeit at a lower level than we saw growth rates versus 2020, but slightly above the 19.

Level, so we still expect that we'll see.

Some opportunities for growth and the first half and then normalizing more and the back half versus 19.

So that's but again it depends very much levy on where you are and the world as you probably well know the COVID-19.

Growth in consumption has been very much driven by the developed markets, particularly North America to certain extent some markets in Europe, which had some pantry loading and the first quarter and Australia, you have not seen that and emerging markets and in fact, if you take Africa to certain extent.

Asia.

Middle East.

You've seen categories quite frankly, languish and not nearly as robust as you've seen and emerging markets, which I think makes our emerging market growth, particularly pleasing on.

Given the balance that we've seen at both and price and volume across our big emerging markets and the growth and it's coming behind that which has been terrific. So again balance growth through the first half of the year, we will see things normalize and that's built into the current consensus as we as John laid out in terms of advertising.

Again strategic for US this year, we've talked about it from that from the first quarter on that we were going to invest behind the brands and the increased momentum that we've seen and the businesses has allowed us to broaden our spending across more categories, but particularly focused on where we're seeing significant growth and the category. So let's take the Hill's business.

Which constituted a big percentage of the advertising increased on the year and in the fourth quarter and you've obviously seen the continued very strong performance on that business and Thats, a business with more or less 10% awareness and low brand penetration. So the runway ahead of that business. We believe continues to be very strong.

And we will continue to obviously put the investment where we're getting the return on that and likewise in the North America business, We obviously put more money into some of the premium innovations that we've launched and the back half the whitening pen the super premium optic white renewal toothpaste.

Some of the work that we're doing on harm and online and be much more targeted and that space. So again, the advertising has been very focused.

Broad and a sense of allowing us to go out for certain categories around the world that we had not been supporting where we saw some good opportunities, particularly on Adjacencies. So we're quite pleased with our ability to strategically to get more investment behind the brands given the health of the P&L.

And our next question will come from Kevin Grundy of Jefferies.

Great. Thanks, Good morning, everyone and congratulations on the strong results this year.

No I want to spend some time on on your emerging markets business.

So specifically around category growth and market share momentum and then kind of tie that into your outlook for the year. So obviously really strong performance and that's been part of the story here driving the solid results and the back half of the year pricing has remained.

On a strong contributor everyone kind of understands that with respect to inflation and FX headwinds that the company has been coping with but I think what's noteworthy is that volume has been quite resilient and the back half of the year and in a way that it wasn't even despite the fact you are lapping tougher year over year comparisons. So I was hoping you could spend a moment is this sort of a rising tide is raising all boats have you observed.

<unk> and acceleration in your categories, perhaps owing to increased consumer mobility related to the pandemic where are you seeing very tangible signs that are encouraging market share momentum owing to some of those strategic shifts and spending and investment.

As discussed earlier on the call and if you could just sort of tie that and also at a high level. What is the company embedding and its 2021 outlook related to emerging markets. So thank you for all that.

Sure a lot packed and I'll hop back and that question. Let me, let me just get to emerging categories, which particularly pleasing on our performance. This year is debt.

As I mentioned to Olivia, we've seen a slowdown and some of the categories and emerging markets.

This year relative to the comparison on develops and a lot of the good volume growth, we've driven and those markets is again it comes back to the strategy more premium innovation, where we are under index. You heard me mentioned, Brazil, where we've increased three points and Super premium toothpaste Asps are up about 12% and all.

For quality growth and the Brazilian market and now we've given up a little bit of share.

And at the low end of the price points, where we've seen some of our competitors driving a lot of volume at lower price points, but the quality of our share and the profitability of our share and that market is far better than it was given the focus on premium innovation. The other point, that's driving good volume growth and emerging markets again as our core.

Focusing on core and Asia, a big part of our toothpaste business and those markets, where we've seen obviously of a sluggish market growth or consumption of our shipments ahead of consumption, which is I think a track channel issue again, driven by good core innovation.

Pricing, bringing superior value to the consumer and leveraging some big parts of our business across a couple of markets and the third would be the adjacency strategy that we've had and emerging markets whether thats in Africa, whether that's in Latin America looking at Adjacencies that we can get good margin accretion and to have high growth rates.

Skin and.

Facial products and Latin America. As example, beyond our protect brand have performed very very well, particularly in markets like.

Like Brazil, so again, the strategies that we've been deploying across innovation.

Particularly core premium and Adjacencies that played out the other piece of this is while depending on where you are the emerging growth of E. Commerce has been a quite important for us both in developing markets as well as as the developed markets. If you take the growth that we've seen and emerging E. Commerce is still a.

Low percentage of the total ACB and Latin America, and and Africa, obviously in Asia. The inverse it's a significant growth.

And the category right now and we've had terrific performance across our Asian business, particularly in China behind some of the unique innovation that we put in the market. We will see how E. Commerce continues to perform as foot traffic increases, but if you take the China piece, specifically, where we've been very focused on driving our online.

And digital capabilities, we've seen our market shares and E commerce grow nicely and 2020 based on the strategies that we've been deploying so overall I think we've been looking at the channel growth in the right way we've been looking at the portfolio strategy from an innovation standpoint, and the right way now as Covid gets behind US you would.

Hope it will start to see a reacceleration of the categories and emerging markets and the back half of 2021, and obviously they've been a little bit sluggish given I think some of the issues with the mobility and those markets and the significant increase and and the virus, particularly in markets like Latin America.

And in certain markets of Africa. So the belief is that and the back half, we'll see that start to stabilize and we'll see markets return, which will give us obviously and increased opportunity continue to drive volume.

And our next question will come from Wendy Nicholson with Citi.

Hi, My question actually has to do with India, because I saw the numbers that came out of that division yesterday and it's.

Obviously, the exception that we actually get to see numbers for a specific country for you and I know, it's small but the thing that struck me was topline growth was good but not great margin expansion was huge off the charts on and gross margin I think and India is now north of 70% and I just wanted to.

Ask about it in the context.

And of your focus on balanced growth on <unk>.

And.

And again, India is a small market, but when I think about kind of some of your other big emerging market businesses that should be.

On faster growers over the long term I think to help you meet your long term growth algorithm.

And.

What point do you say Wow, a 70% gross margin and and emerging market businesses too high are there other countries, where margins have really been exploding like that it just struck me as kind of that's the <unk>.

Prize and the numbers and I Wonder if there was something more to and in terms of how you think about balancing top line versus bottom line growth kind of over the longer term.

Yeah, Thanks, Amit listen India is a very important market for US we were very pleased with the rebound in and the growth that we saw on the back half of 2020, given some of the COVID-19 issues experienced in the first quarter, leading to Lockdowns and the back end of that quarter and into the second quarter.

And generating a 7% organic and the third and just shy of 10% organic and the fourth.

We think is a terrific performance again coming back to the strategy and.

And he is very focused likewise, given the strong oral care business, we have on premium rising that marketplace and we've launched a premium skus and that shock day, which is our new natural's positioning we've continued to improve on the learning we're seeing coming out of the natural segment, which is an important growth opportunity for us we've launched new <unk>.

Jason sees new pulling oil mouth sprays and the market with antibacterial benefits, which have been terrific. So we're looking at ways to continue to premium is that business and move pricing up at the same time, which you've seen I talked about and just earlier the core renovations that we've had a big part of the India business.

<unk> is their core Anticavity business, and we've had a significant relaunch underway for the better part of a year now on the core Anticavity business, which allowed us to get pricing up as well as drive significant superiority into that product in terms of a consumer benefit and the third would be the revenue growth management aspects that were.

Starting to deploy with a lot more discipline and learning and we've got more work to do certainly and emerging markets, but we've seen great response from the teams getting behind opportunities to look at our promotional spend specifically price size architecture and looking for opportunities to drive more margin into the business. So overall.

Paul I think that the focus there is good topline growth you've seen it and the organic and strategically we think we've got some opportunities to continue to accelerate there the comparisons get a little bit easier and the first half are obviously, a difficult comps more and the back half given what I just stated, but we think the strategy is working and the investment that we're putting into that work.

That market as you saw for their release yesterday is delivery.

Thank you and our next question will come from Chris Carey with Wells Fargo Securities.

Okay.

Hi, good morning.

So I think you mentioned that toothpaste is running.

Maybe three or 400 basis points below historically from a promotional standpoint.

You're probably seeing even lower promotional levels and home care categories, and I guess, and maybe I'm reading too much into it but it sounded to me like you.

Do you think that these lower promo levels can potentially hold going into 2021, and maybe even beyond so I guess just.

Maybe for 2021, but also just higher level did did you learn something and 2020 about how much promotion is actually needed to drive growth and your categories and <unk>.

And you think that these lower levels of promotion and can potentially sustained longer term.

Yes, Thank you again.

Based on how retailers are looking and how we're partnering with retailers to grow category growth I mean, we're looking to optimize category by up value and we have lot more time to spend analyze and how promotion effectiveness is delivering that certainly is foot traffic has come down some of the retailers haven't pushed more aggressive promotions, but.

As I mentioned the promotional levels are slightly below where they were historically three points and my sense is post COVID-19 you might see those return to normalization back to the levels that we had historically, but that will be determined and this is an emerging market issue more than anything and to develop our developing excuse me are developed.

Market issue and the developing part of the world and emerging markets. We haven't seen substantive changes there relative to what we've seen historically, so I think what retailers and both manufacturers are looking for how do we continue to drive growth and the categories.

Everyone is recognizing the innovation is the catalyst to do that and obviously as things have normalized more around the COVID-19 and the demand issues and some of those categories, they're looking to get back to strategic growth opportunities longer term and that's where the innovation comes into play and we will continue to bring that to them. So we're being disciplined.

And on it the revenue growth management.

And some impact on that obviously, where we're starting to pull away from promotions that don't deliver quality into the category and deliver quality into the P&L for us for our retailers and you've seen some of that obviously and that number that I mentioned, but by and large.

We'll probably share things normalize and the back half of the year, we've actually and we plan for that but again, our focus right now is on bringing real value to the categories through premium innovation and Relaunching, our core businesses and certain parts of the world, which drives real value to the category.

Thank you and our next question will come from Jason English with Goldman Sachs.

Hey, good morning folks and welcome Stan.

Thank you for sliding me and at the risk would be and chastised by Mr. Crocheted later today, and we will try to sneak in two quick questions, one tactical and one bigger picture.

First on tactical.

Mentioned December retail load you mentioned your the comps and we can go into the first quarter pantry stock and expectation of a bit more of a back half weighted and growth story should we be braced for a more sluggish start to the year. That's the tactical question on bigger picture.

E Comm growth you talked about a few times can you can you quantify what it is as a percentage of your sales today, how it compares to where you were before and.

How if at all Youre re imagined and your marketing and media approach and a week or a shift thank you.

Sure I think the tactical question is where do we see categories evolving first half versus second half 2021, and I think youre going to see obviously, we saw some of the sluggishness in December and the categories, you've heard that from others, who who have announced and that's quite frankly not unexpected.

I think when you see the the ongoing way of unemployment.

And the delays and stimulus that warm currently moving into the holiday season, and again I'm talking U S. Here moving into the holiday season people, obviously prioritizing their consumption against the necessities at that time.

January the categories have started to come back slightly but so we're not terribly concerned there.

The behavior changes that we've seen in the categories, whether its liquid hasso dish.

Additionally for the clean Air as you I think are there to stay for a while Jason will see those at least from a liquid hand soap standpoint, and stay there for the medium long term obviously is.

People move back into offices and move away from home Youll see the impact on on dish liquids and and APC, but remember those three categories arent a significant percentage of our overall sales. So we will see the categories I think sustain higher levels in 2019, probably slightly lower than 20, as we stated and the first half and then norm.

<unk> and the back half coming to ecommerce again, a very deliberate focus for us as I mentioned in my and my comments, one bringing in talent from the outside training and developing our commercial organization to understand how to execute a lot more flawlessly and E commerce.

And it requires a lot more effort to do that and the sophistication of dealing effectively and E. Commerce is very different and as you look at the sophistication that we brought to the indirect trade over the last 15 to 20 years is that same level of focus that we're bringing to the online world now both from a digital standpoint and for many.

Commerce standpoint, the growth was over 50% and the fourth quarter, obviously as John mentioned, we exited the year with E commerce at double digit percentage of our total sales and the company and you've seen strategically and the key markets, where we are focused on where E. Commerce has become more prevalent.

And to I E.

The U S and hills, you have seen us obviously driving share getting the right innovation into that channel understanding the analytics and learning from that and building on that momentum. So we see that as a continued growth opportunity, but we're going to be where consumers are shopping and we will see those shifts as we go throughout the year, but.

And important part for US is that our share is still slightly below our general market share and ecommerce, where we get share which is not very many places so we'd know direction and we still have more upside growth to be had there.

And our next question will come from Bill Chapell with <unk> Securities.

Thanks, Good morning.

If you look back at.

In 2020, just trying to understand.

Especially for for.

The pet business and for Hill's as well as the total business going on.

And what type of comparisons you think.

In terms of.

It seems like on the oral care any stockpiling that was done in March and April was kind of D day loaded and the later months and so on a full year basis. The comps aren't really that different is that fair and then on pet I don't have a good idea just because that centers were closed so didn't know.

You felt like the business ran at full capacity throughout the year and 85% capacity and just trying to understand and we're looking at the growth for 2021, and what comps you really see.

Sure let me take the toothpaste on first as I mentioned broadly the categories were sluggish in the first half started to come back a little bit.

And the back half of the year and as we accelerated our innovation pace and our advertising.

And we saw obviously, our shipments accelerated and the back half on oral care, particularly in toothpaste and toothbrush and so as we look to comp that next year, we will see how the behavior.

Transpires and the first half of this year. The key is we've got strong innovation as I mentioned, both coming out of 2020 as well as at our first half innovation pipeline that we think is good so we'll see what happens but again.

The message here is the understanding the behavior shifts is obviously extraordinarily difficult and very different for market to market around the world on.

Obviously, the U S being an important part of our toothpaste business.

Seeing sluggishness, there strong pipeline as you've talked about pantry, and and Q1, but we saw that come out and we're starting to see a more balanced approach and more normal approach in terms of consumption moving forward, but our focus is to accelerate that category with the innovation that we're bringing.

Hills, obviously, the comps were difficult last year, we comped those with strong growth. This year, so if I come back to the Hill's strategy.

Again, it's about how do we continue to deliver solid category growth for our partners and we're doing that with obviously the premium position of the category, we're bringing great new products enter into the segment. We were pleased to see the prescription diet business start to come back, which I think is representative of a couple of aspects on that business.

Which is one we're.

And we're seeing people return back to veterinarians and the prescription diet business benefiting from that our Hill's to home initiative has certainly helped that obviously the balance growth, we're seeing across geographies to have more so than just the U S, which has been terrific. Our strong performance in Europe. This year again, both on the base business and.

Well as prescription diet.

So we see that obviously moving forward into into 'twenty and 'twenty one the comps are difficult to be sure, but again remember this is a business with really low brand awareness and low band brand penetration and a great great product offerings. So as we get the balance right in terms of our digital spending focused on those growth opportunity.

And that we see and the innovation that we're bringing both and the prescription on the science diet side, we see obviously the ability to continue to lap those comparisons that we've had this year and the category continues to be strong at between three and 5% growth depending on where you are and the world and obviously and the new channels that we're experiencing growth.

And specifically E commerce continued to deliver on that so again, I think the right level of premium position and.

And the right channel focus.

The right focus on continuing to invest and a business. What you will see in 2021 to drive brand awareness and bringing science based nutrition to to the category, which I think is positioned well based on how consumers are behaving so comps are tough.

And we realize that but we think we've got good plans in place for 'twenty and 'twenty one.

Thank you and our next question will come from come out Jack Viola with credit Suisse.

Hey, guys good morning.

And it wasn't that long ago, I guess, when we're talking about local brands and many of these emerging markets taking share and it sounds like those share losses.

But also.

And you can provide some context on whats happened competitively and some of those markets today does it make it through.

And then just as competitive as they where do they make it through the pandemic.

And so you just talked about how trends and many of those markets have slowed.

On a whole set of other complexities where.

Sure.

And we're able to survive and a much better position and then so if you could just give some context on what's happening and some of those major markets and that'd be helpful.

Sure.

Listen and you've heard it I think for mothers theres been a return to big brands over the course of Covid and obviously the importance of health and hygiene and trust played into that resurgence and ultimately as consumers move back in to stores and you get the.

Benefit of displays you will see perhaps some of the local branch reorient themselves and.

And get some benefit of that but if you look at the online world. Obviously, the big players have really figured out how to target more effectively how to spend and the right mediums, which was historically a space that the local brands and some of the insurgent brands, we're taking and so over time.

Co brands will always be a threat, but I think as <unk> seen through Covid, a resurgence to big brand Trust and reputation and obviously as we continue to bring a strong innovation pipeline to reward those consumers who have come into the franchise and.

And continued to deliver against their expectations, we feel good about the movements moving forward, but I would say, we never want to count local brands out we continue to keep that very much at the forefront of our strategies and look at them very very carefully in terms of how they are orienting themselves locally based on the insights required to win.

And we feel like the innovation structure that we've put in place around the world in terms of our focus on <unk> and <unk> and being more local where required for hopefully address those increasing challenges that will see us for.

Traffic increases and the back half.

Thank you and our next question comes from Steve Powers with Deutsche Bank.

Thanks, Hey, guys good morning.

And I'd love to hear a little bit more around your expected gross margin drivers into 'twenty, one obviously off of a very strong 2020.

Can you pull apart.

Those puts and takes that John started talking about the beginning any further and I guess my real.

Question on underneath that is.

John has laid out a couple of caveats raw materials inflation and others.

As potentially pressuring gross profit progression as the year progresses, but it didn't sound like.

You would you expect that those will be severe enough to actually turn gross margins.

Negative year over year, but more simply just government and the expansion I guess is that the right read or going to the lower end of your EPS.

<unk> guidance range actually allow for a scenario where gross margins based on actual contraction with some of those uncertainties break them on one thanks.

Yeah. Thanks, Steve So again, let me walk through perhaps.

The margin roll forward.

On the quarter and the year, obviously, we delivered.

Coming out of the third quarter with a $60 to margin, we delivered 130 up pricing benefit to the margin funding.

Finding the growth was 280 basis points and you saw the acceleration and raw materials gave us a headwind of 320 on the quarter, but ultimately we were able to deliver 90.

Gross margin points of growth and the quarter and on the year was 130 with headwinds of around 230 on the year. So I think the important aspect here is good back half pricing that we've generated across all of our markets and that back half for obviously roll through to <unk>.

And compensate some of the increases that we'll see in 2021 now that being said raw materials are running slightly ahead, and what we anticipated for the year and 2021, so we need to ensure obviously that we get that pricing to hold which we will do our best to do we need to continue to bring premium innovation into the market we need to continue to.

Our focus on the strong funding the growth and the productivity that we have.

And in the P&L to ensure that if raw materials grow even further and we're able to compensate that in the market. So the volatility that we've seen on raw materials over the years again, it puts us in a place to reorient, our focus around getting the innovation and the market getting the productivity and the revenue growth management initiatives initiated but I think the <unk>.

Good story that we have at least we're in a position where we took strong back half advertising excuse me for strong back half pricing in order to help us deliver a flow through of that into the first half, but again that's based on the current rates that we're seeing we will see how that behaves over the next couple of months. So we're mindful of that.

We feel good about our ability to deliver gross margin expansion, but based on the current input cost that we have and the current spot rates that we're seeing on foreign exchange.

And our next question will come from Lauren Lieberman with Barclays.

Great Thanks, and good morning.

And I was curious about M&A and actually more and more specifically the strategy with regard to premium skin, because with your core and organic strategies and investments working presumably so well and building momentum from here with all of the advertising.

And innovation you've got.

And I was just curious about the role that premium skin will play going forward because I think at the time to me. When you started building that out it's helped a little bit like trying to look for another leg to the stool.

As things were a bit slower and the core business and I was just wondering how that fits together and looking forward again with the success, you're having on the corner.

Yes, Thanks, Laura and listen and skin continues to be a really exciting, California category for us long term and you look at the demographics globally.

At the economics of that category and you look at where we have made careful choices on where to compete particularly around professional skin health. So we like the dynamics of the category strategically obviously post the acquisitions we ran into.

Significant headwinds related to COVID-19, particularly with foot traffic, stopping and derm offices foot traffic basically coming to a halt and spas.

Foot traffic, obviously related to travel retail coming to a halt and 2020. So we started to see and importantly in the fourth quarter of this year, we started to see growth back in those categories, which is terrific. We spent the year lowering and this is a real benefit I think to the quality of the performance. We had this year we saw.

<unk>, the year and investing behind those businesses.

Taking costs out we were looking to optimize the cost we were looking to build more capabilities and those businesses. So we had the benefit of spending behind those brands and capabilities to set ourselves up for obviously, what we would expect to see a return to growth and those categories, particularly coming out.

Covid likely in the back half, but as John mentioned, we saw some growth of those businesses and the fourth quarter, which was terrific and we think we've set ourselves up relative to see those businesses deliver good sustainable growth for us longer term and it continues to be a real strategic growth opportunity for us and the long run hence the.

The reason why we decided to invest in those specific areas that we think give us a unique opportunity to add value to and drive incremental growth and the longer term.

But again businesses that are worse.

Were severely impacted based on COVID-19, but again, giving us the opportunity to truly understand and build capabilities that we think long term those categories will perform quite well.

Thank you and our next question will come from Robert <unk> from Evercore.

Great. Thank you very much I was wondering if you could drill down on the China oral care business, you've made a lot of improvements.

With Darlie and and E commerce, both with Colgate and Darlie. So maybe an update of where you are with that and then if I remember right the challenge.

It was getting Colgate going on the brick and mortar channel so.

And maybe an update on all those issues. Thank you.

Sure.

Yeah again this was a complete re look at our strategy in China over the last over the last year, we as we alluded to.

And we expected performance in 2019 to improve and the back half based on those strategies, which it did we.

We obviously had a significant impact from COVID-19 in the first and second quarters, and China, which impacted the business and we've seen the business, obviously respond quite well and the back half of this year and in line with the expectations that we have our particular focus was around building our go to market out differently.

Specifically with relates to how we want to think about innovation and the online world, which has now become a pretty significant part of that business in China and pleasingly. We have seen share has grown nicely and online again, I think a testament to our re orientation behind premium innovation and it's interesting.

Index for you and pre COVID-19 or pre the relaunch strategy and China, our indexes were running around 80% and the online world versus the category, so 20% below the category coming out of Covid and into the fourth quarter. Our indexes are now running north.

The 110% to the category on average so again.

Clear focused orientation around premium <unk> and our business delivering on online premium innovation like the miracle repair line.

Some of the focus that we've done and electric toothbrushes has allowed us to really drive the pricing and that category, which has driven incremental value share now the brick and mortar continues to be a bit soft on the colgate side quite strong on the Darling side again, the Colgate side is again the significant changes we.

Made and some of our go to market, that's taking a little bit more time, and obviously impacted by the fact that foot traffic and China was down quite significantly, particularly in Hyperscale supers as consumers moved on mine as a result of both behavior change and Covid. So overall pleased with the progress that we're making and China.

Pleased with and go to market changes that are starting to take hold and encouraged by the early signs of growth momentum and E commerce, and our ability to deliver product innovation digitally and a more effective way.

Thank you and our final question will come from Mark Astrachan with Stifel.

Yeah.

Thanks, and good morning, everybody.

And I guess I wanted to ask you and maybe a bigger picture question and here.

So overall EBIT margin.

Down a bit in recent years and I think you ended 2020 around rework and 2012 or so but sales have obviously accelerated so how do you think about the give and take here.

And you can EBIT margin go back to where it was kind of pre 2019 and if so.

So how do you think about contribution by.

A line item you on gross margin can can that expand realistically from here SG&A is AD spend which is now above where it was a couple of years ago at the right level is too high too low if you could just kind of give some.

Bigger picture thoughts there that would be helpful. Please.

Sure.

First of all growing operating margin long term starts with obviously delivering.

<unk> topline growth and that's been our focus and revenue is the best creator of operating leverage.

Secondly, we have many levers that we use to drive growth and you've heard me talk about quite a few of those today, obviously, the premium position and efforts, which drive more leverage through the P&L, our revenue growth management efforts, which translate right through the P&L as well you saw the examples I talked about and big markets like Brazil, which are certainly bearing fruit the purse.

And all care and home care and leverage that we've seen obviously in those categories and.

And as we expect oral care to Reaccelerate will drive more leverage through the P&L, obviously funding the growth and productivity a real focus for us a great funding the growth and the back half of 2020 are real dialed up orientation behind some opportunities, particularly around our supply chain and looking at our supply chain differently to drive more efficiency.

Of that moving moving forward, which we think will translate into more leverage the real cause of that.

Your point, there was obviously, an acceleration and our spending and increased logistics costs, which impacted a bit on the leverage and those logistics costs, we hope will subside and the back half and we're looking at ways to continue to optimize our warehousing and trade services around the world and very focused on finding opportunities to be more efficient there but.

A key driver of it is again investing for the long term health of this business and putting and advertising into categories and key geographies, where we're seeing growth return on growth as I mentioned, particularly hills, the U S, China and as well as India. So overall, we'll see that leverage come through but our focus right now is dropping.

Delivering operating margin.

Growth through the top line and continued accelerated growth margins to allow us to spend behind the business. So overall, it's about growth and we will see that leverage come through as we continue to deliver that.

Thank you and at this time I'll turn the conference over to Mr. Wallace and presenters for any final or closing remarks.

Yeah. Thanks, again, a strong quarter, a pleasing to see obviously that the broad based growth we had on the business and very pleased around.

The capability building and how we're thinking about the business and the changes that we've made throughout 2020.

Again to all Colgate people, who are really behind the success.

Thank you for your commitment to our values and our purpose. Thank you for everything that you've done I am deeply grateful for your commitment to the business and always optimistic that the way. We work together, we're going to continue to build a healthier future for all so thanks, everyone stay safe and we'll talk to you ship.

That does conclude today's teleconference. Thank you all for your participation you may now disconnect.

Yeah.