Q2 2022 Colgate-Palmolive Co Earnings Call
So did woke up to today's call get Palmolive company's second quarter 'twenty 'twenty earnings Conference call. This call is being recorded and its being simulcast live at Www Dot Colgate Palmolive Dot com now for opening remarks, I would like to turn the call.
Over to the Chief Investor Relations Officer, and senior Vice President I'm in Q.
John <unk>. Please go ahead, John Thank you.
Thanks Caroline.
Morning, and welcome to our 2022 second quarter earnings release Conference call. This is Jonathan.
Today's conference call will include forward looking statements.
Results could differ materially from these statements. Please.
Please refer to the earnings press release and earnings materials, and our most recent filings with the SEC, including our 2021 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 table 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'll now provide you with his thoughts on our Q2 results and our 2022 outlook. We will then open it up for Q&A.
Thanks, John and thanks to all of you for joining us this morning.
Delighted to share with you our second quarter results.
On the first quarter call I talked about my confidence that our organic sales growth would accelerate from our first quarter results.
Some of this was due to the improvement in trends in February March and April that we discussed on the call.
But what really gives me competencies. The fundamental change is Colgate people have made to drive growth, which is why we are raising our organic sales growth guidance to 5% to 7% for 2022.
Our second quarter results, including double digit organic sales growth in oral care and pet nutrition show that the growth strategies, we put in place three years ago are delivering on our objectives and how the power of our global portfolio is working.
We're delivering growth across all of our divisions and all of our categories. We're showing the ability to take pricing because we have built healthier brands. We have built up our innovation capabilities. So we can deliver more breakthrough and transformational innovation that can drive both category growth and market share we.
We have accelerated our digital transformation across the company by leveraging the capabilities, we have built at hills and in China, and other developed markets to lead ecommerce and our markets, where this important growth channel is underdeveloped and crucially in this operating environment. Our revenue growth management tools are driving positive pricing and mix as our efforts.
To offset the significant raw material and logistics inflation, we are seeing.
Although the <unk>.
Along with the productivity and our ability to improve our price mix, which was enabled us to rebuild our gross margin moving forward.
And looking at the quarter, the second quarter marked our 14th consecutive quarter with organic sales growth either in or above our long term target range of 3% to 5%.
And that growth is broad based we delivered organic sales growth in all six of our divisions, we delivered organic sales growth in all four of our categories oral care pet nutrition personal care and home care with all four categories either in line with or above our long term target range of 3% to 5%.
As we discussed on our first quarter call our execution, our revenue growth management and premium innovation allowed us to deliver a 500 basis points sequential acceleration in pricing growth.
Encouragingly, despite this pricing or volume performance also improved sequentially in the quarter on both a one and a two year basis behind strong marketing plans innovation and improved supply chain performance our market share performance continues to improve with our global toothpaste and manual toothbrush share now up on a year to date base.
<unk>, we continue to deliver on productivity with another strong quarter of funding the growth, which is vital to our plans to regain lost gross margin.
As we entered the back half we are just beginning to see early benefits from our 2022 global productivity initiatives over the next gene next 18 months. This program will help drive operating leverage but.
But we are still dealing with a very difficult cost environment, we now expect $1 $3 billion in raw material and packaging inflation with higher logistics costs as well.
Foreign exchange has become a bigger headwind since our first quarter earnings release, the Euro has moved to parity with the dollar and most other currencies have weakened as well.
We will continue to invest in our brands advertising spending was up on a dollar basis with continued shift to working from non working and a higher focus on wheat.
Digital spending.
We are investing our capital to drive future growth as well we are building capacity to meet strong consumer demand, particularly for hills, but also for other projects like our recyclable, two which we continue to rollout across the globe.
As we look to the balance of 2022 and into next year. We are focused on executing our strategies with the right innovation brand support revenue growth management and capital plans to deliver on our long term growth targets, while working to rebuild our gross margins and deliver sustainable profitable growth in all four of our categories.
And with that I'm happy to take your questions.
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Caroline can we move to the Q&A.
Caroline.
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Backup shortly thank you.
And if you'd like to ask a question for todays call. Please press star one on your Touchtone telephone once again that is star one to signal for a question.
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And then we will take our first question from Dara <unk> with Morgan Stanley .
Okay.
Apologies that question will actually come from Peter Grom with UBS.
Hey, good morning, everyone.
Hope you're doing well.
Yes. So no I was just wondering if we could take a step back and can you maybe just give us an update on kind of the health of the consumer.
And some of your key markets, particularly emerging markets and maybe specifically Latin America like are you beginning to see any signs of softening demand or or trade down.
Your core categories and I guess.
How do you think your emerging market growth evolves from here as we look out to the to the back half of the year and potentially into 'twenty three.
Yeah sure. Thanks for the question.
If you scan your.
At least the numbers, we're looking at around the World you continue to see pretty good vitality at the consumer level emerging markets growing mid single digits, obviously, some slowdown in the developed world, particularly out of Europe , where you saw some sluggishness in the categories, but specifically to your question on emerging it looks pretty good now a lot of pricing as you can imagine going through but if we come.
Back to.
Two our overarching strategy and as we really laid out in the first quarter that we would be continue to take pricing coupled with strong revenue growth management, but more importantly, accelerating our innovation cycle into those markets strong innovation on the premium and the value orientation side has allowed us obviously to continue to deliver strong top line.
Growth both in price and in volume, we will watch the consumer really closely Peter we obviously have a lot of teams on the ground looking at exactly worthy elasticities are but so far elasticities are in line with what we expected or slightly better but that will change over time as you see more and more pricing going to the market and other economic factors.
In our categories, but overall, so far we've seen the categories behaved as we expected not a lot of trade down, but it's early days, we'll see how that evolves over time.
And our next question will come from Dara <unk> with Morgan Stanley .
Hey, guys.
Hey, Dara.
So.
You just mentioned the elasticity looks pretty good so far can you just talk a little bit about the competitive environment given the strong pricing you were able to realize in the quarter are you seeing competitors move at similar levels.
And specifically maybe talk a little bit about the Americas in terms of the sustainability of this growth turnaround we've seen in the U S and.
If you could just touch on the consumer in Latin America that will be helpful. Also.
Sure in terms of just an overarching statement on competition clearly it's been constructive.
Relative to how we've seen competitors behave and I don't pretend to understand their strategies or quite frankly react to them. We're very focused on executing our strategies in the marketplace and as we laid out again in early on the first quarter call that we would be taking in leading pricing in some of the markets.
And ultimately we expected given the inflation.
Inflation is impacting everyone. We would see competition follow as well and that's been the case by and large around the world.
Overall, a constructive environment relative to pricing.
In terms of the Americas, obviously, you've seen strong turnaround in our North America business again, we highlighted that.
That we are taking pricing and saw momentum build in the first quarter and that continued as we mentioned in the first quarter call through April and obviously you see now with the performance of the North America business a good performance overall I would call out that obviously they saw strong consumption across the categories. The innovation is certainly taking hold.
Cited to see the the.
Takeaway on pro series, which is at the premium end of the toothpaste, you've seen the market share in scanner performance with scanner data in the U S up in <unk> eight or eight of 11 categories over the last 13 weeks, which again I think shows.
The turnaround of that business and importantly, the performance of some of our innovation coming and broad based across all the categories in which we compete so overall a good we're watching this closely itch and.
Predictable environment relative to where we see consumers evolving where we see inflation evolving.
But the good news is we've taken pricing, we have more pricing planned across the world, but moving into the back half and we will watch the consumer impact of that very carefully.
Great. Thanks.
And Chris Carey with Wells Fargo Securities has our next question.
Sure.
Hi, good morning so.
Pretty good pretty good progress on North American margins sequentially as pricing as Bill you noted in the prepared remarks that your supply chain headwinds are starting to abate.
Pretty good traction with the consumer on on this pricing I just wonder if you have any updated thoughts on where we stand today and just the potential to rebuild margins in that segment, even amidst the inflation, which is going to be a little bit higher than your prior expectations.
Yes, Thanks, Chris.
You have known our company for many years, how focused we are on gross profit and we will continue to be laser focused on recovering gross profit as we move through the balance of this year and into 2023, the pricing and innovation strategies and revenue growth management discipline that we have across the organization is clearly focused and tailored toward getting our teams equip.
To find innovative ways to drive category growth get value into the categories through pricing and other innovation initiatives and that will clearly to me that will clearly be the roadmap moving forward and we feel quite confident given the health of our brands the investment that we've been putting behind our brands that will have the ability to continue.
To take pricing in the marketplace, we'll watch it very closely as I mentioned, but recognize that we have a very broad portfolio of products. We compete at the high end and at the low end of the market and historically, we have been able to flex our portfolio quite well in markets, where we've had difficult economic circumstances.
Answers. So we will continue to innovate across all price points and be sure that we're capturing any trade down if that happens, which we have not seen at this stage, but ultimately I would expect you will see some trade down moving forward and we'll continue to innovate the top end to drive the premium adjacent opportunity that we see.
And our next question will come from Andrea Teixeira with J P. Morgan.
Good morning, and thank you for the new call format in prepared remarks. So my question is on pricing and a follow up on volumes in Europe , and Asia Pac on pricing you had an impressive eight and a half global uptake in the quarter.
Globally and in about 3% in North America I believe there is additional pricing noise you mention coming through.
Potentially the auto care I believe in the U S. In July can you confirm the timing and the magnitude.
In Europe .
Terms of volumes you've lost.
Perhaps you lost temporary distribution because you had.
A 3% decline in volume there I mean, not sure if it's related to the war.
And if you can round up the Asia Pac exit rate also into Vonage, because you ask it.
And you had a minus seven changes to make sure that we meet.
We cover all bases I mean, not to take the and obviously, the 9% to 9% organic growth, but I just wanted to make sure that we know.
Puts and takes there thank you.
Thanks.
A lot packed in that one so let me talk a little bit about the overarching.
Thoughts around organic growth in the topline, obviously strong pricing today to have.
But I called out the positive volume growth, where we saw across North America Asia and Hills and if you take obviously the impact of Russia that volume moved up by nearly 100 basis points. Overall, we're very pleased with the the broadness of the pricing that we took across all divisions.
And the positive volume growth that we saw across some of the markets that I just mentioned when you look at specifically calling out some of the other markets Europe . Obviously it was impacted by a couple of things on the negotiations on pricing certainly impacted categories. We tend to see some elasticity in Europe happen.
Leon as the market adjusts to the new pricing, but ultimately that tends to become mitigated over time as you see everyone take pricing.
You asked about obviously strong growth in Asia, both in pricing and in volume, we had an easier comp on hauling Hazel, but I would call out.
CPE, China business, which grew significantly in the quarter as well on the on a more difficult comp. So overall really pleased with China. Despite the lockdowns that we saw in the marketplace. There. So we were able to to overcome that and deliver strong strong consumption growth across most of our business. So overall, we're pleased with the <unk>.
<unk> of pricing and volume were pleased with how we're getting pricing executed and more importantly, we're pleased with the innovation that's going into the market across multiple price points in order to sustain that moving forward moving forward I would say that we will continue to be pushing pricing in that my expectation is we'll see some pressure on volume in the year to go but.
That's to be expected as we get more pricing in the market. The important part is the balance of innovation across all price points to mitigate that.
And our next question will come from <unk> with credit Suisse.
Yes.
Hey, guys good morning.
Good morning.
Can you talk maybe a compare and contrast, what your market shares look like from a volume perspective or revenue perspective, obviously you have two cities are better than planned, but curious how that looks at looks like versus the market and then on your assumptions for commodity costs are they linked to just assuming spot stays where it is or do you have some.
And there for things, particularly like Palm oil and such.
Yes, as I mentioned in the prepared remarks, we're very we're very pleased with the share performance and I recognize that a lot of the share performance that we have public debt, we put make public don't pick up ecommerce shares and some of the untracked channels, but that being said our global shares continue to track well on both toothpaste and.
Russia is obviously, we're taking pricing story seeing value shares respond to that volume shares had been a little bit softer.
But if you look back historically, where you've seen very acute pricing enter the marketplace over time, you see volumes kind of come down but over time as I mentioned, it's our responsibility to bring innovation across price points, our responsibility to work with the trade to drive.
To drive volume back in the categories, we have big traffic builders, our brands are strong around the world and we know our retailers rely on us to bring traffic into their stores and drive volume and basket. So we will continue to focus on finding innovation to ensure that the volume aspect of the category.
<unk> is protected but I do expect as we get more pricing in the market volumes will be a little bit soft year to go but we'll manage that very very closely on commodity specifically again coming back to the first quarter, we talked about $1 2 billion of raw material inflation, we have adjusted that up to one 3 billion.
Quarter. There is most of that will come in the second quarter, but we'll get a little of that coming back to the back half of the year.
We use spot rates as you mentioned and we've seen obviously some commodities come down, but we're pretty much locked in for the third quarter any benefit to any deflation that we see will get a little bit of that in the fourth quarter, possibly more of that coming in 2023.
We will look to obviously continue to take pricing given the unprecedented environment that we're seeing both on raw materials and logistics and make sure that we have the marketing plans to execute that effectively.
Got it.
And our next question will come from Kevin Grundy with Jefferies.
Great. Thanks, Good morning, everyone and congrats and thanks, Kevin.
Hey, good morning, Good morning, everyone up note just to kind of pull together some of the pieces of of what you've touched on with respect and as it pertains to the guidance. So you've exited up your five to seven from from four to six.
And I'm, just looking to get at some of the macro and category specific assumptions underlying that understanding it is going to differ a little bit by category, but it doesn't imply at the midpoint of deceleration in the back half of the year against the easier year over year comparisons you may be just touch on that a little bit and maybe this is some conservatism around elasticity that <unk> seen.
And should elasticities hold its upside, but maybe just comment on pull together some of the commentary so far up but so far on the call relative to the guidance in the back half. Thank you.
Yes. So you obviously, we've taken our guidance up based on the consumption. We're seeing in the market based on the fact that we've been able to get strong pricing and early on obviously see some good volume moving through through the P&L FX continues to be the biggest incremental issue that we see based on where we were in the first quarter.
But overall, we see the category is behaving as we expected now given the incredible unpredictability of what's happening in the global World right now we're watching those tech that category performance very very carefully our estimations are based on the fact that elasticity will be consistent with where we expected it to be or slightly better.
We will adjust accordingly, as we move down the road, but it's very difficult to predict exactly what's going to happen at this stage. So we based our macros based on what we can see today and what we can control. So let's come back to what we can control we control the execution execution of our strategy and were executing against all of the things that we've talked about.
Driving the core looking at Adjacencies, new channels and some of the faster growth challenge channels, particularly e-commerce and Youll see that delivering in there in the results that we've had over the last 14 quarters. So we're pleased with the strategy is taking hold I think the.
Competencies, we're building around digital across the entire enterprise the competencies that we're building an innovation are all starting to track well in terms of how we evaluate them and we're seeing that play out in the performance.
Okay.
Yes.
Okay.
Our next question will come from Bryan Spillane with Bank of America.
Good morning, everyone.
Hey, Brian I wanted to ask a question about just more broadly about just the rebuilding of gross margins and so like forgetting about the construct of.
Fiscal years in time frame.
Is it can you rebuild gross margins if inflation were to your.
Cost of goods.
Basket today were to stay at its current level. So the inflation doesn't receive would it be possible to rebuild gross margins with with cloth at this level or does it somewhat depends upon.
You know some sort of a disinflation, if you will and the cost basket.
Yes, it depends on a couple of things Bryan in our first and foremost we believe that over the longer term. Our focus is on rebuilding gross margins that we feel quite confident that we can do that particularly in the current environment given the strength of our brands. The investment we're putting behind the brands and the innovation grid that we have out in front of us.
A couple of things that need to happen, obviously, the pricing in the market needs to hold as you see inflation come down. It's a real question of where competitors will go with pricing. We think it's been quite rationale to this stage, we think that given the unprecedented levels that youll see constructive moves around pricing and promotion moving forward, but we're.
Third for that it's really the flex of our portfolio across different price points that we need to manage very very carefully showed in my view. If inflation holds the big determinant will be will pricing hold and my sense is given where we see the marketplace today that will be the case. So the answer is longer term, yes, we absolutely believe that we can rebuild gross margin.
<unk>.
Thank you.
Our next question comes from Rob <unk> with Evercore.
Great. Thank you very much and congratulations on a terrific results.
Also kind of stepping back now and over the last two or three years.
And it appears to us to be a very disciplined and systematic manner, you've kind of addressed.
Various issues, whether it's channel and the drug stores and digital.
Whether it's premium as Asian, whether it's.
Competition against local brands and really have done a fantastic job executing and improving the momentum of the business on a commercial basis.
Apart from the macro factors that are going on today and not to diminish those but in terms of the general commercial strategy.
We're whereas the focus now in terms of improving your actual business momentum and what are you doing to address that thank you.
Sure.
Thanks, Rob and good morning, So you come back again, I think to the heart of our strategy, which is big core businesses that need to be innovated against and you see that coming through we've got a pretty significant innovation on our anti cavity business going coming out and some of the developing that part of the world. The premium is Asian aspect.
We've talked about for quite some time, Rob we continue to obviously unfold that across different different parts of our category, whether it be on our hill's business or whether it be on our oral care business. Most recently with the pro series launch witches.
Great innovation with the highest level of hydrogen peroxide in the marketplace and obviously, you're looking at Adjacencies and new channels. If we talk about new channels, specifically to your point, we still see a lot of runway there.
Most of our markets our online share is now above our general market share, which is terrific I called out China, specifically, where we are up as you saw in the prepared remarks 600 basis points on our e-commerce share and that's the largest e-commerce business, we have an oral care and across the world and Thats been driven through good premium innovation alive.
Good personalized marketing getting into data driven.
Decisions in terms of how we think about it.
I come back to the success, we have on digital.
<unk> really equate it back to what we did with Hill's years back I mean that knowledge transfer that we had on hills, where we went digital and online is transferring all around the world and we're seeing great results in our ecommerce business specifically, it's up to now about 14% of our total sales it was up nearly 20% in the quarter.
In terms of growth. So overall, we're seeing a lot of those strategies, we put in place moving forward not a lot of changes Rob we're focused on the execution I think getting some of the supply chain constraints behind us is critically important.
Porsche and that allows us to get back to focusing on what we do best which is execution and innovation across multiple price points and thats exactly where we see things unfolding revenue growth management will be critically important to our success moving forward I think the discipline that we have on the ground quarter to quarter gets better or are we where we need to be no less than <unk>.
And you can see reflected over the last two quarters, where you see at least the two year stack on pricing, which looks terrific for us I think is a testament to the fact that we're finding ways to build this off the strength of our brands and get value executed in the marketplace. So not a lot of changes more focus on revenue growth management more focus on our productivity.
Initiatives and in terms of funding the growth and our global productivity program, which you're well aware of getting that executed in the back half an error in early 'twenty three so again, let's focus on what we do basket on our front foot and continue to execute.
Our next question will come from Steve powers with Deutsche Bank.
Yes, Hey, good morning, no actually picking up kind of on some of the things you were just talking about there at the end I guess based on your prepared remarks on in her commentary just just now it sounds like.
Most of your earlier supply chain issues have generally abated around the world.
Wanted to confirm that industry is call. It let's see if there's any callouts you'd have around bottlenecks that you're still.
Working through number one and then number two on line of sight to funding the growth and savings from the global productivity initiatives.
Just maybe a little bit of color around how those savings.
Can accelerate in the back half of I think they are expected to but just maybe confirm that.
And whether we should expect that to to skew at all.
The fourth quarter versus third quarter.
Yeah, Thanks, Steve and good morning, So let me address.
The supply chain first.
Clearly.
A lot of headwinds over the last six to nine months Covid related obviously more of it.
At the heart of that which has been somewhat consistent with the space and you are seeing others, obviously talk about that more now.
A lot of the supply chain North America issues are behind that behind us you've seen that obviously translate into much better on shelf availability and obviously that translates into good consumption for our brands and the market share performance that we had over the last 13 weeks. It is still a very very unpredictable environment in terms of what we're seeing there the <unk>.
<unk> is all over it but I think that the tougher part is behind US certainly across North North America, I would say given the strong demand that we're seeing on hills, obviously that team is doing an extraordinary job continuing to deliver on the on what we need to to have to meet the demand we're seeing.
In the marketplace, obviously, 18% organic comping, 15% from last year is a really strong performance and I give the supply chain, our global supply chain, who is pulling on resources from all of our businesses around the world to bring in thoughts and ideas on how to continue to meet that capacity. We made some good strategic decisions on our balance.
Sheet, obviously, the nutri Amo facility that we have opening up in Europe will alleviate some of that but we need to watch those carefully because.
Obviously, the consumption is high which I don't anticipate we'll see that level of consumption quarter to quarter, we'll see some some strengths and some slowdown but overall the underlying fundamentals of that business are strong we need to ensure we continue to execute from a supply chain standpoint. So.
Overall, we feel much better about where we are globally from a supply chain.
On funding the growth and GPI GPI as we mentioned will be more back half loaded and into 2023, we had a marginal amount of savings come through in the second quarter. The bulk of the savings will come through in the third and fourth and into 2023.
And Youll see obviously.
Likewise in funding the growth, it's pretty evenly spaced, but historically, we get a little bit more funding the growth in the back half.
And the teams are obviously very focused that we talked about that in the first quarter call that we had a lot more focus against funding the growth given the impression that environment.
Fortunately the global productivity initiatives that we put in place last year in anticipation of a more difficult marketplace. We're starting to see the benefits of that unfold this year.
And our next question will come from Olivia Tong with Raymond James.
Talk about how in your view the competitive environment might change given all the global sort of macro slowdown concerns or does it.
How do you think about it does it does it perhaps puts you in a better competitive position positioning, particularly in emerging markets versus some smaller local players.
And then just following up.
Mentioned, a couple of times that you do expect trade down.
You haven't seen it yet, but you were expecting it to come but you're still planning to price and obviously the hills results speak for themselves. So if you could just kind of triangulate those different pieces of expecting trade down, but obviously, you're not seeing it yet that would be helpful. Thank you so much.
Yes, a couple of things so first of all if I if I take the back end of your question first I mean, the strategy that we have deployed in high inflationary times, which we have a lot of experience in this marketplace doing that is to balance our entire portfolio. We have we compete across multiple price points.
Some in some countries five to six different price points and in a specific category that allows us to be very thoughtful on where we take pricing and when we take pricing and obviously a lot of the analytics that we have in place Olivia now allow us to kind of see where consumers are trading in and out of to ensure that we're adjusting our strategies accordingly.
And I think that flexibility and agility that we have learned over the years in managing high inflationary markets.
Has afforded us the opportunity to think very carefully about how we want to adjust to this moving toward the competitive environment may change for sure if inflation becomes more benign there may be a decision by others to decide to put that into promotion to get some volume, but as I mentioned earlier on I think the market seems to be acting quite rationally.
This is an unprecedented environment for all CPG relative to the levels of inflation and so my instinct is youre not going to see a lot of people chasing volume by discounting prices are going to try to get regain margin in the P&L. You know Colgate is very focused on gross profit. We will continue to be focused on getting pricing into the P&L is that allows us to maintain.
The advertising support to drive the top line and make sure we get our innovation, while seated in the marketplace and I don't really see that changing over the foreseeable future, we will flex our portfolio Accordingly, and the good news is we compete across so many price points across all of our categories that we feel that buffers us a bit for against any trade down that we see in.
The marketplace.
We will now take a question from Mark Astrachan with Stifel.
Yeah. Thanks, good morning, everyone.
You might ask a question on pet care specifically.
Drilling down to too much but the performance has been really strong right. You go back even pre pandemic just would really has gotten better since kind of mid 2000, and I think what a lot of people know understand is that there were a lot of pet adoptions during.
The early parts of the pandemic, which continue.
I guess, if you could unpack a bit of how much of the contribution has come from from that and maybe if you could talk about how you measure your success amongst that newer.
Cohort in terms of your market share amongst those that have adopted pets over the last two years and given that they're probably somewhat new to pet ownership. How do you think about the risk of any of trade down given where the economy may be going.
Yes back on Hill's clearly strong performance the strategies that we've deployed on hills are the same strategies, we've deployed across all of our categories and the learning that we've had from hill as it certainly as they have been much more at the forefront on digital and online as I mentioned earlier that knowledge transfer has been terrific and <unk>.
Third across the world relative to how we're thinking about the business and if you go back to the essence of our strategy its faster growth channels and obviously, they're looking at e-commerce as an opportunity for growth the expansion into new markets, our global supply chain as well as our global footprint allows them to think about more expansion clearly.
We're seeing a pickup from pet ownership in the U S.
That works in perpetuity in many respects because consumers are going to pet owners are going to continue to feed their pets. We've benefited I think from getting back to what we stand for which is science science is inherent to all of our core categories, whether it's oral care skin health and we use that platform to really drive innovation drive superior.
Your consumer benefits and health benefits across the across the value chain and you're seeing that obviously translate into strong growth for that business. So again core adjacencies channels get back to what we stand for in auto, which is science and superiority leveraging our professional model across the enterprise.
They've done a terrific job, obviously with their vet partnerships, which again is akin to what we do in oral care and what we do in skincare. The digital work that Hill's is doing is it best in class for us as a company.
They built that business with a with a digital first mindset, obviously now we're taking digital into thematic advertising as we expand.
Penetration for the brand and to expand brand awareness, which candidly are quite low still so all in all we feel very good about where we are strong growth. We've got tough comps moving forward as I mentioned earlier, but we feel pretty good about where we are and where the consumer is if you go back to O seven OE and during the last recession, we did not see a lot of.
Trade down how did the Hill's business during that time, so we feel pretty good the brand is stronger we're innovating and we're spending behind the brand moving forward. Obviously the supply chain is an opportunity moving forward and we're using our balance sheet accordingly too to address that.
Your next question will come from Lauren Lieberman with Barclays.
Hi, Thanks, good morning.
Your line just had two.
Two questions first of all just to clarify you had mentioned earlier plans on second half pricing and I was just curious and if you can tell us geographically I think it was in regard to.
In North America, specifically, but I, just maybe looking for a little bit more detail on that and then the second thing was on advertising spending in the release you had mentioned a plan now for it to be flat as a percentage of sales still up in dollar terms than you did.
Raise the sales outlook, but I just wanted to get a sense for how you might describe advertising spending plans today versus where they may be where at the start of the year.
That would just be helpful. Thanks.
Sure.
So on on pricing, let me just make it more on a global basis clearly with the inflation that we've seen as we talked about in the first quarter and we were very clear in laying out our visibility in the first quarter round, where we saw pricing evolved through the quarter, obviously it accelerated in the back half of the first quarter and into April we expect pre.
She will accelerate as we look at our organic growth composition through the balance of the year that means obviously that will have new pricing executed in the back half of the year and that will be pretty pretty broad based across the world are not going to get into specific regions, but I will say that we will be taking pricing across both the developed and developing world in the back.
Half of the year and that will be depend on categories competitive situations and we're looking at each of that very closely but broad based we're taking pricing across the world relative to two advertising obviously, given the strong topline the percentage of sales came down our absolute dollar was a little bit up we expect our dollar increase to be.
But in the back half of the year as we continue to support our strong innovation plans and as a percentage of sales we were estimating that that will come in more or less in line.
With where we were last year.
You saw on the prepared remarks, we're spending a lot more time thinking about our digital advertising and the return on investment we're getting there our moving a lot more money from non working and for working media in order to balance that showing the growth opportunities. We see in the market. So we feel pretty good about where we are from an advertising standpoint, and intend to continue to invest to build our <unk>.
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And our final question will come from Jason English with Goldman Sachs.
Hey, Jason.
Hey, there thanks for slipping me in.
Sorry, if some of my questions are redundant to maybe your pro rata remarks of your 10-Q, but we got a lot of information dumped on us today I must confess to have that be able to get through all of it but.
A couple of things that stood out to me.
North America, the sequential improvement in margins was was certainly impressive that better than I was expecting I haven't been able to get through the drivers in the Q, yet, but can you give us any more color on what contributed to that while you can see abatement of year on year decline in the sequential uptick in and whether or not because of anything transitory aiding that.
Sure. Thanks, So obviously, that's North America had strong.
Sequential improvement in margin, obviously up around a couple of hundred basis points that.
That you saw as we put it in the prepared remarks dollar sales growth is driving that and obviously good topline growth.
Good consumption growth across our categories I mentioned earlier, Jason that at least the last 13 weeks, we've seen share growth and share growth in eight of 11 categories, which again I think is is is the result of obviously the execution.
Results were getting in the marketplace. The innovation working our promotions effectively in the marketplace and some of the new products that we've put in place.
But obviously, we're going to continue to focus on gross margin expansion across both North America and the company gross profit is the key focus.
Finding the growth initiatives that we have in place getting the mix right getting the innovation right in oral care as we move through the back half of the year will be critically important supply chain was a contributor to that as well obviously, we've got some of those issues that are behind us still a lot of pressure, we need to focus on logistics, which continues to be a real headwind.
For both North America, and the company and as we see opportunities in the back half or certainly look to take those.
Good stuff thanks, a lot.
Okay.
And we have no further questions at this time I will turn the conference back over to Noel Wallace for any closing remarks.
Well, thanks, everyone again broad based growth across the company.
Executing and transferring knowledge across our core categories, we're seeing obviously good consumption.
Obviously, an unprecedented environment around pricing will continue to be focused on revenue growth management, our funding the growth initiatives in our global productivity initiative as we go into the back half. Thanks for the call. This morning, and we look forward to talking with everyone. Soon.
And that does conclude today's conference once again, thanks, everyone for joining US you may now disconnect.