Q3 2022 Colgate-Palmolive Co Earnings Call

Good morning, welcome to today's Colgate Palmolive third quarter 2022 earnings conference call.

This call is being recorded and is being simulcast live at Www Dot Colgate Palmolive Dot com.

Now for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer, and senior Vice President M&A John Sachet.

Thanks Allison.

And welcome to our 2022 third quarter earnings release Conference call.

As John Boucher.

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 related prepared 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.

Noel will provide you with his thoughts on our Q3 results and our 2022 outlook. We will then open it up for Q&A.

No. Thanks, John and thanks to all of you for joining US. This morning, we continue to execute our growth strategy as we deal with an operating environment that remains very volatile.

In the third quarter, we delivered high single digit organic sales growth with growth across every division. We also delivered growth in all four of our categories, including high single digit growth in oral care pet nutrition and personal care.

I know you guys petition these are a big topic of conversation this quarter, while our volumes were negatively impacted by retailer inventory reductions and he'll supply chain constraints in the quarter.

Underlying elasticity remained in line with our expectations and we would expect volume performance to improve sequentially in the fourth quarter as these headwinds abate.

We delivered strong pricing growth through revenue growth management, and healthy productivity to funding the growth and the initial benefits of our 2022 global productivity initiative.

This helped us drive a sequential improvement in gross margin in the third quarter. Despite further increases in raw material prices.

The headwinds, we face whether from foreign exchange raw and packing packaging materials and logistics costs or macroeconomic uncertainty are significant but we believe we are well positioned to deal with these issues. We have taken the difficult steps necessary to meet these challenges head on through pricing productivity.

<unk> capital deployment and other actions these actions leave us well positioned to benefit when our markets stabilize.

The first reason is our portfolio. We are focused we have a focused portfolio of leading brands in growing categories competing across multiple price tiers.

Consumers use the vast majority of our products every day when.

When they shower when they clean their homes when they feed their pets and hopefully when they brush their teeth. After every meal.

We believe this high frequency of usage combined with the strength of our brands helped with our last issues. Despite significant pricing. This has been particularly true in oral care.

And our cadre categories generally have low private label market share as compared to many other HBC categories, where we don't compete.

Consumers look to trusted brands to provide value and we have built brands over time that deliver value to our customers and our consumers, particularly given our breadth of offerings across price tiers from entry level to ultra premium.

And our professional recommendation model and several of our largest categories also helps to provide added value and differentiation to consumers, which builds brand loyalty.

And we have high market shares with number one or number two positions in many of our key segments across all four of our categories.

We're also well positioned because we are building capabilities and then scaling them across the company in order to drive growth, both now and in the future.

Our most important capabilities are focused on science led innovation.

Particularly in a time when there is so much pricing in our categories. It is vital to add consumer identifiable value.

You can see our progress here on brands like Colgate optic White Hills.

Hill's prescription diet <unk> and many others. It is also helping to drive improvements in our market share trends.

I spend a lot of time with Barclays talking about our digital transformation and area that is impacting every facet of our business. Our ecommerce performance. The ROI of our advertising a digital driven supply chain the use of AI in new product development and even how we're doing our training around the world.

Revenue growth management is another capability, we are scaling across the organization, we're putting the full force and effort of our data and analytics team into our Rgs planning. We believe this is also helping us to make our gms decisions to help to lessen the impact of your elasticities.

So as we head into the Q&A I want to reiterate that our strategy is working and through an environment that remains uncertain and volatile. We believe we are well positioned with strong brands scaling capabilities and most importantly, great people. So I'll turn it over to the Q&A now.

We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone.

Your question. Please press Star then two please.

Please limit yourself to one question.

If you have further questions you may reenter the question queue.

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

Press Star and then one.

Yeah.

Our first question today will come from Peter Grom of UBS. Please go ahead.

Hey, good morning, everyone I hope you're doing well so I wanted to ask specifically on Hill's maybe first is there a way you could potentially quantify the impact of the supply chain constraints and reductions in retail inventory had on organic sales in the quarter and then maybe more importantly, I know you mentioned a return to double digit order.

<unk> sales growth in September , but can you maybe discuss why you remain confident in the acceleration in the business looking out to the fourth quarter and potentially longer term. Thanks.

Yeah. Thanks, Peter Let me, let me go back to the strategy and I think because it underpins some of the obviously the supply chain constraints that we had earlier in the quarter, which is obviously based on really high demand for the brand and we've had nine quarters of double digit growth on that business with fundamentally the same supply chain network. So if you go back to the queue.

Core elements of the strategy really building science, driven innovation that we translate into claims for the consumer claims for our vets that technicians that drives to endorsement of our brand we translate that digitally across the enterprise run our E. Commerce business ahead of general market shares ultimately that is driving.

Strong consumption and what happened in the early part of the quarter is the supply chain is obviously at 100% capacity pretty obviously, the acquisitions of Red collar and the acquisition that we made in Europe .

We now have the ability to really free up capacity moving forward, we're going to be able to do a lot more efficient production in our existing facilities were transferring a lot of that volume into the new red collar facilities, which are coming upstream as of October . So we feel very good moving forward and as you mentioned, we exited the quarter back in double digit.

So strong consumption in the business shipments outpacing excuse me consumption, obviously outpatient shipments and we feel very good about where we are in the next three to six months as we integrate the red color acquisition and continue to operate our plants more efficiently in the existing network.

Our next question today will come from Dara <unk> of Morgan Stanley . Please go ahead.

Hi, good morning so.

Obviously incredibly strong pricing in the quarter, we haven't seen that level of quarterly growth in decades. So.

It would be helpful. Just to understand what you're seeing competitively out there given such strong Colgate pricing are you content with price gaps are you generally seeing competitors follow or might there be adjustments that are needed.

As you think about that pricing going forward. Thanks.

Yeah. Good morning, Thanks, Let's go back to again, what we've been discussing all year, we took pricing obviously as we articulated in the second quarter, particularly across North America and other divisions that pricing continued obviously in the third quarter, we have led pricing in many of our markets.

And that has been fundamental to the growth of the business right. Now we believe it's critical to get the pricing into the P&L. We have now seen competitors begin to follow so that should alleviate some of the volume pressure that we saw early in the quarter, but we feel very good about where we are with pricing. We obviously feel that the market will continue to.

Hold that pricing as we see a very constructive market as Ive just discussed in the past with competition that competition was a little slow to follow.

But we have seen that in the later ended the quarter. The promotion of our competitors have followed in our core categories. So we feel pretty good we talked about elasticity as upfront, they're more or less in line with where we articulated at Barclays. We've seen a little bit more elasticity given the pricing that we took in some of the homecare businesses, but again, we took home.

Care pricing ahead of competition and competition is now following so we expect that to alleviate as we move forward, but overall, we feel pretty good about where we are obviously foreign exchange is the new dynamic we're dealing with and having lots of discussions with the team on how to manage price volume moving forward, but we feel very good about where we are right now.

Yeah.

Our next question today will come from Andrea Teixeira of Jpmorgan. Please go ahead.

Thank you good morning.

Can you comment a bit on the pace of volumes exiting the quarter I think you alluded to the fact that he just got better with the acquisition I know it takes you mentioned three to six months I just want to reconcile.

No you'll comment also on pricing that.

Competitors are following now and then you hope to alleviate should we expect like the way the quarter unfolded that volumes were not as bad as you exited the quarter. Thank you.

Yeah. Thanks, Andrew Yeah volume has improved as we exited the quarter as we talked about obviously some of the supply chain constraints upfront on hills, we talked about post Barclays. As you remember we saw some early warning signs in the online business on our trade our trade partners, taking inventory down we had not seen it in brick and mortar at that.

Stage, but we had communicated that that's not to say that might happen towards the end of the quarter, which is exactly what happened we saw some inventory come out and some of the key retailers in North America. We obviously saw continued reductions in inventory on Amazon throughout the quarter and that ultimately led to roughly 100 basis points of <unk>.

Headwinds on the quarter take that with additional 50 basis points of Russia.

<unk> in the corner and obviously some of the supply chain constraints. So we feel good about volumes sequentially improving in the fourth quarter, obviously consumption seems to be holding out, but we have to bear in mind that there is a lot of pricing going in the market across multiple categories and we'll continue to watch that very carefully we've also obviously.

Had to pull a little bit of the advertising back in the quarter as we saw consumption across most categories slow down in Europe , and obviously the constraints on Hill's Hill's we'd move that money into the fourth quarter to continue to drive consumption and exit the year strongly we do not want to be cutting investment we believe hopefully some of these volatility.

The short term our focus is continue to invest behind the brands and drive consumption as we move into 2023.

Our next question is going to come from Chris Carey of Wells Fargo Securities. Please go ahead.

Hi, good morning, Keith.

Can you just perhaps comment on how you feel about.

Gross margin progression clearly pricing is coming in quite strong in the commodity impact actually worsened sequentially, but ultimately commodities will ease.

Going forward.

Into next year, and presumably with productivity remains a good story. So in the context of what Youre seeing on the volume side do you feel like you might need to reinvest back some to drive demand within promotion.

Perhaps I can reduce that pricing, but in general it does feel like your weather and quite a bit of commodity pressure here.

Pricing and.

And these things are going to ease going forward. So I wonder if you could just give a sense on how you feel about gross margin progression over time. Thanks sure. Let me just I'll take it conceptually and strategically the top end and May turn it over to Stan to give you a little bit more color.

Overall strategically as we talked about coming into the second quarter. We felt it was very important to get ahead of the inflationary environment and take as much pricing as we could we watch that very carefully obviously with consumption you combine that with the initiatives that we set out for 2022 with our global productivity Index. We felt it was very important to get it.

Ahead of this which we announced back in 2021, and we're seeing that coming through on the gross profit line and obviously gross profit up sequentially in the quarter. Despite 920 points of headwind in the gross margin. We conciliation. So we feel that was important to get that in and we'll continue to take pricing as necessary raw.

<unk> I will turn it over to Stan to give you a flavor of where those are right now we've seen a little bit of a pullback.

Pull back, but more or less we're still seeing significant increases versus where we were last year. Sam yes. So we've seen some modest movement materials costs, but overall, we continue to see raw materials as a full year of 2022 is $1 $3 billion full year increase as a reminder, that's 23% year to year.

In the third quarter as Noel highlighted it was 920 points.

So a little bit of color underneath that oil has generally been lower since our last call, but now is kind of creep back to where it was then we've seen egg as a as an offset here an increase versus our previous guidance, particularly around proteins corn et cetera, those are notably higher versus where we were in July partially offsetting that we've seen palm oil.

<unk> has actually come in a decent amount now that's favorable but tallow soybean other oils are still showing elevated levels of inflation. So that's what keeps us at the $1 3 billion for the year as a reminder, we lock in so typically in this quarter is no exception, we're largely locked in for fourth quarter now one other comment.

While natural gas is not a raw material per se, we do use it to power plants, particularly in Europe , and Thats been volatile and continues to escalate. So as we expected raw materials continue to move but overall still see $1 3 billion and this is why we have our GPI program our funding the growth program.

As we look to take productivity to mitigate that 920 point headwind.

Our next question today will come from Bryan Spillane from Bank of America. Please go ahead.

Thanks, operator, good morning, Hey, Dan maybe if I could just pick up on the last question.

Can you just give us a sense of just given how volatile raw material costs have been are you locking in or hedging further out and.

As we begin to look kind of look at 2023.

Is there how far how far ahead are you in terms of loss being locked in on raw material costs were 23.

Yes. Thanks for the question, Brian So as we look we've seen the volatility while we've had movement up and down the $1 3 billion.

It's exactly the same number we highlighted out of last quarter. So are you seeing components move up and down we've only seen modest movement on a net basis, we typically lock in the next quarter and then we do do some longer term pricing into that mark that in out quarters, but it's relatively modest as you would expect the near quarter against.

The most and then it kind of scales down but today, we're not going to give 2023 guidance. What we are looking at is the movement that we see we're trying to make sure. We're very prudent not locking in areas that we think are going to moderate over time and then we don't do a lot of hedging. So we do some in the AG space, but we don't.

A lot of hedging among the others, we think price is the ultimate hedge.

Our next question will come from Jason English of Goldman Sachs. Please go ahead.

Hey, good morning folks thanks for slipping me in.

A couple of quick questions I'll try to squeeze in so back to the $1 3 billion inflation. Our quick math suggests that implies a reasonable amount of moderation in the fourth quarter is still a lot of inflation, but certainly less than what we've been seeing the last few quarters is that math right and secondly in your Q you give raw round numbers on percentages sales by.

Category and I know they are round numbers. So it can be a lot of a lot of variability there, but it does suggest that youre seeing.

Year on year declines in your personal care and home care categories can you just maybe elaborate a little bit on what you're seeing within those individual categories. Thank you.

Yes, let me take the categories first and then I'll, let Stan provide a little bit more color on the.

On the raw materials, and where we see the fourth quarter ended up new categories by and large where we estimated obviously.

We've seen a little pullback in the home care categories, but personal care oral care in pet nutrition continued to be.

Quite healthy, particularly given the pricing that's going into the category.

Relative to year on year, I mean, all of our categories in terms of how we play them are up there.

There may be some impact from foreign exchange, there, Jason but other than that we see we see good growth across a broad nature of our categories and on the raw materials, Jason We said in our last call that we thought this is going to peak in Q3, we continue to believe that so while the full year still holds at $1 $3 billion, we do expect some slight.

Moderation in Q4, and again, we're largely locked in for that yes.

The one area I would add is AG prices and some of the specialty.

<unk> inch that we use in <unk> and science diet and prescription diet those continue to be to be quite high. So we're watching those quite carefully as we move into 'twenty three.

Our next question today will come from Kevin Grundy of Jefferies. Please go ahead.

Okay, great. Thanks, good morning, everyone.

One of the pivotal as a question on portfolio strategy two parts to it. The first one just overall level of satisfaction with the portfolio as you sit here today any updated thoughts on where you potentially would want to augment through M&A.

The second part as it pertains to the hills, which is a business, which has done extraordinarily well you recently there was a view in the marketplace, we've been latent value and the Colgate portfolio, specifically related to that business and love to get your thoughts there, perhaps remind us of the board's approach to portfolio assessment. Thanks for that.

Yes. Thanks for the question in a world of significant volatility we are really pleased with the diversity of the categories. We compete in the carefully curated categories. We're highly focused on four as you well know we've been focused on for for a long long time, we have deep understanding those four categories. We believe.

We've there well constructed and well positioned for future growth, whether youre looking at consumption opportunities why EOG net price driven opportunities in terms of premium innovation and obviously they are all not going to.

Run in tandem and we've obviously done some great things in and the pet nutrition categories. We pivoted a lot of that strategy over the last four years and you're seeing the success of that you've seen the success in this year as we're driving broad based growth across all of our categories, which I talked about initially very happy with skin health.

Obviously, the professional skin business in the U S continues to perform very well, yes, the <unk> business in China continues to be a challenge.

Given the Lockdowns, we've seen in China, and the lack of travel of Chinese consumers around the world, but overall, we feel the ebb and flow of our categories is exactly where we want to be right now and we feel very fortunate that we're very focused on four and all of those categories are growing today.

Yeah.

Our next question will come from Olivia Tong of Raymond James. Please go ahead.

Great.

Great. Thank you.

My question was more around expenses.

On commodities and raw mats is it is it possible to kind of parse out how much currency played a part.

On a constant currency basis, and non advertising if you could just give a little bit more color.

It sounded like most of that was related to.

The disruption in hills, just a little bit more color in terms of your.

Ongoing expectations, particularly in sort of the.

Digital aspect given what we've heard from some.

Some of it some of the digital advertisers. Thank you.

So let me start with the expenses piece so on raw materials, obviously, we operate in over 200 countries and territories. So as you think about the currency impact on our overall portfolio that also impacts our raw materials. So I wouldn't say, it's outsized in any particular, one some materials are sourced from one or two supply.

So they'll have an outsized impact while others are sourced locally and those have a natural hedge if you will for a currency aspect. So FX as you think about the impact to raw materials, you should think about that largely in line with the impact of the overall company and that will vary slightly by division.

On advertising Olivia.

You heard to say that on a dollar basis. So we were down about 3%, but on a local currency basis, we were up 2% overall, we still feel good.

With the impact we're having in the markets. We've done a lot of work as others have done to really optimize our spending now with obviously a move of 50 plus of our spending now 50% plus of our spending in digital we're able to get much more deep into the analytics and the ROI metrics, we're doing a much better job at personalizing our content.

As I've talked about before.

Yes.

People around the world on our digital transformation media being an important part of that so we feel we're getting much better we pulled back a little in Europe as we saw a pretty significant drop off in the categories and so we wanted to be prudent.

We thought about investment moving forward and as I mentioned earlier, we pulled back a little bit in the third quarter and hills, but transferred that money into the fourth quarter to continue to drive consumption as we bring on more capacity.

Our next question will come from Callum Elliot of Bernstein. Please go ahead.

Hi, Thanks for the question.

The portfolio question, if thats, Okay. I just wanted to ask you can you talk please about the ARPA.

Operational integration of the <unk> business with the personal care and home care businesses.

Specifically with a view to how difficult would it be to separate parts. So all of personal care home care, if youll view with the change about that.

Value of those personal care.

Overall company.

Yeah, what I'm going to step back again and talk about the strategy of the company and why it's working and I think the results today illustrate that our growth strategies across all of our businesses and how we integrate those businesses and scale our capabilities are delivering strong performance for the overall business 15 quarters now of organic sales growth was.

Our 3% to 5% target range, we've had growth in every division and all four of our categories and we're particularly pleased obviously this quarter with high single digit growth in oral care, our personal care business as well as our pet nutrition business, a key part of that strategy, which I think gets to the heart of your question is is how were leveraged.

Our capabilities across the enterprise, we've talked about our science driven approach clinical substantiation for our products that drive claims consumer acceptance drive lead to professional endorsement as you know we have a strong professional model across our pet business, our oral care business as well as our skin health business.

We're leveraging those learnings in fact over the last year.

Year and a half we've put an organization in New York simply to look at how we continue to optimize and sharpen our professional strategies as we see brand recommended most often is a key driver of salient cheap for the brands and the equities and ultimately loyalty our digital transformation largely initially led by Hill's.

We have now taken their capabilities their talent and use those across the entire enterprise to further our digital capabilities you've seen our E. Commerce business is one of the fastest growing channel businesses that we have today our market shares in markets like China, which is the biggest ecommerce market are.

Our delivering against any other competitor in the market and we really attribute that to leveraging the scalability of certain capabilities across the enterprise. So again, we like the four categories. We compete in a lot of similarities a lot of overlap and we continue to see that executed in terms of the results that we deliver.

Today, No one thing I'd add there I think is that integration extends to our supply chain one of our key attributes here is the production that we do across the world and we integrate that particularly across personal care home care and oral care and that gives us a lot of leverage.

Our next question today will come from Lauren Lieberman of Barclays. Please go ahead.

Great. Thanks, Good morning, everyone I guess two things.

First off as you've commented quite a bit on elasticity and feeling and I'm, saying, it's very much in line and I think you've done a nice job, calling out hills and then the inventory Destocking in North America, but one thing that jumped out at me was just the volume performance in Latin America. So.

And if you could just give some other companies I think we've kind of seen what looks like a bit better resiliency in the face of pricing. So just curious if you could offer some more detail on Latin America.

And then secondly, I was just curious on your view broadly on inflation is grocery.

Into 2023.

How much more space do you think there is for incremental pricing across your portfolio. If it <unk> terribly different domestically versus internationally I'd just be curious for some perspective on that as well. Thanks.

Yeah. Thanks, Lauren let me talk to Latin America in fact, I, just got back from trips to Brazil, and Mexico. So the.

The information's, a very fresh you saw the 20% pricing that we took in Latin America, obviously, following a significant pricing in the second quarter about 12, five and as I mentioned upfront.

We have led in pricing across all of our categories in Latin America.

And as a result of leading it took time for the others to catch up and obviously, you've got elasticity when the others, having catch up is going to be a little bit higher.

As we exited the quarter, we started to see volumes improve particularly across personal care and oral care home care, a little slow to recover but we will see.

I think we will see that stabilize as we move forward, but overall the plans I saw in place in both Brazil, and Mexico were really really strong shares.

Very good in Brazil, a little soft in Mexico, particularly in Oregon.

<unk> given the fact that we took aggressive price competition follow initially as I was leaving those markets competition, followed so we feel pretty good as we move into the fourth quarter and into 2023.

The innovation plans that we have in place and the premium <unk> plans, we have in place in Latin America look really really strong in fact in both Mexico and Brazil, we have seen our share of the premium segment grow sequentially over the last five quarters six quarters. So we feel good about where we are there. We're also as we've talked about in the.

Past the importance of our core businesses Relaunching some of our core businesses to ensure that if we do see trade down and we continue to provide value at the at the opening price point, we're there for that consumer. So overall feeling good about Latin America, as we move into the fourth quarter and in 2023 relative to inflation.

Moving forward listen I think everyone is going to deal with that how they see fit we will continue to take pricing I think the key aspect for us is continuing to invest behind brand building and that brand building ultimately allows us to take more pricing in the markets around the world and continue to drive value to our consumer.

<unk> now, we'll see where the competition goes if inflation becomes more benign, which I think most people expect it to be we will watch that carefully but the pricing environment has been to know very constructive and we anticipate that as we can bring stronger innovation into the market continue to invest behind our brands, we will minimize the elasticity.

Is there more opportunity in grocery absolutely, we'll see that as it as it comes to fruition, but right now we feel good about where we've taken pricing and particularly the the plans we have in place to minimize elasticity.

Our next question will come from Camille.

A lot of credit Suisse. Please go ahead.

Hi, guys. Good morning can you maybe talk a little bit more about Europe , obviously, we can see the delivery in the quarter, but.

Area, where inflation might be the most acute is also an area where the consumer might be under the most amount of pressure. So maybe if you can just talk about your outlook for Europe , particularly as we're going into the winter.

Yes.

You are right I mean, Europe's certainly under the most pressure, particularly around energy pricing.

We have taken significant pricing in Europe has others habits as you go back and look at that in history. It's the most pricing thats gone into the business in quite some time.

Fortunately, we have a good mix of price points covered in Europe , the strength of our <unk> and our merit all brands, obviously at the premium side.

And Colgate, obviously more in the mainstream you've seen the combination of those two businesses grow share in the quarter ending the year. So we feel good about where we are as I mentioned earlier I think consistently across the world a little bit more elasticity in the homecare businesses.

But we've got some pretty significant re launches coming in early 2023 on our homecare businesses. So we feel good about the plans in place we have in order to continue to drive.

Consumption there so overall, it's going to be a tough winter.

We're going to watch that very closely we feel we've got a good mix of brands and at different price points to deal with the significant inflation that consumers going to have to deal with but obviously a tough six months ahead of the Europeans.

Our next question today will come from Robert Einstein of Evercore. Please go ahead.

Great. Thank you very much.

Couple of sort of follow up questions on.

On the inventory side the retail adjustments.

Is that are you confident that's done at this point.

And is there anything on the e-commerce side, where there could be adjustments in terms of e-commerce related inventories.

Inventories and then and then second you know.

Can you give us any more details on China.

We've talked about that a lot in the past how are you doing there how are the market share trends.

And how.

Is that market starting to reopen.

Yes. Good morning, Thanks on the inventory adjustments, obviously, we saw quite a bit come out towards the end of the quarter.

Is it done.

And we can't make that prediction, we followed these inventories as I mentioned I think on the second quarter call you up and Barclays to the day, I mean, particularly with our big customers.

We work very much in collaboration with them on the guidance and goals that they have invariably what happens is they may take.

<unk> decisions across all the categories that they are reducing inventories and we deal with that unexpectedly towards the end of the quarter. We obviously are staying very close to our case fill us in on shelf availability and communicating that back as necessary. The last thing. They want to do is obviously run out of stocks with particularly with our portfolio which are significant.

Traffic drivers across the categories in which we compete so is it done it's hard to say that it is below where they historically have managed their inventories that usually means that they'll bring them back to those levels or something closer, but we'll have to watch that very carefully and very difficult for me to predict.

Great quarter for China, we've talked about China over the last two years in terms of the transformation of our strategy on the ground, which was significant from our entire go to market to some of our marketing and innovation plans. We've seen our E. Commerce continue to be one of the fastest growing e-commerce brands in the market.

We've seen our brick and mortar business stabilize over the over the last couple of quarters, which is terrific. You saw the growth that we delivered that last two quarters for greater our greater China region, we delivered positive pricing and positive volume across our enterprise, we had the holiday in Haynesville.

The Darlie relaunched it has gone into effect. This is a significant significant relaunch for the brand changing the brand name that's been quite successful our Colgate business continues to track well. So overall, we feel good now no question. The Lockdowns are having an impact of Lockdowns have had a significant impact on our <unk> business they've had a significant impact on some of <unk>.

Sure.

Our premium brands as we've seen those typically translate into slower online sales, but overall, we feel pretty good about where we are we'll see where the lockdowns go that will open up the market and as that comes back to a more stable predictability, we feel good about where we are and what we built in terms of capabilities on the ground.

During a very difficult to 18 months.

Our next question will come from Jonathan Feeney of consumer edge. Please go ahead.

Good morning, Thanks, very much I just wanted to follow up about your thoughts about big picture about promotional efficacy big debate is how much.

I know you talked about everybody's wondering how much promotion is going to come back structurally but I wanted to.

Dig in and any any comment you could have about or more people.

People have gotten trained awful buying on deals so now a little bit more promos coming back in it's a little bit more.

Little by little anyway.

How is promotional.

As promotional efficacy, where you are promoting working better or worse than your expectations, particularly I'd say North America and Europe developed markets. Thanks.

Yes, Jonathan Thanks for the thanks for the question clearly I think as a consumer.

Becomes more strapped relative to inflation, they will be more astute in looking at promotions.

Can characterize at least where promotional volumes are particularly for North America and it would be somewhat a generalized consensus for the rest of the world.

Our promotional volumes are slightly down year to date that was deliberately deliberate we've pulled back on some aggressive couponing.

That can that can drive volume, but doesn't do much for your P&L we've.

We've seen some of our competitors follow that strategy not all of them I would say our two key competitors have taken their promotions up a little bit in the U S. But you saw the U S numbers at least our consumption continues to be very strong in North America. We were upper flat in eight of our 12 categories, our toothpaste business and toothbrush business continues to perform.

Well with share growth and we've done that with good innovation and pulling back a little bit on promotion now where does it go moving forward I think promotions will be sharply managed by by the categories and by our competitors and we will have to watch that very carefully, but clearly I think you would expect to see a little bit more volume sold on promotion moving forward.

Returning to much more normalized levels.

Given the fact that the trade and our competitors will be looking to drive a little bit more volume in the category, but we're going to watch that very carefully again I think it comes down to your ability to leverage your portfolio effectively a lot of the work that we've done and revenue growth management really gets to the heart of that on how to balance entry price point mid price point and <unk>.

Premium price points in order to drive value to the category and to our customers and ultimately, giving the consumer a good proposition to take home.

Our next question will come from Nik Modi of RBC capital markets. Please go ahead.

Yeah. Thank you good morning, everyone. No I was just hoping you can reconcile the inventory Destocking dynamic you know I'm just thinking about fill rates are recovering.

The same time the categories in which you play our high frequency so it's Jeff <unk>.

Retailer decisions based on dollar based inventory that they are holding across the store or purchase frequency, let's say with an oral care people are squeezing a little extra out of their choosing.

Purchase cycles are getting a little wider any any perspective around that would be helpful. Sure.

Trips are down, but starting to turn a little bit.

We're not seeing significant changes and obviously household penetration across our categories.

Consumers may be losing a little bit less we'll have to watch that moving moving forward. The basic driver in volume has been just more deliberate shifts in some of our trade partners trying to manage their costs, particularly as AC discretionary items slow they've had to look at obviously, the full basket of inventory and take inventory.

Down more quite frankly across the enterprise.

We watch as I mentioned upfront very very carefully with our with our trade partners. We watch out of stocks. Our case fills are all back up.

Obviously looking good across the business with the exception of the early <unk>.

Supply chain constraints, we had on Hill's as I mentioned, but we feel good about where we are from that standpoint, which gives us a lot more visibility and a lot more confidence as we deal with our trade partners to give them what they need again predicting what they are going to do towards the end of the quarter becomes difficult, but I think as these things stabilize inventory.

Stay down at these levels the trade the trade will look to high velocity categories as their first priority to take back up because thats whats going to drive traffic in their stores.

Our next question will come from Mark <unk> of Stifel. Please go ahead.

Yes, thanks, and good morning, everyone.

Just a few questions for me one could you just comment on what global volume growth would be in your categories second maybe remind us thoughts about pricing, particularly in pet it if theres any sort of depletion and then just more.

More broadly on pricing how are you thinking about maintaining the pricing that you've taken you know what would be the expectation for that retention.

And has there been any sort of change from a retailer standpoint in terms of your discussions about taking or retaining and maybe if you could talk a bit I know some of the questions. We're talking about that domestically, but maybe if you could talk on a global basis.

Perspective, that'd be helpful. Thank you.

Sure.

Yes global categories.

We're tracking today around 3% to 4%.

Maybe a little shy of that in volumes, but value more or less 3% to 4%, obviously as pricing goes into the market.

See the ebb and flows there, but overall, we expect volumes to recover we do think purchase cycles as I mentioned earlier, we'll get a little bit more elongated consumers will watch their consumption in their pantries quite carefully we've seen we've watched the pantry inventories, we've seen a little bit of that come down, but that's to be expected, but overall I mean, we're looking.

Global category growth in the three to four range and obviously, we're growing above that.

Generally around the world and so that obviously leads to better consumption on our categories are these better shares in terms of pricing in the in the categories our ability to retain that that depends largely quite frankly on our innovation and the value proposition, we are bringing to consumers and we've spent a lot of time, it's not just <unk>.

<unk> pricing Theres, a lot of re launches into that our GM strategy that we've been talking about to ensure that across all price points, we're adding value to the consumers something new and different for them to continue to use our brands and see longevity in terms of the interest they have.

And our equities and so we've been very careful to ensure that it's not just straight pricing that we're bringing value whether it's through price pack architecture through better innovation in terms of science, driven claims et cetera, et cetera, specifically on Hill's I think it's very much about the innovation strategy that we have the Durham complete launch significant innovation.

The <unk> that we have significant innovation in the market so that drives real value with the consumer that we can communicate and justify the price increases that we have so we will continue to it to.

Execute against that strategy, and we'll watch the categories carefully as we balanced volume and price moving forward.

The last question will come from Steve powers of Deutsche Bank. Please go ahead.

Oh, great. Thanks.

I actually wanted to go back to Europe .

You spoke about this a bit but I just thought it was.

Good question.

A little more perspective on your outlook on European profitability.

Are there or not you thought it was going.

It get worse before it gets better or whether or not you saw improvement on the horizon.

And maybe as part of that I guess I would.

Also curious what youre seeing from.

Some of your European based competitors, which are obviously on the other side of.

The FX wall here, and and how that may be playing into.

Pricing considerations and competitive considerations.

Perhaps in Europe .

The headwinds of profitability or maybe it's more maybe more globally.

Yes, Europe had a good quarter. Obviously this has been an incredible undertaking to get that level of pricing in the P&L you haven't seen that.

Quite frankly in a long long time, and I think it plays out.

It plays back to a lot of the work and the focus that we've had around revenue growth management, Europe's doing an extraordinary job.

Do you know the trade there can be difficult.

But we've seen a lot of good opportunities to take pricing in the category. It's also I think underscore the ability to bring real new news to the category and we're doing that across the board. We have strong brands in oral care in Europe , Obviously merit all in <unk> at the premium side of the business continue to grow in this environment. Despite.

The fact that we have led on pricing. So we feel pretty good about where we are I again mentioned the home care business.

Across the World is the challenge and we're taking a very deeper look at exactly what we need to do to ensure we continue to drive more volume in those categories. You've got strong businesses in home care in Europe , and we need to be mindful of that Al mentioned I guess it is a point private label private label down is across all our categories in north.

<unk> in market share as you've seen it inch up that you would expect a little bit more on Europe . So we're going to have to watch that this is a market that will be challenged in the next six months given the inflationary pressures they are under.

And then everyone's well aware of and we're thinking very carefully about how to continue to execute successfully the key is getting pricing in the P&L, which allows us to leverage that we need to do the things that we need to do moving forward.

Yeah.

This concludes the Q&A portion of our call I will now return the call to Noel Wallace, Chairman, President and CEO for any closing remarks.

Yeah, well, thanks, everyone and good questions I wanted to come back to just a couple of concluding remarks as you've seen I think our strategy continues to pay off the broad based growth is encouraging all four categories. All six divisions. The innovation stream that we're putting in the market. That's a testament to a lot of the changes we've made in innovation over the last.

Couple of years, that's driving premium <unk> and making sure we sustain our strong core businesses, particularly at the at the entry level that digital transformation is having a profound impact on how we operate around the world How we drive our GM, how we drive content. So we think we have a well positioned portfolio moving forward.

But most importantly, I'm really proud of how our team has executed this strategy to deliver the continued organic sales growth theres been a tremendous amount of headwinds against the business, but we've now delivered 15 straight quarters of either in line or above our 3% to 5% target and this quarter was 7% organic is a terrific quarter and we.

We're very proud of the work that the teams on the ground and doing so with that I wish all of you are healthy and safe end of the year and I look forward to speaking to you in January .

The conference has now concluded. Thank you for attending today's call you may now disconnect.