Colgate-Palmolive Company (CL) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Return to Mid Single-Digit Volume Growth: The company has returned to mid single-digit volume growth, including growth at both Hill’s and Hawley & Hazel, highlighting early success from their strategy.
• Expansion of Gross Margins: Gross margins are expanding, driving incremental gross profit to fund investments in brands and capabilities while delivering compelling bottom line growth.
• Leveraging Data and Analytics: The use of data and analytics tools, including AI, is optimizing the return on increased spending.
• Strong Cash Flow: The company has strong cash flow to fund investment, dividends, and share repurchases, positioning it well to drive top-tier TSR.
• Effective Execution Against Strategy: Recent results demonstrate the strength and effectiveness of the company's strategy execution.

Pessimistic Highlights

• Promotional Environment in North America: The company noted a more promotional environment, impacting pricing dynamics.
• Commodity Cost Pressures: Sequentially higher commodity costs are anticipated as the year progresses, potentially impacting margins.
• Foreign Exchange Risks: There is concern over foreign exchange movements, particularly in Latin American currencies, which could impact financial results.

Company Outlook

• Sustained Growth: The company is positioned for sustained, consistent compounded growth moving forward, with a focus on balanced top-line growth and consistent compounded earnings per share growth.
• Investment in Innovation and Marketing: Plans to continue investing in innovation and marketing to drive household penetration and brand health.
• Monitoring Promotional and Pricing Dynamics: The company will carefully monitor the promotional environment and pricing dynamics, especially in North America, to maintain volume growth and profitability.

Q & A Highlights

• Q: Can you give us a deeper understanding of the levels of investment and what drives the confidence in sustaining improvement? (Peter Grom, UBS)

  A: The strategy focuses on flexibility in the P&L to invest behind brands, driving strong volume performance and household penetration. International exposure offers opportunities for growth, and the use of AI and other tools is improving ROI on investments. (Noel Wallace)

• Q: What is the long-term top-line growth opportunity in Hill’s on the volume and pricing side? (Dara Mohsenian, Morgan Stanley)

  A: Hill’s had a strong quarter with significant pricing historically. The focus is on low household awareness and penetration, segment opportunities like wet foods, and international expansion. Pricing opportunities exist, but the environment is monitored for inflationary pressures. (Noel Wallace)

• Q: Can you talk about the North America business and the promotional environment? (Filippo Falorni, Citi)

  A: Organic growth in North America was in line with expectations, with more volume and less pricing due to year-ago comparisons. The promotional environment is more promotional, impacting pricing dynamics. (Noel Wallace)

• Q: What is your outlook on Europe, considering broader deceleration in consumer goods? (Andrea Teixeira, JP Morgan)

  A: Europe showed strong growth, with innovation across price tiers and channels sustaining momentum. The balance between pricing and volume is encouraging for the back half of the year. (Noel Wallace)

• Q: How are you managing sequentially higher commodity costs? (Robert Moskow, TD Cowen)

  A: The company anticipates some raw material inflation and FX impact but feels confident in offsetting these with productivity and funding the growth initiatives. Gross margin in the second half is expected to be up year on year. (Noel Wallace and Stan Sutula)

• Q: Have you seen any noticeable changes in consumer behavior, especially from low-income consumers? (Bonnie Herzog, Goldman Sachs)

  A: Consumer behavior is generally constructive, with targeted innovation and value-oriented offerings addressing value shopping trends. The consumer environment is good in most regions, with some volume on deal in North America. (Noel Wallace)

• Q: Can you discuss the sustainability of volume growth in North America and investment posture? (Chris Carey, Wells Fargo)

  A: Volume growth in North America is expected to continue, with favorable comparisons in the coming quarters. Pricing dynamics were largely due to year-ago comparisons, and the company aims to maintain a balanced approach to promotions and pricing. (Noel Wallace)

• Q: What are you seeing in Latin America, particularly in Brazil and Mexico? (Olivia Tong, Raymond James)

  A: Latin America continues to perform strongly, with high single-digit volume growth in Brazil. The consumer environment is good, with strong organic sales growth across the region. (Noel Wallace)

• Q: Can you talk about pricing broadly across the industry? (Steve Powers, Deutsche Bank)

  A: The focus remains on balanced growth with strong revenue growth management principles. While pricing may moderate, the company is positioned well with strong brands and productivity to offset inflationary pressures. (Noel Wallace)

• Q: Can you discuss reinvestment in the first half and plans for the second half? (Bryan Spillane, Bank of America)

  A: The company plans to continue investing where there is a return on investment, focusing on driving top-line growth and building capabilities for the future. (Noel Wallace and Stan Sutula)

• Q: Can you provide an update on the three-brand strategy in Europe and its applicability to other markets? (Lauren Lieberman, Barclays)

  A: The strategy focuses on leveraging Elmex and Meridol alongside Colgate to capture growth in therapeutic categories and pharmacy channels. This approach is being selectively expanded to new markets based on strategic considerations. (Noel Wallace)

• Q: What's driving the shift to lower-priced channels in North America, and can you discuss Prescription Diet's shelf space and volume? (Mark Astrachan, Stifel)

  A: The shift to non-tracked channels like Costco and Amazon reflects value shopping trends, but the company is prepared to capitalize on these shifts. Prescription Diet benefits from increased supply chain flexibility, improving shelf space and volume. (Noel Wallace)