Operator: The next question comes from Bryan Spillane with Bank of America. Please go ahead.
Bryan Spillane: Hey, thanks Operator. Good morning everyone. Stan, just had a couple of questions just related to cash flow. One, I don’t know–maybe I missed it, but if we have a guide for capital spending for the year, and then I think you refinanced or you funded a maturity in the middle of the quarter with commercial paper. Just kind of curious there, were you just looking to pay it down or will you look to refinance that or term it out at some point? Then maybe just more broadly, as we’re thinking about cash flow, given where exchange rates have moved, interest rates have moved, just any other thoughts on how we should be thinking about free cash flow conversion this year and uses of free cash flow.
Stan Sutula: Bryan, thanks for the question. First, we’re pleased with the cash flow performance, really solid start for the quarter. We’re down a little bit year-over-year, but I’ll remind you last year was a terrific cash quarter, and this was really driven by receivables, which were impacted by the timing of Easter. In fact, we’ve looked at the first couple days of the quarter and that collection period completely brought DSO back in line, so we’re very comfortable with that. Our cash profits really have been helped from the top line growth, and the net working capital execution, I was very pleased with what the team accomplished here in first quarter, particularly around inventory. Even with the Red Sea challenges and building up a little safety stock in certain areas, great execution on inventory, you saw the inventory days improve.
DSO is strictly timing. In regards to your question on capex, we had said previously that we expect capex as a percent of sales to be lower than last year, and that’s really driven by Tide and Oxy coming online and that investment dollars dropping off. If we look at our leverage, the strong cash flow and execution has allowed us to bring our leverage using the S&P methodology down to 1.8 times, so an improvement from year end; and to your point, we did pay back a bond here in first quarter, $500 million, and we did that with CP. Two reasons – one, we had very good strong cash flow, and two, at some point we expect interest rates will come down, though that appears to be sliding farther out to the right, and that will help us keep our fixed-floating back in balance.
Again, as we look at cash flow, strong performance, and as we think about that, it kind of goes back into the capital allocation, and I think you’ve seen that manifest itself in our strategy. That capital allocation hasn’t changed – it’s best in the business, and you’re going to see capex go up and down. We’re investing in advertising, return to shareholders – we had a dividend increase and you saw our share buyback in the quarter, and then M&A where we look at options to improve our overall portfolio.
Noel Wallace: Yes Bryan, the only thing I would add is, again picking up on the theme of flexibility, it’s not only flexibility throughout the P&L but it’s having a really strong balance sheet that gives us the flexibility to deploy capital as we see the best return on that investment. I give Stan and the finance organization huge credit and the discipline they’re bringing around the world to ensure that the cash generation continues to be robust.
Operator: The next question comes from Mark Astrachan with Stifel. Please go ahead.
Mark Astrachan: Hey, thanks. Good morning everybody. I wanted to go back to North America and the outperformance of these untracked channels. We can now start to see in some of the data the distinction between the new and the legacy channels, and it’s pretty stark in your business in particular, Hill’s specifically, but overall there’s a lot more growth in those channels – I guess they’re smaller. But curious your take on what is driving that exceptional outperformance, and how sustainable is it in terms of these other places, like Costco, Amazon, etc. that’s contributing to that growth, overall and I’m specifically look to Hill’s, which is really doing quite well in those new channels. Thanks.
Noel Wallace: Yes, thanks. Again, we’ve been talking about that for quite some time, and that has been, I think a reflection of the strategy that we talked about for three years, which is core, adjacencies and channels. Getting back to a real focus and understanding the consumer journey across all of the markets in which we compete has been fundamental to making sure that we have strategies to capture and deploy our investments in areas where we think we’re going to get the best return for that. Some of these emerging channels that are not captured by Nielsen are very, very important, whether that’s hard discount stores in parts of the world, whether that’s the club store environment where the value pack and large sizes continue to be a big growth driver, whether that’s the ease and convenience of shopping online and some of the digital execution and understanding the digital shelf and the discipline that we’ve brought to that.
That ultimately is being seen through the success that we’re having in those alternative channels. We don’t anticipate that that will change. I think as some of the classical brick and mortar retailers really up their game, and we’re certainly seeing that across the U.S. markets where the big players are certainly becoming far more sophisticated and progressive with their offerings and their shopper experience. We’re partnering with them to ensure that our brands are involved in that journey that they’re on and making sure that we’re bringing our digital capabilities to the entire omnichannel environment and making sure that Colgate and the brands that we offer are at the forefront of that. It’s again shopper journey, the experience that shoppers are getting, the value orientation on some of those channels, and our ability to be much more targeted with some of our spend, and that’s particularly related to the online retailers.
Operator: The next question comes from Brett Cooper with Consumer Edge Research. Please go ahead.
Brett Cooper: Thank you, good morning. A question for you on the competitive environment and outlook. It would appear to date that promotional activity and competition hasn’t ramped to the extent that some had feared. Some of your large peers are looking to accelerate growth via reinvestments, so would love to hear, first, whether that assessment on the environment is accurate generally, and then your perspective on whether there’s enough opportunity to elevate category growth via things like household penetration growth, premiumization and share gains to net higher levels of growth, or is all of this reinvestment just the new cost of doing business? Thanks.
Noel Wallace: Yes, thanks Brett. What’s interesting is you’re seeing–I think you’re hearing that a lot of the competitive set has focused on building healthy category growth, and that’s two ways: one, with increased media investment, and the second is with increased innovation. We have not seen a fundamental shift around the world to more volume sold on promotion – it’s still below where we were pre-COVID. Now as volume becomes the important aspect here, you may see some players move to that strategy of doing more promotions, but overall the category has been very constructive in terms of big players spending money on media, driving value to the categories through innovation, and offerings that are differentiated in the marketplace, and so its incumbent upon us to ensure that our innovations continue to drive real value to the category and differentiation in a very competitive market, and making sure that we’re using the analytics and the data that we have to drive balanced promotional strategies in the categories.
We’ll be competitive where we need to be. I’ve mentioned we’ve made some difficult decisions in the U.S. business to not chase a lot of deep down in promotions, particularly in certain retail environments. That will have a short term impact on the Nielsen shares, but long term we feel we’re going to deploy that money in an effective way. Again, it’s making sure that we continue to drive saliency of our brands and the health of our brands long term, and we do that through media and innovation, not necessarily through promotions.
Operator: The next question comes from Alejandro Zamacona with HSBC. Please go ahead.
Alejandro Zamacona: Thank you, good morning. Would just like to follow up on Latin America. Given the strong organic sales [indiscernible] the last few quarters, what should we expect going forward? To what extent is the consumer willing to continue to accept meaningful price increases without giving up volumes?
Noel Wallace: Yes, good morning Alejandro. Again, let me contextualize Latin America. Obviously a really strong organic sales growth quarter with and without Argentina. There was good volume growth across every single hub, led by Brazil which was up double digits. If I take the last four quarters of Latin America in terms of volume, 0.5, 5.4, 8, and 6.2, so again very consistent with what we talked about. Our ability to get pricing early in the market has allowed now to see the volume return to the categories and ultimately into our business. Our marketing is really strong and innovation is very strong on the ground, and so we feel very good about what we’re seeing, and that’s been translating into really positive share growth for the business.
Ex Argentina, very good organic growth – you know, organic up significantly in the region. I think you saw double-digit growth in Brazil, which has been terrific. Oral care particularly has been really strong in the quarter – that was up double digits, excluding Argentina. Shares in value and volume up – it’s been quite some time since we saw both of those move in the right direction, and again a reflection, I believe of the strategy of increased investment and making sure that we have a breadth of offerings in that market. That is a market that’s accustomed to inflationary pricing across many of the markets in which we compete. Being key for us is making sure that we continue to advertise strongly in the markets and we bring real innovation across the entire portfolio.
That keeps the categories vibrant, allows us to work with our retailers to drive category growth, and hopefully capture share at the same time. So overall, we think Latin America is well positioned for continued growth and we like what we’re seeing there.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Noel Wallace, Colgate’s Chairman, President and CEO for closing remarks.
Noel Wallace: Great, well thanks everyone for joining the call today. Obviously we’re really pleased with the quarter and how we’ve gotten off to a strong start that we believe sets us up for continued sustainable growth moving forward and generating a long term algorithm that we’ve been talking about for quite some time for our shareholders. Let me particularly reach out to all of the Colgate employees around the world for their incredible dedication and resilience and their hard work in really executing a strategy around the world, and for getting us off to a great start. Thanks everyone. We’ll see you and talk to you soon.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
