Colgate-Palmolive Company (NYSE:CL) Q3 2023 Earnings Call Transcript

Colgate-Palmolive Company (NYSE:CL) Q3 2023 Earnings Call Transcript October 27, 2023

Colgate-Palmolive Company beats earnings expectations. Reported EPS is $0.856, expectations were $0.8.

Operator: Good morning. Welcome to today’s Colgate-Palmolive Third Quarter 2023 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now, for opening remarks, I’d like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher.

John Faucher: Thanks, Allison. Good morning, and welcome to our third quarter 2023 earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the Q3 2023 earnings press release and related prepared materials, and our most recent filings with the SEC, including our 2022 annual report on Form 10-K and subsequent SEC filings, all available on Colgate’s website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in tables 4, 6, 7, 8 and 9 of the earnings press release.

A full reconciliation to the corresponding GAAP financial measures is included in the Q3 2023 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 Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q3 results and our 2023 outlook, and we will then open it up for Q&A. Noel?

Noel Wallace: Good morning, everyone. I want to give you my thoughts this morning on a very strong quarter of top and bottom-line growth, along with our raised 2023 outlook. As you can see in the materials we published this morning, our strategy is working, and the continued execution of the strategy leaves us well positioned as we look out to the future. We believe this will enable us to deliver balanced organic sales growth going forward, growing in all six divisions, all four of our categories, and with both volume and pricing growth. Organic volume performance improved in the quarter, which we believe puts us on our way towards a return to volume growth. And with the leverage from this balanced growth, along with the global productivity initiative, focused cost containment, and our funding the growth initiatives, we now have multiple points of leverage in our P&L.

This should enable us to deliver consistent operating profit and earnings growth going forward. You can see this in our Q3 results as our gross margin was up both sequentially and year-on-year, driven by sales growth, and overheads were down, driven by logistics. This leverage allowed us to deliver another quarter of double-digit operating profit growth, along with a 23% increase in advertising. Some of our markets remain choppy and the headwinds like foreign exchange and higher interest rates will continue to impact us, but we are leveraging the strength and the global reach of our brands while driving scale advantages through our science-based innovation, digital marketing, revenue growth management, and best-in-class on-the-ground execution.

Our momentum leaves us very well positioned to deliver strong results with compounding top and bottom-line growth as we look to generate consistent long-term value creation for all of our stakeholders. And with that, I’ll turn it over to the questions.

See also Bill Miller Portfolio: 12 Picks From Legendary Value Investor and 20 Greenest Countries in the World.

Q&A Session

Operator: [Operator Instructions]. The first question will come from Peter Grom of UBS. Please go ahead.

Peter Grom: Thanks, operator, and good morning, everyone. I hope you’re doing well. So, Noel, I wanted to ask specifically on just kind of the return to balance topline growth and kind of how you see that evolving over the next couple of quarters. I mean, excluding H&H, you probably already would’ve been there this quarter, as you highlighted in the prepared remarks. So, is this something that you kind of expect to achieve call it in the near term as you kind of exit 2023? Or is it going to be a dynamic that you would expect to kind of play out over the next several quarters? Thanks.

Noel Wallace: Yes, good morning, Peter. Thanks. Listen, we’re obviously very pleased with the sequential improvement really throughout the entire P&L. Volume improved, and as you rightly pointed out, if you take the Hawley & Hazel business out, which as you know, we’re working through a price increase in that market, our volume inflected positive in the quarter. And we’ve seen that pretty consistent around particularly some of our emerging markets where we saw very positive volume. So, we’re pleased with the sequential improvements. The category dynamics are consistent with what we talked about, but they’re not necessarily linear. I mean, we’re seeing some puts and takes as we look around the regions and the different categories that we compete in.

Obviously, taking more pricing across the pet food business as agg prices continue to stay high, but overall, the sequential improvement is playing out more or less as we anticipated. And as we move forward, our intention is to continue to drive balanced organic growth in the short and the long term.

Operator: The next question is from Andrea Teixeira of J.P. Morgan. Please go ahead.

Andrea Teixeira: Thank you. Good morning. Noel, you mentioned the full-year guidance, of course, was raised seven to eight, but it still implies a deceleration, of course, in the fourth quarter. And you called out in your prepared remarks, some of the puts and takes, in particular anniversarying the acquisitioning path, and then that would lead to a reduction in third-party manufacturing for private label. Can you break that down because it also implies, I’m assuming the base business a deceleration, and I understand that you’re lapping a lot of the pricing, but just as we think about volumes and in particularly North America, there has been a sequential improvement and you called out as well that you are expecting promo and more activations in trade. So, anything you can share with us in terms of the progress you’ve made to regain volumes in North America as it relates to the full guidance for the fourth quarter. Thank you.

Noel Wallace: Sure. Good morning, Andrea. Let me take the North America piece of that question first, and then I’ll highlight more strategically across the enterprise. So, North America is on pace with exactly what we talked about in the Q2 call, continued sequential improvement across the board, and we anticipate that they will see sequential improvement in their business as we move through the fourth quarter. A lot of that was getting the promotional cadence right, and we started to implement some of that promotional opportunity in the backend of the third quarter. Most of that will come through in the fourth quarter, and we’re pleased with it. Obviously, the important part about North America is the oral care business, that inflected positive with high single-digit growth in oral care and positive volume growth on that business in the quarter as well, and we anticipate that will continue as we move through the balance of the year.

So, North America overall trending as we expected. We’re still not pleased with some of the scanner shares, but as we said, we’ll get the promotional opportunity right as we move through the balance of the year. And importantly, our non-promoted volume, which reflects, I think, the strong advertising that we’re putting into the North America business, continues to inflect positive. Strategically, around the world, we’re seeing volume improve across the world. Now, that is based on a lot of the geographies we’ve seen the pricing start to subside a bit as we’re not taking more pricing in some of the markets. Really pleased seeing in markets where we took pricing early, like Latin America, where we’ve seen a very positive inflection in volume.

Volume was up 5%. And if you look at Mexico and Brazil, specifically, Mexico was up mid-single digits. Brazil was up high single digits in volume. So, again, I think a reflection of the strong advertising innovation and the fact that over time, as pricing settles out in the market, you see the volumes come back and that’s pretty consistent. Europe, likewise, a little improvement in volume. So, we’re seeing exactly as we expected to see volumes start to sequentially improve, but it’s not necessarily linear. And I want to leave that point that we’ll watch that carefully as we move forward and we’ll continue to implement our strategies of strong innovation across the core adjacencies and channels, and we’ll see that play out as we move forward.

Operator: Our next question will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

DaraMohsenian: Good morning. Can you guys discuss market share performance in your key geographies and product categories in Q3, how you’re performing on the share front? And given you’ve taken robust pricing, what are you seeing competitively in terms of the pricing and promotional environment and how might that play into your shares performance? Thanks.

Noel Wallace: Sure, thanks. Good morning, Dara. Sure. Overall, shares look good. We’re up on a global basis. Let me just take toothpaste, which we track globally. Shares are up about 100 basis points. That’s driven by strong performance in Europe, where we’ve seen record high shares, particularly behind the strategy of pushing our higher-end therapeutic brands on the premium side with Elmex and Meridol, as well as strong innovation on the Colgate side behind whitening. So, Europe delivering very strong. Africa, Middle East, we’re up in 10 of 11 markets and market shares there. So, continue to show nice performance. Pleasingly, Latin America, where we, as you know, we have very high shares, shares are stable. We’ve seen shares growing in Brazil, slightly down in Mexico, but tracking up in recent periods.

So, we’re pleased with that. US in the recent weeks, we started to see some of the promotional volumes come back as we very thoughtfully put promotions in the market. We’re not just going to buy share back for the sake of buying it back. We’re going to get a much healthier category as we move forward, and that’s been very deliberate in how we thought about that business there. Africa, excuse me, Asia shares continue to be strong for us in China, so we’re pleased with that. And likewise, as you go around the region, share is pretty good in India. We’ve done some really good work on our core business in the last couple of months, and we anticipate that’s going to inflect positive for our core business. Overall, pleased with pleased with market shares.

On the Hill’s business, likewise, very strong volume and value share growth in pet specialty and neighborhood pets, which is where we track. We’re one of the fastest growing brands in both those retail environments. So, we’re pleased with obviously the strategy of bringing innovation and the increased advertising support we’re bringing into the business. A little softness on our home care business in the US and that, again, attributes right back to the promotional cadence, and we’re addressing that as we move through the fourth quarter.

Operator: Our next question will come from Filippo Falorni of Citi. Please go ahead.

Filippo Falorni: Hey, good morning, everyone. So, clearly you returned to solid volume growth at Hill’s and solid results despite a more challenging category. So, Noel, can you maybe comment about how your business is positioned compared to the category weakness that we’re seeing, which seems concentrated more on the wet side and the treat side. And then just thinking about Q4, how should we think about the progression of volume in Hill’s, considering you’re going to lose some of the private label volumes both from a topline, but also from a margin standpoint. Thank you.