Colgate-Palmolive Company (NYSE:CL) Q4 2022 Earnings Call Transcript

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Stan Sutula: So, thanks, Noel. Rob, let me just pick up on the on the Hill’s organic and private label and how we are showing that. If you look at the press release, you stated, you saw net sales were up 20%, organic sales were up 14%. There is no private label in the organic sales. So we include in the net sales, but in organic, it will only be inorganic when it wraps around for the year, which will be in the fourth quarter. So when you see organic sales that represents true year-on-year with no private label benefit in that number. Similar to volume, you will see the volume in a press release at plus 10% and then organic volume at plus 0.5%. So volume expanded even outside of private label, you get a feel for the size of private label in the as reported volume number. So, again, that will be that way Q1 through Q3, and then in Q4, it will wrap around, because it will be in both years and be in the organic numbers.

Operator: Our next question will come from Mark Astrachan of Stifel. Please go ahead.

Mark Astrachan: Yeah. Thanks, and good morning, everyone. I want to go back to gross margin kind of looking backwards and then trying to think about it going forward. So I guess I am curious what happened to gross margin in 4Q, I mean, I hear all of what you talked about some things unexpected. But if you go back and look at what you said at the last call, you were locked in at least that’s what I thought you said on, I assume a bunch of these raw materials, ag pieces. So was just the manufacturing variance of startup costs, et cetera, just much greater. And I guess the question going forward then is I hear you in modeling the question on this call is about, improving gross margin expectations and all these things that are potential tailwinds.

But how much visibility do you have as you sit here today and what potentially is based in that could go wrong? And then kind of pushing it forward longer term, how do you think about — how does the company think about the necessity to grow gross margins over so that you can hit the earnings algorithm for the business given where the topline expectations are and just how important that is and what line of sight you have to get back to a number, not that I am expecting you to comment on, you can get to 60% again, but if you can talk directionally to that that would be helpful as well? Thanks.

Noel Wallace: Thanks, Mark. Let me start with the end, the last question first and provide some thoughts and I will have Stan walk through you a bit more of our assumptions once again. Listen, driving gross margin for our company has always been fundamental and it’s always been the fulcrum of our P&L, and as we laid out in the prepared comments, we expect gross profit to be up in 2023. I remind you that the gross profit was down 160 basis points in the fourth quarter, if — when you exclude the impact of Red Collar. Some of the issues that we incurred in the fourth quarter, obviously, we had a mix issue with the lower skin health business that we mentioned. A little bit of a mix issue on Hill’s as well with more of the Science Diet business versus prescription diet, but we obviously had the elevated ag prices moving through there and the startup costs that as Stan mentioned earlier, that moved through the gross profit line.

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