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

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So we feel like we are in a pretty good position to continue to execute against our strategy, deliver gets the gross margin improvement in 2023. Obviously, the first half we have a bit more visibility, we don’t have that visibility in the second half, but we will continue to execute against what we see in front of us and that is our need to take more pricing, get it into the P&L and ensure we have the investment to support that.

Stan Sutula: The only thing I’d add, Lauren, on that one is, look, we took actions early in the year, particularly around the global productivity initiative that started to pay off in the back half of the year. So we saw some of that flow through here hit in the back half of the year. And we manage the overhead lines carefully and because we are running the entire P&L up and down and those overhead lines, we prioritize within that. We want to make sure we support advertising, digital, analytics and then we make trade-offs within that, as you would expect us to do go forward. We think that’s just a prudent way to run the business and we will continue to do that heading into 2023.

Noel Wallace: Yeah. As I mentioned earlier, Lauren, we are very pleased with that middle part of the P&L around how we managed overheads, which given, obviously, the headwinds we have seen below that around interest expense, as well as tax, it’s extremely important that we got ahead of that. We delivered an additional 50 basis points of overhead on top of the 150 basis points that we had in the previous year. So we feel that structures us well to invest in strategically the areas that we think are fundamental to driving long-term growth. Those are the capabilities that we have talked about around digital transformation, improved capabilities around innovation, certainly as we restructure that part of the organization and making sure that we have that operating leverage to sustain the advertising investment, which is clearly driving a good topline growth for us.

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

Bryan Spillane: Hey. Thanks, Operator. Good morning, everyone. So my question is just around cash flow. Free cash flow conversion, if I am doing the math right was about 74% of net income this year. I think in absolute dollars, free cash flow down about $900 million. So maybe you can talk a little bit about, as we look forward, do we expect some of that free cash flow productivity to improve? And then maybe just related on, I know you have talked about net interest expense being higher for this year, just if you can put a number on that and also on capital spending? Thank you.

Noel Wallace: All right. Let me hit the topline, and Bryan, good morning, by the way, and I will let Stan take you through some of the puts and takes. But, overall, cash flow — our cash was down due to lower cash income, right? Obviously, that was the higher — that was some choices that we made, particularly around working capital investments, a little bit increase in inventories as we were dealing with some of the supply chain disruptions we saw from suppliers and our need to sustain the consumption growth that we had in the marketplace, particularly some of the stronger consumption growth, but obviously, inventory days came up as a consequence of that. But we improved a bit a bit of that in the fourth quarter versus where we were in the third quarter.

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