Colgate-Palmolive Company (CL) Q3 2011 Earnings Report, Transcript and Summary

Good day, everyone, welcome to today's Colgate-Palmolive Co. Third Quarter 2011 Earnings Conference Call. Today's call is being recorded and is also being simulcast live at www.colgate.com. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Bina Thompson. Please go ahead.

Thank you, and good morning, everybody, and welcome to our Third Quarter Earnings Release Conference Call. With me this morning are Ian Cook, Chairman, President and CEO; Dennis Hickey, CFO; Victoria Dolan, Corporate Controller; and Elaine Paik, Treasurer. This conference call will include forward-looking statements. And these statements are made on the basis of our views and assumptions as of this time, and are not guarantees of future performance. Actual events or results may differ materially from these statements. For information about certain factors that could cause such differences, investors should consult our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Cautionary Statements on Forward-looking Statements. We will discuss organic sales growth, excluding foreign exchange, acquisitions and divestitures. We will also discuss gross profit margin, operating profit, net income and earnings per share, excluding the impact of the one-time items described in the press release. A full reconciliation with the corresponding GAAP measures is included in the Press Release and is posted on the Investor Relations section of our website at www.colgate.com. Now as Ian said in this morning's press release, we are indeed very pleased with our strong topline performance this quarter. As you've seen, it's been accelerating consistently throughout the year. Volume is going nicely and the pricing we had said we will begin to implement is contributing to sales as well. Market shares are increasing in much of our business. Globally, our shares are up in toothpaste, manual toothbrushes, mouthwash, bar soaps, body wash, household cleaners and fabric conditioners. Category growth rates continue to be robust in the developing market and has stopped their decline in developed markets. The even sale split within the fast-growing emerging markets and the more mature markets provide the good balance for our business. As you saw, our gross margin decreased and was down more than we had projected, when we spoke to you last quarter and this was due to 2 factors: Number 1, as we told you we would, we were able to realize price increases, although due to the competitive activity there were not as strong as we had forecast. And secondly, at the same time, raw material cost increases were greater than we had forecast coming into the quarter. While commodity prices in the market have come off their highs, there is a lag between market movements and the time when they flow through our income statement. On the other hand, we've seen very good progress in reducing our overhead expenses. This has been a renewed focus for us over the last year and it is beginning to pay off. Encouragingly, with a gain from the sale of our Laundry Detergent business in Colombia beginning this quarter, we have implemented and are continuing to implement a number of business re-alignments and other cost savings initiatives around the world which should generate even further savings as we head into next year. We expect this to continue to provide the funds to increase advertising behind our exciting new product launches as well as our base business. And our balance sheet remains strong. Return on capital increased to 36.8% and as referenced in the press release, our working capital declined as percent of sales. So let's turn to the divisions starting with North America. As we have told you, much of the new product activity here in the U.S. is happening in the second half of this year. We're very encouraged by the success of all these launches across categories which is reflected in the good volume performance in the quarter. In addition, we grew organic sales for the first time in four quarters. First and foremost is our launch of Colgate Optic White toothpaste and toothbrush which have met with great success. As you know, Colgate Optic White toothpaste is a unique formula which provides whiter teeth in just one week. The companion toothbrush has special whitening cups and polishing bristles. Our year-to-date toothpaste share referenced in the press release is at 35.8%, which is the market-leading position. And our share for the month of September climbed to 38%. In September, both the toothpaste and toothbrush were the number one selling SKUs in their respective Oral Care categories. We also launched Colgate Sensitive Pro-Relief toothpaste with a companion toothbrush and they have met with success as well. In the Personal Care category we told you last quarter, about the introduction of Softsoap brand bar soap. This new product has driven our bar soap share to a 12.6% in latest period. And we've been active in the Home Care category as well, in terms of innovation. Our new Ultra Palmolive soft touch dishwashing liquid is doing very well, driving incremental share. On a year-to-date basis, our overall dish liquid share increased 50 basis points. And this month, we shipped another variant in our Sensorials line, Ultra Palmolive Sensorial Pomegranate. Since fragrance continues to be a key growth driver for Home Care products, this product builds on this insight by offering the fresh scent of pomegranate, while providing powerful grease-cutting action. So we're very excited about all this activity which will, of course, be supported by a full range of in- and out-of-store activities. Looking ahead then to the fourth quarter. Volume in North America is expected to grow modestly with organic sales growing at the same pace. Operating profit is expected to be down double digit as we step up the pace of our advertising. Turning to Europe, South Pacific. This region of the world remains very challenging from a macroeconomic point of view. However, we do see modest category growth in Oral Care while the Home Care category remains more sluggish. Our market shares are up in toothpaste and toothbrushes, for both the Colgate and the GABA businesses. Our overall toothpaste share is at 33.2% year-to-date, up 40 basis points with our most recent share at 33.5%. Our manual toothbrush share is at 21.2%, up 90 basis points, with the most recent share at 22%. And our good share performance overall, is in the face of continued heightened competitive activity. In the U.K. for instance, both our leading toothpaste and toothbrush shares are up on a year-to-date basis. GABA continues to perform well and every year has delivered results ahead of the expectations we set out at the time of the acquisition. As you know, premium and relevant new product launches are critical in this environment. We're very excited about our new toothpaste, which is launching this and next quarter across the region. Colgate Total Pro Gum Health. With an aging population, gum problems afflict an increasing number of consumers. Studies in the U.K. show that three out of four people may suffer from gum problems, but not aware of the consequences or treatment. So our integrated marketing campaign behind the launch, both educates the consumers and the profession on the problem and provides the solution with Colgate Total Pro Gum Health. In Personal Care, we are launching higher-margin new products as well. The relaunch of Palmolive Experientials line of bath foams and shower gels in a new higher-impact packaging should command higher average selling prices and margins. Although the line is just rolling out across the region, several countries are posting incremental share gains of between 1 and 2 points. And we continue to be very pleased with our acquisition of the Sanex business. We are working through the integration as we speak. Overall market shares are solid and they too, as you saw in the press release, have benefited from successful new product activity. So looking ahead to the fourth quarter, volume across Europe South Pacific is expected to be at about third quarter levels with organic sales flat versus a year-ago quarter. Operating profit is expected to be flat to up modestly. Turning then to Latin America. We're delighted with the continued excellent momentum in this region as stated in the press release, market shares are strong and growing. The macroeconomic environment across the region remains favorable despite some recent strengthening of the U.S. dollar. In toothpaste, our year-to-date market share is at 78.1% with a most recent read of 78.5%, and this strong performance is in the face of continued competitive activity. In Mexico, our share remains above 80% year-to-date. In Brazil, our share is at 70.4% year-to-date with the most recent share at 70.8%. And importantly in both of these key markets, we've seen very good results in the premium end of the business. This should continue, as we launch our premium priced Colgate Luminous Whitening toothpaste in both markets. The trade acceptance has been remarkable and we have achieved distribution in record time. In manual toothbrushes, our market share is at 40.8% year-to-date, up one full point, with a most recent read at 41.4%. In Mexico, we've gained half a share point in the face of competition's heavy promotional activity. And similarly, in Brazil, we've gained share and strengthened our market leadership position. Our mouthwash shares across the region are up 3.5 points to a record 33.4%, narrowing the gap between our closest competitor from over 20 points in 2008 to less than 10 points year-to-date in 2011. Our strategy of premiumization and adding value for the consumer is working in our Personal Care business as well. Protex Advanced Clean is helping to further consolidate our leading bar soap share across the region. Capitalizing on our long history of partnering with a profession, we have showcased this premium price variant at dermatological and pharmacological congresses, gaining endorsement from both. Our regional share is 29.6% on a year-to-date basis, up almost 1.5 points from the year-ago period with the most recent share at 30.3%. So looking ahead to the fourth quarter. Volume in Latin America should grow low to mid-single digits with organic sales growing at least high single digits, and operating profit is expected to be up low to mid-single digits. Greater Asia/Africa. As elsewhere in the world, new products have helped to deliver the solid volume and organic growth in Greater Asia/Africa. Toothpaste shares across the region are approaching 40% and our manual toothbrush shares are close to 35%. We have maintained leading toothpaste shares in the large markets of China, India and Russia. And in Turkey, we achieved market leadership, a record share of 30% in the month of August, up almost a 0.5 on a year-to-date basis. In South Africa, toothpaste share is almost 50% and we have witnessed very strong growth behind Colgate Total which, as you know, is priced at a premium. In the toothbrush category, the launch of Colgate 360° Surround has grown our share in Malaysia by 150 basis points to 36.3% and to a record 29.3% in Turkey in a latest period. In South Africa, we continue to grow market share and extend our leadership on the back of strong growth not only from our premium-priced Colgate 360° toothbrush, but also for our Value Colgate Double Action toothbrush. Mouthwash shares continue to grow in virtually every market as we expand the Colgate Plax portfolio. Fresh Tea in China, Complete Care and Sensitive in India and Ice in other countries, supported by impactful advertising and in-store program. Across the region, our market share on a year-to-date basis is up three full points to 17.3%, with the most recent share at 18.3%. So looking ahead to the fourth quarter, volume in Greater Asia/Africa is expected to grow mid-single digit in the quarter, with organic sales growing modestly faster. Operating profit is expected to decline modestly as we step up advertising behind our new product launches. And Hill's, while we're encouraged with the longer-term prospect for Hill's in terms of relevant new products, increasing market shares and continued global expansion, results this quarter were impacted by several factors unique to the current environment. Specifically here in the U.S., the specialty category has been under some pressure. And most of the growth has been coming from the natural segment where we were under-represented. However, one of our latest new product launches, Ideal Balance which focuses on proper nutrition, in addition to natural ingredients is gaining good and wide acceptance but it is still in the early shipping stages. Secondly, some of our customers have instituted inventory reduction programs which have temporarily affected our shipments to them, and we expect these two factors to dissipate over the next few quarters. We're excited about our new product pipeline, as well as new Digital Media program which should drive growth. As we launch new products, Digital Media has become an increasingly important part of the picture. For example, as part of the Science Diet Ideal Balance Canine launch, we partnered with Pet M.D. to develop a unique tool to educate pet parents on the importance of proper nutrition through the creation of MyBowl. PetMD is the most consulted source for Global Pest health information. When consumers visit MyBowl, they learn the essential features of well-balanced meals for dogs and how they help ensure optimal health. The goal is to show dog owners, what makes a properly balanced nutrition and help them better understand the dog food label. And of course, properly balanced nutrition is the selling proposition behind Hill's Science Diet Ideal Balance. Again, while it is early days, Ideal Balance is off to good start. Distribution is ahead of forecast, consumption is growing and building momentum. And most importantly, the product is bringing new household into the Science Diet brand. Another new program about which we are very excited is the partnership with Trupanion pet insurance company to co-market its first pet insurance which provides coverage and discounts for feeding therapeutic and preventative nutrition. Coverage will be provided for all therapeutic foods featuring Prescription Diet, which is the market leader in this category. And as well, premium discounts will be given for feeding Science Diet Healthy Advantage, a wellness food sold exclusively through the veterinary channel. This partnership should help increase pet owner traffic to the vet clinics and grow the category. So looking ahead, Hill's volume in the fourth quarter is expected to be about even with the year-ago quarter, with organic sales growing modestly. Operating profit should be flat to slightly up. So in summary, we are pleased with the accelerating momentum in our top line and with the excellent share results we have seen around the world. This is particularly encouraging in a challenging macroeconomic environment in the developed parts of the world, coupled with continued worldwide competitive activity. Our ability to take pricing has not affected our volume growth and our broad portfolio product offerings at all price points has served us well, in both developed and developing markets. We look forward to sharing our results for the balance of the year. And now, Anne, I would like to turn it over to Q&A.

[Operator Instructions] We'll take our first question from Ali Dibadj from Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: I wanted to ask you a little bit about the gross margin movement that we saw in the quarter and now your guidance. I mean, negative 264, I think on a recurring basis is, at least for us, the worst we've seen going back to the 90s. And so I want to understand how that -- what that means. Is that shift away should we think about your company? Because it seems like you're much more linked to commodity now than we have seen before. And some of that seems to be tied to the inability, at least at this point, to be able to take less pricing to offset it. So as we go forward, how should we think about -- because that was not the Colgate that we know being such margin degradation -- gross margin degradation as we've seen this quarter.

Okay, Ali, well, let me do what we customarily do here, which is to give you the roll forward so you can understand how the quarter played out. And then let me talk more broadly about what we plan and expect going forward. So if you go back to the prior year. Prior year gross profit was 59.4. We got benefit from pricing in this third quarter of some 80 basis points. Funding the growth, which is the Colgate you know, continued at our historical rate with a benefit of 2.1 points, 210 basis points. But we were hit in the third quarter with material prices to the negative of 530 basis points, 5.3 points, and then a minor 0.2 in the others leads you to the 260 basis points reduction. Clearly, more of than we had expected. At the heart of it, was the sharper run up in material prices. And as we all know from looking at the spots in the market environment, those prices for certain key materials seem to be tapering off. And as we enter the fourth quarter and 2012, understanding we haven't completed our 2012 budgeting process, initial indications are that the pressures from commodities will abate. On pricing, we thought that the 2% pricing that we took was reasonable in the quarter. We had to adjust for some competitive activity, but we expect that pricing to continue in the fourth quarter at a slightly higher level. And in fact in the fourth quarter, expect and forecast to fully offset the dollar impact, not the ratio impact, but the dollar impact of the cost headwinds that we face. We have not seen consumer resistance to the pricing we have taken. In fact, if I were to tell you about the Optic White toothpaste in the United States which is at a 40% premium to the leading whitening toothpaste in the market today, that has not hindered that brand getting to almost a 5 share in the first full month. So if you get the value proposition right, the consumers will take the pricing. So it really was in this quarter the sharper than expected run-up in material prices. And you're right, we have often said that you can't fully offset that from a pricing point of view, in the quarter because there is a lead lag. The other thing I would comment on is something I think we have been talking about for a while and certainly Bina mentioned in her remarks, and that is we've been looking at ways to streamline our cost structure and get our overheads down, A, for inefficiency and if so right and, B, recognition of what has been somewhat volatile commodity market this year and we saw our overheads down by some 60 basis points this quarter on a percent of sales basis. And we have used the gain from the Colombia detergent sale to fund additional organizational and realignment activities, which we expect to benefit to 2012, same kind of ratios we have had historically, 30% to 40% rates of return and we think that is a positive aspect looking forward into 2012 beyond what we expect to recover on the gross margin. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: So one of the differences I guess this time around was the last time I'm in this pricing line and the last time earnings in 2008. You took 250 or 300 basis points worth of pricing in the last two quarters that year where you're facing similar commodity cost. So I guess the core longer-term question I'm asking is, does the competitive environment that you're now facing limit your ability to offset commodities as you have done in the past? And so are you more of a commodity levered company than you used to be in the past given that dynamic?

The answer is no, we are not. But it is all down to a question of pacing and we have very much locked this year to balance the pacing of our pricing with the growth in the top line. And we think with the 5% volume growth that we got that, that was a relatively good balance. The pricing will continue, and will step up in the fourth quarter and we will see what happens next year. So it is pacing and balance, not an inability to take pricing through and frankly, the third quarter material prices ran off my head a forecast and you simply cannot, in the quarter in question, take pricing that quickly. But the answer to your question is no. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: And so even in North America, in terms of pricing where we've seen 9 consecutive quarters looks like 9 or 10 consecutive quarters of negative pricing, you think the pricing gets even better there? And I'm not talking about Optic White obviously, because I think that will show up in volume for you. Do you think the pacing of pricing gets better there too?

I'm using -- I know where it folds. I was using the pricing more to make the point of no consumer resistance if you get the value proposition right. In North America, we said that the first half of this year had been, by nature of the category, more in-store and therefore price-related. And that we would shift to an innovation-led growth in the second half. And whilst the pricing was negative in the North America, it was substantially less negative as you know, than the prior two quarters, and we are forecasting further improvement as we go forward with the innovation stream now behind the business.

And we'll go next to Alice Longley from Buckingham Research Brokers.

A couple of questions. Did you intend pricing to be better in North America in the quarter? And your guidance for the next quarter indicates no pricing as well. I think, when you gave guidance a quarter ago, you suggested for positive pricing for North America for the second half.

The pricing in North America is improved in the third quarter. And as I just said in answer to Ali, we expect further improvement in the pricing in the fourth quarter as reported. We have taken list price increases in North America. Indeed, we have taken list price increases around the world. And frankly, all of the pricing that we have planned for 2011 is now announced and either at retail or on its way to retail. The last time we spoke, we said that was more on the 80% to 85% range, so all of our pricing is now out.

I think your guidance for the fourth quarter is for North America's volume up modestly and sales also up modestly. So I guess my point is, are you offsetting the price increases with incremental promotional spending? Or where are the price increases are showing up in these numbers?

In the launch period with new products, with all of the in-store trial generating programs you have, that shows up in pricing. So if you take the analogy of good cholesterol, bad cholesterol, the pricing-related activity in the third quarter is related to trial-building measures behind an innovation stream and that's what we'll continue.

Okay then my other question's about Latin America. Could you just tell us what you're hearing down there in Brazil in terms of the potential for wages? This is a macro question. I'm just wondering if you're hearing that wages are in fact going to be going up in January, in line with government sort of the add [ph] or whether there's any backing away from that? And whether you're expecting that to create even better growth for you there next year than this year?

Don't have any conclusive position on that, Alice. We obviously are aware of the discussions that are underway and clearly we can manage it, we can manage it either way.

We'll go next to Joe Lachky with Wells Fargo.

Just want to get back to the gross margin thing really quick. Regarding the commodity price that you saw in this quarter, I'm a little bit surprised why you didn't see it coming to an extent, given the lagging commodity prices, from when the prices change and when it flows in the income statement. So I'm just wondering if you could maybe explain what changed between your last guidance and the quarter you just reported?

Frankly, some of the commodities ran up quicker than we have been supposing. There were indications that some would tail off and they did not, and it really is that simple, Joe.

And so that 6-month lag decompressed in our minds, as far as the time period it takes for commodities to flow through. And the final question as far as on hedging, would there be any consideration of expanding hedging outside of Pet Nutrition to maybe offset some of the volatility?

Yes, the answer on hedging, Joe, is no. There are no real hedging markets, so you are essentially buying long and we don't choose to speculate in that regard. And I think it's fair to say looking forward that while of course material cost will continue to be up year-on-year, that the rate of growth we now see is clearly abating. And that is what we -- I think with much more solid data to hand, that's what we now expect going forward.

We'll go next to Wendy Nicholson with Citi Investment Research.

In the short term, my question centers on sort of this strategy about delivering double-digit EPS growth in 2012, given the currency swing. And I'm just wondering is, if you look back at kind of the price you're paying now in 2011 with only mid-single digit earnings growth, some would say that that's because you had pushed too hard to meet your target for double-digit earnings growth back in 2009 when currencies were working the wrong way. So I'm just wondering, are you thinking about sort of your long-term earnings goal and your strategy towards meeting that target, with respect to currency and how you look at 2012?

Yes, obviously, we look at it quite broadly. And as we said in the release, we have not by any means completed our budgeting process. But what we have preliminarily seen, is a few things that I think give comfort in the, number one, from a commodities point of view, there does seem to be a real tapering off, which means that the commodity headwind one faces will be lesser than we have seen in the past. That's a good thing. Two, from a top-line point of view, we like where we are from a growth point of view, both volume and organic. In other words, with the pricing. And of course, the pricing we have begun to take this year, without regard to anything we may choose to do next year, will roll over and provide a very solid benefit in 2012. And I think very importantly and central to the way we've been thinking about it, in terms of sustainability for the longer-term is this whole area of cost structure, where we saw the 60 basis points this quarter and you are going to see more of that, as we are doing with the Colombian HDD divestment to continue to lower our overhead as a percentage of sales, as a additional aid to lowering cost, not just continued expansion in gross margin. And foreign exchange, as you know, has bounced around a little bit. Where it sits today doesn't give cause for concern in 2012.

Okay, that's fair, but I just want to push back to the teeny bit. Because when I think back, and this is sort of a longer-term thing, but over the last five or six years, the way Colgate has been able to put up double-digit earnings growth so consistently, by my math, is that you had a real structural change in your EBIT margin and you have gone from 20 to almost up to almost 25. That's a humongous change. And when you look at the specific regions, Asia Africa EBIT margin doubled during that timeframe. The U.S. went from 21 to 29. I mean those are structural changes. I know you have your restructuring program, there's some product mix issues, divestitures, and all that kind of good stuff. But I can't believe you're assuming top line growth is really going to accelerate relative to the level you put up over the last 5 years. And so in the absence, if you will, of putting up another 500 basis points of operating margin expansion, in other words, going from the kind of the 23, 24 up to nearly 30, I just don't see how you can argue that you can put up double-digit earnings growth over the next 5 years. I just -- I mean, maybe you can have the recovery off of a investment spending-heavy 2011, so maybe there's a snapback on some of your profit margins. But long term, do you see a 28%, 29% type EBIT margin for Colgate 5 years out?

Okay, well, the -- we started with 2012 and we're now in 2015.

I'm just sort of thinking long term. So 2012, okay, I'll give you all the cost savings and the recovery and the snapback and the great market shares and that's awesome. But still, when people think about the long-term outlook, do we really think you're still a long-term double-digit earnings growth story?

We do. And we see it still in 2 areas and we believe in them. The first is gross margin expansion which, again, as we look at 2012 and beyond, we see ourselves continuing to deliver and the additional benefit on a continuing basis of reducing the overheads, as a percentage to sales, allowing us, to invest responsibly behind the business, and deliver responsibly and sustainably double-digit EPS growth. Our most recent strategic brands even in the environment we're in would support that.

And we'll go next to Bill Chappell with SunTrust.

I will try not to belabor the pricing thing too much. But I just want to focus more on Hill's. And I think if you go back a couple of years ago, Hill's and the whole Pet category started to price the consumer of the market and it really hurt volumes. And I'm trying to figure out, are we seeing that again? And with some of the key commodities in pet food coming down, is there an opportunity to roll some of that back over the next few quarters to avoid that happening again?

I don't see it, Bill, this time. I don't see it. The pricing that the whole industry has taken. And as you know, we were the last to take this year, has been much more modest than the sharp run-up we had in the '08, '09 period. Our market shares in the vet channel which is the recommender who most resists pricing, because it makes them nervous about recommending, continues to strengthen and our recommendation levels continue to be very high. Basically for Hill's, this quarter was about the two things being erased. We have not been competing effectively in what had been the fast-growing natural segment. We now have entered with an ideal balanced product that marries nutrition with naturals and it is starting well. In fact, our market share in the Premium segment, excluding the naturals,, has continued to increase. So we don't believe in the specialist channel with the professional recommendation that we have hit a ceiling on pricing with Pet Nutrition. And that's not what our analysis shows for this quarter.

Okay, so there's actually some room to continue to take some pricing as needed?

As needed.

We'll take our next question from Javier Escalante with Consumer Edge Research.

Coming back to the gross margin question and the savings part. Based on your margin walk, it seems like Funding the Growth at least on the gross margin side is trending at about $300 million per year, which is the low end of your long-term target. You mentioned that you could do $300 million to $600 million, so I wonder, to what extent the missing part here was that the savings are not coming in as fast as you guys expected and how does it look that pipeline of savings going in 2012 and whether these other saving programs, the synchronization of demand and supply, is already played and is already generating savings.

Sure. I guess two ways to answer. Number one, the Funding the Growth program is as vibrant and rich as it has always been even preceding the synchronization benefits that we will start to see in 2012. Indeed, the Funding the Growth benefit in the third quarter of 210 basis points was as strong as we delivered last year. And I think we have said fairly consistently that our Funding the Growth benefit on the margin line tends to build across the year and that is what we are continuing to see in 2011 as we saw in 2010. So still a rich area, still one we can mine. And on top of that, the synchronization benefits to come, which are not necessarily only related to gross margin, but will be additive. And then the other thing, we keep trying to make the point on, is this focus we have had now for over a year on the overhead side of the equation, finding ways to get more efficient structurally so we can lower overhead, as a percentage to sales. And that relates to some of the restructuring activities that we are taking from the one-time gains we had. And also we have a very big focus with Funding the Growth on so-called indirect spend, which is about half of what we spend, which is often captured in the overhead lines. So I think you have to think about it in two ways: One, a continued rich pipeline of opportunity with Funding the Growth and synchronicity on top; and two, a continued focus, as we saw with a 60 basis points this quarter, on streamlining and making more efficient our operating structure so we can continue to lower overhead as a percentage to sales. And from both efforts therefore, generate the funding for growth investment and earnings return.

And we'll take our next question from Joe Altobello of Oppenheimer & Co. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Just two quick questions, both sort of related. First, the margin compression we saw in Greater Asia/Africa and Europe/South Pacific was that all commodity-related or were there other FX issues that were involved there? And then secondly, given their recent move in FX, what's the likelihood and timing of additional pricing internationally to offset that?

It was commodity pricing. The transaction effect of ForEx was negligible in the quarter. So it was commodity pricing. And as I said in response to an earlier question, we expect our pricing to continue to increase in the fourth quarter, and relative to foreign exchange impact from a transaction point of view as we customarily have, you would expect us to take pricing in those developing and emerging markets to offset that. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Okay, that's helpful. And just one last one, on the overhead. Looks like the 60 bits move was pretty impressive this quarter. It sounds like that's sustainable. Should we expect another 60 bits next year or is it opportunity to actually accelerate that next year?

Well, I guess the way I'd phrase it at this stage, Joe, is we took that 135 after-tax gain and put it into initiatives that we are in the process of implementing and we'll pick up about a 30% to 40% rate of return into 2012.

We'll go next to Chris Ferrara of Bank of America.

Obviously, over time you guys have been one of the best at kind of slowly and deliberately shifting resources towards your more attractive businesses in the portfolio. But I guess, given what looked like divergent trends between Oral Care and non-Oral Care, or more specifically, household, and particularly in developed markets, I guess, how much thought do you give to any acceleration of that portfolio migration? Or is that too short-term a view?

That may be, with respect, too short-term a view. If you -- and this is what I was talking to Ali, about earlier in terms of balancing pricing with volume in the overall growth of the company. If you look at the third quarter, we have now, I think, accelerated the top line growth of the company. And if you break it down by categories, we're growing Oral Care organically high single digits and we are growing Personal and Home Care mid-single digits. So you're seeing a shift towards the Oral Care business, but we are getting good growth in those developed markets on our Personal Care businesses and Home Care businesses as well. And they remain important parts of the portfolio. But we're outpacing on Oral Care as you would expect.

And just on an unrelated note, are you taking FX-related pricing yet in your emerging markets or is it too early for that?

It's too early. But as I said in response to an earlier question, from a transaction point of view as opposed to translation, you know well, Chris, this is something we do. We do quite regularly and I think we do quite well.

We'll go next to Jason Gere from RBC Capital Markets.

I guess I just wanted to talk about the de-stocking. I know you mentioned a little bit of that in the Hill's business. But can you just talk maybe about the POS sell-in versus sell-through, in the U.S. and Europe, and maybe kind of putting into context some of the categories that are growing a bit softer such as Home Care. So where retailers may be managing inventories a little bit tougher these days.

I think in the Hill's case, frankly it was relative to the buying ahead of price increase and simply inventory adjustment at the end of the quarter. I don't think it was more than that. If you look at our categories on a local currency value basis, as we have said before, you're seeing the North Americas and the Europes of this world growing at a 1% to 2% level and that compares with the high single digits we are seeing in the emerging markets and that's been true for a reasonable time, and I think it's what we are likely to see going forward. If you dig into categories in specific, the growth of our private label is way off, what it had been in the 2008, 2009 year and we are seeing private label share overall come down. And I think when you look at our inventory position, in terms of balancing these sell-in with the sell-out, we're in a well-balanced position, aggregate U.S. consumption is ahead of category growth so far this year. So we don't see any particular category focus inventory-wise by retailers other than the adjustment at the end of the quarters, which, given different financial years, tends to happen at different times.

And we'll go to Bill Schmitz with Deutsche Bank.

Did you see any pullback in the promotional intensity, especially in Oral Care given some of the rises in commodity costs?

It depends. Some places, yes. Other places, no. And I wouldn't contain the point to Oral Care. I was just down in Mexico, and you look at the marketplace and some competitors have stepped up promotionally significantly across categories, while reducing media. And you see that in certain markets around the world. In other markets you don't see that. But I wouldn't limit that comment to Oral Care. And I -- yes, I wouldn't limit that comment to Oral Care.

Is there any difference in behavior between the guys who are reporting in euros versus the guys reporting in dollars, in terms of competitive intensity? Because obviously in the last month or so, the euro is probably going to help them a little bit more than the dollar is going to help the other folks.

Not in any way that we have seen significantly, Bill. I guess we'll get closer to that as we go through our budgeting process in November. But certainly, no alerts through our alert system that would suggest, they change the behavior versus history, no.

Okay. And then when you look at some of the volume deceleration, is there any way to kind of figure out what the sources of the volume? Like, are people just buying and using less, or is there -- because it looks like private label shares have been pretty flat. I know it doesn't exist in Oral Care but even in some of the European Home Care categories.

Yes. I mean, the fact of the matter is in these markets, which is why I think it will stay at this level now. People have used up pantry inventory and they are making the bottle and the tube, and the package are now talking to Europe and the U.S. a little bit longer. You can see it in the usage, yes.

Okay. Then in the U.K., obviously P&D took a ton of share, but if my data is right, your market share was up a little bit also. How do you think that market plays out and what happens to the profitability there?

Well, as you saw, our growth in Europe, the U.K. was one of the lead contributors. Yes, you're right, our share is up, approaching 48% on a year-to-date basis, actually ahead of that in the most recent period. The competitor that you referenced to their share is about 4 on a year-to-date basis and has trended down for the last 3 months and is now sitting at about an eight share. So we're happy with the growth. We are happy with the performance of our U.K. business. We don't see it as a BRIC country. So we're talking about 66 million consumers here. But we're happy with our performance in end market.

Okay, got it. And then just on the plan for next year, I know that's a very profitable business for you even if profits or margins took them down a little bit, I may guess there's just enough cushion in the business model to kind of keep going to double-digit EPS growth trajectory.

I think the -- maybe we should take a sort of a little bit of a walk-around in the Oral Care business, just to sort of try and set a platform for next year. I mean, if you take the BRICs, China, we've been up for the last three quarters. We're now approaching 33 and the principal competitor has been down the last three quarters, now sitting at a 22. In Russia, we continue to lead with about a 32 share and the competitor is sitting at a 16, having lost 9 share points over the last 5 years. In Brazil, we're up to 71. They are indeed the 5, but the lead brand, the Prosaud is only half of that market share. Mexico, we are back up to approaching an 82 share and they're holding at about a 12 of which the majority is lower-priced complete businesses and all of these businesses are highly promoted. What's driving our growth are increasingly Premium products like Total, like our Luminous Whitening just launched in Latin America. So we think, in terms of the shape of our business and where we are focusing our investments, there is comfort, I guess, in continuing to advance the businesses and the company at that double-digit rate.

We'll go next to Lauren Lieberman with Barclays Capital.

I just wanted to ask about advertising spending, because I know that you talked about heavy new product launch activity in the second half of the year. But advertising was down again as a percentage of sale. So as we look at the balance of the year, will advertising be up as a percentage of sale, which is now part of your budget in kind of the thought process around mid-single digit earnings growth this year? Was it a big reinvestment? It doesn't really look like it's happening.

The answer -- the direct answer to your question is yes. And obviously, as we move our way into 2012, the thinking would be to continue that. And when you talk about the total pie here, obviously, and we have said this before, an awfully large part in connection with consumers these days is at retail and these are often constructed programs that have brand-building engagement aspects to them. But they come in price. So they come in the difference between the gross sale and the net sale and we have seen that aspect of commercial investment go up this year to the benefit of brands, we think. But yes, with the innovation out there, both absolutely and as a percent of sales, we expect the advertising to be up in the fourth quarter and clearly we'll be looking to continue that in 2012.

And Ian, sorry, just to clarify, does the advertising of the percentage of sales, is it going to be up on a full-year basis or just in the fourth quarter at this point?

On a full-year basis, it will be in line with sales growth more or less.

Okay, and then the other thing was just, if I kind of went through just in my head would be net share for the outlook by division, it sounds like you're guiding to operating profit being like flattish to down in all divisions in the fourth quarter, with the exception of Latin America. So as we look into '12, I mean, is this -- you talked about pricing starting to catch up, but it just still feels like the outlook for fourth quarter isn't all that great. So is it a mid of 2012 that things start to accelerate? It will be a really big swing for you to have that kind of performance in fourth quarter and then things will kind be off the races as we get into the first quarter?

Well, we still, as we said, expect mid-single digits for this year. What is changing, I guess the three things I mentioned before. Pricing is changing and will accelerate through the fourth quarter and into next year. Commodities are really flattening and, in many material cases, starting to decline. So the unfavorability in the fourth will be lesser than the third and that will continue to improve in 2012. And we are getting the benefit from the restructurings that we are doing which are lowering overhead and will continue to do that in 2012. And many of those things will literally be with us as we enter 2012 because we are already -- we will already be seeing them in the fourth quarter.

We'll go next to Caroline Levy with CLSA. Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division: A quick question. Just an update on interest expense which will flow in the quarter, and similarly on corporate expenses? And then just finally, could you elaborate a little bit on what's going on in China and Greater Asia into the new growth?

Okay. Well, the, there's nothing unusual in the interest expense. It's basically running at the level it has been running at. And as we look forward, we would expect it to be the same, relative to corporate expense. The only real shift there was the benefit we got last year from the sale of some [indiscernible], they're called bonds in Venezuela, which is not recurring this year. So you get a bit of a pickup. And when you turn to Asia, the countries that you would expect a Greater Asia region growing high single digits. India growing double digits and -- I'm sorry, Greater China growing at high single digits. I made the same mistake talking internally this morning. And India growing double digits. The only slight depressing factor we had on Asia, with Greater Asia, which includes Africa on the quarter, was, you may have read about it, an unforecast 4-week strike, national strike in South Africa, which probably impacted volume around half a percentage point in the quarter. But other than that, things I think as you would expect them to be in that part of the world.

We'll go next to Dara Mohsenian with Morgan Stanley.

So, Ian, you got to return to double-digit earnings growth next year, which comes despite the difficult consumer spending environment on top of a likelihood from FX. So I just want to get some more granularity on what you think gives you visibility that you can actually hit your long-term goals next year even in the face of the tough industry environment.

Yes. The -- well, let me try take it sort of from the top to the bottom. The way we see our categories operating in the world we're in today is that we expect the categories in Europe and North America the so-called developed world, to grow between 1% and 2% local currency. We expect the categories in the emerging markets, which is just over 50% of our business, to grow high single digits, which they have been doing historically. So I think the growth trajectory is relatively clear. And we're very pleased with the growth we posted this quarter, leading us in to 2012. Second, on the gross margin, we expect to offset the $1 impact of commodity costs this fourth quarter and move into rebuilding the ratio in 2012 because of the rollover benefit of pricing that we will have taken and the known reduction in the headwinds, we will face from commodity cost. And very importantly, and part of our thinking model, is this continued focus on reducing overhead, as a percentage of sales, which we are seeing play out this year and with the utilization of the onetime gains from the sale of the detergents in Colombia expect to continue in 2012. And I guess, on top of that, the general strength as I tried to demonstrate from the brief walk around the world, the general strength of our market shares which we continue to increase around the world.

And we'll take our final question from Jon Andersen with William Blair. Jon Andersen - William Blair & Company L.L.C., Research Division: I assume that you're typically leading when you take price increases at least in your larger markets, in categories and countries. And you mentioned some adjustments to price were made to respond to competitive activity in the quarter. I guess I'm just wondering if this is the normal kind of lag, sort of the lag process or are you seeing something else there? And what have you been seeing more recently with respect to your competitor pricing?

The -- well, we lead where we believe we have the right to lead which is where we have category strength, full country strength. So you are right. We also, as I mentioned earlier with the uptick in the U.S., we will adjust our pricing for in-store, trial-generating devices where we think that is right to build a trial for product that we think can have significant market share. And we will, on a selected basis by category, offset the pricing that we take with promotional activity, if we think that is appropriate. All of that is entirely consistent with history. None of that is new in our thinking. So there is no structural change in what we are seeing or how we are reacting. The only reason we made the comment, is that it was a contributory factor against what we had been forecasting on the gross margin. That was the only reason we referenced it. But the way we think about it from an executional point of view has not changed. Okay. Well, thanks to all of you for your questions and thanks to the Colgate folks that get it all done, and we look forward to catching up with you in the new year.

And this does conclude today's conference. We thank you for your participation.