Good day and welcome to the Colgate-Palmolive Second Quarter 2020 Earnings Conference Call. This call is being recorded and is being broadcasted live at www.colgatepalmolive.com. Now, for opening remarks, I would like to turn this call over to Chief Investor Relations Officer, John Faucher. Please go ahead.

Thanks, Amanda. Good morning, and welcome to our second quarter earnings release conference call. This is John Faucher, Chief Investor Relations Officer. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2019 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 eight and nine of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the 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 Henning Jakobsen, Chief Financial Officer. I will discuss our Q2 performance and provide some context around 2020 before turning it over to Noel for his thoughts on our results and the current operating environment. We will then open it up for Q&A. As usual, we request that you limit yourselves to one question, so that as many people as possible get to ask the question. If you have further questions, you are welcome to re-enter the queue. We are pleased with our second quarter performance as we delivered gross and net sales, organic sales, operating profit, earnings per share and cash flow in Q2 2020 despite headwinds from foreign exchange, the worsening global economy and impacts from the COVID-19 pandemic around the globe. We delivered growth in five of our six divisions with Europe down slightly where consumers worked down some of the extra pantry inventory they purchased in the…

Thanks, John, and good morning, everyone. Let me start by saying I hope everyone is staying safe and healthy despite the challenging circumstances. I thought I’d start off by giving a couple of thoughts on the quarter and then I’ll provide you a quick update on where we stand relative to the focus areas that we laid out on the Q1 call. So, good quarter. We continue to deliver and what I would say a very difficult operating environment in the second quarter, despite the uncertainty around COVID which is quite substantial, particularly including the accelerated case rates that we are seeing in many of our largest markets and the impact as John mentioned, the economic activity that we are seeing around the world, we delivered very strong organic sales growth above our long-term target of 3% to 5%. Importantly, strong gross margin expansion and you saw that obviously delivered through strong funding in the growth and productivity measures and really good pricing that we are broad based across our categories and geographies. That allowed us to increase advertising which has been a consistent theme for us over the last couple quarters and importantly expand our operating margins in the end. And again, and that’s despite dealing with significant headwinds on foreign exchange particularly in Latin America, you saw the foreign exchange hit, that was around 6%. Unfortunately the headwinds from the crisis, we see them continuing and the rising number of COVID cases, particularly in some of our key markets means that the possibility of a larger disruption will continue to exist where there would be why the virus is felt or what we’ve seen in some markets, government actions to defend the virus and those continue to be quite elevated and that remains our number one concern as…

[Operator Instructions] And we will take our first question from Dara Mohsenian from Morgan Stanley. Please go ahead.

Hi guys. Hope all is well. Pricing number really accelerated in the quarter to 3.5% level which the best we’ve seen in recent history. Was that more related to sustainable price increases or the RGM efforts that you guys mentioned that have been put in place, particularly in emerging markets which look like it drove the corporate pricing, but was there more variances specific to the quarter such as promotional spending except for that you guys mentioned. And how sustainable are the drivers behind this pricing shrink in the quarter as you look going forward? Then perhaps you can just talk about demand elasticity in emerging markets from that pricing? Thanks.

Yes. Thanks, Darren. So, obviously, as we were coming out of the first quarter, we talked about the significant headwinds we were facing around foreign exchange particularly in some of the emerging markets and as you’ve seen consistently over the years, our teams on the ground look to recover the transactional impact of those foreign exchange very, very quickly and get that pricing into the P&L. You saw it obviously manifest itself through the pricing across the company largely driven by emerging markets, where we saw most of the foreign exchange headwinds. So, really pleased with the fact that teams got ahead of this in the quarter and the strength. So that we now have the ability to use that pricing that we have in the P&L to obviously continue to drive gross margins moving forward, but it’s necessary to invest in the business in the back half and that gives us maximum flexibility which is what we were looking for going into the third quarter. There was some pullback in promotions in the quarter. Obviously, we were very disciplined whereas foot traffic was down in certain REs around the world [Technical Difficulty] lockdowns in some markets. We naturally pulled back with a discipline to ensure that we can move that money into the back half of the year of those promotional slots to elevate the volume that we are looking for in the back half. So, we believe it’s sustainable. We obviously took the pricing early. That gives us the most – the best ability to control that moving forward and we intend to obviously, as I said, spend in the back half. But we are comfortable with where we are in terms of our ability to manage some of the foreign exchange positivity that we have seen.

And our next question will come from Wendy Nicholson with Citi. Please go ahead.

Hi, good morning. Could you talk a little bit more about gross margin? But I don’t know you called that out as a specific area of focus in the second quarter. But I am trying to get a sense of how much of the improvement – you just mentioned the reduction in promotional spending, how much of that was sort of structural funding to growth cost savings that we should think are here to say versus on a short-term crisis management type benefits? Thanks.

Sure. Well, we obviously saw significant transaction moving through and despite that, we were able to recover that with strong pricing in the quarter. And again, we saw elevated foreign exchange headwinds coming out of the first quarter and very much elevated as we went into April and that allowed us to take the pricing early in the quarter and get the full benefit of the pricing as we went through the quarter. Likewise, our funding to growth and productivity efforts have been very, very strong. I think certainly as we step back and manage the complexities associated with the disruptions we’ve seen on the supply chain, some of the portfolio changes we’ve made, obviously the leverage that we are seeing coming through the P&L, all of that has assisted us to drive more efficiency through our plans and get that delivered on the gross margin line. So, overall, we felt very good about where the gross profit was. Obviously the pricing early in the quarter helped and the funding to growth that came through the balance of the quarter likewise helped. But again, as I mentioned, there are, Wendy, we obviously we are very selective in where we were spending money at the promotional line in the quarter. We did pull back in some areas as we didn’t see the ROI there that would have expected given the foot traffic down – it was down. As we see foot traffic come back in the back half of the year, we have full intentions to ensure that we are competitive and we continue to drive volume in the year to go.

And next we will hear from Andrea Teixeira from JPMorgan. Please go ahead.

Yes. I think you and hope all is well. Noel, if you can comment a bit on the supply chain in terms of like of your capacity could increase over the quarter? And then the stock out on shelves that you are now being able to – sit to consumption, can you take us around the world? That would be great. Thank you.

Sure. In general, obviously, as I had in my upfront comment, the supply chain has performed extremely well. The demand in some of our categories has been significant at levels that we’ve never seen before. That forced our teams very early on to look at how we simplify and optimize our portfolios in order to drive throughput in our factories. I think that’s been well received by our trade partners in order to ensure that we improve – we improve our case bill numbers with them. That being said, we still have some categories where we are not meeting demand. Liquid hand soap would be one of those. The demand is in excess of our capacity. We brought on capacity through contractors. Obviously, we saw some of the impact of that in the U.S. at the margin line, but that’s allowed us to deliver against the service levels that our retail partners are expecting. We are in the midst of obviously looking at how we put more capital into certain of our facilities, because we see some of these categories will have elevated demand. We’ve done some very innovative things relative to our packaging that has allowed us to use other lines for specific categories that were not used before that will allow different types of packaging to move through the category that also elevated our demand right now. So, on a top-line basis we are meeting pretty much all of our demand except couple categories, liquid hand soap would be one, dish soap will be another where we are still trying to catch up and we anticipate that we will see that come to fruition in the back half of this year as we bring on more capacity and deal more efficiently with some of our contractors.

All right. Thank you.

And our next question will come from Olivia Tong with Bank of America. Please go ahead.

Thanks. Good morning. Thank you. Good morning. Hope everyone is well. Two questions, first, if you could just talk through growth across the categories rather than divisions if you would put a little bit of numbers behind that. And then, one topic more specific to emerging market trend, particularly Latin America’s recession, because obviously the volume numbers have come in, but pricing has gone up pretty dramatically. So if you could just talk about what you think your categories are growing at underlying and your ability to manage to any potential downshift in the macros. Thanks so much.

Sure. Thanks, Olivia. So, broad based categories are in aggregate are up versus the year ago. Obviously, to provide a significant demand of some of the health and hygiene products in the categories in which we compete. We’ve seen real gyrations in the categories, so to speak, as we’ve gone through the years. Some categories we saw the pantry loading in the first quarter. Things like oral care where we saw significant spikes that have come out in the second quarter and we anticipate will continue to come out in the back half of the year. But overall, if we take it on a year-to-date basis, most of the categories continued to be obviously up. We’ve seen elevated demand in the categories that we highlight, the liquid hand soap, bar soap, cleaners and dish. And we anticipate that most of that demand will continue quite frankly as behaviors change and people work from home which obviously aids in the consumption of our products, we’ll continue to see that through the back half of the year. Relative to specifically oral care across the board, we’ve seen good numbers on oral care in an aggregate basis, again, largely driven by the first quarter, slowed in the second quarter, particularly driven by LATAM. And some of the pricing that we took, but we see that starting to improve as we went through the quarter and anticipate with the activity that we are bringing to the market particularly in tooth paste in the back half that we will continue to see good demand. Relative to LATAM specifically, we’ve gone through many, many recessions in LATAM. Our teams are very well prepared for this. Some of the models we viewed that get upfront with pricing which we’ve done in the quarter. That gives us the…

And next we will hear from Jason English with Goldman Sachs. Please go ahead.

Hey, good morning, folks. Congratulations on strong results.

Thanks.

Noel, I think your response to last question, I heard you mentioned that throughout the quarter’s trend that we saw in toothpaste or oral care in Latin America were improving. But I was hoping you could put a little more cheese on that comment. Where we should go with some quantification or specificity on how your overall business was performing in Latin America, month-on-month and maybe how it’s tracking? And as you exit the quarter or so far in July? And if possible, love to hear the same type of figures for your developing markets overall?

Right. I am not sure I understood the first, Jason. I think it was around the volume comment, pricing comment for LATAM. Let me just talk in broad strokes, LATAM for the quarter and hopefully I’ll address most of your questions. By and large, a really good quarter for LATAM despite the fact that they faced significant issues and disruptions and when I say disruptions, you had a large part of the mom and pop trade in certain countries to completely shutdown big department stores, traffic was shutdown. And so, as a result of that, you saw the shopping occasions decline in the quarter and despite that the team delivered across the board, shares were good across our categories in which we compete. As I mentioned earlier, they got the pricing. The pricing was significant in the quarter and there is no question when you take that level of the pricing and you couple that with the disruptions you are seeing in the marketplace relative to retail environment being closed. You are going to see some volume falloff and that’s exactly what happened. And as we moved through the quarter, we started to see a bit more traffic coming back into the stores and we anticipate that we’ll start to continue to see that in the back half of the year. That being said, you read the same press that we read that obviously the virus – the rates of infection continue to accelerate, particularly in big markets like Brazil. So we need to be very mindful on the implications and the decisions governments may take to continue to contain that moving forward and that usually involves mobility and availability of people to get back into stores. So, overall, LATAM shares good. Volume little soft, but understandably given the issues that we saw around mobility and stores and likewise strong pricing that we took, but we will see strong investment in LATAM in the back half of the year, both on the advertising line to support a good innovation grid. And likewise, discipline on the promotion line to ensure that we are getting the right return on investment there.

And our next question will come from Steve Powers with Deutsche Bank. Please go ahead.

Hey. Thanks. Good morning. Maybe going back to some of the topics you are discussing with there, may be at the start, but coming out with a slightly different perspective. If I step back and just look at the composition of your P&L for the first half, it’s very healthy despite all the volatility, gross margins solidly above 60% with A&P is running at about 11.5% of sales. Can you talk about some of the key enablers there? And is there any notable reason to think that that general composition changes meaningfully in the back half, because let’s say, so far I am not sure I see one, but I just want to test my thinking on it.

Sure. Again, let’s come back to the strategy that we’ve been deploying focusing on core innovation, that’s big part of our portfolio and as we focus on core innovation, we take pricing. That’s obviously you see that translating through the P&L. We have been quite disciplined in getting out ahead of foreign exchange particularly in some big markets that obviously delivered in the quarter through the gross margin expansion that we’ve seen. The channel expansion that we’ve seen has been significant. I mean, we’ve had significant growth both on ecommerce and some of the untracked channels that we don’t talk a lot about, clubs and discounters. And that again is consistent with the strategy that we’ve been deploying for the last 18 months. And quite frankly, the whole challenge behind COVID-19 has been a catalyst for executing our strategy and we talk about adjacencies being the third vertical for us and we’ve been aggressive in getting adjacencies into the market very quickly throughout the crisis and it’s all behavior change. We put more antibacterial products in the market. We put more health-oriented and hygiene-oriented products into the market. And again, I think that level of agility that we’ve demonstrated all of that is between core adjacencies and channels helped obviously prop up the organic growth and get more consistent balanced growth, volume and pricing, as well as delivering the gross margin which allows to invest in the categories. That being said, we do anticipate the back half to be competitive, I think as more and more markets slowly open up and again, I say that with the caveat that things can change very quickly there, but as they open up, I anticipate that we’ll see more investments going back in stores and hence the reason why we wanted to get out in front of that with pricing in the quarter. And as John mentioned in his upfront comments, we have increased advertising in the back half to deal with that and to continue to build momentum. So that’s how we are looking at things. But it’s challenging to be sure. The uncertainty that we see coming out of some of the large markets, the volatility that we see in categories, and the immediacy that governments are taking sometimes to contain the virus has implications and we have to deal with those. So we remain cautious, as well relative to how we see things unfolding.

And our next question will come from Lauren Lieberman with Barclays. Please go ahead.

Great. Thanks. Good morning. So, I wanted to talk a little bit about cost beyond you talked a bit about the productivity. In general, last year talking more about executing with agility and so on and we talked about quite a bit on the revenue side. But I was wondering, as you’ve navigated the first few months of this crisis, and things that maybe you have uncovered in the way that you operate, the way you are structured where cost resides in the P&L and the new organization, outside of T&E, but are there areas that you are finding that maybe are right for – to further efficiency and so that the kind of stronger applies to cost structure not just top-line. Thanks.

Sure. Thanks, Lauren. Couple areas. Obviously, we’ve been talking productivity beyond just the success we’ve had with funding to growth over the years and as an organization, quarterly we’ve really opened all line items now to think about productivity very differently. And so, beyond just the typical cost structure of our products which we do extremely well, we are now interrogating all areas of the business. And quite frankly, as we have come into the crisis, it opened our eyes to opportunities that we can go after and inefficiencies that we have throughout the income statement. So, let me talk about a couple of those. Now obvious ones you would expect obviously our travel budgets with operating 200 countries around the world were significant. And the digital transformation that we’ve been under and in connecting everyone digitally and our ability to day one moved to a virtual workforce have allowed us to obviously save, substantive amount of money on the travel side and there is no question that behavior and from what we’ve learned will to continue to deliver savings for us moving forward and we will how we think about that. There is no better way than to learn the polls of a business and being on the ground and that’s the big part of who are as a company, but we’ve learned to use virtual tools in a very different way whether it’s technology that we have in our plants, where we don’t have to spend maintenance people to the plants anymore that they can work through different systems to see actually at what point on in a plant virtually and address issues from thousands of miles away versus getting on an airplane to having business review meetings with teams. So we are getting better and better of…

And our next question will come from Kevin Grundy with Jefferies. Please go ahead.

Great. Thanks. Good morning everyone. And congratulations on the strong results. Noel, I wanted to pick up on Jason English’s line of questioning around the decision, specifically around Latin America, but mine is really around the decision not to reinstitute guidance and the takeaway here for investors. So, understanding that LATAM is a bigger portion of your portfolio relative to the peer set, I know it’s not lost from you guys that, we’ve seen Kimberly Clark and Procter and Church and Dwight this morning reinstitute the practice that Procter is looking out in the entire fiscal year with their guidance. John gave a number of directional guidance points, if you will, strong organic sales growth in the first half of the year, but basically through July. I think the tone on the call here has been pretty positive and it sounds like you guys are going to be resuming share repurchases. So, that’s all a big wind up here. How much do you guys deliberate on this? What are you seeing in July, specifically? And is the message here, really this is more about conservatism related to the pandemic and probably specifically Latin America as opposed to any sort of sequential weakness in July that the market should be concerned about? Thanks.

Yes. Thanks, Kevin. Let me start with July. We are going to avoid getting into a precedent despite the fact that I am very sensitive and understand in the absence of guidance that externally everyone is looking for more and more information. But what we don’t want to do is get into every earnings call talking about the current month that we are in. I will say that July is coming in as planned. Relative to guidance again, not much to add versus what you have in the print. Specifically, the unknowns of the unknowns, I mean, we’ve seen anything versus where we were in the first quarter, we’ve seen the virus unfortunately expand. We’ve seen case counts accelerate, particularly in some of our larger markets. We see increasingly more disruptions in some of those markets relative to retail closures. At least temporary closures. We’ve seen consumer behavior modify, which has manifested its way through a significant volatility from week-to-week in the categories which makes it very difficult to predict and plan effectively. So, with that as the backdrop, we continued to hold our position in that regard. And we understand moving forward that we would prefer to provide guidance and as we get more and more information and get more confidence, in terms of the way we see things moving, we will certainly come back and have that discussion again.

And next we will hear from Bill Chappell with SunTrust Robinson Humphrey. Please go ahead.

Hi. This is Green on for Bill. Thanks for taking my question. I had one on Hill’s and specifically the volume growth hoping you guys could kind of break that out a little bit more. Is it more consumers coming into the franchise from, perhaps a different brand? Are you seeing more consumers adding dogs to defending their households and they have increased consumption at home? And then kind of looking out going forward, how do you see that growth playing out over the kind of remainder of the year, the next few years when you step up investment and kind of the momentum that you have going right now. Thank you.

Great. Thanks, Bill. So, Hill’s, another very strong quarter and again, let’s come back to the fundamentals. Great core innovation behind the Science Diet relaunch which continues to perform extremely well. And is now at the tail end of its global roll out and getting significantly stepped up advertising support behind that. We’ve seen the adjacencies as we moved into fast-growing segments, particularly the West segment which has been quite buoyant around the world. And obviously the channel expansion strategy that we’ve seen that we’ve executed across the Colgate business was in very much - was led by the learning that we have coming out of the Hill’s business, their ecommerce business is up another 50%, shares are up. We are getting better and better at understanding that channel, particularly around the digital complements that come behind that. You saw a significant step-up in advertising investment in the quarter. We will see that level of spending continue in the back half of the year, specifically behind the following fundamentals. This brand continues to have very, very low brand awareness, 3% as an example in the U.S. So our ability to continue to drive awareness behind the premium aspects of the brand and the science and the biology-based nutrition is a significant growth opportunity for the business. And we’ve done that. The advertisement has allowed us to expand – get more distribution in our portfolio. Obviously, look at other rapidly growing channels and drive distribution there and continuing to premierize and take pricing where we can. So the volume growth has been a function of obviously the share growth that we’ve seen, the cannel growth that we’ve seen, the premiumization, which obviously comes through more on pricing. And likewise, you did see a little bit of pantry loading in the first…

And our next question will come from Mark Astrachan with Stifel. Please go ahead.

Yes. Thanks. And good morning everybody. I wanted to ask a related question on the guidance and then kind of a related equally from that. So, I just I am still struggling a little bit with why you are not providing guidance, I obviously get – what’s going on in the world, but what is different that you are seeing? Or what is more difficult in terms of looking out that gives you pause to the seven months for the year as your – kind of how we see it and sort of related to that, maybe one of the thesis that we hear from folks most often on the stocking. The story is your market share continues to underperform. So, are those two somewhat related? Do you have some sort of visibility on the market share begins to improve. I guess some of that has to do with translation on foreign exchange that should – in theory now start to look better as $1 million with where it is. So maybe, kind of first comment to the second point and really kind of how do you think about the market share trends progressing as we move over the next kind of six to twelve months as much as you can provide, that would be helpful?

Thanks, Mark. Let me come back again on the guidance question. Not much more to add there. But, let me assure the team, there is tremendous complexity and volatility week-to-week based on what’s happening with COVID. And you get decisions made in countries, whether it’s shutting down borders, you have an incredibly complex supply chain. Second and third order derivative effects of implications in one market to another. You’ve obviously seen the escalation of case counts in big markets for us, mainly Brazil, India and Mexico. And all of those are very difficult to predict and they are all kind of intertwined. And when you get the triangulation of those, it creates significant uncertainty relative to how things can unfold. That being said, we are executing against it very well, but I assure you there is a lot of work that goes behind the day-to-day in making sure that we continue to operate and deal with the circumstances that confront us. And those circumstances make it very difficult to predict exactly which ways things are going to go. So, not much more to add on the guidance question. On market share, overall market shares, we are okay in the quarter, but we are not that pleased quite frankly. Yes, you mentioned the translation impact. That was a big impact on our total shares, obviously with LATAM having such strong shares. Their shares were actually up half a share point in the year-to-date basis, but given the translation impact of those currencies on a global basis, we saw our shares come down. U.S., a little soft in the quarter. I talked a little bit about pulling back on some promotions. Now we feel comfortable with where we are relative to the promotional environment. There was some – still surprising me some…

And our final question will come from Rob Ottenstein with Evercore. Please go ahead.

Great. Thank you very much. I am wondering if we can kind of dial back to some of the pre-COVID priorities that you had, just to kind of get a sense of how you are doing on those as the world changed and specifically, some of the premiumization efforts outside of the U.S., the competition against local natural brands in China and India, the expansion of the Elmex, Meridol basically, if you could give us a rundown of those initiatives and have you maintained kind of the foot on the pedal on those? How are you doing? And are they still as relevant as before?

Yes. Thanks, Rob. And then, good morning. So, again, I talked about, we expect the strategy that we had put in place 18 months ago, quite frankly as we went to the crisis and interrogated that we felt it was perfectly suited for the behaviors and the dynamics we were seeing in the category. I mean, we needed to continue and they are behind the core business. The adjacencies were there and that allows us to rethink some of our core businesses and how we get into rapidly growing segments. Take floor cleaners where we’ve expanded the portfolio into more hygiene anti-bacterial related product. And likewise, the focus we were on for quite some time to truly elevate our digital commerce business and you’ve seen consistent growth both from a top-line performance, as well as share performance in ecommerce. And a lot of that capability is being driven by the success we’ve had in Hill’s and obviously ramping up capabilities across the company both in the digital area as well as the ecommerce space and that we’ve done that through developing our internal talent, as well as bringing in outside talent that we think has been a real boost for the organization to help us think a little bit differently. So, strategy working and nothing that we feel we need to change, continue to be agile as we move forward. I think some of the learning we’ve had on the agility side as it we can innovate much, much faster than we have in the past. And that we intend to systemize that as we move forward to make sure that we capture that learning on an ongoing basis. Premiumization has been a big part. I mentioned earlier in the call, we do roughly 50% of our toothpaste business in…

And this concludes today's conference. Thank you for your participation and you may now disconnect.