Colgate-Palmolive Q1 2024 Earnings Results & Report

Colgate-Palmolive EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.82
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.73
• EPS Beat Rate: 8 of last 8 quarters

Colgate-Palmolive Revenue Results

• Actual Revenue: $5.07 billion
• Expected Revenue: $4.96 billion
• Beat/Miss: Beat by +$105.23 million
• YoY Revenue Growth: +6.20%

Colgate-Palmolive (NYSE:CL) (NYSE: CL) is a global consumer products company focused on oral care, personal care, home care and pet nutrition. Its portfolio includes toothpaste, toothbrushes, mouthwash, liquid hand soap, body wash, deodorants, household cleaning products and pet food and treats.

The company markets well-known brands such as Colgate, Palmolive, elmex, meridol, Softsoap, Irish Spring, Ajax, Protex and Hill’s Science Diet. Colgate-Palmolive also provides veterinary and nutritional products through Hill’s Pet Nutrition, which serves pet owners and animal health professionals.

Founded in 1806 by William Colgate, the company developed from a soap and candle business into a diversified consumer goods manufacturer. Colgate-Palmolive serves customers in markets around the world, with products sold through retail stores, e-commerce channels, veterinary practices and other distribution networks.

Colgate-Palmolive Q1 2024 Earnings Call Transcript

Key Takeaways

• We delivered 6% organic net sales growth across all four categories and six divisions in Q1 2024, with both volume and pricing up despite a nearly 4% FX headwind.
• Strong P&L discipline enabled a 60% gross margin, 30 bps of overhead leverage and 18% base business EPS growth, and the company is guiding mid-to-high single digit EPS growth despite FX pressures.
• Global oral care volume and market share gains were driven by core and premium innovations plus increased advertising, reaching record shares in Europe and growth in North America, Latin America and Africa.
• Hill’s Pet Nutrition grew high-single digits ex-private-label, with robust pricing to offset agricultural inflation, significant share gains in both pet specialty and neighborhood channels, and new manufacturing capacity supporting future wet food expansion.
• Full year gross margins are expected to expand as revenue growth management, strategic funding of growth initiatives and volume leverage more than offset transactional FX and modest raw material inflation.

Presentation

[Operator]

Good morning, and welcome to today's Colgate-Palmolive Q1 2024 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, Chief Investor Relations and EVP of M&A at Colgate-Palmolive]

Thanks, Betsy. Good morning, and welcome to our Q1 2024 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 Q1 2024 earnings press release and related prepared materials and our most recent filings with the SEC, including our Q1 2024 quarterly report on Form 10-Q 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 three, five, and six of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the Q1 2024 earnings press release and is available on Colgate's website.

[John Faucher, Chief Investor Relations and EVP of M&A at Colgate-Palmolive]

Joining me on the call this morning are Noel Wallace, Chairman, President, and Chief Executive Officer, and Stan Sutula, Chief Financial Officer. Noel Wallace will provide you with some thoughts on our Q1 results and our 2024 outlook, and we will then open it up for Q&A. Noel Wallace?

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Thanks, John Faucher, and hey, good morning, everyone, and thanks for joining us to discuss our strong start to 2024. I would like to make two points today on why we think we are well-positioned to continue to drive shareholder value through delivering consistent compounded earnings per share growth. The first is the importance of balanced top-line growth. You've heard me speak over the past several years of our focus on delivering balanced organic sales growth, growth in all of our categories, growth in all of our divisions, and growth in both volume and pricing. That's what we did this quarter. We delivered organic sales growth in all four of our categories, all six of our divisions, and volume and pricing growth on a total company basis.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

The balance allowed us to deliver on a base business 6% net sales growth on top of 6.5% net sales growth in Q1 2023, despite a nearly 4% headwind from foreign exchange. The focus on balance between pricing and volume growth allowed us to deliver solid volume growth this quarter, even with the continued volume softness in China and the expected headwind from lower private-label growth as we transferred more Hill's volume into our Pet Nutrition manufacturing network. Oral Care, Personal care, and Home Care each grew volume in the quarter, with volume growth of 3% for all three categories combined. Our revamped strategy and increased advertising spending have allowed us to drive growth across a greater percentage of our portfolio, and our focus on core innovation is keeping our biggest brands relevant and vibrant in consumers' minds.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

We still have work to do, but our balanced strategy continues to yield results, including continued growth in our global Oral Care shares. Which leads me to my second point, which is flexibility in the P&L. Our focus on revenue growth management and driving our Funding the Growth initiatives enable us to achieve a 60% gross margin in the quarter, despite significant headwinds from transactional foreign exchange. Our commitment to productivity in the middle of the P&L allowed us to drive 30 basis points of overhead leverage, while still continuing to invest in strategic capabilities like digital, data, and analytics, all topics we discussed at CAGNY. Prudent balance sheet management allows us to deliver 18% base business earnings growth, despite the year-over-year increase in interest expense and the impact from devaluations around the globe.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

And most importantly, despite an expected mid-single-digit negative impact from foreign exchange, we're guiding to mid- to high-single-digit base business earnings per share growth. And we're doing this in the context of meaningful increases in brand investment that will set the stage for growth in the future. This is a testament to the ability of our team to consistently execute our strategy and seize growth opportunities, while also preparing to better withstand the inevitable headwinds of running a global business. So with that, I'll take your questions.

[Operator]

We will now begin the Q&A session. To ask a question, you may press Star, then one on your touchtone phone. To withdraw your question, please press Star, then two. Please limit yourself to one question. If you have further questions, you may reenter the question queue. The first question today comes from Steve Powers with Deutsche Bank. Please go ahead.

[Steve Powers, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

Good morning, everybody. Good morning, Noel Wallace, Stan Sutula, John Faucher.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Morning.

[John Faucher, Chief Investor Relations and EVP of M&A at Colgate-Palmolive]

Morning.

[Steve Powers, Managing Director and Senior Equity Research Analyst at Deutsche Bank]

So really exceptional business performance this quarter, more or less on all fronts. But I wanted to drill down into your organic growth guidance raise for the year. It seems, you know, about half of that, about 2-point increase is being driven by inflationary pricing as an offset to FX, and fair enough on that. But there also seems to be, you know, at least a point beyond that, attributable to upside that you're seeing in, in real terms across the, the portfolio. So I'm curious if you could expand on, on where that upside is coming from versus your prior expectations, and if you'd say more of that is being driven by category growth or it's more being driven by your own market share momentum. Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

... Great, thanks, Steve Powers. You know, I come back to the points I made in my upfront comments around balanced organic sales growth. I mean, we're getting really good quality coming through on the volume line. You saw the 1.3. That was with the headwind of private-label that we-- that we're obviously exiting on the Hill's business, and strong pricing across the board, mid-single-digit pricing ex the impact of Argentina. And as you point out, we're seeing nice share growth consistently around the world that's driving, obviously, that top line organic growth and the top line sales growth. But we're most pleased with, I think, is the balance we're getting both on volume and price.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

We're able to still get pricing, not just inflationary pricing, but we still have pricing going through the categories, particularly in some of the markets where we've had more inflationary impact from raw materials. Hill's would be a good example of that. We took some more pricing in the Q1. The pricing has obviously led to good value accretion in the category, and it allowed us to drive some value shares. The other important point is we've seen really good momentum in our volume shares. The U.S. had a good growth on volume share in toothpaste. We've seen consistent volume share growth both in Europe and in Latin America across our portfolio. So it's really broad-based across the, across the strategy that we're trying to execute.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Balanced volume, balanced price, good initiatives through the innovation that we're putting into the market. And then importantly, is the continued robust investment. We're seeing that really pay out in terms of driving not only category growth in the markets where we're spending, but most importantly, allowing us to grow share in the categories where we're spending money. So overall, it's a, I think, a reflection of the strategy and a reflection of the balance that we have across both price and volume.

[Operator]

The next question comes from Melanie Schultz with Evercore ISI. Please go ahead.

[Robert Ottenstein, Senior Managing Director and Head of Global Beverages and Household Products Team at Evercore ISI]

Robert Ottenstein here. Noel Wallace, let's kind of maybe do a deep dive on Oral Care. Can you talk a little bit about the market share trends by region? And, you know, a little bit more specifically, are you gaining share more from other international players that may have more similar type of products or local players that are maybe more idiosyncratic? And, you know, what are, what are the key drivers to those to the share growth? Is it more the fact that you're increasing share of voice, or are there particular product areas like whitening that are really engaging consumers now more than they did in the past? Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, thanks, Rob. It's a little bit of all of what you've just said. So, you know, overall, really pleased with the growth and the acceleration of market shares globally. You saw that in the prepared remarks. You saw that in some of the slides that we provided, particularly on the whitening segment. And it's really a function of the strategy that we've been executing for the last couple of years and really starting to see the fruits of all that effort. So the growth is coming, you know, obviously, from a good growth in Europe, which we talked about. We're at record shares in Europe, but that's a balance between Colgate and our therapeutic brands of Elmex and Meridol.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

So good spending behind those businesses, and we're seeing, obviously, that translate into good share growth, particularly in some of the big markets across Europe. Likewise, we're seeing the benefits of that deployed across Africa, where we've launched some of those high-end therapeutic brands as well. North America, the scanner data has been improving, as you've seen, but the shares will continue to be a bit choppy there as we move forward, given some of the strategic changes we've taken with some of the drug class of trade on the promotional environment. Latin America had growth in both value and volume.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

That was driven both from, I think, the mix and diversity of our portfolio across Latin America, both at the high-end and at the entry price point, given the breadth of portfolio offerings that we have there, and obviously, the increased spending that we're putting behind some of the good innovation. So it's really broad-based. Good spending, good innovation, across the board, and importantly, a credit to the teams and their execution on the ground. And so we see that obviously continuing as we continue to hold investment through the balance of the year, and that share growth is coming from both the multinational competitors as well as local competitors. So broad-based across the board. We're pleased with where we are. We have more work to do, particularly in North America, but overall, good performance.

[Operator]

The next question comes from Peter Grom with UBS. Please go ahead.

[Peter Grom, Equity Research Analyst at UBS]

Thanks, operator. Good morning, everyone. Hope you all are doing well. I had a question on the gross margin performance and just kind of how to think about the path from here. We've kind of seen this sequential margin progression over the last six quarters or so, but in the prepared remarks, you touched on certain costs will increase as you move through the year. So just any thoughts on how we should think about the gross margin progression from here would be helpful. And then just within that cost savings, and any commentary you can share in terms of how we should be thinking about funding the growth, just in the context of a very solid start to the year. Thanks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Great. Good morning, thanks. Let me talk about more conceptually and strategically, and I'll let Stan Sutula handle some of the more specifics on your question. You know, so overall, as we think about the year unfolding, as we talked about, I think quite consistently, we'll see pricing start to ladder down as we move through the balance of the year, although we will get inflationary pricing. We still have some pricing that we're taking in some markets, and I would say we're deeply pleased with the Revenue Growth Management efforts that we have around the world and what that's delivering for us in terms of pricing in the market and driving category value. You've seen, obviously, the impact on raw materials in the Q1.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

We'll start to see that elevate a bit more in the back half. And obviously, the significant impact from transactional due to the foreign exchange headwinds that we face. That being said, we feel very good about the guidance that we've provided strategically about growing gross margins in 2024. We'll get that through, obviously, the funding, the growth efforts that we have, good mix in terms of how we're deploying some of our therapeutic brands around the world, taking pricing where we need to take to offset, particularly inflationary foreign exchange, and obviously, are very focused on the middle of the P&L, making sure we continue to get leverage there. So overall, strategically, we feel good, but we'll see pricing ladder down.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

It won't have as much impact in the year to go as it's had in the first half, but overall, we feel good about where we are. Stan Sutula?

[Stan Sutula, CFO at Colgate-Palmolive]

Yeah. So I'd pick up that. Look, we're very pleased with the margin performance in Q1, up 310 basis points year-to-year and improved sequentially. We had a slight benefit from Argentina, but the overall underlying margin improvement was quite good. We've guided for margin expansion for the year, and we're confident we can deliver. There's a couple of headwinds in here and tailwinds. We talked about the modest raw material inflation, as you've heard from others as well. We expect that will slightly escalate as we go through the year. And then we've all watched FX. FX, the transactional impact has been bouncing around, but that will be a headwind as we go into the year as well.

[Stan Sutula, CFO at Colgate-Palmolive]

Now, on the tailwinds, Noel Wallace mentioned earlier, we've got great revenue growth management programs in place globally, and we're seeing the benefit from all of those. And we have a proven track record on our Funding the Growth. We had a very good start to Funding the Growth. We've got a very good pipeline for Funding the Growth, and the teams, I think, have that dialed in here as we go forward. And then importantly, we've talked about the return to volume growth, and in that, we get some scale benefits and leverage as that volume flows through our manufacturing facilities. So overall, we expect to expand margin. You'll see that on a year-on-year basis. I think as you think sequentially, that will be more modest.

[Stan Sutula, CFO at Colgate-Palmolive]

But we expand margin for the year, and the efforts around RGM and FTG will be able to compensate for the headwinds that we see in FX, transactional, and raw materials.

[Operator]

The next question comes from Filippo Falorni with Citi. Please go ahead.

[Filippo Falorni, Director and Equity Research Analyst at Citi]

Hey, good morning, everyone. So Noel Wallace, you mentioned in the prepared remarks for the Hill's Pet Food business that you're expecting sequential volume improvement throughout the year. Maybe can you give us some, some color of the puts and takes with the less impact from private-label volumes in top line? And also, just any sense of the contribution from innovation, expansion into wet pet food, and any color on the trajectory of the business would be helpful. Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Sure. Good morning, Filippo Falorni. Thank you. So, you know, as we said in the prepared remarks, really pleased with the performance at Hill's in the quarter, in what's a pretty tough operating environment. Volume was closer to flat, ex the impact of private-label, and that was sequentially up, which is good. And we had very good pricing, as we discussed, coming out of the year in 2023, and our need to continue to offset some of the agricultural inflation that we saw in the back half of 2023 moving into 2024. A category volume overall has been, you know, a bit sluggish in the category, but I think what's most important is to see that the sluggishness has been more of a decline in treats and a little bit of conversion from wet to dry.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

And that's, and that's obviously important for us to think about as we, we strategically move some of a bigger part of our businesses, which are in the dry segment going forward. Really importantly, though, is the fact that we generated really strong share growth in the Q1 of the year behind the Hill's business. We're across, up in pet specialty, up in Neighborhood Pet. Penetration continues to grow. We had both share growth in our Science Diet business as well as Prescription Diet, and I think this is a reflection of the continued strategy that we're deploying. Great innovation, great partnership with pet specialty in terms of driving their categories, and making sure that we have ample advertising to talk about the science-driven nutrition that we provide to the market.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

So overall, we feel very good about where the Hill's business is. That business grew high-single-digits, ex the impact of private-label, so we feel we're well positioned, but we're not immune to some of the sluggishness in the category. But again, as we've talked about in the past, we have low brand awareness and low brand penetration, so a lot of upside to continue to go after as we execute our strategy.

[Stan Sutula, CFO at Colgate-Palmolive]

The only thing I'd add there is the investment in capacity has also enabled us to bring in some product that was being co-manufactured before, which improves reliability of delivery and also will improve our margins over time.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

And to your point on Filippo Falorni, on wet, obviously, there's some opportunities for us as we're very low indexed in wet, and particularly in segments like cat, where there's a lot of wet food consumed, we have an opportunity to leverage the new manufacturing that we have and get more formulas into the market and obviously more growth for the business.

[Operator]

The next question comes from Andrea Teixeira with J.P. Morgan. Please go ahead.

[Andrea Teixeira, Lead Analyst of North America Beverage, Household and Personal Care at J.P. Morgan]

Thank you, and good morning. Noel Wallace, we spoke to the underlying volume growth in all regions, and your revenue growth management definitely sets you apart. But can you comment on how you see the consumer behavior, in particular the low-end consumer in the U.S., and China, which seems to be a concern to some of your peers? And you have historically protect your price points and keeping consumers in the category, but we'd love to see the examples that you may highlight by your team in the U.S. and in China, and how they've been using this, you know, portfolio management to to barbell between affordability and premiumization. Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

... Yeah, I think as we've talked about, thanks for the question. The consumer's been quite constructive. I mean, we've seen, obviously, the significant inflation move through the category over the last year. We expected that we would see a return to volume growth as inflation became more benign and as pricing started to stabilize in the categories, and that's principally what's happened. Interesting to note that, you know, as you take the aggregate of our categories, by and large, the categories are still negative. So the volume growth that we had and delivered in the quarter, which suggests, obviously, that we're growing good volume share. And I think that's a reflection of the broad-based strategy that we're deploying.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

One, we have good innovation at the top end of the category, particularly on the therapeutic side, whether that's in whitening in the premium side, whether that's the Total Plaque that we've launched, whether that's Therapeutic with Meridol and Elmex, as well as a lot of big core innovation. We've talked about the fact that a lot of our big core portfolio, particularly in toothpaste, is at that entry or mid-price level. And so we've spent a lot of time innovating at the core to ensure that we keep those brands vibrant, and we offer consumers real value and real benefits as they come into the category, or they're trading down from mid-price to perhaps entry. You've seen some of the sluggishness in China, to your point, come from the rural segment. Clearly, that consumer is a bit more challenged in China right now.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

The premium segment continues to be quite robust, but our Darlie franchise is well-positioned longer-term, we think, to continue to leverage some of the rural softness that we're seeing in the category and make sure that we drive share. The Colgate business had a terrific quarter in China, and that's, I think, a reflection of the move to the premium side of the business as we've really gone a lot more onto e-commerce with premium offerings. But overall, we're seeing, I think, a balanced consumer.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

The key is making sure that we're providing the reasons to use our products, and the advertising that we're executing across the market is very, very important to, one, justify the price increases that came through the category last year, but really to drive trade up in the categories to ensure consumers see the real value and science-driven benefits of our products and our portfolio.

[Operator]

The next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.

[Bonnie Herzog, Managing Director and Senior Customer Analyst at Goldman Sachs]

All right, thank you. Good morning, everyone. I, I had a question on your ad spend, which is, you know, one of the highest as a percentage of sales among your peers. Noel Wallace, you touched on this, but hoping you could talk a little further about your strategy to continue to increase spend, and then, you know, ultimately, what you believe is the right level of marketing spend moving forward, as, as well as, you know, maybe opportunities to improve ROIs. Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, thanks, Bonnie Herzog. I'll, I'll start with the end of your question, which is we're, we're seeing terrific ROI in the business, and I think that's translated into, into the results in the quarter. Obviously, good volume growth, helping to... Certainly above the category. Share growth, pretty consistently around the world in both value and volume. We're seeing our premium innovations take share, and we're obviously spending a disproportionate amount of our advertising to drive premiumization and category value. You heard Diana Geofroy talk at CAGNY about, I think a lot of the discipline that we're putting into our media spend on using data and analytics to really justify the spend everywhere we are, drive more personalization and return on that investment. So again, we're very pleased with the increase in advertising and ultimately what it, what it's delivering.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

As I mentioned in my upfront, what's also terrific for the business right now is the broad-based spending we have on the portfolio. What I mean by that is we've moved from exclusively Oral Care and Pet, which was getting a significant amount of spend over the last couple of years, to making sure that some of our strong brands around the world are getting their fair share of the advertising, and we've seen a great return on that investment. Europe would be a great example of that. We're spending behind our Personal care business in Europe. Sanex is just an extraordinarily strong brand there. The spending behind some of our innovations, driving good share growth and good execution in store. Overall, that's having a pretty systematic impact on the business, and we're pleased with the results that we're getting.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Moving forward, as I've said, consistently, I think over the last three or four quarters, we will continue to invest in this business for the long-term. Building brand saliency and keeping our brands vibrant is the best way to driving that consistency.

[Operator]

The next question comes from Olivia Tong with Raymond James. Please go ahead.

[Olivia Tong, Managing Director of Beauty, Personal Care and Household Products at Raymond James]

Great. Thanks. Good morning. I wanted to ask you a little bit about your organic sales guide for the rest of the year. Obviously, conceptually, understand why, you know, you wouldn't, you wouldn't grow the 10 points continuing. But, why would organic sales decelerate as the comps ease? Presumably, you're getting more pricing. Clearly, we understand that, you know, this is a a very dynamic environment, but, would love to get a little bit more color in terms of your expectations for the rest of the year, because it sounds like you're, you're very bullish on innovation, on pricing capabilities, on volume acceleration, et cetera. So, would appreciate a little bit more color there. Thank you.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Sure. Thanks, Olivia Tong. So clearly, some of the comps get more difficult as we go through the year-to-go. We took obviously a lot of pricing. We'll see that pricing become more benign or will slow in the back half of the year. That will still be determined how much of that comes back into volume. The good news is, the Q1 and some of the success that we saw in the Q4 give us confidence that the volume is returning as we expected. The elasticities are in line with as we expected, so we feel pretty good about where we are. Again, I think that the biggest differentiator here in terms of how we think about is we're only in the Q1. There's a lot of economic uncertainty out there in terms of what's happening.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

We still see foreign exchange being a headwind, and that will certainly have an impact as we have to take pricing in some markets. Interest is gonna stay stubbornly high, we expect, through the balance of the year. So overall, we're still early in the year, very confident in the guidance we've provided and the strategy that we're executing, but we wanna make sure we maintain operational flexibility through the balance of the year to ensure we continue to execute the strategy that we've been communicating to drive consistent compounded earnings share growth.

[Operator]

The next question comes from Chris Carey with Wells Fargo. Please go ahead.

[Chris Carey, Senior Equity Analyst and Head of Consumer Staples Research at Wells Fargo]

Hi, good morning, everyone. One quick follow-up on gross margin and then a question on North America. So on, on gross margin, I think there was an expectation that Q1 would be down quarter-over-quarter relative to Q4, clearly very strong delivery in the quarter. Stan Sutula, you mentioned a bit of benefit from Argentina, or are you seeing better developments elsewhere, whether that's in commodities, perhaps some of the new pricing on Hill's, or maybe you're over-delivering on productivity? So just maybe contextualize what seems to have come in a bit better there. And just on North America, it was the best volume growth in nearly two years. I realize Fabuloso was a, a benefit there. But Noel Wallace, you also mentioned needing to work on market shares.

[Chris Carey, Senior Equity Analyst and Head of Consumer Staples Research at Wells Fargo]

Can you maybe just help us understand the underlying, momentum of the business right now and, and how to think about this going forward? Thanks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Sure. Thanks for the question. Let me take the North America, and then I'll let Stan Sutula jump into some of your questions around gross profit. You know, overall, the strategy in North America that we're executing, we feel good about it. We've been very focused, as we've talked about before, on improving the middle of the P&L, getting gross margins back to where they needed to get to, getting operating margins where they needed to get back to, and reinvesting that into the business in order to drive market shares. The value shares, as I mentioned, have been a little bit choppy, and will continue to be a little bit choppy for the reasons I stated earlier.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

However, we are seeing better execution of our innovation and our promotional strategies, and that's helping to drive nice volume share in the quarter, both across toothpaste, which was up nicely, and toothbrushes from a volume standpoint. So again, we feel good about that, and we still have a lot of work to do across, across the business, as we've talked about on prior calls, and I've got great confidence in Jesper Nordengaard and his team and the strategy that we're deploying with real patience, because we know it's gonna take some time, but we feel in the long-term, we're gonna end up in a, in a much better place from that.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

The other thing I'd say is the non-Nielsen business in the North America business continues to grow at multiples of the Nielsen business, and obviously, that's not captured in the market share, so we feel good about the overall health in the business, but we'll consistently continue to drive off the opportunities that we see in the Nielsen-based accounts.

[Stan Sutula, CFO at Colgate-Palmolive]

And, Chris Carey, your question on the sequential margin improvement. First of all, we're pleased with that sequential margin improvement. Argentina was a little bit less of a headwind, and as you've watched that FX, it's been very volatile. We've taken actions to address it, including sourcing changes, pricing changes, et cetera. And then the team candidly executed really well. I mean, we get a little bit of scale benefit from volume. We get some improvement from RGM, and the funding, the growth, was great execution starting the year. So we love the start to the year, and we know FX is gonna continue to be volatile, not just in Argentina, but in many areas around the world. So solid start to the year, slightly better than we anticipated on a sequential basis, but pleased with the progress.

[Operator]

The next question comes from Lauren Lieberman with Barclays. Please go ahead.

[Lauren Lieberman, Equity Research Analyst at Barclays]

Great, thanks. I was wondering if we could talk a little bit about Europe. Numbers were super strong. A little bit of context around where you're seeing particular areas of strength and volume would be great. And then just any recent thoughts on private-label. Unilever brought up yesterday, seeing a little more incremental pressure from private-label in Europe, so just curious to hear your perspective on that as well. Thanks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, thanks, Lauren Lieberman. A great quarter for Europe, and again, a terrific execution from the team on the ground. Overall, really, really strong with growth across the vast majority of our business, and it wasn't just Oral Care, it was pretty broad-based. And obviously, as you saw, volumes inflected positively, given that we're still getting pricing in the category. So pricing will ramp-down as we move through the balance of the year. The big change, I think, is our investment strategy in Europe. We see real opportunities for growth, particularly in the Oral Care and Personal care segment, excuse me, as we execute some of the innovations that we have there. The Meridol and Elmex shares, broad-based across Europe, are at record levels and growing really, really nicely.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Again, that is a shift in strategy, and what's nice is we're getting the complementary growth on the Colgate side of the business, particularly as we're more, more focused on the whitening opportunity that we have. So a great portfolio of brands that we're leveraging, we think, more strategically around the region. So the market shares overall look, look pretty good. In terms of private-label, as you know, private-label has higher penetration in Europe than it does anywhere else in the world. We have seen some acceleration in some of the Home Care categories, whether it's dish liquid or fabric softeners or floor cleaners. But that being said, we continue to have, you know, good growth across our business, particularly as we, as I mentioned earlier, broaden the investment strategy across a wider array of our brands in Europe.

[Operator]

The next question comes from Bryan Spillane with Bank of America. Please go ahead.

[Bryan Spillane, Senior Food and Beverage Analyst at Bank of America]

Hey, thanks, operator. Good morning, everyone. Hey, Stan Sutula, just had a couple of questions, just related to cash flow. One, I don't know, maybe I missed it, but if we have a guide for capital spending for the year? And then, I think you refinanced or you funded a maturity in the middle of the quarter with commercial paper. You know, just kinda curious there, will you, are you just looking to pay it down, or will you look to, you know, refinance that or term it out at some point?

[Bryan Spillane, Senior Food and Beverage Analyst at Bank of America]

Maybe just more broadly, as we're thinking about cash flow, you know, given where exchange rates have moved, interest rates have moved, just any other thoughts on how we should be thinking about, like, free cash flow conversion this year, and, you know, uses of free cash flow?

[Stan Sutula, CFO at Colgate-Palmolive]

Yep. Bryan Spillane, thanks for the question. So, first, we're pleased with the cash flow performance, a really solid start for the quarter. We're down a little bit year-over-year, but I remind you, last year was a terrific cash quarter, and this was really driven by receivables, which were impacted by the timing of Easter. In fact, we've looked at the first couple of days of the quarter, and that collection period completely brought DSO back in line. So we're very comfortable with that. So our cash profits really have been helped from the top line growth and the net working capital execution. I was very pleased with what the team accomplished here in Q1, particularly around inventory. So even with the Red Sea challenges and building up a little safety stock in certain areas, great execution on inventory.

[Stan Sutula, CFO at Colgate-Palmolive]

We saw the inventory days improve, DSO, strictly timing. In regards to your question on CapEx, we had said previously that we expect CapEx as a % of sales to be lower than last year, and it's really driven by Tonganoxie kind of coming online and that investment dollars dropping off. You know, if we look at our leverage, you know, the strong cash flow and execution has allowed us to bring our leverage using the S&P methodology down to 1.8x, so an improvement from year-end. And to your point, we did pay back a bond here in Q1, $500 million, and we did that with CP.

[Stan Sutula, CFO at Colgate-Palmolive]

And two reasons: one, we had very good, strong cash flow, and two, at some point, we expect interest rates will come down, though that appears to be sliding farther out to the right, and that will help us keep our fixed floating back in balance. So again, as we look at cash flow, strong performance, and as we think about that, it kinda goes back into the capital allocation, and I think you've seen that manifest itself in our strategy. That capital allocation hasn't changed. Invest in the business, and you're gonna see CapEx go up and down. We're investing in advertising. Return to shareholders, we had a dividend increase, and you saw our share buyback in the quarter, and then M&A, where we look at options to improve our overall portfolio.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, Brian, the only thing I would add is, again, picking up on the theme of flexibility. It's not only flexibility throughout the P&L, but it's having a really strong balance sheet that gives us the flexibility to deploy capital as we see the best return on that investment. And I give Stan Sutula and the finance organization huge credit and the discipline they're bringing around the world to ensure that the cash generation continues to be robust.

[Operator]

The next question comes from Mark Astrachan with Stifel. Please go ahead.

[Mark Astrachan, Managing Director and Senior Equity Research Analyst at Stifel]

Yeah, hey, thanks. Morning, everybody. I wanted to go back to North America, and the outperformance of these untracked channels. You know, we can now start to see in some of the data, the distinction between the new and the legacy channels, and it's pretty stark in your business, in particular, you know, Hill's specifically, but overall, there's just a lot more growth in those channels. I get that they're smaller, but curious, you know, your take on what is driving that exceptional outperformance, and how sustainable is it in terms of these other places like Costco, Amazon, et cetera, that's contributing to that growth, you know, overall, and you know, I'm specifically looking at Hill's, which is really doing quite well in those new channels. Thanks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, thanks. So again, it, you know, we've been talking about that for quite some time, and that has been, I think, a reflection of the strategy that we talked about for three years, which is core adjacencies and channels. And getting back to real focus and understanding the consumer journey across all of the markets in which we compete, has been fundamental to making sure that we have strategies to capture and deploy our investments in areas where we think we're gonna get the best return for that.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Some of these emerging channels that are not captured by Nielsen are very, very important, whether that's hard discount stores in parts of the world, whether that's the club store environment, where the value pack and large sizes continue to be a big growth driver, whether that's the ease and convenience of shopping online, and some of the digital execution and understanding the digital shelf and the discipline that we brought to that, that ultimately is being seen through the success that we're having in those alternative channels. We don't anticipate that that will change. I think as some of the classical brick-and-mortar retailers really up their game, and we're certainly seeing that across the U.S. markets, where the big players are certainly becoming far more sophisticated and progressive with their offerings and their shopper experience.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

We're partnering with them to ensure that our brands are involved in that journey that they're on, and making sure that we're bringing our digital capabilities to the entire omni-channel environment and making sure that Colgate and the brands that we offer are at the forefront of that. So it's, again, shopper journey, the experience that the shoppers are getting, the value orientation on some of those channels, and our ability to be much more targeted with some of our spend, and that's particularly related to the online retailers.

[Operator]

The next question comes from Brett Cooper with Consumer Edge Research. Please go ahead.

[Brett Cooper, Senior Analyst at Consumer Edge Research]

Thank you. Good morning. Question for you on the competitive environment and outlook. It would appear to date that the promotional activity and competition hasn't ramped to the extent that some have feared, and some of your large peers are looking to accelerate growth via reinvestment. We'd love to hear first, whether that assessment on the environment is accurate generally, and then your perspective on whether there's enough opportunity to elevate category growth via things like household penetration growth, premiumization, and share gains to net higher levels of growth, or is all of this reinvestment just the new cost of doing business? Thanks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, thanks, Brett Cooper. What's interesting is you're seeing, I think you're hearing, that a lot of the competitive set has focused on building healthy category growth, and that's two ways. One, with increased media investment, and the second is with increased innovation. We have not seen a fundamental shift around the world to more volume sold on promotion. It's still below where we were pre-COVID. Now, as volume becomes the important aspect here, you may see some players move to that strategy of doing more promotions. But overall, the category has been very constructive in terms of big players spending money on media, driving value to the categories through innovation and offerings that are differentiated in the marketplace.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

So it's incumbent upon us to ensure that our innovations continue to drive real value to the category and a differentiation in a very competitive market, and making sure that we're using the analytics and the data that we have to drive balanced promotional strategies in the categories. We'll be competitive where we need to be. I mentioned we've made some difficult decisions in the U.S. business to, to not chase a lot of deep down in promotions, particularly in, in certain retail environments. That will have a short-term impact on the Nielsen shares, but long-term, we feel we're gonna deploy that money in an effective way. And again, it's making sure that we continue to drive saliency of our brands and the health of our brands long-term, and we do that through media and innovation, not necessarily through promotions.

[Operator]

The next question comes from Alejandro Zamacona with HSBC. Please go ahead.

[Alejandro Zamacona, Associate in Equity Research at HSBC]

Thank you. Good morning. Just like, kind of follow up on Latin America. So, given the strong organic sales growth in the last few quarters, what should we expect going forward? I mean, to what extent the consumer is willing to continue to accept meaningful price increases, without giving up volumes?

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Yeah, yeah. Good morning, Alejandro Zamacona. Again, let me contextualize Latin America. Obviously, a really strong organic sales growth quarter with and without Argentina. There was good volume growth across every single hub, led by Brazil, which was up double-digits. If I take the last four quarters of Latin America, in terms of volume, 0.5, 5.4, 8, and 6.2. So again, very consistent with what we talked about. Our ability to get pricing early in the market has allowed us now to see the volume return to the categories and ultimately into our business. Our marketing is really strong, and innovation is very strong on the ground, and so we feel very good about where we're seeing, and that's been translated into really positive share growth for the business. So ex-Argentina, very good organic growth.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

You know, organic up significantly in the region. I think you saw double-digit growth in Brazil, which has been terrific. Oral Care, particularly, has been really strong in the quarter. That was up double digits, excluding Argentina. Shares in value and volume up. It's been quite some time since we saw both of those move in the right direction. And again, a reflection, I believe, of the strategy of increased investment and making sure that we have a breadth of offerings in that market. That is a market that's accustomed to inflationary pricing across many of the markets in which we compete. The key for us is making sure that we continue to advertise strongly in the markets, and we bring real innovation across the entire portfolio.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

That keeps the categories vibrant, allows us to work with our retailers to drive category growth and hopefully capture share at the same time. So overall, we think Latin America is well positioned for continued growth, and we like what we're seeing there.

[Operator]

This concludes our Q&A session. I would like to turn the conference back over to Noel Wallace, Colgate's Chairman, President, and CEO, for closing remarks.

[Noel Wallace, Chairman, President, and CEO at Colgate-Palmolive]

Great. Well, thanks everyone for joining the call today. Obviously, we're really pleased with the quarter and how we've gotten off to a strong start that we believe sets us up for continued sustainable growth moving forward and generating that long-term algorithm that we've been talking about for quite some time for our shareholders. Let me particularly reach out to all the Colgate employees around the world for their incredible dedication and resilience and their hard work in really executing a strategy around the world and for getting us off to a great start. So thanks, everyone. We'll see you and talk to you soon.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• John Faucher, Chief Investor Relations and EVP of M&A
• Noel Wallace, Chairman, President, and CEO
• Stan Sutula, CFO

Analysts

• Alejandro Zamacona, Associate in Equity Research at HSBC
• Andrea Teixeira, Lead Analyst of North America Beverage, Household and Personal Care at J.P. Morgan
• Bonnie Herzog, Managing Director and Senior Customer Analyst at Goldman Sachs
• Brett Cooper, Senior Analyst at Consumer Edge Research
• Bryan Spillane, Senior Food and Beverage Analyst at Bank of America
• Chris Carey, Senior Equity Analyst and Head of Consumer Staples Research at Wells Fargo
• Filippo Falorni, Director and Equity Research Analyst at Citi
• Lauren Lieberman, Equity Research Analyst at Barclays
• Mark Astrachan, Managing Director and Senior Equity Research Analyst at Stifel
• Olivia Tong, Managing Director of Beauty, Personal Care and Household Products at Raymond James
• Peter Grom, Equity Research Analyst at UBS
• Robert Ottenstein, Senior Managing Director and Head of Global Beverages and Household Products Team at Evercore ISI
• Steve Powers, Managing Director and Senior Equity Research Analyst at Deutsche Bank