Colgate-Palmolive Q3 2022 Earnings Report

Colgate-Palmolive EPS Results

• Actual EPS: $0.74
• Consensus EPS: $0.74
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.81

Colgate-Palmolive Revenue Results

• Actual Revenue: $4.46 billion
• Expected Revenue: $4.47 billion
• Beat/Miss: Missed by -$13.97 million
• YoY Revenue Growth: +0.90%

Colgate-Palmolive Announcement Details

• Quarter: Q3 2022
• Date: 10/28/2022
• Time: Before Market Opens
• Conference Call Date: Friday, October 28, 2022
• Conference Call Time: 8:30AM ET

Colgate-Palmolive (NYSE:CL) (NYSE:CL) is a global consumer products company focused on oral care, personal care, home care and pet nutrition. Its products are sold in more than 200 countries and territories through retail stores, e-commerce channels and professional networks.

The company’s portfolio includes Colgate toothpaste, toothbrushes and mouthwashes; Palmolive and Softsoap personal care products; Ajax and other household cleaning products; and Hill’s Science Diet and Prescription Diet pet foods. Colgate-Palmolive also markets brands such as elmex, Tom’s of Maine and Protex in various markets.

Founded in the early 19th century, the company has expanded from its original soap and candle businesses into a multinational consumer goods organization. Its operations are supported by research, manufacturing and distribution activities across North America, Latin America, Europe, Asia, Africa and other international markets.

Colgate-Palmolive Q3 2022 Earnings Call Transcript

Key Takeaways

• Colgate delivered high single-digit organic sales growth in Q3 across every division, with oral care, pet nutrition, personal care and home care all contributing, and gross margin improved sequentially thanks to pricing and productivity gains.
• Raw material inflation remains significant at an estimated $1.3 billion for 2022, though Colgate expects slight moderation in Q4 and continues to mitigate cost pressure via pricing, productivity and capital deployment initiatives.
• Hill’s pet nutrition faced retailer inventory reductions and supply chain constraints that pressured Q3 shipments, but end-market demand stayed strong and new capacity from the Red Collar acquisition should restore double-digit organic growth by Q4.
• The company is scaling key capabilities—science-led innovation, digital transformation across e-commerce and supply chain, and revenue growth management—to drive higher advertising ROI, market share gains and price realization.
• Colgate continues to navigate macroeconomic uncertainty, including foreign exchange volatility and consumer price sensitivity, which pose ongoing risks to volume growth and margin stability.

Presentation

[Operator]

Good morning. Welcome to today's Colgate-Palmolive third quarter 2022 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 Senior Vice President, M&A, John Faucher.

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

Thanks, Allison. Good morning, and welcome to our 2022 third quarter 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 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2021 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.

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

Joining me on the call this morning are Noel Wallace, Chairman, President, and Chief Executive Officer, and Stan Sutula, Chief Financial Officer. Noel will provide you with his thoughts on our Q3 results and our 2022 outlook. We will then open it up for Q&A. Noel?

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

Thanks, John, and thanks to all of you for joining us this morning. We continue to execute our growth strategy as we deal with an operating environment that remains very volatile. In the third quarter, we delivered high single-digit organic sales growth with growth across every division. We also delivered growth in all four of our categories, including high single-digit growth in oral care, pet nutrition, and personal care. I know elasticities are a big topic of conversation this quarter. While our volumes were negatively impacted by retailer inventory reductions and Hill's supply chain constraints in the quarter, underlying elasticities remained in line with our expectations, and we would expect volume performance to improve sequentially in the fourth quarter as these headwinds abate.

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

We delivered strong pricing growth through revenue growth management and healthy productivity through funding the growth and the initial benefits of our 2022 global productivity initiative. This helped us drive a sequential improvement in gross margin in the third quarter, despite further increases in raw material prices. The headwinds we face, whether from foreign exchange, raw and packaging materials and logistics costs or macroeconomic uncertainty, are significant, but we believe we are well-positioned to deal with these issues. We have taken the difficult steps necessary to meet these challenges head-on through pricing, productivity, capital deployment, and other actions. These actions leave us well-positioned to benefit when our markets stabilize. The first reason is our portfolio. We have a focused portfolio of leading brands in growing categories competing across multiple price tiers.

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

Consumers use the vast majority of our products every day, when they shower, when they clean their homes, when they feed their pets, and hopefully when they brush their teeth after every meal. We believe this high frequency of usage, combined with the strength of our brands, helped with our elasticities despite significant pricing. This has been particularly true in oral care. Our categories generally have low private label market shares compared to many other HPC categories where we don't compete. Consumers look to trusted brands to provide value, and we have built brands over time that deliver value to our customers and our consumers, particularly given our breadth of offerings across price tiers, from entry-level to ultra-premium. Our professional recommendation model in several of our largest categories also helps to provide added value and differentiation to consumers, which builds brand loyalty.

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

We have high market shares with number one or number two positions in many of our key segments across all four of our categories. We're also well-positioned because we are building capabilities and then scaling them across the company in order to drive growth, both now and in the future. Our most important capabilities are focused on science-led innovation. Particularly in a time when there is so much pricing in our categories, it is vital to add consumer identifiable value. You can see our progress here on brands like Colgate Optic White, Hill's Prescription Diet, EltaMD, and many others. It is also helping to drive improvements in our market share trends.

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

I spent a lot of time at Barclays talking about our digital transformation, an area that is impacting every facet of our business, our e-commerce performance, the ROI of our advertising, a digital-driven supply chain, the use of AI in new product development, and even how we're doing our training around the world. Revenue growth management is another capability we are scaling across the organization. We are putting the full force and effort of our data and analytics team into our RGM planning. We believe this is also helping us to make RGM decisions to help to lessen the impact of elasticities. As we head into the Q&A, I want to reiterate that our strategy is working. Through an environment that remains uncertain and volatile, we believe we are well-positioned with strong brands, scaling capabilities and most importantly, great people. I'll turn it over to the Q&A now.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone 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. Once again, if you would like to ask a question, please press star and then one. Our first question today will come from Peter Grom of UBS. Please go ahead.

[Peter Grom, Equity Research Analyst at UBS]

Hey, good morning, everyone. I hope you're doing well. I wanted to ask specifically on Hill's. Maybe first, is there a way you could potentially quantify the impact of the supply chain constraints and reductions in retail inventory had on organic sales in the quarter? And then maybe more importantly, I know you mentioned a return to double-digit organic sales growth in September, but can you maybe discuss why you remain confident in the acceleration in the business looking out to the fourth quarter and potentially longer term? Thanks.

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

Yeah. Thanks, Peter. Let me go back to the strategy, and I think because it underpins some of the, obviously, the supply chain constraints that we had earlier in the quarter, which is obviously based on really high demand for the brand. We've had nine quarters of double-digit growth on that business with fundamentally the same supply chain network. If you go back to the core elements of the strategy, really building science-driven innovation that we translate into claims for the consumer, claims for our vets and vet technicians that drives to endorsement of our brand. We translate that digitally across the enterprise, run our e-commerce business ahead of general market shares. Ultimately, that is driving strong consumption.

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

What happened in the early part of the quarter is the supply chain is obviously at 100% capacity prior to the acquisitions of Red Collar and the acquisition that we made in Europe, obviously. We now have the ability to really free up capacity moving forward. We're gonna be able to do a lot more efficient production in our existing facilities. We're transferring a lot of that volume into the new Red Collar facilities, which are coming onstream as of October. We feel very good moving forward. As you mentioned, we exited the quarter back in double-digit growth.

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

Strong consumption in the business, consumption, obviously, outpacing shipments, and we feel very good about where we are in the next three to six months as we integrate the Red Collar acquisition and continue to operate our plants more efficiently in the existing network.

[Operator]

Our next question today will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

[Dara Mohsenian, Managing Director at Morgan Stanley]

Hi, good morning. Obviously incredibly strong pricing in the quarter. We haven't seen that level of quarterly growth in decades. It'd be helpful just to understand what you're seeing competitively out there, given such strong Colgate pricing. Are you content with price gaps? Are you generally seeing competitors follow? Or might there be adjustments that are needed, as you think about that pricing line going forward? Thanks.

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

Yeah, good morning, Dara. Thanks. You know, let's go back to, again, what we've been discussing all year. We took pricing. Obviously, as we articulated in the second quarter, particularly across North America and other divisions, that pricing continued, obviously, in the third quarter. We have led pricing in many of our markets, and that has been fundamental to the growth of the business right now. We believe it's critical to get the pricing into the P&L. We have now seen competitors begin to follow, so that should alleviate some of the volume pressure that we saw early in the quarter. We feel very good about where we are with pricing. We obviously feel that the market will continue to hold that pricing as we see a very constructive market, as I've discussed in the past, with competition.

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

Now, competition was a little slow to follow, but we have seen that in the later end of the quarter, that most of our competitors have followed in our core categories. We feel pretty good. We talked about elasticities up front. They're more or less in line with where we articulated at Barclays. We've seen a little bit more elasticity, given the pricing that we took in some of the home care businesses. Again, we took home care pricing ahead of competition, and competition is now following, so we expect that to alleviate as we move forward. Overall, we feel pretty good about where we are. Obviously, foreign exchange is the new dynamic we're dealing with and having lots of discussions with the team on how to manage price volume moving forward.

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

We feel very good about where we are right now.

[Operator]

Our next question today will come from Andrea Teixeira of JPMorgan. Please go ahead.

[Andrea Teixeira, Managing Director and Senior Equity Research Analyst at JPMorgan]

Thank you. Good morning. Can you comment a bit on the pace of volumes exiting the quarter? I think you alluded to the fact that Hughes got better with the acquisition. I know it takes, you mentioned, three to six months. I just wanna reconcile your comment also on pricing that your competitors are following now and then you hope to alleviate. Should we expect, like, the way the quarter unfolded, that volumes were not as bad as you exit the quarter? Thank you.

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

Yeah. Thanks, Andrea. Yeah, volumes improved as we exited the quarter, as we talked about. Obviously, some of the supply chain constraints up front on Hill's. We talked about, you know, post Barclays, as you remember, we saw some early warning signs in the online business on our trade partners taking inventory down. We had not seen it in brick-and-mortar at that stage, but we had communicated that that's not to say that might happen towards the end of the quarter, which is exactly what happened. We saw some inventory come out in some of the key retailers in North America. We obviously saw continued reductions in inventory on Amazon throughout the quarter, and that ultimately led to roughly 100 basis points of headwinds on the quarter.

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

Take that with additional 50 basis points of Russia impact in the quarter and obviously some of the supply chain constraints. We feel good about volume sequentially improving in the fourth quarter. Obviously consumption seems to be holding out, but we have to bear in mind that there's a lot of pricing going in the market across multiple categories. We'll continue to watch that very carefully. We've also obviously had to pull a little bit of the advertising back in the quarter as we saw consumption across most categories slow down in Europe and obviously the constraints on Hill's. Hill's, we've moved that money to the fourth quarter to continue to drive consumption and exit the year strongly. We do not want to be cutting investment. We believe this, hopefully, some of this volatility is short-term.

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

Our focus is to continue to invest behind the brands and drive consumption as we move into 2023.

[Operator]

Our next question is going to come from Christopher Carey of Wells Fargo Securities. Please go ahead.

[Christopher Carey, Equity Analyst and Head of Consumer Staples Research at Wells Fargo Securities]

Hi, good morning. Can you just perhaps comment on how you feel about gross margin progression? Clearly, pricing is still coming in quite strong and the commodity impact actually worsened sequentially, but ultimately commodities will ease going forward and into next year, and presumably productivity remains a good story. In the context of what you're seeing on the volume side, do you feel like you might need to reinvest back some to drive demand within promotions and perhaps that can reduce net pricing? In general, it does feel like you're weathering quite a bit of commodity pressure here with pricing and these things are gonna ease going forward. I wonder if you could just give a sense on how you feel about gross margin progression over time. Thanks.

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

Sure. Let me just. I'll take it conceptually and strategically from the top and then I'll turn it over to Stan to give you a little bit more color. Overall, strategically, as we talked about coming into the second quarter, we felt it was very important to get ahead of the inflationary environment and take as much pricing as we could. We watched that very carefully, obviously, with consumption. You combine that with the initiatives that we set out for 2022 with our global productivity index. We felt it was very important to get ahead of this, which we announced back in 2021. We're seeing that coming through on the gross profit line.

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

Obviously, gross profit up sequentially in the quarter despite 920 points of headwind in the gross margin reconciliation, so we feel that was important to get that in, and we'll continue to take pricing as necessary. Raw materials, I'll turn it over to Stan to give you a flavor of where those are right now. We've seen a little bit of pullback, but more or less, we're still seeing significant increases versus where we were last year. Stan?

[Stan Sutula, CFO at Colgate-Palmolive Company]

Yeah. We've seen some modest movement in materials cost, but overall, we continue to see raw materials as a full year 2022 as $1.3 billion full year increase. As a reminder, that's 23% year-over-year. In the third quarter, as Noel highlighted, it was 920 points. A little bit of color underneath that. Oil has generally been lower since our last call, but now is kinda creeped back to where it was then. We've seen ag as an offset here increase versus our previous guidance, particularly around proteins, corn, et cetera. Those are notably higher versus where we were in July. Partially offsetting that, we've seen palm oil has actually come in a decent amount. Now that's favorable, but tallow, soybean, other oils are still showing elevated levels of inflation.

[Stan Sutula, CFO at Colgate-Palmolive Company]

That's what keeps us at the $1.3 billion for the year. As a reminder, we lock in, so typically, and this quarter is no exception, we're largely locked in for fourth quarter. Now, one other comment, while natural gas is not a raw material per se, we do use it to power our plants, particularly in Europe, and that's been volatile and continues to escalate. As we expected, raw materials continue to move, but overall still see $1.3 billion, and this is why we have our GPI program, our funding the growth program as we look to take productivity to mitigate that 920-point headwind.

[Operator]

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

[Bryan Spillane, Managing Director Equity Research at Bank of America]

Thanks, operator. Good morning. Hey, Stan, maybe if I could just pick up on the last question. Can you just give us a sense of just given how volatile maybe raw material costs have been, are you locking in or hedging further out? You know, as we begin to look kinda at 2023, you know, how far ahead are you in terms of being locked in on raw material costs for 2023?

[Stan Sutula, CFO at Colgate-Palmolive Company]

Thanks for your question, Bryan. As we look, we've seen the volatility. While we've had movement up and down, the $1.3 billion is exactly the same number we highlighted out of last quarter. While we've seen components move up and down, we've only seen modest movement on a net basis. We typically lock in the next quarter, and then we do some longer term pricing into that, lock that in out quarters, but it's relatively modest. As you'd expect, the near quarter gets the most, and then it kinda scales down. Today, we're not gonna give 2023 guidance. What we are looking at is the movement that we see, we're trying to make sure we're very prudent on not locking in areas that we think are going to moderate over time.

[Stan Sutula, CFO at Colgate-Palmolive Company]

We don't do a lot of hedging. We do some in the ag space, but we don't do a lot of hedging among the others. We think price is the ultimate hedge.

[Operator]

Our next question will come from Jason English of Goldman Sachs. Please go ahead.

[Jason English, Managing Director of Equity Research at Goldman Sachs]

Hey, good morning, folks. Thanks for slotting me in. A couple of quick questions I'll try to squeeze in. Back to the $1.3 billion inflation, our quick math suggests that implies a reasonable amount of moderation in the fourth quarter. It's still a lot of inflation, but certainly less than what we've been seeing the last two quarters. Is that math right? And secondly, in your Q, you give round numbers on percent of sales by category, and I know they're round numbers, so there can be a lot of variability there. But it does suggest that you're seeing year-on-year declines in your personal care and home care categories. Can you just maybe elaborate a little bit on what you're seeing within those individual categories? Thank you.

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

Yeah, let me take the categories first, and then I'll let Stan provide a little bit more color on the raw materials and where we see the fourth quarter ending up. You know, categories by and large are where we estimated. Obviously, we've seen a little pullback in the home care categories, but personal care, oral care and pet nutrition continue to be, you know, quite healthy, particularly given the pricing that's going into the category. Relative to year-on-year, I mean, all of our categories in terms of how we play them are up. There may be some impact from foreign exchange there, Jason, but other than that, we see good growth across a broad nature of our categories.

[Stan Sutula, CFO at Colgate-Palmolive Company]

On the raw materials, Jason, we said in our last call that we thought this was gonna peak in Q3. We continue to believe that. While the full year still holds at $1.3 billion, we do expect some slight moderation in Q4. Again, we're largely locked in for that.

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

Yeah, the one area I'd add is ag prices and some of the specialty ingredients that we use in Science Diet and Prescription Diet. Those continue to be quite high. We're watching those quite carefully as we move into 2023.

[Operator]

Our next question today will come from Kevin Grundy of Jefferies. Please go ahead.

[Kevin Grundy, Managing Director at Jefferies]

Hey, great. Thanks. Good morning, everyone. I wanted to pivot, Noel, ask a question on portfolio strategy. Two parts to it. The first one, just overall level of satisfaction with the portfolio as you sit here today. Any updated thoughts on where you potentially would want to augment through M&A? The second part, as it pertains to Hill's, which is a business which has done extraordinarily well here recently. There's a view in the marketplace there's potentially some latent value in the Colgate portfolio, specifically related to that business. Love to get your thoughts there, perhaps remind us of the board's approach to portfolio assessment. Thanks for that.

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

Yeah, thanks for the question. In a world of significant volatility, we are really pleased with the diversity of the categories we compete in. They're carefully curated categories. We're highly focused on four. As you well know, we've been focused on four for a long, long time. We have deep understanding of those four categories. We believe they're well constructed and well positioned for future growth, whether you're looking at consumption opportunities, whether you're looking at price-driven opportunities in terms of premiumization. Obviously they're all not gonna run in tandem. We've obviously done some great things in the pet nutrition categories. We've pivoted a lot of that strategy over the last four years, and you've seen the success of that.

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

You've seen the success in this year as we're driving broad-based growth across all of our categories, which I talked about, initially. Very happy with skin health. Obviously, the professional skin business in the U.S. continues to perform very well. The Filorga business in China continues to be a challenge, given the lockdowns we've seen in China and the lack of travel of Chinese consumers around the world. Overall, we feel the ebb and flow of our categories is exactly where we wanna be right now, and we feel very fortunate that we're very focused on four and all those categories are growing today.

[Operator]

Our next question will come from Olivia Tong of Raymond James. Please go ahead.

[Olivia Tong, Managing Director and Senior Analyst at Raymond James]

Great, thank you. My question was more around expenses. First on commodities and raw mats. Is it possible to kind of parse out how much currency played a part versus inflation on a constant currency basis? On advertising, if you could just give a little bit more color. You know, it sounded like most of that was related to the disruption in Hill's. Just a little bit more color in terms of your ongoing expectations, particularly in sort of the you know, digital aspect, given what we've heard from some of the digital advertisers. Thank you.

[Stan Sutula, CFO at Colgate-Palmolive Company]

Let me start with the expenses piece. On raw materials, obviously we operate in over 200 countries and territories. As you think about the currency impact on our overall portfolio, that also impacts our raw materials. I wouldn't say it's outsized in any particular one. Some materials are sourced from one or two suppliers, so they'll have an outsized impact, while others are sourced locally, and those have a natural hedge, if you will, from a currency aspect. FX, as you think about the impact to raw materials, you should think about that largely in line with the impact of the overall company, and that will vary slightly by division.

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

On advertising, Olivia, you heard us say that on a dollar basis, we were down about 3%, but on a local currency basis, we were up 2%. Overall, we still feel good with the impact we're having in the markets. We've done a lot of work, as others have done, to really optimize our spending. Now with obviously a move of 50%+ of our spending in digital, we're able to get much more deep into the analytics and the ROI metrics. We're doing a much better job at personalizing our content. As I've talked about before, over 14,000 people around the world on our digital transformation, media being an important part of that. We feel we're getting much better.

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

We pulled back a little in Europe as we saw a pretty significant drop-off in the categories, and so we wanted to be prudent as we thought about investment moving forward. As I mentioned earlier, we pulled back a little bit in the third quarter in Hill's, but transferred that money into the fourth quarter to continue to drive consumption as we bring on more capacity.

[Operator]

Our next question will come from Callum Elliott of Bernstein. Please go ahead.

[Callum Elliott, Director and Senior Equity Analyst at Bernstein]

Hi, thanks for the question. Another portfolio question, if that's okay. I just wanted to ask you, can you talk, please, about the operational integration of the Oral Care business with the Personal Care and Home Care businesses, and specifically with a view to how difficult would it be to separate parts of or all of Personal Care, Home Care if your view were to change about the value of those Personal Care, Home Care businesses to the overall company?

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

Yeah, what I'm gonna do is step back again and talk about, you know, the strategy of the company and why it's working. I think the results today illustrate that. Our growth strategies across all of our businesses and how we integrate those businesses and scale our capabilities are delivering strong performance for the overall business. 15 quarters now of organic sales growth within our 3%-5% target range. We've had a growth in every division in all four of our categories, and we're particularly pleased, obviously, this quarter with high single-digit growth in Oral Care, our Personal Care business, as well as our Pet Nutrition business. A key part of that strategy, which I think gets to the heart of your question is how we're leveraging our capabilities across the enterprise.

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

We've talked about our science-driven approach, clinical substantiation for our products that drive claims, consumer acceptance, lead to professional endorsement. As you know, we have a strong professional model across our pet business, our oral care business, as well as our skin health business. We're leveraging those learnings. In fact, over the last year and a half, we put an organization in New York simply to look at how we continue to optimize and sharpen our professional strategies as we see brand recommended most often as a key driver of saliency for the brands and the equities and ultimately loyalty. Our digital transformation, largely initially led by Hill's, we have now taken their capabilities, their talent, and use those across the entire enterprise to further our digital capabilities. You've seen our e-commerce business is one of the fastest growing channel businesses that we have today.

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

Our market shares in markets like China, which is the biggest e-commerce market, are out-delivering against any other competitor in the market. We really attribute that to leveraging the scalability of certain capabilities across the enterprise. We like the four categories we compete in. A lot of similarities, a lot of overlap, and we continue to see that executed in terms of the results that we delivered today.

[Stan Sutula, CFO at Colgate-Palmolive Company]

No, one thing I'd add there, I think, is that integration extends to our supply chain. One of our key attributes here is the production that we do across the world, and we integrate that particularly across Personal Care, Home Care, and Oral Care, and that gives us a lot of leverage.

[Operator]

Our next question today will come from Lauren Lieberman of Barclays. Please go ahead.

[Lauren Lieberman, Managing Director at Barclays]

Great. Thanks. Good morning, everyone. I guess two things. First off is you've commented quite a bit, you know, on elasticity and feeling, you know, saying it's very much in line, and I think you've done a nice job calling out, you know, Hill's and then the inventory destocking in North America. One thing that jumped out at me was just the volume performance in Latin America. You know, if you could just give, you know what, from other companies, I think we've kind of seen what looks like a bit better resiliency in the face of pricing. Just curious if you could offer some more detail on Latin America. And then secondly, I was just curious on your view broadly on inflation in grocery into 2023.

[Lauren Lieberman, Managing Director at Barclays]

You know, how much more space do you think there is for incremental pricing across your portfolio? If it's terribly different domestically versus internationally. I'd just be curious for some perspective on that as well. Thanks.

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

Yeah. Thanks, Lauren. Let me talk to Latin America. In fact, I just got back from trips to Brazil and Mexico, so the information's very fresh. You saw the 20% pricing that we took in Latin America, obviously following significant pricing in the second quarter, about 12.5. As I mentioned up front, we have led in pricing across all of our categories in Latin America. As a result of leading, it took time for the others to catch up, and obviously that elasticity when the others have to catch up is gonna be a little bit higher. As we exited the quarter, we started to see volumes improve, particularly across Personal Care and Oral Care. Home Care, a little slow to recover, but we'll see.

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

I think we'll see that stabilize as we move forward. Overall, the plans I saw in place in both Brazil and Mexico were really, really strong. Shares very good in Brazil. A little soft in Mexico, particularly in Oral Care, given the fact that we took aggressive pricing. Competition followed initially. As I was leaving those markets, competition followed, so we feel pretty good as we move into the fourth quarter and into 2023. The innovation plans that we have in place and the premiumization plans we have in place in Latin America look really, really strong. In fact, in both Mexico and Brazil, we have seen our share of the premium segment grow sequentially over the last five quarters, 6 quarters, so we feel good about where we are there.

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

We're also, as we've talked about in the past, the importance of our core businesses, relaunching some of our core businesses to ensure that if we do see trade down and we continue to provide value at the opening price point, we're there for that consumer. Overall, feeling good about Latin America as we move into the fourth quarter and in 2023. Relative to inflation and moving forward, listen, I think, you know, everyone is going to deal with that how they see fit. We will continue to take pricing. I think the key aspect for us is continuing to invest behind brand building, and that brand building ultimately allows us to take more pricing in the markets around the world and continue to drive value to our consumers. Now we'll see where the competition goes.

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

If inflation becomes more benign, which I think most people expect it to be, we will watch that carefully. The pricing environment has been up to now very constructive, and we anticipate that as we can bring stronger innovation into the market, continue to invest behind our brands, we will minimize elasticity. Is there more opportunity in grocery? Absolutely. We'll see that as it comes to fruition. Right now, we feel good about where we've taken pricing and particularly the plans we have in place to minimize elasticity.

[Operator]

Our next question will come from Kaumil Gajrawala of Credit Suisse. Please go ahead.

[Kaumil Gajrawala, Managing Director and Equity Research Analyst at Credit Suisse]

Hi, guys. Good morning. Can you maybe talk a little bit more about Europe? Obviously, we can see the delivery in the quarter, but, an area where inflation might be the most acute is also an area where the consumer might be under the most amount of pressure. Maybe if you could just talk about your outlook for Europe, particularly as we're going into the winter.

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

Yeah. You're right. I mean, Europe's certainly under the most pressure, particularly around energy pricing. We have taken significant pricing in Europe as others have. It's as you go back and look at that in history, it's the most pricing that's gone into the business in quite some time. Importantly, we have a good mix of price points covered in Europe. The strength of our Elmex and our Meridol brands, obviously at the premium side, and Colgate obviously more in the mainstream. You've seen the combination of those two businesses grow share in the quarter and in the year, so we feel good about where we are. As I mentioned earlier, I think consistently across the world, a little bit more elasticity in the home care businesses.

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

We've got some pretty significant relaunches coming in early 2023 on our home care businesses, so we feel good about the plans in place we have in order to continue to drive consumption there. Overall, it's gonna be a tough winter. We're gonna watch that very closely. We feel we've got a good mix of brands at different price points to deal with the significant inflation that consumers are going to have to deal with. Obviously a tough six months ahead of the Europeans.

[Operator]

Our next question today will come from Robert Ottenstein of Evercore. Please go ahead.

[Robert Ottenstein, Senior Managing Director and Partner at Evercore]

Great. Thank you very much. Just a couple of sort of follow-up questions. On the inventory side, the retail adjustments, are you confident that's done at this point? And is there anything on the e-commerce side where, you know, there could be adjustments in terms of e-commerce related inventories? And then second, you know, can you give us any more details on China? We've talked about that a lot in the past. How are you doing there? How are the market share trends? And how is that market starting to reopen? Thank you.

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

Yeah. Good morning, Rob. Thanks. On the inventory adjustments, obviously, we saw quite a bit come out towards the end of the quarter. Is it done? We can't make that prediction. We follow these inventories, as I mentioned, I think on the second quarter call or up at Barclays, to the day. I mean, particularly with our big customers, we work very much in collaboration with them on the guidance and goals that they have. Invariably, what happens is they may take drastic decisions across all the categories if they're reducing inventories, and we deal with that unexpectedly towards the end of the quarter. We obviously are staying very close to case fills and on-shelf availability and communicating that back as necessary.

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

The last thing they wanna do is obviously run out of stocks, particularly with our portfolio, which are significant traffic drivers across the categories in which we compete. Is it done? It's hard to say. It is below where they historically have managed their inventories. That usually means that they'll bring them back to those levels or something closer, but we'll have to watch that very carefully. It's very difficult for me to predict. A great quarter for China. You know, we've talked about China over the last two years in terms of the transformation of our strategy on the ground, which was significant from our entire go-to-market to some of our marketing and innovation plans. We've seen our e-commerce continue to be one of the fastest-growing e-commerce brands in the market.

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

We've seen our brick-and-mortar business stabilize over the last couple quarters, which is terrific. You saw the growth that we delivered. The last two quarters for our Greater China region, we delivered positive pricing and positive volume across our enterprise. We had the Hawley & Hazel, the Darlie relaunch has gone into effect. This is a significant relaunch for the brand, changing the brand name that's been quite successful. Our Colgate business continues to track well. Overall, we feel good. No question, the lockdowns are having an impact. The lockdowns have had a significant impact on our Filorga business. They've had a significant impact on some of our our premium brands as we've seen, those typically translate into slower online sales. Overall, we feel pretty good about where we are.

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

We'll see where the lockdowns go. That will open up the market, and as that comes back to a more stable, predictability, we feel good about where we are and what we've built in terms of capabilities on the ground during a very difficult 18 months.

[Operator]

Our next question will come from Jonathan Feeney of Consumer Edge. Please go ahead.

[Jonathan Feeney, Director of Research and Head of Product at Consumer Edge]

Good morning. Thanks very much. I just wanted to follow up about your thoughts about big picture, about promotional efficacy. The big debate is how much I know you talked about everybody's wondering how much promotion is gonna come back structurally, but I wanted to dig in and any comment you could have about People have gotten trained off of buying on deals, so now a little bit more promos coming back in. It's a little bit more, you know, little by little anyway. Is promotional efficacy where you are promoting working better or worse than your expectations, particularly in, say, North America and Europe developed markets? Thanks.

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

Yeah. Jonathan, thanks for the question. Clearly, I think as the consumer becomes more strapped relative to inflation, they will be more astute in looking at promotions. I can characterize at least where promotional volumes are, particularly for North America, and it would be somewhat a generalized consensus for the rest of the world. Our promotional volumes are slightly down year to date. That was deliberate. We pulled back on some aggressive couponing that can drive volume but doesn't do much for your P&L. We've seen some of our competitors follow that strategy, not all of them. I would say our two key competitors have taken their promotions up a little bit in the U.S. You saw the U.S. numbers. At least our consumption continues to be very strong in North America.

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

We were up or flat in eight of our 12 categories. Our toothpaste business and toothbrush business continues to perform quite well with share growth. We've done that with good innovation and pulling back a little bit on promotion. Now, where does it go moving forward? I think promotions will be sharply managed by the categories and by our competitors, and we'll have to watch that very carefully. Clearly, I think you would expect to see a little bit more volume sold on promotion moving forward, returning to much more normalized levels, given the fact that the trade and our competitors will be looking to drive a little bit more volume in the categories. We're gonna watch that very carefully. Again, I think it comes down to your ability to leverage your portfolio effectively.

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

A lot of the work that we've done in revenue growth management really gets to the heart of that on how to balance entry price point, mid-price point, and premium price points in order to drive value to the category and to our customers, and ultimately giving the consumer a good proposition to take home.

[Operator]

Our next question will come from Nik Modi of RBC Capital Markets. Please go ahead.

[Nik Modi, Managing Director and Co-Head of Global Consumer and Retail Research at RBC Capital Markets]

Yeah, thank you. Good morning, everyone. No, I was just hoping you can reconcile the inventory stocking dynamic. You know, I'm just thinking about, you know, fill rates are recovering. At the same time, you know, the categories in which you play are high frequency. Is this just a broader retailer decision based on dollar-based inventory that they're holding across the store? Or is purchase frequency, let's say, you know, within oral care, people are squeezing a little extra out of their tube and the purchase cycles are getting a little wider. Any perspective around that would be helpful.

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

Sure. You know, trips are down, but starting to turn a little bit. We're not seeing significant changes in, obviously, household penetration across our categories. You know, consumers may be losing a little bit less. We'll have to watch that moving forward. The basic driver in volume has been just more deliberate shifts in some of our trade partners trying to manage their costs, particularly as they see discretionary items slow. They've had to look at, obviously, their full basket of inventory and take inventory down more, quite frankly, across the enterprise. We watch, as I mentioned up front, very, very carefully with our trade partners. We watch out of stocks.

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

Our case fills are all back up, obviously looking good across the business with the exception of the early supply chain constraints we had on Hill's, as I mentioned. We feel good about where we are from that standpoint, which gives us a lot more visibility and a lot more confidence as we deal with our trade partners to give them what they need. Again, predicting what they're going to do towards the end of the quarter becomes difficult. I think as these things stabilize and inventory stay down at these levels, the trade will look to high velocity categories as their first priority to take back up, because that's what's gonna drive traffic in their stores.

[Operator]

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

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

Yeah, thanks. Morning, everyone. Just a few questions for me. One, could you just comment on what global volume growth would be in your categories? Second, just maybe remind us of your thoughts about pricing, particularly in pets, if there's any sort of deflation. More broadly on pricing, how are you thinking about maintaining the pricing that you've taken? You know, what would be the expectation for that retention? Has there been any sort of change from a retailer standpoint in terms of your discussions about taking or retaining? Maybe if you could talk a bit, I know some of the questions we're talking about that domestically, but maybe if you could talk on a global basis, your perspective, that'd be helpful. Thank you.

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

Sure. Yeah, global categories, we're tracking today around 3%-4%, you know, maybe a little shy of that in volumes, but value more or less 3%-4%. Obviously, as pricing goes into the market, you see the ebb and flows there. Overall, we expect volumes to recover. We do think, you know, purchase cycles, as I mentioned earlier, will get a little bit more elongated. Consumers will watch their consumption and their pantries quite carefully. We've watched the pantry inventories. We've seen a little bit of that come down, but that's to be expected.

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

Overall, I mean, we're looking at global category growth in the 3%-4% range, and obviously we're growing above that generally around the world, and so that obviously leads to better consumption on our categories or at least better shares. In terms of pricing in the categories, our ability to retain that, you know, that depends largely, quite frankly, on our innovation and the value proposition we're bringing to consumers. We've spent a lot of time. It's not just taking pricing. There's a lot of relaunches into that RGM strategy that we've been talking about to ensure that across all price points, we're adding value to the consumer, something new and different for them to continue to use our brands and see longevity in terms of the interest they have in our equities.

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

We've been very careful to ensure that it's not just straight pricing, that we're bringing value, whether it's through price pack architecture, through better innovation in terms of science-driven claims, et cetera, et cetera. Specifically on Hill's, I think it's very much about the innovation strategy that we have. The Derm Complete launch, significant innovation. The obesity diets that we have, significant innovation in the market. That drives real value with the consumer that we can communicate and justify the price increases that we have. We'll continue to execute against that strategy, and we'll watch the categories carefully as we balance volume and price moving forward.

[Operator]

The last question will come from Steve Powers of Deutsche Bank. Please go ahead.

[Steve Powers, Equity Research Analyst at Deutsche Bank]

Oh, great. Thanks. I actually wanted to go back to Europe, and you spoke about this a bit, but I just, like, a little more perspective on your outlook on European profitability and whether or not you thought it was gonna get worse before it gets better or whether or not you saw improvement on the horizon. Maybe as part of that, I guess I was also curious what you're seeing from some of your European-based competitors, which are obviously on the other side of the FX wall here, and how that may be playing into you know, pricing considerations and competitive considerations, perhaps in Europe as a headwind to profitability or maybe more globally.

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

Yeah, Europe had a good quarter. You know, obviously, this has been an incredible undertaking to get that level of pricing in the P&L. You haven't seen that, quite frankly, in a long, long time. I think it plays out or plays back to a lot of the work and the focus that we've had around revenue growth management. Europe's doing an extraordinary job. Steve, you know, the trade there can be difficult, but we've seen a lot of good opportunities to take pricing in the categories. It's also, I think, underscored the ability to bring real new news to the categories, and we're doing that across the board. We have strong brands in oral care in Europe.

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

Obviously, Meridol and Elmex at the premium side of the business continue to grow in this environment despite the fact that we have led on pricing. We feel pretty good about where we are. I again mentioned the home care business across the world is the challenge, and we're taking a very deep look at exactly what we need to do to ensure we continue to drive more volume in those categories. We've got strong businesses in home care in Europe, and we need to be mindful of that. You know, I'll mention, I guess, as a point, private label. Private label is down across all our categories in North America. In market shares, you've seen it inch up, as you would expect a little bit more in Europe. We're gonna have to watch that.

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

This is a market that will be challenged in the next six months, given the inflationary pressures they're under, that everyone's well aware of, and we're thinking very carefully about how to continue to execute successfully. The key is getting pricing in the P&L, which allows us to get the leverage that we need to do the things that we need to do moving forward.

[Operator]

This concludes the Q&A portion of our call. I will now return the call to Noel Wallace, Colgate's Chairman, President, and CEO, for any closing remarks.

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

Yeah. Well, thanks, everyone, and good questions. I wanna come back to just a couple concluding remarks. As you've seen, I think our strategy continues to pay off. The broad-based growth is encouraging. All four categories, all six divisions. The innovation stream that we're putting in the market, that's a testament to a lot of the changes we've made in innovation over the last couple years that's driving premiumization and making sure we sustain our strong core businesses, particularly at the entry level. The digital transformation is having a profound impact on how we operate around the world, how we drive RGM, how we drive content. We think we have a well-positioned portfolio moving forward. Most importantly, I'm really proud of how our team has executed this strategy to deliver the continued organic sales growth.

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

There's been a tremendous amount of headwinds against the business, but we've now delivered 15 straight quarters of either in line or above our 3%-5% target. This quarter with 7% organic is a terrific quarter, and we're very proud of the work that the teams on the ground are doing. With that, I wish all of you a healthy and safe end of the year, and I look forward to speaking to you in January.

[Operator]

The conference has now concluded. Thank you for attending today's call. You may now disconnect.

Participants

Executives

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

Analysts

• Andrea Teixeira, Managing Director and Senior Equity Research Analyst at JPMorgan
• Bryan Spillane, Managing Director Equity Research at Bank of America
• Callum Elliott, Director and Senior Equity Analyst at Bernstein
• Christopher Carey, Equity Analyst and Head of Consumer Staples Research at Wells Fargo Securities
• Dara Mohsenian, Managing Director at Morgan Stanley
• Jason English, Managing Director of Equity Research at Goldman Sachs
• Jonathan Feeney, Director of Research and Head of Product at Consumer Edge
• Kaumil Gajrawala, Managing Director and Equity Research Analyst at Credit Suisse
• Kevin Grundy, Managing Director at Jefferies
• Lauren Lieberman, Managing Director at Barclays
• Mark Astrachan, Managing Director and Senior Equity Research Analyst at Stifel
• Nik Modi, Managing Director and Co-Head of Global Consumer and Retail Research at RBC Capital Markets
• Olivia Tong, Managing Director and Senior Analyst at Raymond James
• Peter Grom, Equity Research Analyst at UBS
• Robert Ottenstein, Senior Managing Director and Partner at Evercore
• Steve Powers, Equity Research Analyst at Deutsche Bank