Colgate-Palmolive Aktie

Okay. Welcome back, everybody. Thanks for joining. For our next session, I'm very happy to welcome back Colgate-Palmolive Company to the conference with a new face, new face to -- at least within the Colgate family. Shane Grant, Chief Operating Officer of the Americas, is with us. Some of you may know Shane from his time at Danone or prior to that Coca-Cola, but welcome, Shane. And also John Faucher, who is Executive Vice President of M&A and Special Projects.

Good to see you, Steve.

Thank you both.

We're going to use the entirety of our time for Q&A. Shane, I'm just going to start with you. As I said, first appearance at the conference with Colgate. You've been with Colgate, I think, almost exactly a year as we stand here today. I guess reflecting on those first 12 months, what are your not so first impressions? And I guess what stood out most positively as you've joined? And also where do you see the biggest opportunities for Colgate as you look ahead?

Yes. Thank you, Steve, and good to be here with you in this relatively new capacity to have this exchange. Look, maybe firstly, in my first year, I've been head down, unsurprisingly, head down, really focused on learning the business from every dimension horizontally, but obviously with a deep, deep focus on North America and Latin America.

Maybe a few impressions and to sort of start from the top, I mean, purpose of the company grounded in health. If you think about where the consumer is today and where the consumer is going, the sort of notion of health at scale, which the company stands for, I think is hugely compelling for our teams and certainly for me personally. So that would be the first thing I would say.

The second thing coming into the company is just how impressed I have been at the progress and the journey the company has been on in executing its 2025 strategy, which obviously concluded at the end of last year. And under the leadership of Noel and the leadership team of the company, just -- what I would describe is just a massive transformation of the business model of the company, a business model, which is about top line growth, about margin expansion and reinvesting into the business and the brands. And I think that's been an incredible transformation of the business.

Maybe the third thing I would say is what's really impressive is I think the capabilities that have been built. And you've I know exchanged with the team on some of them in the past, but you look at the AI and data journey, the RGM journey, the science journey, I think it's just really, really impressive, the progress that the company has made. And then lastly, the other -- the last piece that's just incredibly striking is culture. And this is a company which is blessed with long-tenured people that deeply care about the company.

To the second part of your question in terms of opportunities, look, I would say that, Steve, is really guided by the 2030 strategy. If you look at sort of the evolution of the strategy, it's categories and brands at the center. And increasingly, the way we're thinking about that mission is through the lens of top category-country combinations and driving those with high conviction, but absolutely brands at the center.

The second thing I would say in terms of opportunity is the journey we're on, on omni demand generation, which is a hugely compelling space to build a next generation of demand model for the company. The third piece I would sort of point out and is under the capabilities, which is innovation, which a high, high conviction to step up the intensity of the innovation in a period where we think probably, macro, we're going to need to find ways to make volume and pricing. And so the innovation quotient of the company, we think, is going to be really, really important.

And then probably on the same theme, it's going to be a pretty volatile environment. It's already a pretty volatile environment. And I think the international footprint of the company is going to be to the fore in that environment because we have people that are used to dealing with this kind of agility and that kind of experience in the company. So look, a terrific first 12 months, much more to go and learn about the company, of course, but maybe some first impressions.

Yes. Yes. I mean I think the -- from the outside, the capabilities -- I mean, all of those things resonate, but the capabilities journey up to 2025 and then extended now out to 2030 has been pretty compelling. How does that translate into operating priorities for the Americas region? We'll get into differences between North and Latin America in a bit. But just overall, how do you frame the key priorities for the region?

Yes. Probably unsurprisingly, Steve, that 2030 agenda is a huge influence and trickle down on to the agenda from an operating point of view into Latin America and North America. I mean I think if you think about the innovation agenda specifically, again, that starts with the brands. And the way we're thinking about that in both of the geographies, but I think across the company is really, firstly, just core excellence, the superiority of the core brands, investing in those core brands, making sure those core brands are vibrant and healthy.

But then certainly, innovation and a stepped-up agenda. And if you think about Latin America and you think about the innovation agenda through the lens of socioeconomic level and the pyramid and shaping the innovation agenda to deliver for all extremes in that pyramid, we think that's going to be really, really important.

And increasingly, that's true in the U.S. The dynamic of the K-shaped economy, we see as alive and well in the United States. And so thinking about the innovation agenda to serve all parts of that pyramid. But for us, in particular, I would say a huge opportunity around premiumization. So that would be, I think, the innovation piece.

I think on the omni demand generation, this notion of a 21st century demand model of the company, I think, is relevant for all of our geographies, but at the center in North America, at the center in Latin America. And I would describe that as figuring out ways for the company to win today. So you think about the channel environments that we need to be competitive in. If you think about the U.S., for example, it's pretty clear. You've got to win in mass, you've got to win in club and you've got to win in digital commerce. And so it provides a really clear road map. But also with an eye on the future and you think about the capabilities that we're building around social commerce, agentic. So that duality of kind of setting up the ODG model for this 2-speed delivery.

And then revenue growth management, which I think if we buy the hypothesis that this next 5 years, we're going to need to find new ways for the industry to grow, our categories to grow, revenue growth management, we think, is going to be a really important tool that I would describe as sort of fundamentals of good pack-price architecture but also on tooling, some of the next-generation tools we have in the business like Promo AI, which is really allowing us to step up the precision and the frequency of price adjustments with our customers to be able to deliver better RGM outcomes. So net, Steve, highly relevant for North America and Latin America, as you would expect, with maybe some specific application, which we're excited about.

Yes. You're in a unique position because Latin America represents kind of the economic engine for Colgate, multi-decade strength, dominant market share in some key categories. And North America, by contrast, is kind of the biggest opportunity for incremental improvement. How do you compare and contrast? And what are some of the strengths in Latin America that could be leveraged in North America or -- and maybe vice versa?

Yes. I mean, clearly, Steve, those businesses are in different start points. I mean it's obvious from the results they are, and we're crystal clear on that. I mean, maybe to comment on Latin America first. If you just stand back from that business sort of from a fundamentals point of view, and I've been spending a lot of time with our teams right across LatAm, the fundamentals of that business are just mightily impressive, enormous brand strength, market-leading household penetration, incredible loyalty, just really a powerhouse brand led by the Colgate brand.

Underpinning that is just real execution muscle across a diverse set of channels, but just huge execution powerhouse in Latin America. And then thirdly, people, long-tenured, experienced expert operators of our business in Latin America. And so just fundamentally, that business is really sound and it shows in the results.

The current environment, we see the categories relatively healthy, somewhat pricing led, but still underlying volume growth, positive market shares across most of the geographies, Total progressively recovering, but the team doing a very nice job in terms of premiumization with platforms like Optic with good success with innovation like Purple. So fundamentally, we feel good about Latin America. The results are good, and we expect that to continue.

North America, obviously, a very different start point. And Noel mentioned now on a couple of conference calls that it's a real focus for us as a team. It's clearly a real focus for me and our North America group and our leadership team. Fundamentally, the mission there is to improve the organic sales growth. I mean that's the #1 mission that we are aiming for.

To give you a sense of sort of the dynamics, if you kind of roll back to sort of February 2025, the categories themselves, I would describe as sort of moderate growth, but pretty consistent growth. We have seen in the first weeks of May, some degradation in the categories. We have seen those categories markedly slow. So obviously, we're watching that and preparing the business to respond to that dynamic. And to some extent, it's probably unsurprising given the state of the consumer and some of the obvious pressure on the consumer. And then there is a structural underlay of this K-shaped economy, which we see only sort of becoming more dynamic.

From a market share position, we did see some share on Oral Care in the first quarter. We've seen that somewhat stabilize. The path back on that is premiumization, premiumization, premiumization, which -- and we started that journey. So the relaunch of Optic was a very, very good first step. We see some initial positive response to that. We're also doing what I would describe as some surgical interventions on some pricing action where we see some promotional intensity starting to tick up. The categories have remained largely rational, but we have seen some slight uptick in activity, which we're dealing with.

And then the other lever we've got in North America, more short term, is our Home Care business, in particular, which performed very, very well, brands like Fabuloso, Suavitel, which we think can be big growth engines for the company. So obviously, a lot of focus on that business. The categories underpinned by ODG and some step-up we can do in some channels and then underpinned by really rebuilding a much more assertive innovation pipeline, which we've made very, very good progress on.

On the -- you're not the first to observe recent slowing in North America. I guess your perspective on how much of a concern is that? Do you expect -- do you see that more as -- is it more in your base case, a timing blip and that we kind of resume still modest levels of category growth? Or do you see more risk of this as a real inflection to the downside?

Look, it's probably, honestly, Steve, too early to tell. We've seen some of this degradation occur really from the start of May. So it's taken for what it is, which is 3 weeks of data. So we will see where the consumer settles. We're obviously preparing the business with a portfolio lens in mind through the lens of how do we think about the business in terms of the right kind of stratification of the business. We want to be able to serve the lower end of the socioeconomic consumer base exceptionally well, and we have the tools for that with a platform like Cavity Protection, for example.

We want to be able to serve equally the premium consumer. And you think about the role of the brands like hello or Optic, we have the ability to serve both ends of that consumer spectrum. But Steve, those dynamics would be in the strategy anyway. And it's just how we adapt those strategies for the moment as opposed to sort of wholesale shift in the business.

Yes. I guess and Noel has mentioned a strategic reset in the U.S., and I think you've just touched upon components of that. But some of those components, innovation, RGM, aren't -- not really new. So is it the -- is what's new just the elevated focus that North America is getting within the broader corporation? Is it we need to be tighter on execution? How would you define what's changing in North America?

Yes. Look, firstly, Steve, I think on the North America question, we have spent the last number of months, and Noel has referenced this on the calls, doing what I would describe as a deep diagnostic on the business. And that is not an evaluation of the last quarter. It's really been an evaluation of the last decade. And obviously, when you take that sort of a view on the business, you can see some exceptionally good things. And there are some really, really exceptional things in the chassis of the North America business that we think we can accelerate. And then there's clearly some things to fix. But we've also looked at it through the lens of where do we think the consumer is going, where are the big revenue and profit pools in the market, where the channel bets we want to make. So it's a pretty comprehensive piece of work we've done.

I think to answer your question, the go-forward plan has got all the components you would expect it to be an end-to-end plan, which is it makes pretty clear choices across the portfolio of the brands that we think we can really scale and bet on. I would tell you, for example, in Oral Care, the opportunity we have for premiumizing the business is just enormous, just enormous, both in the emerging brand spaces, in whitening and then whole new segments that we really have not penetrated today.

So I'd say we conclude that piece of work on Oral Care being really optimistic about the potential of the business, underpinned what is still today the most powerful brand in the category in terms of consumer relevance. Same logic on Home Care, where we have some businesses that we think have been probably underleveraged with enormous potential on a go-forward basis. Same on Personal Care. So we've done a pretty deep dive in the categories to look at what are the brands that we want to really prioritize and invest in and innovate on.

On ODG and the channel selection, again, a pretty clear picture, some immediate channels that we need to win in and up-weight that we talked about, some channels that we need to prepare for, for the future. And then on the innovation front, the team has done, I think, some excellent work to rebuild a pipeline of innovation at scale over the next 3 years.

Now obviously, it's going to take us a while to deploy that, and some of them are going to be tactical and some of them are going to be very big scale in nature. But we've thought about that challenge through multiple dimensions, we've thought about it through the lens of a constant renovation of the core, we've thought about it through the lens of new, wholly new big bet innovations we can make, and we've thought about it through the lens of retail environment-specific innovation. All of that underpinned by capabilities that you mentioned that we think we can take from a company level and apply much more assertively into the North America cell.

The last thing I would say is that this sort of reevaluation of the business has given us an enormous opportunity to reengage our people. And the power we've seen in being able to communicate with much more to come, here's the road map for the business, gives our teams a real opportunity to really buy into that road map and be part of that turnaround story. And we're seeing that enthusiasm build in spite of the current results. So look, a long way to go, Steve, but we feel really good about the work we've done and a lot of execution ahead.

Great. One last question on North America, which is you spoke to innovation and premiumization servicing the upper end of the K. At the same time, a lot of the center of gravity in Colgate's Oral Care franchise and definitely in Home Care and Personal Care is in the value area. Is there -- are there opportunities to lean into some of those brands and lean into value to service the more strained end of the K?

Absolutely, yes. And we think about really the full revenue growth management playbook. As you said, we've got brand platforms that serve that bottom-end consumer exceptionally well today and also, for us, perform a very clear role in the business. If you take a platform like Cavity Protection, for example, really important business for us, serves a mid- to lower socioeconomic consumer, plays an important volume role for us, and we will absolutely keep providing energy behind that. If you think about brands like Fabuloso and Suavitel, they sit slightly below the category average price point, really important platforms. And we can premiumize those brands. So for us, it's very much an and as opposed to an or. We want to be able to service the full market, particularly in the context of this K-shaped economy.

Okay. Which is something I think you've done well in Latin America. So pivoting kind of back to Latin America, you mentioned relatively resilient and broad-based performance thus far this year and for a while. I guess as your attention focuses increasingly on North America, how do you maintain that consistency and that growth in Latin America, especially should macro conditions soften?

Yes. I think that -- I think continuing to extend the strength of that business that we talked about earlier. I mean if you think about the foundation of that business, because the brands are strong, because we have this execution and go-to-market capability, the foundations for continued performance, we think, are just absolutely there. I do think that there will be continued efforts in that business, and we've seen very, very good progress already around the premiumization opportunity even in Latin America. If you think about what the team has done on Luminous, for example, we're seeing enormous pivot to more premium opportunities to continue to develop and grow the category.

I also think that there is -- and this is a longer-term item where if you think about the structure of that business in Latin America, in some of our markets, we have a true multi-category play. And in some of our markets, we are much more of an Oral Care-centric play. And so obviously, we are thinking about what does the category shape look like across Latin America over the long term and -- but doing that very, very deliberately, doing it with an eye on making sure the core businesses today are healthy. But over time, we see certainly more expansion opportunity in Latin America.

The last thing I would say in terms of any change in the market context in Latin America, if there is deterioration in the consumer context. One of the real strengths of our Latin America business, and again, back to the team, they have proven remarkable in being able to manage through different cycles. You talk to our team in Venezuela or you talk to our team in Argentina, and they have largely seen it all. And so the ability of our teams to be able to manage through different market contexts, we have a lot of confidence in. And to some extent, we think that business can be somewhat all-weather. So I think continuing to drive the strengths of the business and a team that can adapt, we think, along the way.

Okay. Maybe, John, you want to weigh in on this, too. But I'm curious, Shane, if you think about leveraging best practices across the company. First off, within your regions, even within subregions across categories, how does that work today? How evolved is that? Is that an opportunity? And then how do you engage with Panos' organization? And how do we share best practices and evolve the broader corporation across regions?

Yes, for sure. I mean, firstly, if you think about the capability journey of the company, the company has been on a capability journey where it has successfully scaled a number of big capabilities and done that globally. And those -- that capability build has been led from the center and driven right across the company. So if you think about the journey on AI and data, if you think about the journey on revenue growth management, if you think about the innovation process that I know we've talked to you about before, those are globally scaled capabilities led from the center and truly global in nature.

It's also true that we have some centers of expertise that have naturally emerged in the business. So if you think about the Hill's business, for example, I mean, highly developed capability on the use of data, on the use of the profession and what I think we could describe as a precision marketing model. If you think about Latin America, I mean, the execution power and the customer expertise is clear. If you even take North America, for example, Total was born in North America. Optic was born in North America. So we have proven in that geography that we can build big global franchises. And then if you think about Asia, for example, I would say, from our perspective, probably the leader in omni demand generation and thinking about advocacy at scale and social-first marketing.

Then the question on scale is some of it is structural. Our global teams are clearly charged with driving best-in-class execution across the company, taking good ideas and scaling them fast. Purple is a probably good example of that, born in China and now in every geography in the world and driving very impressive growth. It also happens organically. And it happens organically in my experience because of the culture we have, which is Colgate is a highly networked company. And I say that in the best possible way, which is we have team members that have been at the company a long time, have deep relationships and want each other to be successful. And therefore, good news travels fast, and therefore, we get more scale.

Maybe one last piece on that. One of the, I think, really interesting dynamics we're seeing in the business today, which is the one application of AI in the company, it's giving us an ability to lift and shift good programming faster, particularly in marketing communications because it's giving us some common backbones that we can iterate and scale geographically much, much faster. So look, I think a combination of some structural items, some center-led items and then a bit in the culture, Steve, which is allowing us to scale, I think, good ideas quickly.

If I can just add one example to that. So Shane talked about China and social, right? If you think about, as social spreads across the rest of the globe, historically, big CPG companies would be behind in something like that, as you think about the rise of social commerce. But if we can send our marketing teams, which we have and the entire senior team over to Shanghai to see how our China team puts out hundreds, if not thousands of pieces of content to adjust to this new social model, understands how you build brands versus simply selling products in this social commerce model. We have great examples internally that our teams around the globe, whether it's in Europe or the U.S. or Latin America or Africa, they can take those examples and actually come out ahead of the curve as we see that social commerce business expand around the world so that we're not operating behind some of these insurgent brands, which has historically been where CPG companies have found themselves.

Exactly. Yes. Okay. Great. All right, John, now that we got you talking, let's get you talking about the rest of the world outside of -- so in the context of the here and now, talked about some pressure we're working through in North America, relative resiliency in Latin America. As we look around the other regions of the world here in Europe, Asia Pac, et cetera, what are you seeing? And how concerned are we about direct and indirect impact of energy shortages?

Yes. So I think if we had all sat here on March 1 and talked about where we thought the consumer would be on June 1 with the continuation of everything that's happened in the Middle East, I think we would have come up with a sort of a more negative situation than where we're seeing right now, where we would say that the consumer has generally held up very well around the world. I think we have seen less of the type of weakness. Even in the U.S., I think we've seen less of the type of weakness potentially than we could have. And so I think that's encouraging. There have been a lot of concerns about the European consumer, about the Southeast Asian consumer. And in general, we have seen less of that indirect impact. I think consumer sentiment is still a little bit soft where we'd like it to be but better than it potentially could have been.

In terms of direct impact from the conflict, very modest. We have, I would say, a smaller-than-average Middle East business, partially because we just have such a geographically diverse portfolio. So I think we're seeing less direct impact. But the consumer is generally, I think, holding in pretty well.

If you look across our businesses, Shane talked about North America and Latin America. Europe, I think we've been pleasantly surprised by how the consumer has held in, whether that's Western Europe, Southern Europe, Northern Europe. Still Europe for us is a little bit of volume, a little bit of price, and that's been sort of our consistent focus. Africa, Eurasia, which has now merged into the EMEA division, we're still getting some FX-related pricing, which is encouragement. We've had a nice volume bounce back.

And then Asia, where we had been struggling a little bit from a performance standpoint, we've seen generally the consumer hold in pretty well. We've got big markets like the Philippines, where there had been some concern from investors about how is the consumer going to hold in. We think that business has done very well. China and India, which had been more difficult for us. India bounced back, had a great first quarter. We've seen the H&H business improve sequentially. We're getting more of the fundamentals right there, some easy comparisons, still some work to do going forward. But in general, we've seen that part of the portfolio hold up well.

Have you seen any smaller competitors get impacted by supply shortages? Is there a market share opportunity out of this? Or is it more category resiliency?

We have not directly seen that happen. I think there is an advantage to being a scale player in the world when uncertainty comes in, your ability to go out and make the right decisions quickly, your ability to secure supply, your ability to look out 6, 9 months and get the supply you need in order to keep your supply chain running. But we have not been hearing of major supply shortages for smaller competitors. We think if we're gaining share, it's because we've got great innovation, increased marketing support. We're moving to this omnichannel demand generation that Shane talked about, winning on the ground in a difficult environment, as Shane talked about with Venezuela and Argentina, that's what we do best as an organization.

Okay. Okay. Good. Hill's, pet food. There's been mixed signals, mixed commentary on the relative health and resilience of the category. Maybe a bit on what you've seen categorically and then how the Hill's business is positioned against that or aside from that?

Sure. So I mean, I think we've been remarkably consistent on a -- from a category standpoint with pet food over the last 18 months or so, which is we think the category is generally flattish. And what we are expecting as a company is to outperform by several hundred basis points versus the category, given the strategic decisions that we've made over the last several years, really the last 5 or 6 years.

I know there was another pet nutrition company that talked about small dogs, cats, what have you. We have made significant investments over the last 5 or 6 years to focus on those under-tapped segments where we under-index, we've always had a strength in dry dog food and bigger dogs. And so we built our pet nutrition center. We built a small paws facility to focus on the nutritional needs of small dogs. We opened that about 4 years ago, and that drives a lot of the innovation that we're seeing in the small dog piece, which is the fastest-growing segment of the dog category.

We've also made a commensurate investment in cat, where we were under-shared in cat. And really what helps both of those actually is the increased focus on the wet side of the category. We opened our Tonganoxie facility about 3 years ago. We needed more innovation, more capacity coming in wet, both in terms of different forms, in terms of stews and mousses and things like that as well as different packaging, tins, pouches, et cetera. And so that's given us tremendous power to innovate. So it's the strategic focus on those under-tapped segments, small paws and cat and then the capabilities, really scaling the benefits of those capacity additions on the wet side as well.

Yes. And Hill's is generally servicing the less stressed consumer in the U.S.

Yes. I mean there's no question that the -- where we're seeing that stress is big bags of dog food, big bags of dry food have gone up in price over the time. So we think we're seeing a little bit of an impact there on the business.

What we've also done is as part of the strategic shift over the last couple of years, we've really increased the focus on the therapeutic side, that's prescription diet, where we have a real opportunity to build the category. That's a lot like what's worked for us so well on the therapeutic side in Oral Care in Europe, for example, where we've gone into the vets and we've said to them, when a pet parent comes in and their dog has, to speak politely, gastrointestinal problems, a better option than antibiotics would be Hill's gastrointestinal biome, right? Which is a product that can help stop those problems within 24 hours.

And so we have seen really nice growth on the therapeutic side, which again is really where the hardcore science comes to play for Hill's. So we feel good about both sides of the business, but prescription diet, even higher price points, attractive margins, that's really been going strongly for us.

Okay. Great. We talked about -- let's talk about the environment in terms of its impact on the cost side of things, raw materials, logistics, et cetera. Obviously, those pressures are going up. You have -- you spent a long time trying to build flex in the P&L. Now you have that flex within the P&L. So I guess the question is how much flex in the P&L is there? And how does the strategic growth and productivity program fit into that mitigation strategy?

Sure. So I'll start off on that and then Shane, I think, can probably give you some ideas in terms of how that really all plays out in the businesses. If you're building flexibility in the P&L the right way, you're not using it all up in one shot. And that's been a real focus for us. And what it really starts with is our aspiration to deliver consistent compounded dollar-based earnings per share growth, right? How stocks work? You sustain the PE multiple, you expand the PE multiple through organic sales growth. You deliver very competitive dollar-based EPS growth. Hopefully, you can deliver TSR that compares favorably versus your peers and that's what we're focused on.

And so we have really focused on building that flexibility in the P&L over the last 6, 7 years as we executed '25 and transition to '30, so that even in a tough year like 2025, we can go out and deliver dollar-based EPS growth. So we had negative FX. We had category slowdown. We had increased raw material costs. We had additional tariffs. And we were able to get through that in a way and deliver dollar-based EPS growth that 10 years ago, we might not have had the flexibility to do that. But we continue to build up that flexibility in the P&L.

The key for us in a situation like this with the higher costs is to get them out into the businesses, right? And we want to say, here's what we think the price of oil is going to be, here's what the impact on our business. And that way, you all can model it, but more importantly, Shane can work with his divisions to model all those costs. And that's what we did in 2022, which is where we were really the first company in the space to come out and say, look, this is going to be worse than you think it is. And it creates a situation where, yes, you're providing the news earlier, but you get visibility in the numbers faster, which we think plays out well over the medium to longer term. So do you want to talk about the...

I think, Steve, to sort of extend John's point, we obviously got out quite early, we think, publicly, but we got out as importantly, quite early inside the business. And there's enormous power from an operational point of view of getting those cost realities in the P&L and in the system fast, which we did. And then it allowed our teams on the ground, be it in Europe, be it Latin America, be it in the U.S. to respond and prepare.

And the way the teams are responding, obviously, is different by market. Obviously, the commonality is productivity, productivity, productivity is the first [ port ] of call and really maximizing everything in the productivity pipeline is the first action. And then the pricing action is much more segmented based on geography. Obviously, in Europe, it's much more of a hand-to-hand combat situation, and it's much more careful. In the U.S., we're probably going to be much, much more considered in terms of any further pricing action. We think much more it's a mix play and revenue growth management tool play as opposed to headline pricing given the state of the consumer. But in markets across Latin America, we may have some opportunities where we can drive some more premiumization and pricing. So I think sort of the mechanics inside the business, as John said, are very, very positive for us to respond at the right kind of pace and with good visibility.

And if I can just follow up, I'll finish up on the SGPP piece. I mean the way you build that financial flexibility is you're investing in capabilities, if you can invest ahead of the curve, you do that so you have flexibility year-to-year on some of the spending. But the other thing is you notice, okay, are we entering a period in the 2030 strategy where we want to build new capabilities like ODG, where we know that maybe categories aren't going to be growing at the same rate. That's why you announce something like SGPP last year, build up the fundamentals, go through, figure out what the program is going to deliver and then that gives you the opportunity to say, okay, we're keeping the range of EPS guidance for 2026 despite some fluctuation in the gross margin, right?

So that -- we went from guidance of gross margin up to gross margin down. We kept the range. We did see some numbers come down at the high end of the range. But -- so the shape of the P&L changes somewhat. But having that flexibility by focusing on the productivity ahead of time, that's what gives you the flexibility. So Shane doesn't -- Shane can go in and say, look, advertising cut is not on the table. We need to keep that brand support going; investing in AI, not on the table. That's the posture you want to have when you get this level of volatility.

Great. You mentioned investing in AI. I want to hit on that before we close. It was a big focus -- it's been a focus for Colgate actually for a couple of years, and it was a big focus at CAGNY, mostly through the lens of Hill's. Shane, how is just digital investments in general, but AI specifically changing the way that work is done within your region?

Yes. I mean I think as we talked about earlier, Steve, I think the company has made enormous multiyear progress on its data foundation and its AI agenda. I think generally, the application we have seen across the markets, including in North America, including in Latin America, has been really focused on a few distinct verticals. And I would describe those verticals, first and foremost, marketing. So efficiency of spend, but also speed and cost effectiveness of content creation. We've seen secondly, it applied through innovation. So everything from trend tracking through to concept development and being able to get through those cycles at a much, much faster pace. And then thirdly, our supply chain with obviously some obvious examples.

Maybe one that I would point out, which I think has had really meaningful impact in North America, in particular, but also in parts of Western Europe is a tool that you may have heard about called Promo AI, which essentially allows us to take shipment data, thousands of promotional pieces of data by week, by customer, by geography and scan data and put them into a large LLM and then work with our customers to optimize the pricing plan. And I mentioned that example because it's providing concrete outcomes today in -- for U.S. customers with an ambition to expand it. And we're seeing real concrete positive outcomes from it with an ambition to scale it further.

A couple of things we've learned about the application of a tool like that, which I think has been really powerful for the business as we drive the AI agenda. One is developing these tools, what I would describe market back, which is what's the use case? Like what's the use case in the market? And then how do we develop the tool to serve that use case. The other more practical piece is how are these tools getting integrated into the operating routines of the business? How do they meet the teams in terms of the routines and the ongoing cadence of the business? And then a tool like that, we think, has got ultimately global application. But obviously, because of the trade dynamics, it's very focused on developed markets today, but more to come.

Okay. We're almost out of time, but maybe in closing, 2 to 3 priorities that you'd want folks in the room to judge your progress against over the next year?

Yes, terrific closing question, Steve. Thank you. Look, I think firstly, at the company level, and this is probably obvious, reattaching the business to its long-term growth algorithm of 3% to 5%. That's certainly a focus for us as a team. The team has proven we can do that and so reattaching the business to that is going to be really important. Geographically, I think sustaining the outsized growth in Latin America is going to really matter, as you referenced earlier, sustaining what we think is really solid performance in Hill's in EMEA and then early recovery of Asia, we think, is very encouraging. And then if we can add on to that recovery in North America over time, we think the company will -- we will give ourselves a good chance of reattaching into that 3% to 5% space.

And then lastly, I would just say one of the things that's really striking about the company is it truly has a global footprint. And we think in this moment, that's a really advantaged place for us to be. But within that, we're obviously very focused on driving household penetration, market share and competitiveness right across the geographies to make sure the model remains robust and sound.

All right. Right on time. With that, thank you, Shane. Thank you, John. Thank you, Colgate. Thank you, everybody in the room. Have a great conference.

Thanks, Steve.

Thanks, Steve.

Good morning. Welcome to today's Colgate-Palmolive First Quarter 2026 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 Executive Vice President, Investor Relations, Claire Ross.

Thank you, Drew. Good morning, and welcome to our first quarter 2026 earnings release conference call. This is Clay Ross, Executive Vice President, Investor Relations.

Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2025 annual report on Form 10-K and subsequent SEC filings, all available on our website for a discussion of the factors that could cause actual results to differ materially from these statements.

These remarks also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in Tables 3 and 6 of the first quarter earnings press release. A full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release.

Joining me on the call this morning are Noel Wallace, Chairman, President and Executive -- Chief Executive Officer; Stan Sutula, Chief Financial Officer; and John Faucher, EVP, M&A and Special Projects. Noel will provide you with his thoughts on our results and our 2026 outlook. We will then open it up for Q&A.

Thanks, Claire, and good morning, everyone. We're pleased with how we started the year as we delivered strong top and bottom line growth. Organic sales growth accelerated from the fourth quarter, driven by improved volume performance, particularly in Asia Pacific. Excluding the impact of private label pet food exit, we grew both volume and pricing in all 4 categories and 4 of 5 divisions.

Our sales growth was led by emerging markets, the regions where our strong global brands generally have higher market shares and the greatest scale advantages. We believe emerging markets are accretive in terms of growth prospects and are investing in them accordingly. And we use the strong net and organic sales growth to deliver gross profit, operating profit, earnings per share and free cash flow growth while still increasing investment in our brands and capabilities. This encouraging start to the year gives us confidence in our outlook for the balance of the year, though significant increases in raw material and packaging costs, we have built into our guidance to reduce our expectations for gross margin for the year.

When I spoke to you on our Q4 2025 call, I talked about the strength of our 2030 strategic plan. It's the choices that we made in building this plan, along with the flexibility that we've built into our P&L that allow us to deliver short-term results in a volatile environment while simultaneously building for the long term. And best-in-class companies need to do both short-term results and long-term strategy.

Our global brands are driving broad-based growth by geography, by category and with volume and pricing. Our investments in advertising through our omnichannel demand generation model keep our brands top of mind with consumers in the moments that matter, and we continue to drive higher ROI even as we increase spending.

We have built our capabilities in areas like innovation, data, analytics, digital, AI, and we'll continue to invest behind them and scale them across the organization. This leaves us well positioned to delight consumers with perceivable superior products to accelerate category growth and drive market share improvement. We believe our efforts in RGM, Promo AI and funding the growth give us the ability to drive profit and EPS growth even in a period of significant cost inflation. And our strategic growth and productivity program is another great example of how we're working to deliver in the short term while building up for our 2030 strategy.

This morning, we announced an update along with annualized savings target of $200 million to $300 million, with the majority of the savings focused in 2027 and 2028. This is not an extension of the program as we still expect the program to be completed by the end of 2028. The savings will enable us to fund investments in capabilities to deliver on the 2030 strategy as well as to drive consistent compounded dollar-based EPS growth.

More importantly, the changes we are making to our organizational structure by reducing complexity will help us build a more agile company that can thrive in an omnichannel environment. There is still uncertainty in how the rest of 2026 will play out, where oil will be, what will happen with interest rates, how the consumers will respond. But I can tell you is that we believe we've built a model that can deliver in this environment while setting us up for long-term success.

And with that, I'll take your questions.

[Operator Instructions] The first question comes from Dara Mohsenian with Morgan Stanley.

So Noel, I just wanted to focus on volume mix. You clearly had strong results in emerging markets in Q1. Last year, you talked about reallocating marketing spend to some higher growth areas and opportunities. So I wanted to get a sense of how tangible the payoffs are from those efforts. Is that showing up in the Q1 results? And really, the question is how sustainable the volume strength in emerging markets might be going forward with those efforts, but also if you're seeing any negative impact post-Iran?

And maybe while we're on the subject, on the other side, just North America continued to lag in Q1 and volume/mix. You did talk about improvement in Q2 in the published remarks. But just wanted to get more detail on the plans there, the level of improvement that might be realistic in North America.

Yes. Thanks, Dara. Let me take the volume piece first. Clearly, globally, we're seeing volumes still be rather sluggish in our categories. So in that environment, you can imagine we're particularly pleased with the acceleration of volume growth in the quarter, certainly from the fourth quarter. And we saw that across almost all divisions and all categories, which is particularly pleasing to us.

The broad-basedness of that growth, so to speak, is clearly showing up in the fact that emerging markets have accelerated. Asia Pacific was a big driver of that.

We continue to see the interventions that we're taking with the Hawley & Hazel business, pay dividends for us moving forward. I wouldn't say we're completely out of the woods yet. The category continues to be pretty sluggish in China, but our business is executing better against the intervention strategies that we put in. The Colgate business continues to perform well.

Latin America from a volume standpoint continues to hold its own, driving nice volume shares through the quarter. Africa, Middle East and Europe continued to do better than we expected, quite frankly, given some of the pricing that we've taken in those regions.

And I think that's the other point. The strength of our brands is allowing us to drive that volume share. And that -- coming back to the initial part of your question, that the fact that we've continued to sustain high levels of advertising investment, particularly in emerging markets has allowed us to accelerate the growth. That, combined with good RGM, we had a good balance, obviously, of pricing in the quarter as well. So overall, we're very pleased with the volume results.

Going on to North America. Listen, I was pretty clear on the fourth quarter call that North America was going to take some time. The interventions are in place. I know John and Shane are working very diligently on a strategy reset for North America. That's going to include some real brand interventions, accelerated innovation, more RGM, better execution, getting our promotion strategy right with some of the key retailers. So there's a whole myriad of different initiatives being taking place. And we started to see some of those come through in the back half of the first quarter.

Volume was a little dampened by the fact that some of the shelf resets were later than we expected. The new product that we shipped in the first quarter came later as well. We started to see that accelerate as we exited the quarter. So plans in place to address North America overall, quite pleased with the sequential volume growth across all of our business, particularly in emerging markets.

The next question comes from Filippo Falorni with Citi.

I was hoping you can give a little more color on the cost inflation that is currently embedded in guidance. I know you changed your gross margin guidance to down year-over-year versus up prior previously. So how much incremental cost inflation are you assuming? What are your assumptions on kind of like the crude oil underlying? And maybe if you can talk a little bit about a high level of the potential offsets as you get into the back half of the year and as we start thinking about next year as well?

Yes. Let me just address it from a macro standpoint, I'll let Stan provide some more detail. Clearly, the assumptions that we have embedded into our guidance for the year include the $300 million of additional raw materials. We're assuming oil roughly at around $110. I think importantly, strategically, as we've always gotten ahead of the cost environment, we need to ensure that our operating units are planning for these types of inflationary environments that are coming.

Clearly, we'll wait and see. There's a lot of ups and downs moving around the world, so to speak, on oil pricing. But for us, strategically, it's important that the operating units start to build this into their strategies on how they want to execute some of the strong innovation plans that we have for the balance of the year, how we execute funding the growth for the rest of the year. So again, we feel it's very prudent to get those numbers out there, and we built that into our guidance. Clearly, some of the inflationary environment has forced us to take the gross margin down for the year. But overall, we still feel we're well in line with our guidance on earnings per share. Stan?

Yes. Let me pick that up. Our assumptions for the year embedded in our gross profit margin guidance includes roughly $110 on average for the remainder of the year and the associated impact that has on raw and packaging materials.

Since the fourth quarter call, we've seen an additional raw materials and logistics impact for the year of roughly $300 million. And you should think of that as roughly 2/3 raw materials and 1/3 logistics. The biggest incremental impact, Filippo, is coming from oil byproducts: resins, petrochemicals, fats and oils. And we now expect that spending in those areas to be up more than 20% year-on-year for the full year. So you can see the impact that, that has. Our logistics costs are up nearly 10% impacting both ocean and land freight. So that's what led us to take a look and put that into our guidance. And offsetting that is the work around RGM productivity across the entire P&L, which allows us to maintain our guidance.

Filippo, just one other point I'd make on that is, yes, remember, the logistics goes into the SG&A not in the gross margin. So there will be an incremental impact in SG&A from that.

The next question comes from Bonnie Herzog with Goldman Sachs.

I guess I had a quick question on your guidance. You maintained your top and bottom line guidance, but you highlighted gross margins will be more pressured. So maybe first, could you just maybe touch a little bit further on some of the key puts and takes on the gross margin headwinds. But ultimately, I'm curious if you see scope for incremental pricing.

And then second, you talked about the flexibility you have to potentially pull forward some cost savings or productivity initiatives. So any more color on that would be helpful. I'm thinking about in the context of your ability to deliver on the bottom line. But I guess, ultimately, wondering if we should realistically think about your EPS coming in closer to the midpoint of your range or possibly below. Again, I'm just trying to understand how much flexibility you have there.

Bonnie, thank you. So our guidance reflects what we believe is the increased volatility that we see today in the current environment. And clearly, we had a strong start to the year. So we've maintained our organic sales growth guidance in the 1% to 4%, and we're waiting to see what -- quite frankly, what impact that has on the consumer moving forward. I would say, currently, we're not seeing a significant impact, but time will tell.

From an earnings standpoint, we're watching oil and other commodities, as you can imagine, to see where these prices settle out, but we feel very comfortable with our current range of low to mid-single digits. I would suggest you reflect the lower gross margin in your algorithm. It includes our increased oil and commodity assumptions for the balance of the year. As Stan just mentioned, with oil at a price of $110 for the balance of the year works out to an incremental $300 million across the board, including logistics in that number.

So as you think of the rest of the income statement, understand that we remain deeply committed to offsetting as much of that as we possibly can. Clearly, the RGM efforts that we're executing across the world, we will possibly be taking pricing that will come through improved premium innovation as we execute some of the new product launches we have throughout the year.

We'll look at price pack architectures as well. We'll look at mix opportunities as we move through the balance of the year. And as Stan rightfully called out, I mean, obviously, our SGPP program will allow us to offset some of that as well. But for right now, the clear indication that we have is margins will likely be down. And so we want to be prudent in getting that number out there ahead of time.

Stan, anything to add to that?

No, just we have a regular productivity program outside of SGPP and our teams do an exceptionally good job executing that. So we'll be looking to drive that productivity. That is not just in the cost line. That also impacts SG&A. So as we look to drive that productivity, that will be one of the other flexibility points that we execute on.

The next question comes from Peter Galbo with Bank of America.

Noel, I was actually hoping to pivot back to APAC. You called it out in your prepared remarks as a source of strength. And in the prepared remarks, I think you noted India very briefly, just as kind of the main driver. So hoping to unpack that a little bit more, just India growth in the quarter? And then any help around just whether GST is really aiding that business and what you've seen so far?

Yes. Thanks, Peter. I can't give a lot of detail on India. They haven't announced officially their numbers, but we did say, obviously, the growth in Asia Pacific were strong, and you can clearly connect that back to the 2 largest markets, which are China and India. So as I look at Asia Pacific in general, I'm really pleased with the acceleration that we saw in the first quarter. As I mentioned on the first question, we're not out of the woods yet on Hawley & Hazel, but they're making some very significant improvements in their execution and the strategic interventions we've taken over the last year are starting to take hold.

One, we've accelerated innovation in that market. We're seeing that through the dual tube technology. That's in some of the prepared charts that we shared with everyone earlier. Clearly, that's having a great impact. We're getting our omnichannel execution, much more effectively implemented across the different platforms that exist, including Douyin. And so we feel good about where Hawley & Hazel is going. We've got some good brand work going on in the balance of the year, investment levels continue to be strong. And you couple that with the strength of the Colgate business in that market, which is executing very, very well. The Colgate business delivered mid-single-digit growth in a flat to declining market. So again, very encouraged by what we saw across China.

That being said, if you go across the rest of the region, Philippines performed well. Thailand performed well. Malaysia performed well. Australia, a little softer than anticipated. But overall, Asia doing quite well. And clearly, some of the volume drivers that we -- volume acceleration we saw in the quarter was coming out of that region.

The next question comes from Peter Grom with UBS.

So I was hoping to get some perspective on Latin America. Another strong volume quarter. Can you maybe just give us some more context on category growth and market share performance in the region? And Noel, you sounded pretty confident on emerging market growth from here in your response to Dara's question. So curious, just as you look ahead, do you expect this momentum to continue? And maybe specifically, do you expect to see continued balance from a volume and price perspective?

Peter. Listen, Latin America continues to execute very, very well. We've got really -- I was down in Mexico and Brazil and Argentina in the last month and really pleased to see how some of the strategic capabilities that we're building and driving from the center, Latin America is definitely at the forefront of executing some of those. Clearly, their omni demand generation work is excellent, some of the work they're using AI for is excellent. RGM continues to be best-in-class and their in-store execution and driving numeric and weighted distribution across some of our adjacency categories looks terrific as well. So overall, they're executing terrifically and you saw the obviously mid-single-digit growth coming out of them and particularly the growth being Mexico and Brazil driven.

So excellent results from that perspective. The innovation, I'll talk to for just a moment in Latin America, and we're seeing that across emerging markets. I talked a lot about that last year, how we're truly trying to step up innovation across all price points. And I think that bodes well as we set up an environment that will be more challenged from a consumer standpoint. We clearly expect emerging markets to continue to drive the growth for the balance of the year, and that will be driven by some of the changes that we've made on accelerating innovation at the lower price points and mid-price points while continuing to see the biggest strategic growth opportunity to be in the premium side. So you'll see that unveiled.

The purple launch that we had in Asia that we've carried through Latin America now is doing very, very well. Our Home Care launch and some of the adjacencies that we've gotten into and the relaunch of our core business on Suavitel is performing quite well. So the good news is we have ample opportunities across the innovation to continue to drive growth. And I think some of the capabilities that we're executing from the center and Lat Am taking on gives us great confidence that they'll continue to perform well in the quarter.

The next question comes from Andrea Teixeira with JPMorgan.

I was just hoping to know if you can elaborate a little bit more on the -- how competitive the U.S. Oral Care businesses now? And I understand there were some setups on the innovation side. And historically, you have had a higher volume share, which sets you well for this type of like more RGM-driven market. So I was hoping to see how you left the quarter, you exited the quarter. And as you said those, if you see sequential improvement in market shares and how you're seeing that setup going to the balance of the year?

Yes. Thank you, Andrea. Yes, very much the case. We expect sequential improvement in North America moving forward. The innovation came late in the quarter. We're getting that executed and some of the early signs are encouraging. But clearly, a lot more work to do in North America. And I have been through some of the strategic interventions that we're taking. I'm quite pleased with some of the decisions they're taking. The environment, to your point, is quite competitive. We see quite a bit of our competition spending a little bit more money on couponing.

Nothing tremendously unusual, but one of our competitors certainly trying to drive more volume in that regard. So we will step up our investments in North America. Clearly, as we look at the balance of the year, that's a strategic growth opportunity for us, particularly in toothpaste, the toothbrush business continues to perform very well. And we're starting to see nice growth with some of the other categories as well. We've taken a much more aggressive stance on innovation, both in Home Care and Personal Care and particularly the early signs on Home Care are encouraging. So sequentially, the business should improve as we move through the balance of the year and shares should come right behind that.

The next question comes from Chris Carey with Wells Fargo Securities.

Just given the inflation is picking up over the course of the year. I just wanted to see if this adjust or alters your plan for pricing perhaps specifically in emerging markets where our pricing can move a bit quicker and whether that's factored in your outlook? And just as a follow-up on North America, the margins were a bit light this quarter. Any context on that and how you see those tracking from here?

Yes. First on -- we'll watch the consumer very, very carefully. Clearly, there's been some compounded inflation over the last couple of years. We've seen that obviously lead to a little bit more of the sluggishness that we're seeing in the categories, but the categories have not worsened. And in fact, we think emerging markets are picking up a little bit. But we're going to watch that very, very closely.

That being said, I mean, the key focus for most companies today is the inflationary environment and your ability to get pricing in the category continues to be critically important to maintain the margin dollars and the spending in the categories. And so I think you'll see pricing still come through as we move through the balance of the year. But that needs to be coupled with strong innovation. If we have the right value proposition, across our different price points. Consumers are willing to pay more. We've seen that coming out of COVID when we saw the inflationary environment then.

So the key for us is getting the innovation executed and maximizing the opportunities we see both at the top end of the market in premium as well as making sure that we have a choiceful offerings at the bottom end of the market.

So the answer to your question on pricing, we will take pricing where we see the opportunities. More of that will be innovation-led as we move through the balance of the year. But part of the reason why we wanted to get the raw materials into our guidance is to make sure the operations are planning accordingly. And we want to be very thoughtful about them thinking about where the cost environment is going so they can maintain the investment in the P&L moving forward.

I'll pick up the gross profit margin piece in North America. So their margins obviously are significantly pressured by tariffs on a year-on-year basis. If you recall, there was minimal tariffs in the prior year, but North America incurs the vast majority of them, and obviously, higher raw material costs. So we are lapping the highest gross profit margin quarter last year with no incremental tariffs and that year-on-year impact, we expect will be less going forward. Within North America as well, the actions that we're taking -- the raw materials is the biggest impact that we have. We will continue to drive the productivity to look to improve that margin and then the tariffs will normalize as we go through the year.

Yes. The other thing I would add is the cost environment obviously is an industry issue and impacting everyone. So my sense is you will see some pricing move through the categories over time as people try to offset the inflationary environment moving through their P&L. For us, being proactive is very important to ensure that we protect the margin lines in the P&L to ensure we maintain the investment.

The next question comes from Robert Moskow with TD Cowen.

Noel, I was wondering what made you decide today or just recently to expand the scope of the SGPP program to $350 million to $500 million (sic) [ $550 million ]. What held you back last year from making that your original recommendation to the Board. Does it have anything to do with the higher cost environment that we're in now?

No. I mean, the latter part of your question, no. I mean, clearly, we've been very proactive on putting that program together. And these programs are complex. I mean they involve a lot of different inputs and a lot of different assumptions, which the team here painstakingly goes through to ensure the assumptions are correct.

I think what's so pleasing about the program, the fact that we got ahead of it is that we've seen the execution from our teams on the ground be a lot better than we expected. And a lot more ideas have come to the table as they thought it through in terms of the opportunities they have to simplify the operational structure of our business and drive more accountability across the enterprise.

And so we're pleased with the fact that the programs have come in better than we anticipated, and there's been a lot of very interesting ideas that came through. You don't necessarily always know those. You know the big ones from the start. But the more important ones are how the operations are thinking about structuring themselves in a more efficient manner and those seem to be coming through.

Let me turn it over to Stan, who has been driving this from the top and doing a wonderful job in making sure the teams are really proactive in thinking about the opportunities that we can go after.

Thanks, Noel. So first of all, the strong execution from the teams, when they -- when we first went in this program is a little bit different than some of our previous ones that it was addressed a little bit more methodically on addressing structure through spans and layers and items like that. The strong execution has gotten us to the high end of the initial targets. And then as Noel mentioned, we've identified additional opportunities since that launch of the program as teams look to simplify the operations, enhance the efficiency of how we operate day-to-day.

Importantly, we're not extending the program. So this is going to still end by December 31, 2028. But as a result of these actions, we now expect that we'll be able to generate $200 million to $300 million of savings over the term of the program. And the majority of those savings we expect will flow through in '27 and '28. I think also an important note, as we said when we launched this program, we'll utilize these savings in 2 primary areas: to fund incremental investments, accelerating growth as part of our 2030 strategy, and that, of course, bottom line contribution. And we'll balance those based on the opportunities that we see and the overall market conditions.

The next question comes from Olivia Tong with Raymond James.

You flagged that even with the cost inflation headwinds, your plan to stay disciplined on brand spend. Clearly, a lot of your peers feel the same. But I'm wondering how your strategy and management of brand spend potentially pivots given the cost environment, looking for additional efficiencies, for example? And what's your view also on how this could impact the promotional environment?

Yes. Listen, I think most of us in the industry understand that innovation is a clear driver of sustainable long-term growth. And the exciting aspect for us is the flexibility that we have in the P&L to ensure that we're supporting our innovation in a meaningful way. And that will continue to be the strategy that we adopt. That's been successful for us over the last couple of years, and we'll continue to execute that. And the combination of our strong funding-the-growth, our RGM and the productivity initiatives that Stan just took you through, give us confidence that we can continue to invest at healthy levels behind our brands, and that will help drive category growth in the long term.

So clearly, we see an opportunity to elevate top line investment. I talked a lot about omni demand generation, and we're putting a significant amount of time within the company to truly understand the pressure points in omni demand generation and making sure that we have the appropriate understanding insights to drive persuasion and excitement behind our brands. And that might include different platform advertising, that might include increased focus on social commerce or agentic commerce. So we clearly, are understanding where the profit pools are, the revenue pools are, so to speak, and using our money wisely, and we're spending significantly more time understanding ROI as more of our money moves into digital advertising.

So overall, we feel the increased advertising is something that will benefit us, benefit our brands. We're not necessarily suggesting that's going into promotion at all. Quite frankly, on the contrary, we expect our advertising, our thematic brand building work to be much more effective as we move forward as we accelerate advertising, particularly in some of the key geographies where we need more aggressive intervention relative to the success we're having. We also have brands where the advertising is driving real momentum across the world. Hill's is a great example of that, and we'll continue to accelerate growth in that part of the business where we're seeing great returns on that investment.

The next question comes from Robert Ottenstein with Evercore ISI.

Great. So I was wondering if you can talk a little bit more about Hill's, which has largely gone unnoticed so far in this call, except for your last mention. Can you -- first off, how is the category doing? Is there any signs of improvement? And then second, following on that competitive activity, how your innovations are going, how household penetration is. And then taking out the private label side, would you expect the core business to accelerate as the year goes?

Yes. Robert, thanks. And thanks for bringing up a wonderful business that continues to perform exceptionally well. They had an impressive quarter in arguably what's a tough market. We delivered solid organic, I would say, both volume and price ex private label at 4.8%. The U.S. grew at 5%. So excellent growth on a top line basis way outperforming the market, which is roughly flat right now.

As you saw in the prepared remarks, private label is a 260 basis point negative. That will continue to taper off. It will probably be on the total company, 20 to 30 basis points of negative impact in the second quarter, and then we should be out of that by the back half of the year. Our volume continues to be impressive on that business, excluding the impact of private label, volume was up 1%, which is terrific. We're seeing Science Diet and Prescription Diet continuously grow, particularly the Prescription Diet business had an exceptional quarter. We had double-digit growth in some of the areas that we wanted to go after, particularly on some of the strong indications that we're focused on.

Importantly, as I mentioned on the fourth quarter call, we're seeing broad-based growth across that business across all of the key growing segments. The only part of the category that's suffering more than others is a dry dog. And we've seen that category continue to slip, and our growth was not where we'd like it to be. But across the growing segments, whether it's wet, whether it's cat, whether it's Small Paws, we continue to see nice, nice growth. We're gaining share across almost every single channel across the innovation that we put into the market, which is terrific. We're gaining shelf space based on the strong growth that we're bringing to our retailers.

So overall, we feel very good about the business. We feel very good about the innovation cycle coming through the balance of the year. And the supply chain, as we've talked about a couple of times, continues to perform exceptionally well, giving us a lot more flexibility and leverage as we move through -- as we look through the P&L. So overall, the business is in good shape. We'd like to see the category turn a little bit more. I think that's going to take some time. But we feel we've got real growth opportunities in some of those segments I mentioned that we continue to be under-indexed in.

The last question will come from Michael Lavery with Piper Sandler.

I actually wanted to come back to Hill's, and I know you gave a lot of color just then, but I was wondering if you could unpack that consumer a little bit and just maybe what, if any, risk from higher gas prices on how they think about maybe trading up or getting a pet in the first place or just some of the kind of ways you see where that consumer sits in some of the various markets and if there's ways to think about how sustainable the momentum is from their point of view.

Yes. Thanks. Recall and remember that we compete at the super premium end of the market on Hill's. And clearly, we'll continue to focus on real value-added innovation particularly on Prescription Diet side, which is an area where when you have a sick pet, you're very -- have to spend more money to address those issues in the Prescription Diet formulations that we have are absolutely outstanding and addressing a lot of the health concerns that pet owners have. And given the vet endorsement that comes behind that brand that allows us to continue to justify the premium price, obviously delivered by the strong efficacy that's delivered through that product.

We're not immune, obviously, to the compounding inflation that will likely come in the market over the next 6 to 9 months based on where energy prices are today. But as I mentioned upfront, no different on the Hill's business, we have to continue to drive real value-added innovation into the category. Innovation that means something to the consumer. And the Hill's business clearly is -- at the center of that is the science. The science that we bring to the market is clearly differentiated in a very meaningful way. Hence, we have such strong endorsement from vet professionals to recommend the product. And that's the case across all of our advocacy-driven brands, whether it's oral care, whether it's skin health or others, will continue to drive real science-based innovation to make sure that we're bringing real value. And you balance that with a strong innovation across some of our big core businesses around the world, we find that we'll figure out ways to at least address some of the inflationary concerns to the consumer, but we're not immune to it. We're going to have to watch that very carefully.

Okay. Well, thank you. I appreciate everyone, and thanks for listening in on the call today and your interest in the company. I hope you share our confidence that we have, the short-term plans in place, and more importantly, investing in the long-term capabilities of the company to continue to drive superior returns in what is obviously a very volatile operating environment. I want to make sure I thank the 34,000 Colgate people around the world who do just extraordinary work in a very difficult environment to deliver strong results and their tireless effort needs to be recognized and thanks. So we look forward to our next discussion. Thanks, everyone.

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

All right. Well, good afternoon, everyone. Welcome to the UBS Global Consumer and Retail Conference here in New York City. My name is Peter Grom. I am the U.S. consumer staples analyst here at UBS. And we are very excited to have joining us this afternoon, John Faucher, Executive Vice President and Head of M&A and Chief Investor Relations Officer from Colgate-Palmolive.

Over the past few years, Colgate has implemented several strategic initiatives that resulted in improved financial delivery. Recently, the company outlined their 2030 strategy that will help the company deliver strong and top and bottom line growth looking ahead. In terms of format for today, I have a number of questions that I plan to ask John for the first 35 minutes or so for the last 10 to 15 minutes, if there's any questions that you all have, please feel free to submit them. They'll show up here on this iPad, I'd be happy to ask any questions on your behalf.

Before we start, however, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after the call.

So with that, John, thanks for joining us today.

Thanks for having me, Peter. Always good to see you.

So maybe starting with the 2030 strategy. And I guess I wanted to start, like just getting your perspective on it, right? You recently completed the 2025 strategy that was really focusing on reaccelerating top line growth volume would have been a more challenging time for Colgate. And I know you touched on some of this at CAGNY, but as we think about the next 5 years, can you maybe compare and contrast the 2030 strategy versus 2025? Is this a continuation of the many changes that you've implemented? Or is this -- are there more meaningful changes, if you will, happening within the organization?

I mean, as always, you'd like to say the answer to that is both, right? There's a lot of meaningful changes. But I think the overall viewpoint is that this is evolutionary, not revolutionary, right? And so we'll start with 2025 and what worked and what we needed to change when we looked at 2030 and then how we see that going forward.

So in 2025, we entered the 2025 strategy not really growing, right? We have been growing primarily through FX-driven pricing through the mid-20 teens. And we weren't driving dollar sales growth, we weren't driving bottom line growth. Our EPS had stalled. And so we looked at this and said, okay, how do we create a new growth mindset around the organization. And that was really the language that Noel used in putting together the 2025 strategy.

So it was about reaccelerating the top line, building innovation, making progress on digital and data and analytics, scaling those capabilities across the organization and getting back to a solid financial footing where we were delivering, again, dollar-based sales growth, dollar-based EPS growth to deliver on TSR. right? So that was the step function that we needed when we looked at the 2025 strategy, and we think that went really well. We didn't deliver against everything, but if you can deliver against 75% of the strategy, longer term, you're going to be ahead.

So as we looked at 2030, it gave us an opportunity because for 2025, we needed to prove to the organization that we could grow again, that we could execute against a strategy. Now we have strong belief within the organization about 2030, which I think allows us to be more aspirational. Again, evolutionary, not revolutionary, but really pushing in terms of some of these areas where we say, okay, we can deliver real change, right?

So if you look at how we've talked about this, it's a little more complicated, how we present it internally, but we focused on 5 pillars, which Noel has talked about in a couple of different conferences. And it's really the global strength of our brands, how do we deliver against that. We have Colgate, which is the most penetrated brand in the world. It's in just slightly under 60% of the world's homes. It's a great opportunity for us. We've got high market shares, great brands across the world.

We are focused on scaling our capabilities in areas like data, digital, analytics and AI, and AI sort of touches on all of these actually. We are focused on innovation, right? One of the things that we have talked about in 2030 is that we need to deliver more impactful innovation, particularly premium innovation and particularly in the United States. That's a big opportunity for us when you look at what can change going forward versus the last plan. We are going to focus on omnichannel demand generation, right? And that's something that we have talked a lot about. Caroline Chulick, our VP for Growth and Strategy at Hill's talked about how Hill's is putting that type of demand-driven model into place to deliver the right content to the right people in the moments that matter.

And then finally, culture. Everyone internally at Colgate understands that we have a very strong corporate culture. So many people have been in the organization for 20, 30, 40 years. How do we tap into that strength of culture and really create a high-impact culture that can help us win. So those are the 5 pillars. I'm sure we can talk about more of them as we go forward. But what it's really doing is, again, getting us aspirational about how we can accelerate change going forward.

Yes. I mean one of the pillars I wanted to touch on was innovation. And I'd be curious, innovation has always been a focus for the company. So what's different as we look out over the next 5 years? And I think as you think about your long-term aspirations on the top line? How big of an impact can this change when you think about the 3% to 5% target?

Sure. So I think innovation will be key to the 3% to 5% target, right? If our categories are growing 2% to 4% longer term, in order to deliver against our 3% to 5% long-term organic sales growth target, we're going to need to gain share, right? And the best way to gain share is to innovate is to drive category growth even faster. We're seeing that in the U.S., right, where the categories are weak, but where you see where there is a -- some of the categories are growing a little bit faster, it's premium innovation that's driving that growth. Body wash being a great example of that.

So if you look at innovation, one of the things we talked about with the 2025 strategy was we focused on core innovation, right? So taking those big businesses, 60%, 70% of sales and saying, okay, we can't have leaky buckets. We need to innovate on core. So that's brands like Colgate Total, Science Diet, Palmolive, Protex et cetera, making sure those brands stay healthy. Those are big pieces of our business. They have high levels of household penetration. And once you have those leaky buckets, they become very difficult to stop. Then we also talked about faster growth adjacencies. So what segments of the categories are growing faster, right? And that was basically things like whitening, right? And then we looked at faster growth channels and markets. okay, focusing on things like e-commerce, what have you, as ways to grow the business faster.

So those really helped us as we looked at innovation over the last 5 years. But what we've done since then is we brought more process and more strategy into the center, right, because we're run by geographic divisions and a lot of the innovation was happening within the divisions themselves. And we still need to do that, right? You still need to innovate for the local market. But what we felt was there as a way to generate more scale across the organization by doing more of the innovation work from the center. So we've built up the muscle, for example, in enterprise oral care, which is our oral care group in the center that can help drive innovation around the world. And then we developed a new process, and again, Noel talked about this at CAGNY, which starts with strategy. Okay? So strategy is we have to understand our consumers what are their need states, what are they looking for? So the example we talked about at CAGNY was whitening, right, where 66% of consumers in whitening and whitening is a universal need. They have unmet needs within the category.

And then we go into discovery, right, which is, okay, how do we discover ways, new products, new concepts that will meet those needs. So that's really the research angle. And that's where we can go in and use AI, for example, to develop new concepts. And we've talked about how we're using AI to develop new product concepts at CAGNY both of the last 2 years, right? So we come up with those concepts and then we're going to test them, right? And we can test them using what we call digital twins, which is where you can basically create AI-generated panels that allows you to get feedback on the concepts so you can see what's going to work.

And then the next piece is incubation, and this is something where we are building truly new muscle in terms of incubation. A lot of these truly impactful new products are going to start off small. So you're not launching something that's going to have 1% to 2% market share right off the bat, right? You start small, maybe it can be e-commerce. Maybe it can be brick-and-mortar. Again, maybe we're just testing solely through AI to see how big could this product be. And we understand, okay, how do we iterate, is the concept right? Is the target right? Is the media correct that we're going after. And once you've proven that concept in incubation, that's when you go to scale. Right?

And that's when you say here's, again, a company that has -- the Colgate brand has the highest household penetration in the world. We're in 220-plus countries and territories around the world. Scale and scaling fast should be a huge competitive advantage for us. And we're getting better at it. Still a lot of work to do. The best example is probably Colgate Optic White Purple, where we launched this in China, massive hit on Douyin and very simple concept, which is you take Purple toothpaste, most people have a little bit of yellow on their teeth. The purple and the yellow create a temporary whitening effect, really easy to understand, great for social media, great for Gen Z. And so it was a big hit in China. We have now rolled that out to every single division around the world much more quickly. And we're using AI-driven content. So it's an example of how we can get better at that scale piece but still one where we probably need to build the muscle going toward.

That makes sense. And I guess building on some of this AI discussion. An area I wanted your perspective on is just this clean room concept in this promo AI tool where you're driving better personalization, finding ways to optimize purchases, repeat purchases, et cetera. So how big of a concept is this? And what's the opportunity as you scale this across the organization?

Okay. So two separate concepts here in terms of clean rooms and promo AI, and I'll talk about both of them. Right. So but they're both about driving higher ROI on our spending, right? And this is the issue. The best way to deliver growth, and look, we're focused on productivity and all of this, but the best way to deliver margin expansion is to grow the top line faster. And so we're focused on taking the spending that we have and making it more effective. So clean rooms, basically, what we do in Hill's is the best example of this, and Caroline Chulick talked about this at CAGNY.

What we do is we take our first-party data and we pair that with the retailer second-party data and then our media partners third-party data. And we combine them in a data privacy-driven environment. So that we can target our media more effectively. And that can be by demographics, that can be by purchase behavior. We can even focus on what media works better with different consumers. And so it creates a very high-level data environment where we can generate significantly greater ROI on that spending.

And as Caroline talked about it, we have about 70% of our U.S. media for Hill's that is being spent through clean rooms, which we think is very much at the high end of what's going on in CPG right now. So that's clean rooms, very exciting. We are continuing to work to roll that out across other retailers. Obviously, with Hill's, which has a more bigger digital footprint, you can get more of that media covered, but it's a huge opportunity everywhere.

Promo AI is a little separate -- it's a little bit different from that because it's really focused more on the trade spending, right, what we call gross to net. So that's the money that you don't see that's above the net revenue line. And what we know there is we know most of that spending is effective, but it's difficult without taking the spending away to see what the impact is. And obviously, if you take the spending away, you lose that volume.

So what we've done there is we've used large language models, and we take our shipment data and we take our retailer category consumption data and we run billions of different scenarios to create a prescriptive output, and that prescriptive output will fall for the variable that we choose. That could be volume. That could be sales, that could be margin. And it will tell us, here's the promotional cadence that you should have to solve for sales or margin or volume, right?

So maybe you want to run a 2-week promotion on Max Fresh. The first 2 weeks of the month and you want to be running a 1-week promotion on Optic White, the third week of the month, et cetera. So it will come up with a more prescriptive model for us to implement with our retail partners. And what we're seeing is very strong returns on that. And that is data intensive. It's labor intensive, right, because you have to build these models. But once you've done that, you can continue to learn, right? That's the beauty of these AI models. And over time, it will get better and better as we feed more data in there.

So both of them allow us to look at our spending, one above the net revenue line, one in the advertising line and try to maximize that ROI.

No, that makes sense. And I guess on the advertising line, there's a lot of changes that's happened in the last 5 years, next 5 years. But one of the things that I think has allowed the company, and you've talked about this quite a bit, has been the focus on reinvestment and advertising. And I know I guess this is going to be a continued focus even as we think about the years ahead. But a question I often get is just how do we think about it really from here, especially as we were just discussing on the data that AI is allowing you to be more efficient. So how should we think about that percentage of -- or advertising as a percentage of sales longer term?

Sure. So I mean the key on advertising is, are you spending the money effectively? Are you driving higher ROI? Are you delivering growth, right? And so we look at that and we basically say, hey, we can do a much better job of measuring the effectiveness of our advertising spending. We now have tools to raise the ROI on that spending. We think that gives us the ability to spend more money on advertising because we can spend it smarter and with greater results. And so yes, we are seeing a higher return. But if we can deliver the dollar sales growth we need to, the gross profit growth we need to, to fund incremental advertising, while still delivering competitive earnings per share, dollar-based EPS that delivers top-tier TSR.

We think that investing back into the business is the right choice. That creates the sustainability, the duration of the organic sales growth, right? And we think it's the market's confidence in our organic sales growth that helps our PE multiple, right?

So you want to have confidence in organic sales growth to drive the PE multiple, you want to deliver dollar-based EPS growth. And that's what creates along with the dividend, the competitive TSR that we're looking to deliver. So we want to deliver operating leverage, right? But we want to deliver that through driving the gross margin. We want to deliver that through productivity programs like FTG and SGPP. And we'd like higher advertising to -- we want to fund the advertising while still delivering that margin expansion through other line items.

Makes sense. I guess so maybe pivoting to category growth and I would love just some perspective on what's happened, call it over the last 12 months. Obviously, a lot of moving pieces across your various businesses, geographies what have you. I mean what have been the biggest surprises where maybe things come in better than you would have expected, maybe conversely where things have been more challenging. And I guess when you compare your business to maybe some other consumer staples companies that aren't really facing maybe the same structural challenges. Have you been able to really uncover why demand, maybe more in the developed markets like the U.S. has been a little bit more challenging.

Yes. I mean, so I'll start with sort of a general view of where things are. You said sort of what's better or what's worse, what have you. I mean I'll start with Europe, which is probably the one market where it's been very much in line with our expectations. We've talked about Europe as a market where if we can get slightly positive pricing and slightly positive volume, we think that's a good output. And we have -- our team there has done a tremendous job working with our revenue growth management programs, right, because Europe was a market where we had negative pricing basically for flat or negative pricing for 30 years.

And then obviously, with the strong inflation we had in '22, '23 and '24, we delivered mid-single-digit pricing. But we knew that, that wasn't sustainable. So through strong innovation, through great negotiation through a lot of product relaunches, we've been able to continue to get slightly positive pricing, and we think that's likely to continue. Emerging markets have generally, I think, held in well. You look at Mexico, which I think is holding in very well in the context of a weaker U.S., which we can talk about as we go through this. Brazil has been good. There has been a couple of pockets of, I would say, relative softness in Latin America that we've called out before in the Andina region, Central America. We saw a little bit of a blip there in the third quarter. They bounced back in the fourth quarter. We think they're hanging in, not quite as strong as Mexico and Brazil.

And then Asia, China has been generally a little bit soft from a category standpoint. We have 2 businesses there. Colgate China has done very well, very e-commerce-focused, social commerce focus. We talked about Purple delivering great innovation, China for China innovation that's driving that e-commerce business at very high premium price points. And then our H&H business, which has struggled a little bit more with the category because it's much more focused on brick-and-mortar. We have improved the execution there. We have new innovation coming through. We have new ODG work being done there.

I think HNH is going to get better, but that's still a work in process. So China, from a category standpoint continues to be a little bit soft, particularly in brick-and-mortar, but with e-commerce positive. India, from a category standpoint, had a little bit of a hiccup late last year. On top of that, you had the GST implementation, which created a little bit of extra volatility. Categories in India seem to be okay at this point. So and then after Eurasia, which is a smaller region for us, we're still getting FX-driven pricing in some markets. We're still getting inflationary pricing in some markets and volume demand has held in well. After Eurasia, the results that you see continue to be pretty consistent growth there, the volatility from country to country can be high because of the nature of those markets. But it's a great division for us, and they've done a great job.

So the bigger delta has been the U.S. When we spoke a year ago at this conference, the categories were soft and we're trying to determine why. I think there's still a little bit of that from that standpoint. I think we're not seeing population growth, which I think is having an impact. I think there is still consumer concern about prices broadly because you're seeing this expressed in volume, right, not in pricing. And the whole K-shaped economy impact is there. We're seeing growth in premiumization. You look at a category like body wash, where what's growing is the $10, $11, $12 body washes and what's declining is the sort of $2 to $4 body washes. So the consumer seems to be a little nervous.

There's not a lot of incremental pricing that's out in the market right now. And so the categories are still a little soft. In the shorter term, we're losing a little market share in toothpaste, you've been able to see that in the numbers. I think that's going to get better as we go into Q2, Q3 as we have more innovation coming in, it's a slightly softer start from that standpoint. But I think between Optic White and some shelf -- some share gains, some shelf share gains on Max White, we think we have an opportunity to change the dynamic there.

No, that's really helpful, John. And maybe to dive into some of those regions a bit more, maybe starting with North America, and you alluded to it, is still a little bit softer. But one of the other dynamics last year was this concept of inventory destocking. And I think there's a lot of debate out there in terms of what that looks like as we lap this. So just any update on that standpoint? And then related, right, clearly, categories are still soft. But when we think about the guidance for this year, what kind of contemplated from like a U.S. category perspective?

Sure. So I'll start with the second one. So the U.S. categories, we were pretty blunt on the Q4 call and then Noel talked about this at CAGNY. We were not building in any material impact, maybe slightly better in the back half of the year. But our guidance -- our organic sales -- our long-term organic sales growth target is 3% to 5%. Our guidance for this year is 1% to 4%. And embedded in sort of the midpoint of that range would be categories continuing at the current pace. And as Noel said at CAGNY, that's kind of what we're seeing now.

So categories continuing at that rate. I think as we look out into the back half of the year in the U.S., we're optimistic that I think you're going to see, again, continued innovation. I think everyone realizes that innovation is really the way to drive the categories right now. So we have increased premium innovation, probably the most I've seen in North America in my tenure at the company, that will be kicking in really in the second quarter. And I think you'll see more of that.

From an inventory standpoint, I think what we have seen is less what we consider sort of true destocking, which is, okay, we have 8 weeks of inventory, we're going to get down to 6. And I think what we have seen more is which has the same impact, shipments below consumption, right? As retailers look out and say, 6 months from now, 9 months from now, if the category isn't growing, I need less inventory than I had anticipated. So we would argue that's not technically destocking, but the fundamental premise is the same, which is you're probably going to continue to have shipments slightly below consumption from that standpoint.

So even as we start to lap it, you would still anticipate kind of continuing unless we see an acceleration, if you will, in category growth?

I mean, in theory, right, at some point, you start shipping with consumption and that should get better, but this has all lasted a little bit longer than we would have anticipated. So our assumption is steady state until we start to see it. And to be perfectly candid, it's a little bit easier for us to build that level of conservatism to the model because we're seeing stronger growth in emerging markets and because our other big U.S. business in Hill's continues to grow faster than its category.

Yes. I do want to pivot to Hill's in a second. But I guess, just bigger picture, right, you can't fully control category trends. But maybe weaving in some of the commentary we started with and the changes within the organization, is the company better prepared to deal with maybe some of these near-term challenges today versus maybe 5, 6 years ago?

Definitely. So I think the key thing is 5 or 6 years ago, we weren't growing and we weren't winning, right? We didn't have that growth mindset, as I mentioned before. So I think we have a different viewpoint in terms of what it takes to win. And it's different than what it was 10, 15 years ago, right? Back in -- sort of if you think about the early 2010s, our categories kind of grew on their own. You had population growth, you had per capita consumption growth. You had Carrefour growing square footage every year. You had inflation-driven pricing in emerging markets because you had good emerging markets GDP growth. And a lot of that went away over the last 10 to 12 years.

And so the need to -- so sitting there and saying the category is going to grow 2% to 4%, 3% to 5%, and we can execute and gain share to grow ahead of the category. That mindset had to shift. So we're much more focused on growing the categories ourselves. So I think we are better set up. The shape of the P&L is dramatically different from that standpoint, right? We have built up the advertising to sales ratio, as you said, and that gives us flexibility to make decisions, right? So if you look at 2025, our advertising to sales ratio was down 20 basis points, and we would have liked it to be flat or up. But it was important for us to deliver in our -- to our aspiration of delivering consistent compounded dollar-based earnings per share growth and having flexibility in the P&L having taken advertising to sales up 150 basis points the year before that really gave us that flexibility to make the right decisions, sustain investment and scale capabilities and yet deliver dollar-based earnings per share growth. So yes, I think we -- I think from a culture standpoint, from a growth mindset standpoint and from a P&L standpoint, we're in much better shape to deal with difficult markets.

Makes sense. Makes sense. So maybe just to round out, and you touched on this a minute ago, but Hill's, right? Love to hear your perspective on kind of the opportunity from here, both U.S. and internationally. You can't fully control category growth rates at a similar point, but this has been a key area of investment. You spent a lot of time getting the supply chain network adjusted and new facilities, capabilities, acquired others, I guess, can you just talk about how these investments are unlocking value for Hill's longer term?

Sure. So one of the things -- so we've talked a lot about advertising to sales. And I think one of the key points going back to when we started this strategy. So if you go back to 2016, advertising to sales was 9% at the company. And within that, we had so much FX pressure that, that really put a lot of pressure on the margins to go up on our dollar-based businesses, right? So if you go back 10 years ago, the North America margin was in the mid-30s and the Hill's margin was in the high 20s, and we weren't spending enough behind either of those businesses.

So back then, advertising to sales on Hill's was below the company average. Advertising to sales on Hill's now is above the company average, and we've increased sales dramatically over that time period. So we have made significant investments. On top of that, as we discussed at CAGNY, between the clean rooms and the marketing mix modeling and these other factors, we have dramatically increased the ROI on that spending at Hill's. We have also invested significantly in innovation, and you touched on it. One piece of that was capacity, right? In order to run innovation, you need to basically stop your line so you can produce new products. If you're out of capacity, it's really tough to stop the line. So we added dry capacity through the Red Collar acquisition. We added wet capacity by building our Tonganoxie facility.

And now we've been able to innovate in new spaces particularly within wet, right? Pouches, looses, tins, all these other forms that are becoming significantly more important in the context of the category where you've seen a lack of growth in large dog kibble. And you're seeing strong growth in areas like small dog and cat, which are going to have higher prevalence for wet food. So that's given us a big increase.

The other piece relates to the capabilities piece that I talked to before, right? We've invested significantly in data and analytics, in digital, omnichannel, AI, across the organization, right, but some of the highest return along with Colgate China on that is going to come from Hill's because of the digital nature of that business. So it's been a great opportunity for us to invest back, going back to the dollar-based revenue and dollar-based earnings growth, Hill's is 2/3 U.S. So it's a great driver of dollar revenue and dollar profit for us, and we continue to see great opportunities there.

Hill's has a high single-digit/low single-digit market share in the U.S., and that's its best market, right? There is tremendous opportunity around the world, whether that's in Europe, Latin America, Asia, to drive significant market share growth. And as we build out the relationship with vets, right, because that is a key piece of the business model as we build out the relationship with vets, we can also layer on top of that prescription diet which is the therapeutic side of the business, which provides even greater mix benefits on top.

Great. And then maybe just some commentary on what you're seeing from a category perspective. In pets, what are your expectations as it relates to category growth this year? And then I guess there's a lot of moving pieces, your business is still gaining market share, but you're still kind of lapping this private label dynamic. So as investors think about the growth trajectory of Hill's, like what should we expect over the next, call it, 6 to 12 months?

Sure. So what we've been saying the last couple of quarters is we've given you some insight into how the U.S. business is growing. It's like the Hill's U.S. business, which doesn't include the private label impact. It's been growing about mid-single digits, and we think the category is roughly flattish. We continue to hear more from investors that, I think, than what we tend to see that other companies are a little more optimistic that the category is beginning to slowly improve. For us, there's some noise could be, but I think we would argue for now, we're probably going to call that it's still the same level, which again is kind of flattish. So we're going to focus on gaining share within those segments.

So yes, I think that's how we would describe it. I think the key for us going forward is to have more confidence in the category improving. We probably need to see an increase in household formation in the U.S. right? It's large dogs and bags of -- large bags of dry dog food. That's really the declining part of the category right now. So we're still seeing increases. People aren't buying houses, they're staying in apartments longer, so they're adopting small dogs. They're adopting cats. If we start to see people moving into houses, I think you'll start to see a move in the large dog business, and that should help get the category moving a little bit more.

Okay. And then maybe to round out the pet discussion, would love an updated view on kind of fresh. Maybe an update on Prime100, key learnings, thoughts on brand performance, and then just as you think about fresh in the U.S., I mean, is this an area we'd be interested in playing in longer term?

Sure. So on the last part, we're still determining our plans on fresh. And the purpose of buying Prime was twofold. One, it's a great business. And when we took a look at it, the more work we did with the more we realized, its success in the vet channel and its success, particularly in looking at derm as a segment from a therapeutic standpoint was well earned. Very strong formulas, good science behind it, great relationships with the vets. And that's one of the things that made it attractive to us. It's a profitable business, growing nicely, great management team. So it's a great business in Australia. It's coming in ahead of its expectations. And we are learning a lot about the way to do formulation and fresh, the way to do distribution, manufacturing, all those things. Where that leads remains to be seen. And when we have something to announce in terms of geographic expansion, we'll let you all know.

Okay. So why don't we pivot to margins and starting with gross margin. I think despite kind of the inflation, FX pressure, you've been really able to deliver solid gross margin expansion in recent years. And I think part of that has been driven by your productivity program funding to grow. So how much more runway is there in FTG?

FTG is a fascinating program. And one of the things you learn when you come inside is productivity is a lot of work. It really is a lot of work in a program like FTG, you have to have real processes in place that are running year-round because it's not like you can get to December 1 and be like, oh, FTG is done. No, Jan 1, we have to have a full pipeline of FTG. So we do a great job. It's one of the things the organization is incredibly proud of, to create that consistency of the FTG model year by year by year. Again, what you really want is to generate top line growth. That's the best way to generate operating leverage, but you need that consistent productivity effort every single year. And I think we are very confident that we can continue to deliver that.

The one thing I would say is it's interesting. FTG is not just a gross margin program. We talk about it in the context of gross margin, but there's FTG for corporate, hope, who works with me, runs the FTG operation for corporate. And FTG can be interest expense, it can be whatever but it's truly ingrained in the organization. So I would expect our guidance included another good year from FTG.

Okay. And then maybe sticking with productivity, but as part of your 2030 strategy, you discussed the new strategic growth and productivity plan or SGPP. How is that different versus your standard cost savings program? Is there a way to frame how incremental this program could be on top of FTG?

Sure. So we will have more discussion about -- so we've talked about the level of charges, which is $200 million to $300 million. We have not given you the savings targets yet. We will when that's appropriate. But we have said returns from this program should be in line with our historical returns. But while funding incremental investment in advertising capabilities, what have you, is part of SGPP and also using it to help deliver dollar-based EPS growth as part of it. There's a big unlock from an organizational standpoint, right? So we talk a lot about omnichannel demand generation or ODG. And fundamentally, there is a blurring of the lines that's going on right now between what is marketing, what is innovation, what is advertising, what is customer development, right?

So if you think about selling on TikTok shop, right, TikTok Shop is media, but it's also commerce, right? So how do we have a more integrated view of how we deal with this new environment, right? And that's going to require -- it's a blurring of the lines in terms of organizational structure. And we're very much doing this on the fly, right? And so we have examples of how we're doing it really well with Hill's and with Colgate China, but each market is going to develop differently, right? I mean if you look at the success of Douyin in China, TikTok shop in Europe or TikTok shop in the U.S. isn't going to reach that level of scale anytime soon. But how do we build to that over time.

And so we are taking a look at the org structure and saying, how do we create a more flexible, faster organizational structure, building in AI from a productivity standpoint and from a growth standpoint, to drive faster decision-making, drive greater scale across the operation. So we think the key thing is on SGPP is, yes, it will deliver productivity. But to truly succeed, we need a faster organizational structure that can adapt to this new ODG world.

Okay. And then that's really helpful, John. I guess maybe rounding out the margin discussion a bit. You guided the gross margin expansion this year. But the operating environment remains pretty dynamic. So you have benefits from currency. We've just talked about productivity. But can you just remind us what's embedded from a tariff standpoint and an inflation standpoint? And I ask that just in the context, we've seen some pretty volatile input costs, I would say, in recent weeks. So just curious whether any of these recent developments are kind of a cause for concern?

I mean, look, we're obviously going to pay attention to everything that's going on in the world right now, and we're going to run through different scenarios as you would expect. This is the same thing last year when we were dealing with tariffs as a moving target. What we said on tariffs was there would be some rollover impact from tariffs that would hit this year given the timing. There's one incremental tariff, which is Ecuador has put tariffs on Colombia, products coming from Colombia. So that's also having an incremental impact. Raw materials, we had stated there would be less raw material inflation this year than what we saw last year. We saw very high levels of raw material inflation. We're going to need to see what happens with resins, et cetera.

Obviously, there is some risk if things stay elevated. It takes a little while for resins to flow through the P&L, as you know. But we're going to keep an eye on that, and we're going to take steps needed. Is there the opportunity to get incremental pricing? Is there -- are there incremental cost savings programs you can put in? It's helpful that we have both FTG and SGPP in this type of environment. The best way to drive operating leverage, as we said, is to drive dollar sales growth. So that's going to be the focus, but we are very good at dealing with raw material volatility, and we've -- it's in our business model, right, Latin America deals with more raw material volatility than pretty much anywhere else in the world. And so we're going to put the plans in place to deal with it, but everything is kind of a moving target right now.

Great. I just want to remind anyone, there's no questions right now, but if anyone wants to submit a question, please feel free to do so in a few minutes we have last here. So John, currency, it's been a while, and I know this can change. But it's been a while since it's been a tailwind. And you mentioned this, the teams have become accustomed to dealing with currency volatility. But curious how it shifts your views on investment levels. It seems like you'd have more flexibility to maybe navigate some of these near-term challenges with that being a tailwind. But more specifically, how are you thinking about maybe reinvesting some of this favorability versus letting it drop to the bottom line.

So we'll have to see what happens, right? We guided to a low single-digit benefit from foreign exchange. And if you look at the dollar, it has moved over the past 1.5 weeks from that standpoint, the dollar has moved back up. So very much a moving target. We will focus on FX in terms of thinking, okay, how do we deliver against our targets, how do we deliver against our aspirational goal of delivering, again, consistent compounded dollar-based earnings per share growth. It's difficult to bank in currency, right? We build it into the model at spot, but currency has been negative 8 out of the last 10 years. And the largest benefit we've seen from foreign exchange has been 1.3%.

So we are going to run the model with a way that gives us financial flexibility. And if currency moves, we'll adjust to that. But it's difficult to say, right because it's moving around like with resins and everything else, it's moving around so much right now. But this is why we build financial flexibility into the model. If we can invest back that's what we'd like to do. But again, it's the balance of investing back in the business versus delivering the bottom line.

Okay. Maybe another one here, obviously, if there's any more questions, but as the head of M&A, I think I need to get some thoughts on the company strategy. So are you looking to build capabilities? Are you learning again, exposure to certain categories? I guess what I'm really trying to understand is when something comes across your desk, how do you assess whether that's something you were of interest in or not?

Sure. So let's start with the strategy, right? Because it's important to start with the strategy. Otherwise, M&A can just be a chase for shiny objects. So we do not build M&A into our strategy, right, either from a qualitative standpoint or from a quantitative standpoint in terms of building it into the model. Particularly, because if you build it into the model from a quantitative standpoint, that's when you end up chasing okay, we need to do a deal to deliver against this.

Now what we will then do is say, okay, how can M&A be additive to growth or really how can be additive to value creation, right? Because it may not be about growth. It may be about, we can look at capabilities, right? So we bought capacity. And we bought capacity in a way that lowered our gross margin in the short term, created this volatility surrounding private label, right, which will go away at the end of the second quarter. Those were steps that maybe we wouldn't have done before, but we said -- the NPV of this deal is attractive. It allows us to accelerate growth at Hill's. We're going to buy capabilities. You look at Prime100, right? So it's a great brand in Australia, but it lets us learn more about a high-growth segment that potentially could be interesting.

I think going forward, one of the things that we're going to -- I would expect us to do more work, more M&A going forward now that we've reestablished that growth trajectory that we're on and say how can we add more to the portfolio, subtract more from the portfolio to truly drive value creation. And again, I think one of the things that's been really successful about the 2025 strategy in terms of it working was we have helped -- I talked about sort of a growth mindset. I think we've gotten a better value creation mindset. Across the organization, understanding how these decisions around M&A, around capital really drive value longer term. And the income statement is a blunt instrument. Right? The cash flow and balance sheet really allow you to drive additional value over time.

Stan does a great job getting the organization focused on cash flow. Our leverage levels are attractive here where we have flexibility. But fundamentally, it's going to be how do we drive value and how do we ensure that if we look at something we're the best owner of that asset, right? Anybody can buy something that grows. But how do you ensure that when we buy it, we're going to grow it faster and drive more value than everyone else who's looking at this asset.

Awesome Well, John, why don't we leave it there? On behalf of UBS, everyone in the room, those listening online, thank you so much for taking the time to be with us today. Super helpful as always, and nothing about the best of luck moving forward.

Thanks, Peter. Appreciate it as always. Thanks, everyone.

Good morning, everyone, and welcome back to the final day of the 2026 CAGNY conference. We're delighted to have Colgate with us to kick things off. Fresh off a strong finish to the year Colgate continues to navigate a challenging consumer environment with a portfolio of leading brands, global reach, market-leading innovation and a push to embrace new technologies such as AI and predictive analytics to drive superior top and bottom line results. On top of a better-than-expected 4Q nearly across the board, the company embarked on its new 2030 strategy underpinned by its strategic growth and productivity program. With us this morning are Noel Wallace, Chairman, President and CEO; Caroline Chulick, SVP Global Growth and Innovation, Hill's Pet Nutrition and John Faucher, Chief Investment Relations Officer and EVP, M&A. With that, I'll turn it over to Noel.

[Presentation]

Well, good morning, everyone. It's great to be back in Florida out of that cold winter in New York. It's great to see everyone at 8:00 on a Friday morning. So I appreciate you getting through the week and spending time with us this morning. A lot of excitement in terms of our strategy. I'm going to talk a lot about what happened through 2025 and then more importantly, get into our 2030 strategy. I should probably have this memorized by now so I won't go through it. As we've done historically, we always like to showcase some of the great talent we have across the organization. Today, Caroline Chulick, our Senior VP of Global Growth and Innovation at Hill's will be joining me. People often ask me why do we often bring people into the presentations? And there's really 3 reasons.

One, it's really important for you to understand as we look conceptually at 60,000 feet at our strategy how do we execute and deploy those strategies on the ground. And it's one thing for me to talk about it. There's another thing for our teams to get up and show you exactly how we're executing against the things that are driving the growth for the company. Second, it's a great exposure for our talent. It gives you a chance to see the depth of our talent across the company. And probably most importantly, they're all great presenters. And so I always like to have people who can outshine me up on the stage. So it's great to have Caroline with us today.

Quickly on the financial review from 2025, a tough year for CPG. Clearly, headwinds from tariffs, slower category growth and uncertain consumer environment. But despite that, the resilience and flexibility of our model allowed us to drive dollar sales growth, dollar EPS growth, organic growth and record cash flow, and we exited the year with some accelerated momentum, which is terrific to see as we move into 2026. Four key messages today. I'm going to recap our 2025 strategy, as you know, for the last 5 years, we've been executing against our 2025 strategy. We've built a lot of capabilities, and we're starting to scale those as we move into 2030. Our transition into 2030 and some of the new capabilities that we're building and some of the changes that we need to make to accelerate category growth and our own growth moving forward.

Our productivity will be a key catalyst for fueling that growth. How we'll use that to drive market shares and penetration around the world as well as drive improved bottom line EPS performance and importantly, talk about our balance sheet and some of our uses of our cash, where we have incredible opportunities to be more flexible with how we think about our cash generation and the uses of that moving forward. So let me talk about 2025 coming to an end. Strong growth over that period. As you remember going into the 2020 strategy when we launched it, our growth had really plateaued and flattened. The 2025 strategy has allowed us to accelerate that growth over the last 5 years well above our long-term target range. Clearly, 2025 was driven down by obviously, the category growth rates I talked about.

And as you know, we exited the nonstrategic private label business, which was about a 70-point headwind so you can add that to the 1.4% there in 2025. We have confidence we'll get back to that long-term target range that we've set for ourselves in terms of our 2030 plans. One of the reasons we have that confidence is the diversity of our business around the world. As you know, we have a strong emerging market business where the category seem to be quite robust, strong presence in those markets, combined with the accelerating growth that we see in some of our developed markets around the world.

A big asset that we had going into the 2025 strategic plan was that we committed to building our brands around the world. We put in about $1 billion of incremental advertising into that plan period through 2020 through 2025. That has allowed us to accelerate brand penetration and build our brands and make sure that our innovation gets off to a good start.

Despite the $1 billion of incremental advertising that we put into P&L, the strong productivity initiatives that we have going through the middle of the P&L and the operating leverage that we've been able to generate from that allow us to accelerate the EPS growth moving through the 2025 period as well. And most pleasingly, for all of you is obviously the TSR performance that we've been able to deliver in that period. This is through year-to-date 2026 where we've way outperformed our proxy peer group in terms of a TSR, which is the fundamental objective that all of us share in the company. Okay. So that's where we were. A lot of interesting changes through the 2025 period, but we need to continue to evolve the company as we move forward. And I'm going to highlight some of the key aspects of our 2030 strategic plan with you and tell you what it's going to do to continue to accelerate growth for the company. Five key pillars.

I've simplified them for the purpose of the presentation. I'll go through each of these in more detail to give you a sense of how we're thinking about these and how we plan to leverage them as we move through the next 5 years of the plan. Starting with the global reach of our business. We're in a very enviable position to have the most penetrated brand in the world. Colgate as a brand is in 60 -- almost 60% of the world's households. It is the #1 most chosen brand in health and beauty and the #1 most -- #2 most valuable brand in the personal care category in the world. It's a wonderful position for us to leverage as we think about the rest of our categories, the rest of our oral care brands around the world to continue to exploit that strong penetration that we have and resonance that we have with consumers.

It's not just oral care. We're broad-based across all of our categories. We have the #1 or #2 position in most of the categories in which we compete globally. You can see that depicted on the chart here. And we'll take that and make sure that we're going to put right at the front of this strategy is innovation. We spent a lot of time over the last 5 years building innovation capabilities, but the next 5 years, we're going to exponentially invest more in this area. Refine the processes, bring in more resources, use technology to enhance how we're thinking about developing consumer-centric ideas moving forward. So what I thought I'd do is take you a little bit through our new innovation process, and we won't get into some of the proprietary nature of this, but I'm going to give you a sense for how important it is to Colgate and how much emphasis we are putting to be on our front foot relative to thinking about innovating in the categories in which we compete.

There are 4 key aspects to this innovation strategy. One is the strategy and how we think about it, the choices that we make, the discovery aspect of innovation then we move into the incubation, which has changed quite dimensionally in the last 2 years. And then the real asset that we have as a company is how we scale our ideas in 200 countries around the world as quickly as we possibly can. So let me talk -- start with strategy. It all begins with the choices that we make and understanding and mining the insights in the category to make choices. And the example I'm showing you here is going to be in the whitening segment. Admiral impressions is how we define the need states of this segment. What's interesting is the insights that we've gleaned over the markets that we compete in around the world. Big category, big opportunity. 21% of the people want a whitening benefit.

But as you can see there, 66% of their needs are not being met today. That allows us to dive in there and truly understand where is the opportunity for us to utilize our technology and our science to unlock those opportunities around the world. You then move from that insight into discovery process. And you can see here that we have a multitude of different ways to think about going after the whitening segment. In the top right-hand side of this chart, you see our toothpaste, the color correction purple product that we've just launched. You see the serum they put in, which is now going into those that are looking for more beauty orientation. We're looking at value propositions for those in the value segment that want to have whitening benefits and then obviously looking at other ingredients that we could bring in from the profession as well as from the beauty segment into our toothpaste products as well.

We start to test these ideas with AI, which I'll take you through in just a moment and we refine it down to the bigger ideas that we can launch around the world. Then the fun begins. We get into incubation. And this is where our teams are testing and learning and failing as fast as they possibly can. And I'll show you how AI has allowed us to really exponentially get an understanding of what's going to work and what's not going to work. We do this both online. We do this offline, and we do this with digital twins, which is the AI tool that we're using around the world. And then we get into the scale, and that's where the unique competitive advantage of Colgate comes in, our ability to refine those ideas, incubate them, get the validation and then scale them as quickly as we can all over the world. And in this example is how we've done the Purple product, which I'll show you some output from that in just a moment, but it's exciting to see how quickly we can take an idea that we started in Asia and rolled it across all the geographies that we compete in today.

So AI has been a transformation for how we think about innovation. We've talked about this for a couple of years now in this room. We were really at the forefront of investing in this space. You can see we're using the agentic now in the strategy space. We're using AI to develop more concepts and really test those as quickly as we possibly can. We're using digital panels and twins now to validate our market insights, and we're also developing content factories where we can scale content as quickly as we possibly can. Here's a spot on our Purple product, which used AI to develop the spot, and I'll take you through a couple of the insights on this in just a moment. Let's roll that commercial.

[Presentation]

So the entire concept of Purple developed with AI, we test it and validate it in Asia. That spot, the humans are obviously real humans, but everything around that spot was developed at AI at a fraction of the cost so much more efficient for us in terms of how we're thinking about utilizing around the world. The concept was tested very quickly around the world through AI and digital twins. So really exciting to see how we're leveraging a lot of those capabilities that we've started to build a couple of years ago and seeing the fruits of that effort in the markets where we compete today. Moving on to some other innovation. We've had great success with the expansion of the Elmex product around the world. But in Europe, this is the fastest-growing toothpaste. We've done an exceptional job in getting into new segments and new need states in order to expand that brand.

You can see the success in Europe, not only with Elmex, but with Meridol and Colgate coming on top. We've had record share performance in a very competitive market across that geography. Excuse me. Shipping now a really exciting sensorial innovation for us. We spent a lot of time really thinking about mouthfeel for the younger Gen Y and Gen Z consumers. This is a new whipped product by hello, which is a unique dispensing system, but more importantly, has a very, very unique mouthfeel. It's a velvety feel. So it has a real unique experience. So we're playing into that segment and that insight that we glean from this consumer, which we're very excited about shipping right now.

All of you have to love Harry Potter. Harry Potter, given the globality of our business, we were able to negotiate a global license for Harry Potter all over the world. We have both the kids product and a product for all of you as well. So we're excited to see that expand around the world. I haven't talked about Darlie a lot. This is our big joint venture in China. This is a really unique innovation that we're bringing to the market as we speak. It's a dual-chamber technology. And what's interesting about this technology is peroxide is a very unstable ingredient that is not necessarily always compatible with the other ingredients that we put into a toothpaste. They figured out unique ways to separate the 2 ingredients. So the peroxide is the oxygen essence with the whitening agents to activate 18x more whitening. So the 2 ingredients come together when you actually squeeze the tube. So it's a fascinating innovation for us that we're launching as we speak and doing quite well out of the gate.

But we'll see how it ultimately unfolds. They also have a blue light toothbrush with it, which is really neat. In fact, it gives a real interesting experience when you're using the blue light toothbrush in your mouth with this product. So we're excited to see Darlie now putting some great innovation in the market. MGF Age Renewal Cream. So just as the concept says micro factor technology penetrates 10x better. We're spending a lot of time making sure that on our premium skin care, we have the right science to go into an extremely competitive category. This is a terrific product and is also formulated very specifically for menopausal skin, which is interesting. There's more irritation when you're in your menopause state.

And as a result of that, we've seen some great insights and great consumer feedback from the introduction of this product. Carrying on that insight, likewise, aging consumer in Europe, obviously, over 1 billion menopausal consumers around the world. We've seen real insights we've been able to glean from this consumer base and delivering products through the Sanex line in order to address some of their need state, this product shipping as we speak as well and doing quite well out of the gate.

About 1/4 of the fabrics in the U.S. market are synthetic fabrics now. Athleisure is a very dominant form of fabrics that being used. It's not necessarily that compatible with a traditional fabric softener and odors are tough to remove with the traditional detergent. We've designed a very specific product under the Suavitel brand name. That goes after that consumer. So we're quite excited to see that shipping in the market as we speak. Moving on to Palmolive dish liquid convenience at the sink. Simple idea is to bring in a pump into the segment will be the first major brand with a pump in the market. So clearly an opportunity to leverage the Palmolive brand name. We have spent the last 2 years truly dialing up the efficacy of Palmolive brand. We now have an extremely competitive product in terms of efficacy, and we're going to combine that with an easy dispensing system as well.

Palmolive also has done exceptionally well around the world, strong sensorial brand with great fragrances. We're going to take those great fragrances into the very large spray clean market sprayers market with a strong fragrance profile as well as the strong efficacy profile associated with this as well. Moving on to Science Diet. Caroline will talk a lot more, but this is a major relaunch for our entire Science Diet core business. So about every 2 to 3 years, we're really looking to renovate our big core businesses. This is an exciting launch for the core vet business that we have, which is improved ingredient profiles and packaging that hopefully deliver -- we know they deliver improved perceived based which is important to the pet owner as they look to shop and make their choices.

Pets are aging as well and pets are living long. As a result of that, you see more comorbidity conditions. This is our prescription diet product. We have a kidney hydrolyzed product as well as the kidney in the derm complete, both offering derm benefits that we find pets that have kidney issues. We have the opportunity to now go after dual morbidity issues and solve that with 1 product, which we're quite excited about. The vets have been asking for this for quite some time.

Okay. Let's talk about data analytics and AI. We spent the last 3 or 4 years investing heavily. We've talked about the flexibility that we've had in the P&L, and that flexibility has allowed us to really get ahead in terms of training and developing our people around the world in the space of data and AI, investing in technologies to ensure that we continue to utilize that moving forward, and I want to take you through some of those examples now. So before we are talking about building the capabilities. And as I mentioned, I think, last year, we started to scale these capabilities around the world. So right now, over 80% of our sales coverage is covered through marketing mix modeling so we really scaled that tool around the world. We have 80% net sales coverage of our revenue growth management tools. We're moving those revenue growth management tools into promotion tools as well, where we partnered with various retailers with a proprietary promotion tool to basically redo their entire promotion calendar in our categories to optimize sales growth for them.

And for us, we're utilizing clean rooms. You'll hear a little bit more about that from Caroline in just a moment. And importantly, we're really looking at our data architecture across the entire business and making sure we have ways to really tap into that data and utilize that data much more effectively around the world. What is that done? We've seen improvements in ROI through our data analytics consistently from year-end from 2023 when we started to invest in these capabilities through 2025. Our promo AI tool is a terrific proprietary tool that we collaborate with our key retailers on around the world. We generated over $4 million of incremental margin just with that tool alone. And clean rooms is a way to drive hyper personalization by combining our data with our retailers' proprietary data and finding ways to optimize purchase and repeat and velocity of their category.

So it's a terrific initiative that I think certainly shows the trust that the retailers have in us and our ability to share our data with them and drive category growth for both parties. Building and scaling AI talked a lot about this in the last couple of meetings with you. And as you remember, last year, I presented this concept to you. This was a fictional concept that I showed you that we developed with AI, which is I'll read it to you, Colgate market list, Caffeinated Power Mint keeps your breath as sharp as your instincts with an energizing caffeine kick and icy mint blast because your breath should be as strong as your portfolio. As you remember, we gleaned all the insights from the people in this room. We developed this concept and I showcased it last year.

So what I'm going to do this year to show that we're continuing to progress our use of AI, is show you how we've now used AI based on your insights and your concept to generates content creation. So this is 100% generated through AI, through the insights we gleaned through this fictional idea. And it shows you what the content can look like and what the on-shelf performance can look like. So let me just run that video now.

[Presentation]

So again, it's fascinating to see the progress that we're making on it. Obviously, there's a lot of governance behind this that we're being very cautious in making sure we understand how we think about actually deploying this around the markets around the world. You saw the Purple where we've incorporated quite a bit of the efficiency aspects of AI. But we're really excited about what we can do with this and the efficiencies and more important the personalization that we're going to have in terms of generating scaled content around the world.

I'm going to talk a little bit about omnichannel, but then I'm going to hand it over to Caroline. This is a really important idea for us. The whole market in terms of how consumers interact with brands today has completely transformed in the last 2 years. How they shop, where they shop and when they want to shop is something that we have to truly understand how to intercept the moments that matter, really understanding how to make our media more effective and targeting our message to the consumer at the right time and in the right place. So I'm going to bring Caroline up, and she's going to talk to you through this whole concept of omni demand generation, which we've been working on for a couple of years. And Hill's has really been at the forefront for making sure that we develop the capabilities that we feel we can scale in small markets, medium-sized markets and big markets around the world. Over to you, Caroline.

When you asked me to share the stage with you, I didn't realize I was going to have to follow fit to finance guy. Good morning, everyone. I am delighted to be here representing a company that I have been a part of for over 2 decades. I actually started at Colgate-Palmolive as an intern in our home care category. And throughout those years that I have followed, had many different marketing opportunities throughout both our oral care and our personal care categories before joining Hill's 5 years ago. I was incredibly excited to join the Hill's team because I've been a lover of pets for as long as I can remember. This is a photo I share with you of my childhood pet. Her name is Brandy, she was named for her Brandy color. She was a rescue and she was 2 years old when I was born. So that means she was my parents first baby. She was my first friend, and she was the reason that I told my kindergarten teacher that I had a sister even though I was the only child at the time.

So why do I stand before you this morning talking and sharing stories about my childhood pets? Well, because the U.S. data tells us that there's a very strong likelihood that about 70% of you in this room have a pet at home and can absolutely relate to how special and important they are to our lives and it's a part of our families. And that is exactly why Hill's exists. We are there to strengthen and lengthen that special bond between people and their pets. We've been doing so for almost 80 years as the inventors of therapeutic pet nutrition and founded by a veterinarian. Now more recently, Hill's has been a vital growth engine for both Colgate as an enterprise as well as our external retail and vet partners. Over the course of the last 5 years strat plan, of course, Colgate has grown all of our categories but Hill's has been the single biggest contributor to that growth. And that organic growth has come from both volume and pricing.

Now with the #1 science brand in pet specialty and the #1 vet recommended brand in the U.S., which by the way, is the largest pet population in the world. We've also been a really important growth pillar for our external partners as well. Let me dimensionalize this growth in just a little bit more detail for you. Over the course of the last 5 years, Hill's has grown nearly 60% from just under a $3 billion business in 2020 to just over a $4.5 billion business in 2025. And we've been significantly and continuously outperforming the category whether it be on the wellness side of the business with our Science Diet brands or whether it be on the therapeutic side with our prescription diet sub-brand, we've consistently grown share over the last 5 years. So how have we done this?

Well, it's been the results of consistent and strategic investment. You saw the A&P slide that the Noel shared about the enterprise and how we've grown significantly over the last few years. I'm happy to say that Hill's has been a major beneficiary of that increase of investment. At the same time, we've really increased our data-driven marketing capabilities and tools to make sure that we are being as effective and efficient as possible with that investment. Now I thought we had a pretty good 2020 ROI -- ROI in 2020 but we've actually continuously and sequentially grown that return on media investment over the last 5 years. And of course, all of this is in support of our unique and superior product behind consistent breakthrough innovation that delivers meaningful and tangible, visible outcomes that both our pet parents and our pets can enjoy.

So a little bit about the past. So we head into 2026 with some really strong momentum, but also with a lot of opportunities for continued growth. Now of course, all pets and pet parents are important to us. And we know that they can all benefit from our nutrition. But the data is clear. The younger generations, the Gen Zs, the millennials, are actually acquiring pets at a much faster rate, and that's really worldwide. And they're a driving force in the category. This is U.S. data, but last year in the U.S., half of the total pet spend was by the zillennial target group. And many of them, in fact, most of them have more than 1 pet in the household. Now I suppose I might have been a little bit ahead of my time in thinking of Brandy as my sister. But that humanization of pets is exactly what's happening with this younger generation. Many of them are delaying or in some cases, even replacing having human babies for fur babies.

I have an interesting statistic for you. I was in Seoul, South Korea last week with our team there, and they shared a pretty surprising statistic. 57% of the strollers that are sold in South Korea are for pets and not humans, right? 57%. Now as Noel mentioned, the way that all of us are engaging with brands, shopping, purchasing, it's changing drastically. Sometimes it's changing by the minute. But this is even more so for this younger generation. Their path to purchase is not linear. I like to call this the messy middle, and it's getting more and more complex every day with AI. So there's a lot of strong opportunities for brands like Hill's because we have more touch points and the opportunities to reach these consumers. At the same time, grabbing their attention, keeping that attention and that engagement and pulling them through the funnel can be a challenge.

And that's exactly why we built our omni demand generation model. Now I've simplified a little bit for presentation purposes, but let me walk you through it. It all starts with an insight-driven content or message. And as Noel mentioned, that has to be delivered at the right time in place. And all of this is powered by data to help us find that right target, deliver that right message and that right moment that matters. Let me just walk you through a little bit of an example for each piece of this equation. As I mentioned, it all has to start with the right message. That message must answer an unmet need, a pain point. And it must do so in an emotional way that hooks that end user or that consumer. And the ads that I'm about to play for you on our latest campaign, we uncovered a universal human truth that tapped into that unconditional love of our pets.

But in a unique way that we don't think has ever been done before. And that's in that guilt that we, as pet parents sometimes feel that we can't love our pets as much as they love us. But don't worry, there's Hill's that can help you in a very unique way that only Hill's can alleviate that guilt in the healthiest way possible. Let's take a look.

[Presentation]

Now once we have that big campaign idea and we've developed the core assets, as Noel mentioned, we leverage our proprietary AI-powered end-to-end content supply chain. And we do this very quickly develop thousands of socially native assets, but all the tie back to that core campaign idea. Think about it as a bit of amplification, how we get the volume, the velocity, the variety to get the most personalized and relevant message to our consumers in the right way. And that brings me to delivering that message in the right time and place. There are several moments that matter across the pet parent journey. I'm sure many of you with pets can understand. I've chosen just a couple here for exemplary purposes.

One is in that critical acquisition moment, whether it be from a breeder or a shelter, friends or maybe a family member. That moment when you realize your cat or your dog is sick or you get that unwanted diagnosis from a vet professional or in that critical seventh birthday of your cat or your dog, where they move from an adult to a senior and their nutritional needs are changing. These are all really critical moments that matter for our pet parents, and they are absolutely must win moments for our brands. And finally and perhaps even most importantly, powered by our cutting-edge data capabilities? Noel mentioned the data clean rooms. Now when you think about that messy middle, it's getting harder and harder to again find this target audience, bring them in and make sure it's at the right time and place. So how do we do that? The answer is data.

This is an example of our U.S. Hill's business, where we've built a data clean room. Let me quickly walk you through it. It's our owned 1P data married with the 3P data of media publishers as well as some of our panel partners and really critically also combined with that 2P transaction or conversion data of our key retailer partners in the U.S., and of course, all done in a very data compliance manner. 70% of our U.S. media spend went through this clean room last year, and we had a lot of learnings, a lot of learnings that are actually very ubiquitous around the world and that can travel. But perhaps the best learning I can share with you is that we doubled our conversion rate for the media that went through this clean room. So bringing this all together, we have personalization at scale throughout the funnel.

We are stimulating demand with powerful storytelling. We are building consideration with both pet parents as well as pet professionals, and we are closing that purchase loop with interactive, immersive shopping experiences, both in-store and online. And it's working. Remember the ROIs I shared with you earlier, they were sequentially improved, right? So what does that mean? It means that since we've launched this campaign midway through last year, we've seen the highest ever ROI that we've seen at Hill's with this new campaign. We also know from our partners such as Kantar that we're growing both awareness and saliency as well. So these are all great internal KPIs. But we have some external accolades as well. When I pulled for you here today was at the end of last year, as we published their top 10 ads, they were actually able to garner and keep that Gen Z attention. And Hill's Because You're Only Human campaign was #3 on that list.

So in summary, we have the right components to drive growth in 2026 and beyond. We have the right brands that almost 80 years later, is still deeply rooted in the vet recommendation and the vet profession. We have the right message with our Because You're Only Human campaign. We have the right product with consistent science-backed innovation, and we have the right model with omni demand generation that will continue to fuel our growth. And with that, I'll hand it back over to Noel.

Thanks. So as long as we're showing dogs, this is the latest member of the Wallace household, that's Cooper. He's 4 months old. So we're hopefully bringing him great nutrition, he's been loving his Science Diet puppy and we're excited to have him as part of the household. Omni demand you just heard about is going to be really transformational for how we think about driving media effectiveness over the next 3 to 4 years. But most importantly, it's going to really transform our entire commercial organization and how our traditional customer development organization and our marketing organizations come together as one cohesive unit driving messages at the right time, in the right place in the moments that matter.

And it's extraordinarily exciting to see how our marketing and sales organization are embracing omni demand and the work that Hill's is doing is going to be a huge catalyst for growth around the world as we spread some of those great successes to markets where we compete. Okay. I've talked about innovation. I talked about capabilities, but I want to spend some time talking about something that's near and dear to my heart, and that's culture. And all of these great things that are happening at the company are really fed by this incredible culture that we have at Colgate but a culture that has to continue to evolve in order to ensure that we're attracting the best talent around the world. We're retaining the best talent and developing the skill sets necessary to compete in a highly complex marketplace.

The first bullet point on this chart, I think, says it all. We spend time canvassing all our SNC employees all around the world, and we do what's called a feedback survey, the connect, what we call Colgate Connect. 97% of Colgate people around the world participated in the survey. It just shows you how important it is for them to be involved and have a voice on how the culture of our company evolves, and for us then to take those learnings and put that into applications on the ground to ensure that we continue to develop a highly engaged high-impact organization around the world. We're attracting top-tier talent and retaining some of the best talent around the world. And I continue to believe that the culture at Colgate is a competitive advantage and something that we don't spend a lot of time talking about, but that's how we get great talent like we have around the company to continue to believe in what we're trying to do and feel part of something bigger than themselves.

And being part of something bigger than themselves starts with the company purpose. And this purpose has really guided us through our 2025 framework, and it's what people believe in when they come to work every day. And this purpose guides our values and guides how we demonstrate the progress that we make in the marketplace and guides how we take care of our employees to ensure that they can do their best work. Some examples of how that purpose comes to life on the ground with our employees, this is our Bright Smiles, Bright Futures. We eclipsed 2 billion children and their families through our educational programs all around the world. Interestingly, we were just at one of our biggest global vendors around the world and a young man from India got up to give a presentation to us.

And he started his presentation by saying how emotionally impacted he was by our Bright Smiles Bright Futures program when he was 9 years old in India living in a rural village, and we came to that village to provide our educational programs so it's a program that we continue to feed. It's a program that we get employees to volunteer in and it gives them a real sense for how big our purpose is and what we can do when we put our mind to help oral health education all over the world.

Just signed a global agreement with the World Health Organization to improve oral health as a public policy around the world. We're going to be committed to working with them in markets all over the world to ensure that education around the importance of oral health and Colgate being part of that mission is a partnership that we think we can really benefit from moving forward. And I just celebrated about 3 weeks ago, our 50th anniversary of the Colgate Women's game. This is the longest standing track and field for young women. It's been an incredible program. We've seen Olympians come out of this event in the future, which is wonderful to see, but it really shows how we're committed to the communities that we work in and making sure that everyone grows together.

Our Hill's pet adoption, 16 million of pets adopted since we started that program. It's been a fantastic initiative for us. And we will continue to obviously invest behind that. So let me move on to productivity in our 2030 plan. We clearly, as we did in 2025, need to generate the funding upfront to ensure that we're building the capabilities and making sure we're finding ways to drive improved profitability to the bottom line. Some of the key initiatives of this program that we've talked about is a supply chain reorganization as well as looking at our organization, particularly as we think about omni demand, and thinking how we structure more efficiently to create faster decisions, more agile execution on the ground at a lower cost so we'll implement this over the next couple of years.

That will be combined with the strong productivity culture that we have within the organization, our Funding the Growth program that you know well, will continue to be a key catalyst for driving margin improvement. We guided towards improved margin, both on a percent on a dollar basis in 2026. This program will be a key facilitator to that. That's driven the strong gross margin performance of the company despite the significant tariff headwinds that we had in 2025, we're still over a 60% gross profit, which is terrific. And as I said, they were looking to continue to see that grow as we move forward. And importantly, our balance sheet, a great year for cash generation. I told you record cash generation in 2025. So we've got great flexibility as we think about our balance sheet and how we distribute those -- that cash around the world.

Most importantly is continuing to generate strong cash generation. Our focus on working capital and cost control is clearly have demonstrated our ability to generate record cash flow and low leverage in our balance sheet. That's driven by making sure we get back to our historical normalized rates of about 3% of capital expenditures. Those peak years that we had was a lot of investment in capacity, particularly at Hill's as we integrated some of the new facilities and built increased capacity in some of our other categories. But that 2.8% to 3% is more or less where we've driven the capital expense over the last couple of years. And that strong cash generation allow us to deliver this chart, which is something that all the employees are really proud of 63 consecutive years of dividend increases, 131 consecutive years of dividend payments and roughly $30 billion of cash returned to shareholders.

So again, a lot of flexibility in the balance sheet to continue to do things to drive shareholder return and drive the top line of the company. So in summary, we entered '26 with improved momentum. Importantly, we have a strategic plan that's gone from talking about things to truly doing things and executing some of those capabilities in the market and our 2030 plan is really inspiring for the organization to see where we'd like to take it in terms of the opportunities that we have to drive growth. The select choices that we've made within that strategic plan, the capabilities that we're going to continue to build and scale around the world to allow us to deliver consistent top line and bottom line dollar EPS growth. So with that, I'll turn it over to questions.

Dara Mohsenian, Morgan Stanley. So Noel, the clean room concept, a limited number of instances so far. You talked about 16 instances. But obviously, the uplift was impressive in Hill's with a 16% sales uplift, double the conversion of marketing, et cetera. How big a concept is this longer term? Can this really be scaled across the organization? Is there hundreds of instances in a couple of years? Just give us a sense for how big this can be for the organization as you share the data and analytics with retailers and work together.

We think it can be really, really big. Clearly, we compete in 200 countries around the world. The key aspect to scaliness for us is getting the data architecture right. So our ability to really consolidate and cleanse the data into an architecture that we can then share with our retailers is paramount to driving the success of that. So as we look at what we've done at Hill's, we're now moving that into the U.S. market. We're going to move it into some of the European markets around the world. And the important thing is building this trust and partnership and collaboration with our retailers for them to say, we're going to share our data with you and you're going to share your data with us, and we're going to make 1 plus 1 equal 3.

And that allows us, particularly in businesses that have strong online businesses that allow us to be far more personalize with how we execute it. So we're really kind of at the tip of the iceberg over the next 3 to 5 years, and this will be a key funding initiative that we have within the 2030 plan to build more clean rooms around the world. It's clearly, it's proven out, as you say.

Let's go with Andrea.

Andrea Teixeira, JPMorgan. So I was hoping to see if you can talk about like how a lot of what was discussed in this forum this week was the competitive environment, not so much obviously, very important in the U.S. but outside the world, you have this capacity to diversify probably better than anyone else in this conference, like talk about like the relationships with the retailers in Europe and how also, your strength in Latin America can sustain through the balance of the year.

Yes. Clearly, there's big competitors that we have that you're well aware of, but there's a lot of emerging local competitors that we're competing with, particularly in the online space. You see a long tail of brands coming in these direct-to-consumer brands. So a lot of the strategic thinking that went into the 2030 plan was really contemplating that. We have to think about the big players, but we also have to think about the small direct-to-consumer brands in each in their own aren't significant, but in aggregate, they can be significant. We start to see some of those flowing into discount channels as they move from online into other retail environments.

So the strategy is clearly set up for us to compete much more aggressively in that space. So first and foremost, it starts with great innovation making sure that we have the right insights that we're spending more money. We're using technology to get trends quicker than our competition. That allows us to put better innovation in the market, better content in the market. We did have this notion of what we just talked about, which is data, how we're leveraging our data to drive category growth. Yes, the retailers can take in small brands, which they're doing. But at the end of the day, the big brands still justify the vast majority of the category and the categories won't turn without the big brands growing. So we need to be -- have a seat at the table, so to speak, to show our thought leadership in terms of how we're utilizing data bringing much more innovation to the market than we have in the past, and then clearly, we're setting up our infrastructure to do that and to make sure that we have a lot more agility in our manufacturing facilities to compete with some of these local brands.

And then it's really pushing this notion of the online environment. So the omni demand generation is really built around don't develop your media just for brick-and-mortar. Don't develop your media just for an e-commerce platform, develop for the moments that matter. It's independent of where people are shopping. And that scale advantage that we have and that know-how that we're building that you've seen Caroline demonstrate today is a real competitive advantage for us to use in whether it's a small market like Peru or a large market like Brazil.

All right. I think we'll end it there and take it over the breakout. Join me in thanking Colgate for -- CAGNY yet again.

Good morning. Welcome to today's Colgate-Palmolive 2025 Fourth Quarter and Year-End 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.

Thanks, Betsy. Good morning, and welcome to our fourth quarter and full year 2025 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. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on our website for a discussion of the factors that could cause actual results to differ materially from these statements.

These remarks also include a discussion of non-GAAP financial measures which excludes certain items from reported results, including those identified in tables 4, 6, 7, 8 and 9 of the fourth quarter earnings press release. Full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release, which is available on our website.

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 results and our 2026 outlook. We will then open it up for Q&A. Noel?

Thanks, and good morning, everyone, and thanks for joining us today as we discuss our stronger-than-expected Q4 results, and more importantly, our outlook for 2026, which marks the beginning of our new 2030 strategy. I'll give some brief thoughts on 2025 before heading into why I'm excited for what 2026 could bring despite a very volatile environment as we enter the year.

We delivered organic sales, net sales, gross profit, base business earnings per share and free cash flow growth in 2025 despite lower-than-expected category growth higher-than-anticipated raw material inflation and the impact of higher tariffs. I believe our ability to deliver dollar-based earnings per share growth in a year with that much volatility is a sign that the flexibility and resilience we have built into our operating model is working effectively to drive value for our shareholders. Encouragingly, we are exiting the year with improved momentum with organic sales growth in all 4 categories in the fourth quarter and sequential improvement in organic sales growth versus the third quarter in every division, except North America. And we delivered modest volume growth in Q4, excluding the impact of both the Prime 100 acquisition and the planned exit of the private label business.

Last year, we completed our 2025 strategy as we added $5 billion in sales, and this year marks the transition to our new 23 strategy, which we believe provides the building blocks to accelerate change at our company to continue to drive top-tier growth and total shareholder return. The 5 key areas where we're focused on are: First, we have strong brands with global reach. We believe this provides a competitive advantage. For example, the Colgate brand is the most penetrated brand in the world and this helps us drive distribution for our portfolio, particularly in emerging markets. Second, we are accelerating our investment in new innovation models with additional resources focused on delivering more impactful science-based innovation across all price tiers with greater investment in key strategic growth markets.

Next, we're harnessing the power of best-in-class omnichannel demand generation by adapting how the right products with content and messages are delivered to the right people at the moments that matter in order to drive purchase behavior. The goal is to deliver consistency of this consumer-centric model around the world to build brand strength and penetration. Fourth, we're continuing to double down on and accelerate investments in scale capabilities, digital, data, analytics and AI including our efforts in revenue growth management and AI-driven innovation to generate faster growth, higher return on investment, efficiency and productivity and to integrate new ways of working across the company.

We are also executing on our plans to optimize our supply chain through predictive analytics and automation to handle customization and personalization in a new dynamic environment. This is intended to deliver personalization at scale, drive optimal asset utilization, minimize downtime, improve service levels and enhance quality systems. Finally, anyone who has worked for me knows how much I believe in culture is a competitive advantage. We are laser-focused on continuing to develop a high-impact culture by aligning key performance indicators in our training and development programs. We also announced our strategic growth and productivity program which should unlock the organizational changes and funding necessary to help us deliver on our new strategy. Combined with our fund growth initiatives, which delivered another strong year in 2025 and we believe we are well positioned to invest to grow our brands, build our capabilities and deliver productivity to help offset cost inflation and drive margin expansion.

We have several reasons for optimism in 2026. Our new strategy and the resilience and strength of our operating model gives us the ability to adapt to this volatile environment. Emerging markets where we have significant exposure continued to perform ahead of developed markets. We delivered improved momentum on our business in Q4 in terms of organic sales growth and market share, and we have seen stabilization of category growth rates as we exit 2025, but we still face significant uncertainty. While category growth may have stabilized, growth rates remain low. This is difficult in and of itself, but also could lead to higher levels of promotion and other competitive activity. Foreign exchange is favorable right now but has been a negative impact for 8 of the past 10 years. The geopolitical environment, including tariffs, is volatile, particularly in Latin America, and the U.S. market remains sluggish, while we think trends will improve, we're not building in a big rebound.

Because of this uncertainty, we're giving a wider range than normal in our net sales and organic sales growth guidance to incorporate various levels of category growth. So to finish up, I'm confident in our ability to navigate through this uncertain environment. I believe we have the correct long-term strategy, very well-designed 2026 plans and, of course, the best people and culture so that we can continue to deliver value to all of our stakeholders through achieving our long-term ambitions.

And with that, I'll take your questions.

[Operator Instructions] The first question today comes from Dara Mohsenian with Morgan Stanley.

So nice sequential progress on organic sales growth in Q4. 1% to 4% guidance for '26 is a wide range, understandable in this environment. But Noel, I'd just love to get your perspective on category growth within that guidance as you look at key regions around the world, where we sort of stand here at the beginning of the year. Obviously, a difficult '25, but you talked about improvement in Q4, where we saw that clear sequential improvement. So just does that give you more confidence here? How do you see Colgate as positioned also within that industry framework just from a market share standpoint and as you look to drive greater marketing effectiveness?

I think the point blunter is really just trying to understand how you think about landing within that OSG range in '26, an improvement versus '25 with the points you made around optimism versus the uncertainty. And then if I can slip the second one in, Stan, it's just been so long since we've seen favorable FX. Can you just talk about the flex on the earnings line relative to the top line dynamics I just asked about and how you manage the business in terms of spend and the way you manage that business relative to that FX benefit?

Yes. Thanks, Dara. Clearly, we're pleased with the -- as you said, the momentum exiting the year. On an underlying basis, excluding private label, organic in excess of 3%. So a good number that we think sets us up well, but the environment continues to be very challenging and very volatile. Overall, it seems like the categories have stabilized at the lower rate than our historical assumptions, as you well know, probably in that 1.5% to 2.5% as we showed in the prepared commentary.

We're seeing a lot of month-to-month swings in the U.S., which you can see in the candidate, obviously, plus we continue to see some downward pressure on inventories as category slow. The volume is the particularly more acute issue in the U.S. where we've seen on our core categories some of the volumes go negative in the categories. Our anticipation is that will get a little better. But as I mentioned, we're not assuming the U.S. will get significantly better, at least in the next couple of quarters.

On an underlying basis, though, we think North America was actually a little better for us this quarter, but still not where we need it to be, as I've discussed before. We do things with a better -- with a little better thinking in 2026 versus our strategy in '25, we've got easier comps, we've got a much stronger innovation pipeline and the execution is improving, and we certainly saw that improve as we went through the back half of the year. If I go on to some of the other regions, as expected, Europe is seeing less pricing than before. Volume is maybe slightly better than we were expecting. Western Europe better, which was good to see, but some continued weakness, particularly in Eastern Europe and specifically calling out Poland in that regard. Latin America was very encouraging with Mexico and Brazil very strong in the quarter. The Andina region and Central America regions improved, although still very challenging from a category standpoint in those areas of the world.

Asia improved sequentially, which is terrific to see with India returning to growth Hawley & Hazel not out of the woods yet, but improving on an underlying basis, and we particularly saw some encouraging shares as we exited the quarter in e-commerce on Hawley & Hazel driven largely by a very successful new product entry. The Chinese New Year moves into the first quarter this year, so we should see a little bit of improvement there. But solid growth across Asia, across the rest of the division, particularly on our premiumization strategy.

Hill's is a terrific quarter, while the category remained soft and dogged down with the CAT continuing to grow. We think the U.S. bounced back quite nicely. On an underlying basis, you saw obviously the strong growth on Hill's ex private label in excess of 5% and volume being positive on Hill's. So we're very pleased with the continued progress, but the category continues to remain quite sluggish. And we've seen some of the issues in up in Canada with the Buy Canadian on the business. But overall, on a broad basis, we're very pleased with the continued growth on that and particularly the share growth we're seeing on the prescription diet side.

So overall, we think we were exiting where we want to. We're very pleased that we've set up our 2030 strategy in 2025 that we think addresses a lot of the shortcomings in the market right now. And I think you saw some of that resilience come through and the flexibility we had in the quarter as well as setting up our SGPP, as we announced in the third quarter, that we think will give us the flexibility and the funding to continue to execute around building our brands and capabilities for the long term.

So let me turn it over to Stan for the FX question.

Thanks, Noel. So we saw in Q4 that FX was slightly favorable versus our expectations. As Noel highlighted, FX has only been favorable on an annual basis, 2 of the last 10 years, and we know it can change quickly.

As we look at 2026, we see it as a low single-digit benefit to revenue in 2026, focused on primarily the first half of the year. On the bottom line, we use that as part of our flexibility in our business model, using it to invest back into the business as well as contribute to the bottom line. At current rates, Europe is the biggest marginal benefit, but most currencies have moved favorably and Latin currencies have been stronger most recently, which is also good for us. I guess I'd close with FX, our -- we have very experienced teams. They're really good at dealing with currency in a volatile environment. So they'll deal with it through RGM, through pricing and make sure that we don't try to take too much advantage of it and use it as a flexibility in the business model. So I think our teams will execute this well.

Dara, you asked a question on guidance in terms of the wide range. Let me provide a little specificity in terms of what went into that thinking.

So it's pretty simple. If categories get worse, we're at the low end of that guidance range, if categories stay where they are, that we're in the middle of that 1% to 4% range, more than likely if category strengthen, we hope to obviously achieve more towards the higher end of that range. But as we've outlined and as you've seen, significant uncertainty all around the world, categories have stabilized but remain at lower levels.

The next question comes from Peter Grom with UBS.

So I wanted to follow up on Hill's. I wanted to ask about Hill's, and you kind of alluded to this now a strong quarter on the volume front despite a pretty tough category backdrop. But can you maybe just speak to the performance in the quarter relative to your expectations? Where were things stronger than expected? Were there any pockets of weakness? And then I guess, as you noted, the category remains challenging. But as you look ahead, I'd be curious what you expect from a category standpoint and just your ability to continue to deliver this level of outperformance?

Yes. Thanks, Peter. Again, as you mentioned, strong quarter for the business on a backdrop of pretty tough category. Private label was a 360 basis points negative impact to volume. And despite that, if you take that out, obviously, on an underlying basis, we grew volume 2%, which is terrific. And that growth was pretty broad-based with the exception of the softness we continue to see in the category behind dry but we grew across all of our core strategic segments. So that's terrific to see. And the volume improved on a 2-year stack basis, which is also encouraging.

Therapeutic continues to be a big growth driver for us. The Prescription Diet business growing very, very nicely with improved obviously, market shares, and that clearly helps the mix in the operating margins and gross profits. We're gaining share across all channels as our strategy of science-based innovation clearly continues to deliver growth for the category and our retailers. So we're pleased with that. But clearly, a little bit of softness on pet adoptions is driving some of the sluggishness we're seeing in the categories. But science is winning, and we clearly continue to see upside in terms of our opportunities to grow the category for some of the premiumization and innovation that we're bringing into the category.

We've also gained a [ shelf ] space as we exited 2025, which we think will help us as we move into 2026 in a more challenged environment. We've got a real benefit in the supply chain as we ramped up a lot more innovation going into 2026. Our [indiscernible] plant that we've talked about has greater flexibility now to deliver more wet product around the world. and we continue to see across all of the key retail environments, growth of the Hill's brand. Very competitive categories we saw exiting the back half of the year, but the good news is we continue to drive incremental growth, and we continue to fund that business with increased brand advertising.

The next question comes from Rob Ottenstein with Evercore.

Great. You had a tremendous amount of success turning around and then growing the Colgate brand in China. I'm wondering if you could kind of reflect on the learnings from that, to what extent you can transfer those learnings to Hawley & Hazel. And I think you had mentioned that, that brand is starting to do a little bit better. And are there really learnings that are transferable outside of China to the rest of Asia and even in the U.S.?

Yes, Rob, thank you. It's interesting you asked about the transferability. And in fact, we've seen so much interesting learnings coming out of our China team, our Colgate China team that we've sent all of our key leaders and marketing directors over to China for immersions into the commercial strategies that they've deployed over the last couple of years, which have clearly are at the center of our omni demand generation. And they've really learned how to deliver in an omni demand world with very strong brick-and-mortar, but equally important is a very strong e-commerce and online business, and that learning is clearly getting transferred around the world as we speak.

But the underlying objective of that business has been to transfer a lot of our success over the years in brick-and-mortar over to a rapidly growing online business. And we've seen a significant amount of competition online. But despite that, we've been able to bring a lot of nation into the category, and we've learned how to personalize the message on a much more fluid basis, which we're getting at the right time and the right place to drive a lot of that share growth we're seeing on the Colgate side. And your specific question, that's exactly what Hawley & Hazel now is trying to replicate.

Now they have a significant widespread, downscale distribution business that we want to continue to leverage, but we realize the category continues to evolve to e-commerce and our ability to exploit the learnings that we've had on Colgate onto the Hawley & Hazel business will ultimately prove the long-term success of that. As you mentioned and as I mentioned, we had a great new product entry on the super premium side online with Hawley & Hazel, a dual chamber technology that's quite unique for that market. and we're seeing great uptake on that as we exit the quarter. And that will clearly be the business model that we need to continue to execute on the Hawley & Hazel business moving forward. We've also made some pretty significant structural changes on that business. to better set us up for where the environment is going and where we anticipate the go-to-market should end up in the next couple of years.

The next question comes from Bonnie Herzog with Goldman Sachs.

I had a question on your ad spend. Consumer backdrop remains challenged and your ad spend was slightly down last year following increases in the prior couple of years. So I guess with category growth still below historical levels, curious if the decision to spend more on A&P this year is because you want to improve your market share in certain categories. If you could touch on that, that would be helpful. And I'm wondering how much flex you ultimately have to maybe pull back on A&P spend, I guess, if necessary, to deliver on your EPS guidance?

Thanks, Bonnie. Clearly, a lot of the success we've had over the couple of years has been behind building our brands and our advertising acceleration has been a key driver of that. That being said, with the sluggishness that we saw in the back half in the categories, it was prudent for us to scale back a little bit of the advertising given some of the headwinds that we saw in the categories. That being said, we spent a lot of time in the last 6 to 9 months really deploying the omni demand generation capabilities that I talked about as part of our 2030 strategy, which is allowing us to get much more focused on driving efficiency through our spend.

And while the advertising on the percent of sales was down a little bit in the fourth quarter, it was still up 5% on a dollar basis year-on-year, which is good in terms of the number of impressions and the impact we're getting in the market. So moving forward, a real focus on optimization and efficiency, but we have areas of the world and brands that we believe will continue to benefit immensely from improved advertising and increased levels of advertising in the market in order to drive not only our market share and penetration but to drive the categories as well.

The next question comes from Peter Galbo with Bank of America.

Noel, I wanted to dig into your comments a little bit on North America specifically. As I look at the holistic portfolio, right, you've got pretty much every region moving in the right direction. And North America seems to be kind of the last ship to turn around here, particularly, I think you called out Personal Care as maybe one of the weaker points within that bucket. So would just love some comments from you around kind of the planning whether it be innovation and market execution for North America specifically as we get into '26 to kind of write that ship so that, hey, maybe organic sales can come in even a little bit more accelerated than you saw in Q4.

Yes. Thanks for the question, Peter. Tough quarter for North America, but certainly an improvement of where we saw things in the third quarter. And you've heard from other companies, the category growth continues to lag in North America and that's been a challenge for most. October and November specifically impacted by the government shutdown, likely Snap and other factors December was a little better, but let's not get too excited about December.

We'll see where the first quarter ends up. It's clearly what we're seeing now is continued softness in the category growth numbers across the board. Nine of our categories were down in volume in the U.S. in October and 10 in November. That's category numbers. It was only 6 in December. So as I mentioned, improved a little bit. Home Care category is interesting seem to be particularly impacted. This category took a pretty significant hit in the fourth quarter as did fabric softeners showing both mid-single-digit decline -- volume decline. So again, like you've heard from others, we're all plagued by the fact that there's a lot of headwinds in the category. And I think what's really driving that right now is just a lot of uncertainty at the consumer level in terms of where things are headed in the marketplace. And as a result, they're holding back on filling their pantries, buying a lot more on promotion as perhaps they've done in the past. They're taking their penetration of the category down to a certain extent.

Still, we see a lot of growth in the super premium side of the business, which is -- that's terrific and some trade down into value. But overall, as we've talked about, we have real opportunity in the North American business, particularly in Oral Care, to drive a lot more of our mix towards the super premium part of the category. There's a gap in organic versus consumption, as you may have seen from some of the standard data. This is probably possibly due to some of the coupon activity that we've seen in the category, some downward pressures on inventories, as I mentioned upfront due to the slower category growth and also some softness in the non-Nielsen category. So a very uncertain environment in North America, what are we doing about it? We're obviously really gearing up with a much stronger innovation pipeline as we move into 2026, and you'll see that unfold as we go through the balance of this quarter. And we'll obviously be much more focused on making sure our revenue growth management strategies are well in place.

Clearly, there's going to be a chase of volume. We're going to have to watch the competitive activity. So far, the competitive activity has been rather constructive. We are seeing some of our competitors do more on couponing. So we'll have to watch that carefully as we move through the balance of the year. But our belief is that the right value is to drive -- in the categories is to drive more premium innovation, and that's what we'll be focused on across our categories. Skin was soft in the category. That's our premium skin health business, particularly as we consolidate that all into the North America business. Some of the decisions we've taken on China obviously slowed the skin health business, specifically as it rolls up to North America. We have strong strategies. We've done a significant restructuring on that business moving forward, and we're quite confident that the innovation and the focus that we have on some of the growing markets around the world, will yield better results for the business moving forward.

The next question comes from Filippo Falorni with Citi.

I want to touch on the emerging market business that saw a pretty significant improvement in Q4, especially Latin America and Africa, Eurasia. Maybe can you first talk a bit about what you're seeing from a macro standpoint, especially in big countries like Brazil, Mexico? And then longer term, still a lot of contribution from pricing. How should we think about the balance of pricing and volumes in emerging markets as the FX turns potentially more favorable going forward, as you mentioned before?

Yes. Thanks, Filippo. As you probably saw emerging markets across the board, broadly, we're quite strong. If taking aggregate, emerging grew at about 4.5% organic growth in the quarter with a good balance between price and volume, which is encouraging. You specifically called out Latin America, which had a very, very strong quarter. We were up in both Mexico and Brazil, high single digits and we had strong growth across all 3 of our categories.

We also had solid growth, as I mentioned in my comments, in the Andina region in Central America, but those regions continue to be challenged by heightened competition. But overall, we continue to execute our strategy and grow the business. We're seeing a similar movement in terms of Latin America, a little bit of sluggishness, but they are growing faster than the developed markets across the world, both in Latin America as well as Asia and Africa, which we think bodes well for us, given our strategic exposure to those categories worldwide. And FX has certainly helped us a little bit in the short term. We'll see where that goes ultimately longer term, but the volatility is clearly there.

The good news on our emerging markets is we're very focused on executing against very strategic growth markets in our 2030 strategy and we'll see up investment in those markets where we were able to obviously go capitalize on the stronger category growth rates we're seeing overseas, and that will be a clear focus as we move through the balance of 2026.

The next question comes from Lauren Lieberman with Barclays.

Hoping you guys could talk a little bit about India, just with the GST change and just some volatility there have been in that market overall, not just for you guys on demand, consumer and so on. Would love an update there.

As you saw in India company results, which we recently announced, organic was up in the quarter and certainly importantly, sequentially up versus the third quarter and better than, quite frankly, expected. But underlying demand in India, mostly in the low-income urban, consumer continues to be rather soft.

Our focus and our strategy as -- and our innovation is supporting that is really to grow the premium side of the business in the urban market. And we have some pretty aggressive new product introductions, Colgate Total, we've launched Colgate PerioGard through the profession and our Optic White purple brands are all moving through distribution as we speak, and we will continue to focus on the premiumization of the urban market while we continue to defend some of the implications from the GST changes that were made. We're mostly through those, by and large, and we think the execution will improve as we move through 2026.

Overall, we are still quite bold on India longer term, a very important market for us where we've had great success. The team has a strong plan for 2026 with a lot of the changes in interventions we made in 2025 that we think will play out in '26 for a much stronger year.

The next question comes from Kaumil Gajrawala with Jefferies.

I guess digging into maybe even a little bit more on what's behind the slowdown in the category. You mentioned a bit of pantry destocking, but for how long can that continue? Maybe there's a little promotional activity. But I'm sure we will dug into sort of what's maybe going on more specifically on the category that historically has been very consistent, seem to be slowing down. And then on FX, just to confirm, I think, Stan, you had mentioned the benefit on the top line. Is it fully intended to be reinvested? Or was the comment more related to -- not to expect any leverage from the benefit on top line down the P&L?

So on the U.S. and the categories, by and large, I think your question is more germane for the U.S., it is unusual for everyday use categories to see the sluggish mish, obviously. And clearly, I think as consumers get more certain around where their futures are headed and where the economy is headed, we're going to see those categories come back. And it's incumbent upon us to ensure that we're bringing the right innovation across multiple price points with the real value orientation associated to it.

We know consumers react to great new product ideas. So we have to accelerate our innovation in order to drive a little bit more vibrant in the category. Clearly, we've got some pricing opportunities as I laid out earlier on whether it's revenue growth management or going after the premiumization segment. But right now, I think it's largely driven by uncertainty. And as a result of that, we've seen obviously some softness in Hispanic cluster markets as we've talked about and you've heard others talk about. But the anticipation is that we think the category has bottomed out but it will be a slow return over the balance of this year. And I think as we put more innovation in the market, we should see the North American market come back nicely. And as we deploy our premiumization strategy, we believe there's a lot of upside growth for us still there.

And on FX, we said in 2026, we see a low single-digit benefit to top line focused largely in the first half of the year. And on the bottom line, what I said was that this would be part of our flexibility in the business model. We use it to invest back in the business as well as a combination of contributing to bottom line, which is all of what we put into our overall guidance on top and bottom. We'll have to use this and see. The other thing we know is it's going to be volatile as we go through the year. It's been volatile through January, and we expect that, that will continue. So that's why we look at it through a flexibility model, which is how we've designed our guidance.

The next comes from Andrea Teixeira with JPMorgan.

So I was hoping if you can elaborate a little bit more on the outlook for LatAm. Clearly, you reaccelerated in the quarter, even strong volume growth. I was hoping to see if you can parse out -- I think you got impacted in Brazil for the reformulation of [indiscernible]. I was trying to see if there is any reload in the inventory at this point and what are you embedding within that category growth global for LATAM, you have some tailwinds with potential elections in Brazil and how Mexico has been recovering? Because you called out Mexico being the biggest driver for volume. So it's curious if Brazil was driven by volumes as well.

Yes. Thanks, Andrea. Yes, a good quarter for Latin America coming off a slightly softer quarter in the third quarter, which is somewhat unusual given their long-term success. Clearly, some of the strategies we're executing are now starting to see prove out in terms of the growth and the volume which was terrific to see in the quarter.

As we look forward, obviously, the total issue that we had in 2025, we'll lap some of that moving into 2026 and the execution of our strategy will hopefully drive some incrementality to what we've seen, given some of the softness we experienced in 2025. But overall, the category seems to be behaving okay. Yes, they're down versus historical levels. We're still able to get pricing given the strength of the brand and some of the inflationary aspects we've seen, particularly on fats and oils in the region, we've been able to take some pricing in that market and we'll continue to do that moving forward. Our focus is on a strong innovation pipeline across multiple price points, and we believe we can continue to drive volume executing against the clear price points.

We are seeing some of the middle gets squeezed in Latin America as well, where the super premium continues to grow quite nicely. The value segment is growing where the middle is getting squeezed. So we need to up our innovation across all price points in order to ensure we're securing better volume growth across the board. And both Brazil and Mexico are contributing very nicely to the growth and we anticipate that will be the case as we move through the balance of 2026.

The next question comes from Robert Moskow with TD Cowen.

Noel, in response to the plans for driving growth in the U.S., you're really focused on the premiumization strategy. But you also said that economic uncertainty is a problem, especially among Hispanics who just tend to have less purchasing power. So can you talk a little bit more about the U.S. And how does your strategy take into account improving performance, I guess, for lower and middle tier priced products? That seems to be where your competitors are increasingly focused as well.

Yes. Thanks for the question. Listen, it's a combination of many things in terms of strategically how we deploy our go-to-market. If you take just the lower end of the market, obviously, more prochly sensitive. We need to get our couponing strategy in the right place. We need to get our price pack architecture in the right place. We have very, very strong core base businesses in the U.S. and around the world. And so our ability to innovate against those and bring some new news will create some excitement in the category, executing the planogram successfully as we move through '26, making sure we're bringing growth stories to our trade in terms of the ability to drive some of the value end of the business in the middle price segments as well and the trade up necessary to do that.

But it really comes down to executing a well-thought through promotional strategy, combined with a very aggressive innovation strategy. If we can get those 2 right, I realize I'm oversimplifying, but that's critically important to drive growth in the U.S. across all price points. And we clearly will match any competitive activity that happens, but we're very focused on driving the category much more through innovation and I hope that the constructiveness of the category that we've seen over 2025 will play out that way in 2026 as well.

The next question comes from Nik Modi with RBC.

So just if I could just follow up on Rob's question. Just how do you think about portfolio construction in this kind of K-shape world we're living in? I'm not talking about kind of what's going on here and now. I mean, income bifurcation globally has been going on for 40 years, right? So I would assume that it's going to continue. So when you think about portfolio construction or just product construction, low end versus high end, how do you think about that over the next couple of years? That's just a quick follow-up on the K shape.

And the real question is just some of your larger competitors have announced and probably will announce soon organizational design changes that are less category-centric and more solutions-centric. And I'm just, again, thinking about just kind of the world we're living in right now and how you think about the Project 2030 or your business plan going through them? Like how do you think about organizational structure? And do you think that may be making any changes might make sense just given the way the world is evolving?

Yes. Thanks, Nik. Let me take a lot about our portfolio composition. And something we talked along about relative to our 2025 strategy was the importance of our core business. And it's interesting, you're hearing quite a few staples talk about revitalizing their core. We've been on that journey for 3 to 4 years, really elevating our core businesses, relaunching them with science-driven innovation and driving a lot more value in our big core businesses, which is the bulk of our business. And that strategy will absolutely continue as we move through 2030. We've learned that making sure that our big core businesses are not forgotten and then we get too focused on line extensions and super premium innovations, and we forget what got us to where we are today. That's a dangerous place to go.

And so our core business and the strategy that we've been deploying, we think, has played out very nicely through 2025 and we have some exciting relaunches against our core business as we move into 2030. So that will continue to be very important around shaping our portfolio. But you've heard me consistently talk about where we under-indexed the most globally is on the super premium side. And that will be a very focused effort going through 2030. For us to get more of our fair share in the super premium side of the business, we now have been spending years developing great science-based innovation that we think can exploit the super premium and drives real value and premiumization opportunities. You've seen that obviously on the Hill's business. We need to replicate that across our other categories more successfully. So you'll see that executed as we move through the 2030 plan.

On organizational structure, I think the strategic growth and productivity plan is doing exactly what you, in general, laid out, which is laying out our organization for where we think the world is going. And at the core of that is structuring our organization against what we call omni demand generation. So we will desilo the organization from an e-commerce business in a brick-and-mortar business and indirect trade distribution business and now have a much more holistic commercial, one commercial organization, that's deploying strategies to win the omni demand consumer. And that is a big focus for us in terms of how we're organizing ourselves, the SGPP plan is enabling us to look at the structure that we have today and find ways to optimize that, to drive faster decision-making and to organize ourselves against a very challenging and changing consumer environment around the world that requires us to be very fluid and dynamic in terms of our content and how we advertise and how we execute digitally and personalize our messaging at the same time at the right time and the right place.

So it encompasses all of what you said. It's a pretty substantial change for us, but a really exciting change and a journey that we've been on for a couple of years to get to where we're ready to really embark on more substantive stages as we move through 2030.

The next question comes from Michael Lavery with Piper Sandler.

I just wanted to come back to North America pricing. You've gained some steam there and it was positive again. You've touched on just the need for flexibility and the consumer uncertainty. But maybe can you give a sense at a high level what your expectations are in 2026? And you touched on some of the RGM capabilities. But maybe I just want to clarify if you meant more that to manage price realization? Or if you meant that more as driving value for the consumer? I'm sure it'd be a bit of both, but should we expect a little bit more pricing momentum to continue? Or any watch-outs there?

Yes. Thanks for the question. Clearly, we've always suggested that we need to have a balance between pricing and volume. And a lot of the efforts and capabilities that we've built over the last 5 years in revenue growth management, where we now have AI helping to deliver better, more prudent decisions around price pack architecture, promotional environment, how we think about our premiumization is a key vehicle for us to continue to execute against to drive pricing in the category. So we need to get some pricing in that category. And clearly, the teams are very focused on that.

We'll be looking at our promotional strategies much more diligently on how we get pricing out of those. We'll be looking at our price pack architecture, how we get those. And importantly, as I laid out the innovation becomes critically important to ensure that we're getting premium innovation to drive pricing for the category, while we continue to execute core renovation to make sure that we're bringing value to that consumer as well. We're looking at the portfolio in terms of getting the price points right, as I mentioned, and making sure that we're competing against the growing price points, and we have innovation there. So in essence, it's a little bit of everything there. The U.S., I think, will continue to be a challenging environment for the next couple of quarters.

But as we move through the back half, I think our expectation is, is most of our competitors continue to bring more innovation in the category. We see the U.S. market start to settle down post the elections. We think we'll see the categories come back, and we are ready to make sure that we drive penetration and brand share in that environment.

The next question comes from Olivia Tong with Raymond James.

I know you mentioned FX has only been a tailwind in 2 of the last 10 years. But can you remind us what happened to pricing promo in the past in emerging markets, whether price push back? Is there any risk that price pushbacks led -- could happen led by consumers or whether competition? Also uses the flex provided but at a greater magnitude to try and chip away at your shares in international markets? And then are there -- assuming that there is that flex, right, that you can spend back, are there programs that you have on tap that you plan to unleash if possible? Or is it more -- or should we think about this more as evenly spread across incremental advertising, investment and promotion? And then just lastly, you briefly touched on sort of a nationalistic view in Canada that impacted results. Are you seeing that anywhere else globally? Or how do you think about the risk of that potentially increasing?

Let me take the last one. Currently, it's mostly Canadian -- Canada issue, we haven't seen it necessarily travel in other parts of the world but you never say never in this environment, anything can happen, and we'll have to watch that carefully. I'll let Stan get into some of the specifics around foreign exchange.

We don't have a lot of experience. And to answer your question, quite frankly, it's only happened 2 out of 10 years. But clearly, we don't plan nor do we build our plans based on foreign exchange being a benefit for us. And so we clearly have our funding to growth programs. We clearly have our productivity and we clearly challenged our teams to get the pricing in the category to drive the value and return on the investment we put in to delivering science-driven innovation. So all of those will continue to happen. We don't necessarily -- I think someone [ pressing ] your question, take our foot off the gas on taking pricing because of foreign exchange. If we need to take pricing because our products require it and the cost of the formulations require it we will take what the market can bear. And we've always done that quite successfully as you've seen through the years. And I think a lot of the capabilities we've built on revenue growth management have helped that.

So let me give Stan a sense to answer a couple of more questions around foreign exchange and how we're thinking about it moving through the P&L.

Yes. On the FX here, even if you go back and look at those 2 years where FX was favorable, we actually executed pricing in those 2 years as well. So as I said in my comments before, we have very experienced teams on the ground around the world. They know how to navigate this market. Yes, some local players will on occasion try to use that for short-term advantage, but I come back to the flexibility in the P&L. We'll work that flexibility, whether it's investments in advertising, investments in product placement, et cetera, to optimize that for whatever currency environment we're operating in. So I would expect that we'd still be able to execute pricing. It may not be in every single geography around the world, but I think history is a good indicator of our ability to execute that.

The next question comes from Kevin Grundy with BNP Paribas.

Congrats on the results. Noel, I wanted to pivot back to the Fat food business, but thoughts specifically around fresh, really from a couple of angles. One, you're learning so far from the prime business, comment on how the brand is performing versus expectations, your ability to further expand that. But then two, and perhaps more broadly, just kind of taking a step back, your updated thoughts on the attractiveness of that subsegment within pet food and whether Hill's will play a role.

Yes. Thanks, Kevin. Let me address Prime 100, which is the acquisition we made in [indiscernible] those that aren't familiar with it. Our results continue to come in ahead of plan. And I think we're very pleased with one, how that team is executing against the plan and quite frankly, exceeding our expectations.

As you may recall, it's a science-driven, [ Bett ] endorse brand. So it really fits our narrative in terms of how we think about businesses and how we think about sustaining long-term growth in businesses, particularly through the profession. The formulas obviously bring more science to fresh, which we think is an interesting play. They're more positioned in the derm space there, which we like. But we're learning. And we have a lot to learn on that. We don't take that innovation lightly. We're making sure that we think about what -- where it may apply for us around the world. The good news is that's a profitable business. So we're not obviously chasing our tail to get gross margins up, but we're finding ways to drive more efficiency and more science through the formulations and improving their supply chain.

But right now, it's basically just watch and learn and continue to learn from the team and figure out whether we can apply that to other areas of the world in the long term. But right now, we're focused on making sure we have a successful business in Australia.

The last question today comes from Chris Carey with Wells Fargo.

Can segue actually into the question that I wanted to ask. So the balance sheet is in very good shape. Leverage is reasonably low or very low. And I guess I just wanted to ask, what is the kind of the state of the union on how Colgate is thinking about using the balance sheet, perhaps more specifically with M&A? Does the impairment today change your views on the sorts of categories that you'd like to play in? And so I guess just taking a step back, what is the desire for M&A? And perhaps just give us a bit of flavor on whether your thought process is evolving on the sorts of assets or categories that you might be interested in?

Yes. Chris, it's Stan. So why don't I start, Noel can add in any additional commentary. So as part of our work over the last several years on kind of rebuilding our business model, one of the areas that I think has really benefited is the balance sheet and cash flow. If you look at '25, we had a strong finish to the year. We delivered record operating cash flow of $4.2 billion. Free cash flow is also up. That came both from generating cash profit, but also really good performance on net working capital.

That has resulted in a really strong operational ROIC and good improvement on our cash conversion cycle. So when you take a look at our balance sheet and cash flow, I think it has really improved, which gives us flexibility. We often talk about flexibility in the income statement, but we also have flexibility in the balance sheet. We have really nice debt towers looking out over time. We've got really strong cash flow. We have low leverage here, which gives us dry powder. Now as we look at capital allocation as a result of that, our first priority is going to be investing in the business. And you've seen us do that through investing in new facilities, investing in R&D, investing in capabilities. And we think that we demonstrate really good discipline in that area.

The second primary area is return to shareholders. So dividends, 63 years of dividend increases, share buyback. And then, of course, M&A. And around M&A, we always look at our options to improve our portfolio of businesses. The impairment that we announced today is part of running the business. The market conditions changed. We still believe in the long-term health of that business and where it can fit into our portfolio. As we look at that M&A, we're going to demonstrate discipline there. We're going to look for the right market opportunities. And if you look over the last few years, we saw those opportunities predominantly in Hill's. We've made those investments and Red Collar and in Prime 100. We're very happy with the Prime 100. We'll continue to look for where that complements our portfolio in total, and then we have the wherewithal to go execute it in the environment due to all the hard work from the team.

Yes. Well, said, there's not a lot to add to that. And clearly, our teams on the ground and around the world are looking for opportunities to optimize their portfolio. These are discussions we have all the way at the Board level. And rest assured that if we found the right opportunity to utilize our balance sheet, we would. But we are, as you well know, cautious and we want to manage through this uncertain environment in the right way to ensure that we come out of this stronger than we went into it. And clearly, investing back behind the business, where we see continued growth opportunities will be our priority, but it's good to be in a position where your leverage is so low, your cash generation is strong, and it gives us, I guess, the keys to kind of address the market as we see it unfold and deliver portfolio optimization at the right time in the right place.

So with that, let me say thank you to everyone in terms of the questions you had this morning. I want to specifically thank all the Colgate people around the world for their tireless efforts and the results that they delivered through 2025 in a tough environment. And I look forward to seeing everyone at CAGNY in a couple of weeks.

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

Great. Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. Just before we get started, a quick disclosure. Please see the Morgan Stanley research website at www.morgan Stanley for important research disclosures and contact your Morgan Stanley representative if you have any questions.

And with that, I'm very pleased to welcome Colgate back to our Global Consumer and Retail Conference. With us here today are Stan Sutula, Colgate's CFO; and John Hazlin, Colgate's Chief Growth Officer. Thank you both for joining us today.

So John, you recently moved from Hill's Division President to Chief Growth Officer. Can you discuss your new role, what your biggest priorities are, where you see the most room for driving growth going forward in the organization incrementally?

Yes. Thanks, Dara, and good morning, everybody. I did join as the Chief Growth Officer in July after having been at over at Hill's for a couple of years. The fundamental role that I'm occupying now is leading our 2030 strat plan and building capabilities that we can scale and drive across the company.

Noel often talks about our purpose, and that really headlines the way we think about the business, which is that we are an innovative growth company, reimagining a healthier future for all people, their pets and the planet. And so the priorities then stem from that. And I would articulate the first priority is always about having strong brands.

Strong brands are what underpin our growth, brands that people trust, brands that people are ready to passionately advocate for, brands that serve real people needs and are based on real human insights and intentions. Number two is what we're calling omni demand generation. This is demand generation. It's something that consumer products companies have been doing forever, but now in a very different world in a nonlinear world, in a world where shopping is online, offline, et cetera.

And third is innovation. Again, lifeblood of the company. We've been doing innovation for 2 centuries now. But as we think about the world evolving faster than ever and meeting different consumer needs, doing that across the globe with very different geographies, very different socioeconomic standards, very different channel environments, all of that will be key to where we're going with plan.

Great. That's helpful. You talked about the 2030 strategy plans. 2025, obviously successful. But what are the differences as you look at the 2 plans versus each other going forward?

Yes. We're very happy and pleased with the outcomes of 2025. We feel that the business results were strong and that we were able to really build the capabilities in the organization that set us up for future growth. So you'll see 2030, there will be a lot of evolution, things that are working well that we'll double down on and then a couple of new things.

So if I give you a couple of examples, things that have been hallmarks of our success forever are our science-led growth, our science-driven brands. That will persist, but we're doubling down on perceivable superiority. So how we think about making sure that the brand outcomes that we're delivering are precisely focused on what consumer needs are. So where are the points of difference, what really makes meaning for people.

Professional engagement and advocacy. This is something that we've had, again, as a strong suit, especially in our Oral Pet and skin care businesses. That will continue, but we're putting more resource against this, more in terms of people calling on doctors in their offices, more on the tech that's going to help us to deliver messages and target them differently.

One of the important step-ups in 2025 was our investment and focus behind data, digital analytics, et cetera. And we've made some really important progress there, rolling out advanced analytic tools, for example, to drive revenue growth management, to drive promotional efficiencies, to drive marketing mix modeling. As we go forward into the future, we're going to see a lot of that being stitched together even more tightly.

So you get to cross-channel advanced analytics. Some things that we see that are going to be a little bit more transformational. ODG, I just mentioned. We think that this changes the way that we work internally, changes the way we communicate with our consumers, changes the way we interact with customers. And innovation. We've been very pleased with the innovation progress that we've had. But we believe that there's more to be done, especially as we look to more incremental innovation and targeting more premium price points on the innovation ladder.

Okay. Great. Omni demand generation seems like a particular focus. What are the key enablers in you succeeding on that front? And can you highlight its importance within the organization?

Yes. So we're commonly calling it ODG, a little acronym. But fundamentally, demand generation is at the heart of it. Demand generation, again, is something we've been doing as a company for years. What's different is the consumer path to purchase and discovery journey is different. The modern media landscape is different. The channel environments are different. What we see is people who are discovering products and shopping for products offline and online and often at the same time.

So you have to meet them in a very different way. With the ability to capture data and deploy data, we're able to target audiences more distinctly, provide more customized and personalized messages. So the keys to success really here are reorganizing and reimagining the workflow between marketing and sales so that we are delivering one consistent brand experience for our consumers and shoppers.

We have shared KPIs that we are measuring and able to have one common view of performance and then ultimately getting to one common tech stack, which has that ability to do cross-channel analytics so you can do scenarios and measure outcomes together. And it's all in the service of getting the right message to the right person at the right time.

Great. And then, Stan, on the call, you discussed the new SGPP, strategic growth and productivity program, SGPP acronym as an enabler for organizational change as well as a driver of investment and bottom line growth. How is it maybe different from a standard cost savings program? And how do you think you stack up sort of relative to peers? And does it -- does this program give you earnings flexibility as you look out just in a tepid top line environment in terms of category growth being fairly muted here?

First of all, SGPP will roll off your tongue the more you say it. So it is, in essence, a productivity program. But the thing that's a little different about what we've done with this one is this one is front foot. So we've looked at where we were in the strategy. We knew that we had strategic investments we want to make. And then as we look backwards, we grew over $5 billion over the previous years as a company.

Inherently, it just becomes inefficient when you add on that kind of growth over time. So we took step back and we said, look, we're going to do a structural type of program. We're going to use that for 2 components. First is to make investments into the business. So we've laid out strategic investment areas that we will go fund with part of the productivity generated savings.

And then secondly, we're going to take some to the bottom line. So we're going to take some to the bottom line to contribute to profitable, compounded dollar earnings base growth. Now when we look at the program, it's over a multiyear program. It has multiple components as we look to drive core productivity through structure. We have supply chain efficiencies as well baked in there. A lot of planning in the essence now. We'll see that start to deliver as we go through the year and '26.

Obviously, more back-end loaded as you go through that, but there'll also be deliverables in the out years. As we look at competition, everybody sees the same macro environment that we do. They operate in the same categories. They see that softness. And I think that's why you see a number of productivity programs out there. The other component of this is things like AI are going to help drive productivity and enablement. We're no different. We're going to take advantage of that and look to improve our efficiency over time. So we're confident in our ability to execute this. We think the priority of investing in the business and taking some to the bottom line is the right balance, and that will give us the flexibility in a tougher environment.

Okay. And maybe a bit more detail on investing behind the business. You've increased marketing spend a lot over the last few years. Where do you stand today in a difficult industry top line environment? Do you think you need to spend more to drive greater top line yield going forward? Can you do it more through efficiency and things like AI, et cetera? How do you think about that high level?

I think we look at the bifurcation between -- so top line growth is tougher in the current environment. The categories have slowed. And while we think long term, the categories return to kind of that 2% to 4% in the categories we participate, in the short term, we think it's going to take time for them to recover back.

So now as we look at that, we've made investments in advertising, in particular, investing back in our brands over the '25 horizon, adding over $1 billion and kind of going from sub 10% of sales to 13.5% last year. There's no perfect opportunity. I think first and foremost, our ROIs on that investment back in the business continue to improve.

And as we see those investments continue to improve, we'll continue to make those investments to get that return. Now the advertising under the covers has changed over time fairly significantly. How we do it, where we do it, using AI for content generation, our approach to market, we continue to evolve that through time.

Now investments in the business. We spend a lot of time with my friend, John and his predecessor, and we look at what are the areas that we think will bring benefit but need some step change investment in them. We used our last 2025 framework, and we're applying it now in 2030. So previously, we looked at data, analytics, AI, fixing a couple of key brands. That worked really well.

We carved out funding from our budgeting process. We invested it into the business and that yield and that return has played off well. Now we sit with John and his team, and we look at what are those key areas that we need to incubate and drive and omni demand gen is a really good example of one of those. So we have spent a lot of time looking at this building out the model, how we want to apply it, but that requires investment.

And we don't want to slow it down in order because we see that potential. So we've carved out the money in order to be able to go do that, make the upfront investment, and that will evolve as we go through time. So this piece of investing back into the business, part of it's functional capabilities with John's team and then part of it is also driving through innovation, right, where we see that innovation in market, we want to incubate some of that around the globe, given we're mostly international and then give it time to take root. So pretty pleased with the overall balance.

Okay. Great. And maybe both of you could touch on resource allocation to tie all those questions together, right? Part of the 2030 plan is where to invest resources in this new environment we're in. So maybe just discuss the evolution of the company in terms of thinking about where you're investing looking out to 2030.

Why don't I start at a macro level. Our 2030 strategy at its root is really a resource allocation exercise. So as we look at the resource allocation, it starts with dollars and people. Where are we going to put our resources, where do we see the growth opportunities for the business. But in order to be able to do that, you have to have confidence in that model.

So our 3% to 5% long-term algorithm, we also need to drive margin expansion. We need to control our overhead spending and get productivity in there. That creates the funding mechanism to go do this. So one of the things we look at in our long-term strategy is the cash component. So we model out the entire income statement, all the way down to cash, dividend policy, share buybacks to return to shareholders, and we want to make sure we have the wherewithal to make those investments.

So in resource allocation, when we go through our strategic plan and then our operational plan for 2026 as an example, we don't just do it division by division and call it a day, we go through all of our divisions, all the innovation, all the functions. And then the senior team steps back, reviews all of it, and then we do make resource allocation decisions.

So we rebalance to areas that we see the growth and to areas that we see the long-term potential. Now sometimes that means saying no to very good ideas, so we can say yes to some great ones. And at its core, it's making decisions. And I think that's something we've gotten much better at, and we have the framework with which to do it. John?

Yes. I mean just to add a little bit, we've been more diligent about looking at category country combinations, making sure that we're putting the money really into the right sales there. We've been looking at brand, sub-brand, subsegment allocations to make sure that you're following where the growth is.

We have -- for example, you see whitening as a subcategory in Oral Care still has meaningful growth potential. Cats in Pet Nutrition, meaningful growth potential. So trying to allocate dollars where we think the growth is really going to come.

And how do you think about that geographically in terms of resources?

Well, look, geographically, I think because we're international and over 2/3 international, that becomes a big component of our resource allocation. Our market share differs around the world. Our portfolio differs around the world. But we look for those areas of opportunity and to play the hot hand as well. And so areas like Purple toothpaste in Asia and the purple combines with the yellow on your teeth and it creates white, works extraordinarily well.

And it's really done a great job on innovation. Things like e-commerce and our ability to go to market, we're particularly advanced in China. So we take that best practice. We invest in that core capability and then we bring it back to the rest of the business. So right now, as the U.S. has been a tougher market over 2025, we look for those growth opportunities. Our exposure to emerging markets plays well, and we have the ability to invest for the long term in those markets.

And Stan, obviously, it's a pretty subdued top line environment. As we look to next year, it seems like that will linger to some extent. Clearly, we just discussed the SGPP savings...

Yes, I told you it gets easier.

There we go. And in theory, FX is favorable, thinking of the emerging markets you just discussed. So just can you speak conceptually to some of the key puts and takes as you think about earnings growth in 2026 and how you balance driving earnings growth versus reinvesting and that resource allocation you talked about earlier?

So let's step back at our macro level. When we look long term, we think that our categories grow 2% to 4% long term. Clearly, the market has not been at that level. We saw softening categories through the year. We're kind of seeing a 1-ish percent. I don't think that gets better quickly. So I think we're going to operate in this environment for a period of time yet, but that is not the same across the globe.

So in certain areas around the world, we see better opportunity. We're going to go after that opportunity. So the long-term algorithm of kind of 2% to 4% category growth, we think we can grow faster than that. So our long-term algorithm is 3% to 5%. We still think that makes sense overall. So we're going to make the investments around those areas to drive that.

So now when we operate in this type of environment, obviously, we're not going to give 2026 guidance here, but the macro pieces everybody sees. FX has been a little bit easier right now. But if I look at the last 10 years, FX has been favorable to us twice. So we're used to operating in that environment. We don't count on FX to give us a lift.

We certainly don't want to spend into a favorable environment there. We'll take the tailwind if it maintains itself. And then there's obviously the worldwide economy. GDPs are slowing a bit around the globe. We see that impact going through. We see commodities still elevated. Hopefully, we'll see some balance on that come back through. But what we stay focused on is what we can control.

So productivity, the reason why we're doing this program is we see the slower environment. We have a program called Funding the Growth, which is just core day-to-day projects to drive that productivity. We spend more time on that in down environments. We rebalance those resources across the globe and our exposure to emerging markets is a benefit to us, and we take that help and leverage that.

So kind of headwinds and tailwinds. We've been around for nearly 220 years. We've operated in every economic environment. We have to operate in this one. And while it's slower in the developing markets, we think emerging market and our exposure there is actually a benefit to us going forward, and we're going to play that hand.

Okay. And maybe that's a good segue to just talk about the consumer environment in general. A lot of commentary on the Q3 call and the state of the consumer as you look market by market around the world, given volatility. Can you just highlight what you're seeing from a consumer perspective in your key regions? And also perhaps give us an update on the reformulation from Q3? And has anything changed on that front?

Yes. Let me start with the last part. So there's no update there. I think that's largely behind us on the reformulation. As we look kind of consumer around the globe, we'll start with North America, been a tougher environment. You've seen us making some progress here in North America. That's going to take some time. Things like the SNAP issue here that didn't help, right? So it puts more pressure on the category.

But we're going to continue to operate and invest in the business for that. So we've reallocated. We're doing more investment in the brand in North America, focus on innovation. In Latin America, we see pressure on the consumer. We're performing well there. I think the hiccup on the formulation, again, I think, is behind and now that headwind will be less so here going forward.

We go into Europe. Europe, we're performing well in Europe, I think, in particular, versus our peer set. Europe is slowing, but I think we continue to perform well because we have a great portfolio there. We have great therapeutic brands. Elmex in particular stands out. Our whitening stands out there and has done quite well in Europe.

Africa-Eurasia, a smaller piece of the overall business, but maybe one of the more challenging regions continues to perform great, mid-single-digit growth, dynamic environment, a war in the region, always a daily issue in that, and John ran that region for a period of time, so he can give the real-life examples. But I think we continue to perform really well there. And then in Asia Pacific, we have a little bit of tale of 2 cities with our current performance.

So in India, we've had a little bit of a challenge in India. The GST issue didn't help that, but we see an improving path. And as India, as you know, is a public company for us, and they've guided to an improving performance as they head into the future. In China, we have our Colgate business, which has done quite well. We spent a lot of time there, probably our leading geography in terms of innovation on the go-to-market in an e-commerce world.

But our H&H joint venture has struggled a bit. We've talked about that on our calls. We think that the core China market will continue to grow here, and particularly through the middle class. So our exposure to emerging markets, I think, is a help to us overall. In our developed markets, I think we're performing well in Europe and improving in North America.

Great. And your full year guidance implies Q4 performance on org sales as well as gross margins improved sequentially. What gives you confidence in that level of improvement that's implied?

Look, when we put out -- Q3 was a tougher quarter. But as we looked at the year and we gave our guidance, we said, look, we see improvements for the year. So as we looked at the year, we said top line would grow roughly in line with the year-to-date growth for organic. And if you look at that, that suggests an improvement in Q4, and we're confident that, that will occur.

Now we get some things that go behind us. So we finished the private label in Hill's midyear. So that's no longer -- it does -- it used to contribute to top line, certainly not to margin and bottom line, but we no longer have private label. The issue we had on a formulation in Latin America, we think, is behind us, so that becomes not a headwind. Europe continues to perform. We think India will get better. And then the balance of the portfolio, we think, is solid. So as we look at both top line and then margin, we said margin will be roughly in line with the year-to-date. That gives us confidence that we'll be able to deliver our low single-digit earnings per share growth.

Great. Okay. Maybe we can turn to AI and technological advancements. How is AI changing the way you operate? And is it more of an unlock on productivity or potentially driving top line growth? Maybe you can also touch on agentic commerce. In theory, it could be more of a threat to brands that have been built up in consumers' minds over time. But when you're using a prompt or have an agent, it may -- the brands may not translate as much. So how do you guys think about that and prospering with the agentic consumer?

Good. Well, I'll take the growth view of AI and maybe Stan can tackle the productivity view. AI, I think we all see is a transformative technology. We've been trying to get ahead of this. In the 2025 plan, we allocated resources to start to build out platforms. We have an internal proprietary tool we call AI Hub, which we've made available to the organization at large so they can start to experiment with generative AI.

We are a Google company in terms of using all of their Google suite of tools and all the AI advancement that they're bringing. We're trying to democratize that as much as possible so that people get comfortable with the tools. They see them as an adjunct to growth to a way to augment what their own -- what they're doing themselves. We've been using AI, both generative and machine learning for a number of years in our RGM, in our demand planning cycles. So it's going across the company that way.

There are a couple of specific areas that I'll call out, and they reference the things I've spoken about earlier, which is the first one is ODG. In an ODG world, what we see is you need 3 Vs. You need volume, variety and velocity. So in order to meet the modern marketing needs of personalization, multiplicity of marketing platforms, the ability to get messages far and wide, AI can be a great enabler of getting those 3 Vs. And so we're working both internally and with our agency partner to develop a global content supply chain where you can create modular creative and then iterate in however many number of thousands -- tens of thousands of iterations on what that looks like.

The other is on innovation. We've built a proprietary tool to do innovation from discovery where you can propose concepts, generate images, generate copy, do synthetic testing -- do testing with a synthetic consumer, get a probability score of likelihood of success and ultimately be able to use this as an ROI management tool and to be able to measure the effectiveness of your innovation.

Agentic is new. You can see it's just evolving. We see just like anything out there, we're going to have to pivot. You have to create the brand content that's going to be readable by machines that is going to be -- it may not be an image in the future, it might be text. It might be meta tagging of content. So we'll have to pivot with that as it goes forward. But fundamentally, it's a new way of shopping, and we'll have to move forward just as we have with all other different new iterations of shopping.

Yes. CFO always gets stuck with the [ private equity ] side. I actually didn't grow up in CPG. I grew up in tech. So I have -- I love CPG, by the way. So I really enjoy my time here so at Colgate. But what I see here is kind of that next evolution. I do think we're still in very early stages. While it feels like it's in a press every single day and you read all about how it's going to change the world, I still think we're very early stages.

I do think we've done a good job on educating our teams on how to apply it, how to use it, encouraged it. But the interesting part is you can't lock yourself to one ecosystem here. Some of the models are much better at certain things than others. So we offer a variety of them to our employees for use. But I do see opportunity here. Right now, I see mostly enablement on the productivity side.

I do think we'll get to true productivity. And let me give a couple of examples. One, so I don't see yet that this goes and takes out a whole bunch of resource doing things. What we do use it for is to make our teams more efficient. So we take all of our policies and procedures for finance and for accounting and put them into an agent. And now people instead of calling in looking for an answer and they have to wait for time zones, literally can go to the agent, they get the right answer. That's important. They get the right answer and they get it quickly.

We've gained a lot of efficiency. It's actually our second most popularly used agent in the company, ironically enough. Now agentic, I think, is going to be the unlock on productivity. So things like where we use RPA today, robotic process automation, been a great productivity tool, has helped us automate. I think agentic is going to take this to the next level.

However, the pricing models are all over the floor on it right now. A lot of them are consumption-based. And just recently, we looked at an agent, which technically was really good, like really good. And I said, okay, this would be great. Until we ran the math on the model and so it's actually going to cost us more to use the agent than it was to use our shared service center. That will eventually balance out.

And right now, we're looking more at the tools to enable ourselves to write the agents than we are to actually have a partner come in and do them. So I think that's going to continue to evolve. I do see an unlock on productivity. I think we use this a lot on analyzing competitors on looking at the volume price/mix area, do predictive forecasting. And I think that will help us get more and more productive over time. But I think the agentic side will be a bigger unlock for us. I'm excited about the future for the opportunity for that.

And when we think about the dollar bucket of opportunity on productivity from AI and technological advancements, could this push you above the historical trend you've delivered on productivity for funding the growth? How do you think about it over time? Is it more -- you've realized some early wins in some areas and this sort of makes up for them over time? How do you just think about it from an overall standpoint...

I'll give you that question because Noel asked me a question, my boss.

He did but...

So look, I do think it's going to be an unlock on productivity over time. What we've demonstrated here is that balance, right? We'll use this to invest back into the business and to get more efficient on a global scale. It allow us to do more with less. And I think that's the real value. I do think this will help contribute to our bottom line, just like RPA did, just like hedging options do and driving real productivity. So I do think it's an unlock for the business going forward. All our competitors are going to do it, too. So I think one of the key aspects here is enabling the Colgate people, the Colgate team to truly use it day-to-day. And I think that's going to help us drive and get a competitive edge. But it's going to be another tool just like the other ones that we use.

Great. And then, John, Noel's talked a lot about improving your innovation process over the last few years, particularly the premiumization piece of it, which you mentioned earlier. What's different about your innovation process, both over the last few years and going forward? Detailing both the changes that have been put in place and if that's driving a sustained pickup in innovation contribution as we look going forward, again, particularly touching on the premiumization side of it.

Yes, good. Our innovation contribution has actually been quite good, about 45% of incrementality to the top line over the last 4 years. And it fundamentally starts with deep consumer insights. We spend a lot of time around the world in shops, in homes, working with the consumer, using online panels, as I said, starting to use synthetic consumer panels to try to understand really what's going to work. There's a lot of evidence of success of what is working.

The Colgate Total Active Prevention regimen has actually been very successful around the world. We've been innovating in new fragrance technologies that underpin some of our fragrance-driven Home Care brands. On Hill's, we're inventing new subcategories. One of our most recent launches is what we call Multi-Organ. This is a product under the Prescription Diet brand for pets that have conflicting conditions.

So the vet in the past has had to make a choice, prioritize one condition over the other. This lets them do that balance. Stan referenced Elmex in Europe. We have fantastic innovation, both on the sensitivity side, on the caries side, for adults, for kids, all at premium price points that are making Elmex the fastest-growing toothpaste brand in Europe.

And if you look back in the U.S., the Hello brand, which has a high preponderance of users in the Gen Z community, we have some really interesting innovation that's coming. So the innovation plan is already working, we believe. But how are we going to supercharge it for the future? We are putting more resources in discovery, which is the important element of trying to find new ideas based on real people-centric insights.

Discovery is the numbers game, if you will, right? You want a lot of discovery ideas coming into your funnel so that you can get some of them to turn and convert into commercialization. We've -- I mentioned before, the proprietary AI tool that we're using, which accelerates the ability to go through the discovery process, go through some of the validation process.

Stan mentioned that in part of our strategic, our SGPP funds, we're allocating funds for incubation to make sure that we're bringing new-to-the-world ideas. These are things that they don't necessarily fit the current channel or the current consumer construct. So you want to spend some time understanding them in a live circumstance, either in a test market or in a digital environment, making sure that you've got the value proposition really locked down and going forward. And then, of course, it all takes people and how we are now organized between our central category groups and our divisions on the ground, making sure that we're working in a more collaborative and fluid manner so that we're getting the best innovation and being able to scale it across the world, we think, will really be able to help us accelerate in this area.

Great. That's helpful. And John, let's take advantage of you being here and your historical leadership at Hill's. It's been a nice growth area for Colgate for a number of years where you've really expanded the household penetration, but we've seen category weakness more recently. So a, maybe you can put those things in perspective some of the category weakness we've seen; and b, Hill's' ability to prosper within that from a market share standpoint. And just last, the incremental capacity at Hill's, what does that enable you to do going forward incrementally?

Right. Terrific. So we fundamentally believe that the long-term profile for Pet Nutrition is strong. Pets have become more than just the pet, they're companions. You've probably heard it before. They've gone from the backyard to the bedroom. We don't see that humanization of pets slowing down. So if you look over the long term, we expect this category to have underlying strength.

If you look at certain pockets of the world, you don't even have full penetration of commercial pet food. So there's opportunity to bring more people into the category. When you look at therapeutic nutrition, which is something that we specialize in, there are many more pets that should be using a therapeutic nutrition product than who are using a therapeutic nutrition product. That's our job working with our vet partners to help educate people on the science of nutrition and why nutrition can be a better option often than other treatment modalities.

Now the short-term category has been challenged. We've seen slowdowns, especially as inflation has taken hold. Pet got hit a bit harder than some of the other consumer staples goods. We've seen household formation a little slower with a high mortgage rate environment. There's a correlation between household formation and pet adoption. As affordability has been more challenging, we've also seen a difference in the type of pets.

So more cats than dogs. And you see a difference in the category. The category itself is soft. The cat segment is actually growing. The dog segment is what's declining and dog has a bit more volume attached to it, as you can imagine.

The good news is that at Hill's, we've got a lot of growth opportunities ahead of us. We still have relatively low brand awareness, relatively low household penetration and relative underdevelopment in some growth segments. And we had -- I guess, you want to call it the foresight to see these coming. We put some bets on growing cat faster, on growing small dogs faster, on growing wet pet food faster. And we built out capacity to deliver against that, and that's proving to be a prescient strategy, we are growing market share in all of those spaces. We're growing market share among specialized formulas. So people who are looking for unique benefits, especially therapeutic nutrition, where you have a sick pet and you want to give them the best nutrition to help improve their health outcomes. So we see the long-term horizon is positive but short-term challenges.

Great. Well, we'll end things there. Thank you so much for being here, both of you.

Thank you very much.

Thank you.

Good morning, welcome to today's Colgate-Palmolive Third Quarter 2025 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.

Thank you. Good morning, and welcome to our third quarter 2025 earnings conference call. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to our third quarter 2025 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2024 annual report on Form 10-K and subsequent SEC filings, all available on Colgate-Palmolive's website for a discussion of factors that could cause actual results to differ materially from these statements.

Our remarks will also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the third quarter 2025 earnings press release, and is available on Colgate-Palmolive's website.

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 some thoughts on our Q3 results, and our future plans, and then we will open up for Q&A. Noel?

Thanks, John, and good morning, everyone. Thanks for joining us today as we discuss our Q3 results and more importantly, the steps we are taking to accelerate our performance in this volatile operating environment. Importantly, focused on the priorities and actions set out in our 2030 strategy.

As you will hear today, consumer uncertainty, tariffs, and geopolitics, high cost inflation and other factors are all pressuring sales and profit growth across the consumer sector. Despite these headwinds, we are operating with determination and focus. We have healthy brands and growing categories with strong market shares and a diverse global footprint, with nearly 50% exposure to faster growth in emerging markets and a best-in-class global supply chain to service that demand. We remain committed to our goals of delivering organic sales growth, net sales growth and dollar-based EPS growth and to our capital allocation priorities, to drive total shareholder return towards the top end of our peer group. We have done that over the past 5 years and have confidence in our ability to continue to do that.

What drives this confidence is our ability to execute on our 2030 strategy to accelerate change as we adapt to this complex and changing environment. Coming off our 2025 strategic plan, we've improved our innovation, built and scaled our capabilities, improved organic sales and market share performance and delivered consistent annual dollar-based EPS growth. This is the perfect time for our strategic transition as we're coming off our 2025 plan, which built the organizational muscle necessary to execute our strategy and focus on global alignment. This is not wholesale change, but rather, we are working to accelerate the rate of change as we embark on our 2030 strategy.

We have made and are continuing to make the changes that are required to drive out-performance and over the strategic time horizon of our 2030 strategy, we will emerge a stronger and more effective company.

As I outlined in September, we are taking concrete intentional steps to accelerate our growth going forward. Steps that will drive performance in end market environment, but particularly important now. These include, a new innovation model with additional resources focused on delivering more impactful science-based innovation across all price tiers. This new model includes investment in people, process improvement and resources and tools, including AI, to make us faster and better able to prioritize the innovative products and packaging that matter most to our customers and consumers. We are focused on omnichannel demand generation, including up-skilling our commercial organization to be more consumer-centric by adopting how we deliver the right products, with the right content, with the right message, to the right people at the moments that matter. This will help continue to build the strength of our brands and drive brand penetration.

Having scaled new capabilities we prioritized as part of our 2025 strategy, including digital, data, analytics and AI we will drive more dynamic change by accelerating our investments and efforts in areas like RGM and agenticAI, working to drive efficiency, disrupt our own processes and integrate new ways of working across the company. And using predictive analytics and automation more and more across our supply chain to deliver personalization at scale drive optimal asset utilization, minimize downtime, improve our service levels and enhance our quality systems.

Underpinning many of these initiatives is our Strategic Growth and Productivity Program. While this program will enable us to fund incremental investments and deliver savings to drive dollar-based earnings growth, it is even more vital as a strategic enabler to facilitate the changes in behaviors and processes needed to accelerate organizational change, making us more flexible and simplifying our processes to increase speed and efficiency. Because of these actions and the fundamentals of our business, we believe we are well positioned to outperform in the context of the current global category slowdown for several reasons.

The strength of our business in emerging markets gives us the ability to drive faster category growth as developed markets remain sluggish. Hill's underlying performance remained very good in a softer category, given our robust innovation and our ability to gain market share in low development segments like Cat, Vet and Small Paws. The health of our brands across categories following years of investment provides us with opportunities to drive pricing to offset raw material inflation. Across our business use, we continue to have well-funded advertising and innovation plans, and we're operating with an even greater focus on revenue growth management, particularly with prescriptive analytics and AI. And we continue to generate strong cash flow to invest in the business and help drive TSR.

The timing for us to be kicking off our 2030 strategy could not be better. We are seeing this moment as the 34,000 Colgate-Palmolive people around the world work to deliver on the change needed to reaccelerate growth and outperform. And with that, we'll take your questions.

[Operator Instructions] The first question comes from Dara Mohsenian with Morgan Stanley.

So clearly, a difficult operating environment here in terms of category growth in household products, as you mentioned, Noel, with all the consumer pressure points. Can you just give us some perspective on if you expect the category softness to linger as we look out to 2026?

You also highlighted a number of focus areas for your own business in 2026 within that landscape. So just how impactful and quickly do you think those levers might be in improving your own organic sales growth performance, again, as we look beyond this year?

And if I can just slip a Part B in. Can you just review Hill's, specifically, volume mix dropped off in the quarter? I know there are some factors exaggerating that, but it did look like the underlying performance was perhaps weaker. So just an update on Pet category trends and Hill's market share performance, specifically would also be helpful.

Great. Thanks, Dara. So clearly, a lot of volatility in the market, particularly in the quarter, we're seeing month-to-month swings that are quite frankly, pretty surprising through the quarter. August was very difficult, but September shipments did get better. But just not enough to make up for the August softness we saw. So if I look back at my upfront comments, which I think clearly lay out exactly how we're thinking about the business, both short term and long term. As we switch to our 2030 strategy, we feel we're in a position of strength here. We're executing against the changes that we implemented through 2025 and the new changes that we believe contemplate the current environment, which we expect to continue in the short term, certainly to be sluggish.

The SGPP will provide the right organizational structure and the capabilities while funding importantly, increased investment in helping us drive that dollar-based earnings per share growth you talked about. So if I go around the world perhaps in terms of the operating environment, on an underlying basis, we think North America was actually a little better for us this quarter, and particularly ex-Skin, but we're still not where we need to be there. And I'm pleased to see how [ Shane ] and [ John Koeman ] are truly tackling the opportunities that we see on the business.

Categories were slightly weaker in Q3 in North America, but our performance improved sequentially, and we expect that to continue sequentially, particularly excluding Skin Health. Consumer still remains relatively weak across North America, as you point out. We're seeing higher levels of couponing. Hispanic traffic is still down. And if you've heard from others category takeaway in the U.S., particularly in September, was a little softer than most of us anticipated and a little softer than preceding months.

So -- and if I move on, again, we expect that to continue. But this SGPP plan, Dara, what I'm really trying to get across here is we're anticipating a continued sluggishness, but we're making the changes necessary to stimulate growth, not only for our business but for the categories, and that's going to be consistent all over the world. As expected, let me get into Europe.

We're seeing a little less pricing than before. Volume was in line, maybe slightly lower than we were expecting. Western Europe was strong, better than we expected some incremental weakness in Eastern Europe, particularly in Poland. Latin America is mixed. Although Mexico and Brazil, better for us and for some others. Organic was up mid-single digits in both Mexico and Brazil. Conversely, Colombia and Central America were a little softer as they're dealing with more economic weaknesses in those markets and more political volatility that's impacting consumption across those regions.

So if I move on now to perhaps China. China is a mixed bag for us. Colgate continues to do well. As E-commerce and innovation are key drivers for us in that market and doing exceptionally well. We were up mid-single digits on the Colgate side. However, [indiscernible] continued to see some weakness, particularly in Premium E-commerce. We are taking aggressive steps to address our innovation and our E-commerce business there, but it's taken a little longer than we anticipated to see the changes.

As you saw in the announcement, India was a little softer, but we expect that to improve moving forward. The GST came through in the quarter, medium- and long-term positive, we think, for the benefit. It created some additional headwinds as we went into the quarter -- as we exited the quarter. But importantly, we are really focused on getting some big core innovations executed across that country and pushing our premium innovation, particularly in the urban class of trade where we've seen some sluggishness.

And so let me move on to Hill's quickly to balance out your question at the end. Hill's from the category remains a bit soft, but we particularly saw a Dog dry-down but Cat way-up. U.S. growth slowed a bit, but that included some headwinds from lower E-commerce inventory that got pulled out at the end of the quarter, a little softness in Canada due to the buying Canadian sentiment. But overall, we're pleased with Hill's. If you take ex-private label up some good growth there, and we're gaining share there across almost every strategic growth segment there is -- and that again is, I think, a testament to the strategy we put in place in the last couple of years, the increased capacity we have in areas like Vet, and we obviously are expecting the category to remain a little bit sluggish in the short term, but the opportunities for growth remain real and particularly in those faster-growing segments like Cat and Vet and we believe we've got the plans in place to do that.

So despite a positive growth in our categories, but slower than we anticipated in the quarter, raw material inflation, tariffs. Obviously, some [indiscernible] destocking, we're still delivering dollar-based earnings per share and strong cash flow. And overall, that's exactly how we expect this to continue to trend.

The next question comes from Peter Grom with UBS.

I wanted to ask on Latin America, Yes. So first, just the prepared remarks, there was a comment regarding a decline in Oral Care due to the replacement of trade inventories in connection with the formula change. So can you just give more color on what happened there? And is there a way to quantify the impact it had on the quarter?

And then second and related growth in the region has been more in this low single-digit range this year as pricing has moderated. And Noel, your commentary to Dara's question was helpful. Just as we look ahead, would you expect more of the same? Or do you see an opportunity for growth to improve from here?

Sure. Thanks, Peter. So yes, Latin America organic was 1.7%. But if you include -- which includes 150 basis points negative from the volume impact from the Colgate Total replacement, which I'll talk to perhaps in a second here.

As I mentioned just a second because we were pleased with Mexico and Brazil, both up around 4%. So overall, those markets continue to perform well. Pricing is improving but a little bit in expensive volume. We saw volume a little bit sluggish in our categories, not to be expected given some of the prolonged pricing we've taken there. So let me explain a little bit more on Colgate Total.

Globally, through the third quarter, Colgate Total continues to do well, driving organic sales growth and premiumization as we've been able to take pricing on this pretty significant innovation. We've rolled it out around the world with new regimen claims and toothpaste, mouthwash and toothbrush are seeing some good share growth in general around the world. So we're pleased with that.

If I go back to Latin America, we noticed an increase in consumer complaints, including some temporary mouth irritations, in Latin America early in the year, with the majority coming from consumers who had used the Clean Mint variant. This was mostly people who brush their teeth 3, 4, sometimes even 5 times a day. We determined this is primarily due to the new flavor. So we adjusted the formula and in collaboration with the Brazilian health authorities we voluntarily replaced the impacted variance in Brazil with the reformulated product, and we've seen Colgate Total market share to begin to improve subsequent to that change.

We are currently also replacing the impacted variance in other markets in Latin America. This was the gross margin impact that we discussed in the prepared commentary, 40 to 50 basis points, while we did not see the same level of complaints in other markets. We are proactively adjusting the formula for the impacted variance around the world. There may be some further costs going forward. But at this point, we believe the majority of costs have already been incurred.

Coming back to some of the categories in Latin America still growing but have slowed a little bit in the recent periods, driven by particularly volume while we're still getting pricing in the categories, and this, as I mentioned just a moment ago, is more acute in [indiscernible] in Central America, where we're seeing a little bit more price competition in those markets. We're making the necessary changes to adjust to that. and we're working on sharpening our price points to improve our volume shares. Overall, Latin America, volume shares for our Total Oral Care business were flat slightly down in value, as I mentioned, due to perhaps the Total replacement. We're starting to see those shares come back nicely.

The next question comes from Kaumil Gajrawala with Jefferies. The next question comes from Filippo Falorni with Citi.

On the Asia Pacific business, Noel, you mentioned the GST tax change, obviously, impact on India. Any sense of quantifying that impact also and you mentioned an improvement going forward. Is that the main driver? Are you expecting also an improvement in the macro conditions there? And any comments on the local competition in the market will be helpful.

Yes. So Filippo, let me address India first. Thank you. As you saw from the India [indiscernible] results, organic was down mid-singles. Underlying demand in India, mostly in the urban part tends to be a bit sluggish rule. Rural seems to be holding up okay. We had very difficult comparisons, as you well know, pleasingly, comps get easier, and we feel we've got really good plans moving forward, and we expect better performance in the fourth quarter and returning obviously to growth in 2026.

The GST tax in our categories, particularly Oral Care and Toothpaste went from 18% to 5%. As you can imagine, this led to some price reductions and disruptions in trade inventories. I think our team did a really good job to manage that and get ahead of it and get it cleaned up as we move into the fourth quarter. Longer term, we would expect the GST reduction to benefit consumption in the category, which has been challenged by the inflationary pressures there. So overall, we think this will be a net positive for us.

Moving forward, we're obviously very focused on addressing some of the sluggishness we're seeing in the rural areas. We've got a strong premiumization strategy to continue to grow share in the modern trade and particularly in urban areas, and we'll be reviewing that business in detail with the teams next week, but we're excited about some of the strategic areas that we're going after and the long-term growth potential of that market.

The next question comes from Robert Ottenstein with Evercore ISI.

Great. First, a quick follow-up just on Latin America. If you can give us just a sense of where the market share is ended up with the relaunch and your thought of the impact of the formula change on that? And do you -- what is the outlook for 2026?

And then my main question is on the drugstore channel in the U.S., very weak, not a great channel to shop in, products under locking key. How are you dealing with that, the challenges of that channel? And then perhaps related to that, Elmex has been a huge success in Europe. -- drug store channel in the U.S., not the greatest venue for that. How are you thinking about that dynamic, the weakness of the drug store channel as well as the potential of Elmex in the U.S.?

Yes. Thanks, Rob. So let me try to take those in turn. First, on Colgate Total, we got out of the gate really, really strong with that relaunch. So market shares grow incrementally for the business. As you can imagine, we stay very close with our consumers. And as I outlined, made an adjustment to the flavor in order to address some consumer complaints and the irritation associated with select variants. The good news is that product is -- new product is rolling in, particularly in Brazil and Mexico and across the region as we speak. And the early indications is we're starting to see the shares come back quite nicely. We have a really strong marketing plan for the year -- for the quarter to go, the quarter we're in right now. So we're quite confident that we will see the business rebound nicely.

As I mentioned, it was about 150 basis points of negative organic in the quarter for Latin America, about 40 to 50 basis points of total gross margin hit. So the good news is we're moving forward and confident in what we're seeing with Colgate Total.

If I move to Asia, particularly where we're seeing some very strong results on Colgate Total, we're very encouraged by the progress we're seeing in that region. As I refer to your question around the drug class of trade, it is challenged. The good news is we have reengaged them in conversations in the middle store, about how to drive more traffic back into those stores. I mean, obviously, CVS announced a more improved results this week as you may have seen. So we're hopeful they're committed to getting the middle of the store addressed, and certainly, the therapeutic end of the business, our Whitening business continues to do quite well there. But they are challenged right now, and we're working very closely with them, to improve the category dynamics through some of the revenue growth management initiatives and more importantly, some of the high-end therapeutic premium innovation we're bringing to it.

Elmex, wonderful business. I won't get into the discussion on Europe at this stage, but driving record shares for us in Europe. We have taken that bundle to your point, Rob, into other key strong pharmacy markets around the world. It requires a strong professional underpinning in order to launch that. Clearly, we have opportunities to take that into other markets. And as we decide to roll that into new markets around the world, we'll be sure to let you and other investors know because it's a wonderful bundle with great upside potential.

The next question comes from Robert Moskow with TD Cowen.

I noticed in the script that in the U.S., you mentioned some increased competitive activity, getting more promotional. You described it as fairly rational. Can you be more specific as to the degree to which it's intensifying and what you expect going forward?

Yes. Thanks, Rob. Yes, we've seen a slight uptick in promotional weights more couponing, a little bit more volume on deal, but nothing that would suggest that we're back to pre-COVID levels and higher. It's still, in my view, quite constructive. But you can imagine, as we've seen some volume slowdown in the categories in which we compete, I think all of the retailers and all the competitors are looking for solutions in order to drive more turn and more velocity in store and ultimately, that turns to volume.

What's interesting is when you look at the volume characteristics in the U.S., we still see the premium and the super premium growing very, very nicely. It's the value-oriented brands or SKUs or segment as well as the mid-price segment that seems to be suffering.

And importantly, as I outlined in our 2030 strategy, we are very deliberately looking at more core innovation across our franchises to stimulate more demand, particularly at the lower end, why we continue to focus on the significant growth opportunity we have in the premium segment around the world. So the strategy is much more intentional in getting more innovation out to stimulate demand, not only here in North America but around the world.

The next question comes from Lauren Lieberman with Barclays.

I just wanted to ask about the pricing environment in Europe. And we had a few years, obviously, post-COVID, where there's pretty constructive pricing. This quarter is still positive, but just curious about kind of the longer-term outlook and ability to keep driving positive price in Europe?

Yes. Thanks, Lauren. So clearly, as we said, we're really pleased with continued pricing in Europe. And I think we've learned a lot in the last couple of years, on how to manage price effectively, notwithstanding the fact that it will continue to be a challenge in the longer term, getting positive pricing every quarter, but we have certainly built a much stronger muscle on the importance of ramping up our innovation. And again, I come back to the SGPP and the focus we have on putting more resources into innovation, and that's going to allow us to take price-based innovation, particularly at the premium side of the business, and that will be our focus.

Overall, the retailers have to be pleased with the category growth they're seeing on dollars and our ability to get pricing in the category, but it's going to be a balance. We need to bring real science-based innovation to drive the premiumization and take more pricing. I would expect that pricing our anticipation is that we can keep getting positive pricing as we move forward, but it will certainly be a little bit more challenged given the prolonged inflation that we've seen in the categories and our need to balance both pricing and volume growth moving forward.

The next question comes from Bonnie Herzog with Goldman Sachs.

I had a question on your implied Q4 organic sales growth. I guess for the full year, guidance assumes a step-up in Q4 at the midpoint. So I guess, just hoping you could talk through the puts and takes for Q4 to get there? I guess I'm asking in the context of the still subdued end market backdrop and certainly the greater headwinds from private label pet food exit.

Bonnie, it's Stan. So yes, let's talk a little bit about Q4. So we said in our guidance that Q4 organic or that full year organic will be roughly in line with the year-to-date. So if you look at the year-to-date, we're roughly 1.2%. So getting to the full year would indicate that we'd improve over the performance in Q3. If you think about the drivers that would help there, we had in the past that Noel articulated earlier around Total to the Total company, that's going to improve here as we go. And you also have heard in both our prepared commentary and some of the questions thus far that there was some de-stocking in certain markets and certain products. And so as that levels out, that also becomes a benefit year heading into Q4.

In addition, on private label, the impact that you saw in Q3 year-on-year will roughly be about the same impact that you'll see in Q4 as we have completely exited the private label business, but we still have that year-on-year impact. So right now, as we look at Q4 and coming off of Q3 and the momentum that we see, we feel pretty good about that in line of our guidance of roughly in line with the Q3 year-to-date, which is around 1.2%.

The next question comes from Kevin Grundy with BNP Paribas.

Great. No question for you. I wanted to kind of take a step back and get your thoughts on top line challenges. How much of this do you believe is cyclical versus how much you believe maybe your Colgate-specific challenges, 1% organic sales growth in the quarter. I'm sure you're not pleased with it. It's levels that investors are less accustomed to seeing from Colgate. So number one, at a global level, where do you see industry growth at the moment, kind of rolling up everything, looking across your business relative to the 3% to 5% longer term? And then two, how much of this do you see as cyclical versus how much is company-specific and you think you can address with the strategy that you've outlined so far in the call.

Yes. Thanks, Kevin. So let me just tackle the categories first. They obviously slowed, as I mentioned, in Q3 on a global basis, particularly for developed markets. The initial slowdown was driven by lower pricing across many of the categories, but that inflationary pressure as the inflationary pressure abated, we didn't see it necessarily coming back in volumes. And clearly, underpinning all of this is just the continuous consumer uncertainty as we talk to consumers and evaluate consumers around the world, it's not a question of them being confident. It's just the uncertainty with all the moving parts, that are going on and all the noise and rhetoric.

So ultimately, on a global basis, categories are now for us growing roughly 2% on a global basis, probably more like 3% in the first half. So obviously, it's a bit slower. And that's versus the 4% to 5% exit run we had in 2024. So volumes today basically flat with pricing more or less too. So if you go back Kevin, historically, over the last 10 years, I mean, clearly, these are low levels of market growth. So whether you want to call it cyclical or not, I mean, it's clearly way below the historical averages. And so our anticipation is, yes, things will get better. But I want to reiterate, if things don't get better, we are preparing our plan and our strategy to address what we need to do to grow faster in this current environment. That's not only faster top line but faster margin growth and faster EPS to ensure that we're putting steps in place if this is to linger on for another couple of quarters.

I do think it's somewhat cyclical versus historical numbers. But we're not waiting to see if it turns. We're taking steps now to ensure that we accelerate organic growth moving forward.

The next question comes from Peter Galbo with Bank of America.

I wanted to ask a little bit on the gross margin performance in the quarter. I know you called out maybe the acceleration in palm oil costs. And I just wanted to understand, A, how much of that is just base period effect? I mean the raw material pressure in the margin build clearly stepped up versus the second quarter. So I just want to understand, is that base period effects? Or is that something else?

And then B, Noel, I know there's a lot of kind of geopolitical noise around it, but obviously, we have some Southeast Asia trade deals. We have political unrest in Indonesia, a lot of places where you source from. So maybe just the latest and greatest on what you're seeing kind of in the live market from a palm oil perspective?

Let me start with the gross profit. First, gross profit margin was down year-over-year in the quarter versus Q3. But I would point out, Q3 of last year was the highest gross profit margin we've had since 2020. So the year-on-year impact is primarily driven through greater-than-anticipated raw materials inflation, and that is [indiscernible] and oil is the biggest driver there. The impact of lower volumes on our fixed cost leverage from our production facilities, tariffs and other transactional FX. We also saw an impact that we talked about earlier from the formula change in Colgate Total Latin America, as we mentioned in the prepared commentary.

For our guidance, what we've laid out is that our year-to-date margin is 60.1%. We expect the full year gross margin to be roughly in line with that, which would put you for at 60% plus or minus. The sequential improvement for Q4 versus Q3, we're confident in, because we expect that there will be less material inflation on a year-on-year basis. Transactional and Colgate Total impact will be partially offset by slightly greater tariff impact. So we're confident on the gross profit improvement as we go quarter-to-quarter which would deliver a gross profit margin for the year that's roughly in line with the year-to-date.

The next question comes from Chris Carey with Wells Fargo Securities.

Just to clarify that, was there -- were there anomalies than Q3 gross profit that should be easing from here over and above just the rising commodity backdrop? I just wanted to clarify that quickly. But really, the question is around advertising spending. Colgate has increased ad spending over the years. Obviously, this is allowing for a very full and rich source of investments to support your brands? I'm also conscious that you have peers that are looking at AI and automation to drive savings in advertising. Clearly, you talked about AI quite a bit in the prepared remarks. And I just wonder with sales and categories doing what they're doing. Is there any, I guess, desire or thought to think a bit more strategically about advertising spending going forward, and maybe less concentrating on percentage of sales? And how can the organization be more efficient with the spending so as to get the right return profile.

Chris, let me start with the gross profit. So just again, the kind of quarter-to-quarter anomalies as we think about what will drive that. From the total impact that we talked about in Latin America, that was roughly 50 basis points or so margin. And we believe that most of that is behind us, so that would be a benefit. And then we do see materials, gross materials easing a year-on-year basis. So that will also be a help. And now we're completely out of Private Label so that does -- not going to impact the current period GP. Obviously, it's still in the prior year. So we're confident in the GP improvement here as we go quarter-to-quarter.

Yes, Chris, let me talk about the advertising question because I -- this is one I'm spending significant amount of time on. And as we laid out our 2030 strategy, and we've talked about in previous meetings, AI and ultimately, the application of AI across a various vectors in our company is strategically very, very important, and we've been investing now over the last 3 years in that space, but we'll continue to accelerate our investment there. So if I look at the year-to-date spending on advertisement, which is roughly in line with last year's full year number, and we expect the fourth quarter to be roughly in line with the year-to-date. So advertising dollars and percent down slightly year-on-year as we lap obviously, the strong level of spending that we had in the year ago quarter in 2024.

But we are still spending very robustly against our brands, although we pulled back a little bit in some markets where we saw the consumer is much more challenged, and we delayed some of the innovative launches that we had to [indiscernible] so we adjusted spending accordingly. But we're still spending against what we call return on investment. You're very much looking at leveraging our media efficiencies to, as you pointed out, to get a much better return on the overall investment. We still expect advertising to be roughly flat this year on a percent of sales basis as we move forward. And as I talked about, we will look to the savings from our SGPP to continue to fund advertising and accelerate how we're thinking about building our brands moving forward.

So let me talk a little bit about AI, and this is one that certainly I've hoped that our investors have seen that we've been really out in front of this as I talked about at CAGNY, it's a very important focus for us and a key strategic enabler for both growth and productivity as we move into the 2030 plan, and we're very, very excited about that. We've spent a significant amount of money in the last 2 years, training and up-skilling our teams on horizontal AI and their ability to apply that to drive more productivity. Our independent surveys that we see would indicate that we're making strong progress versus our peer growth in terms of using AI and its implementation across the company. We've launched AI hubs, using the world's leading generative AI models to ensure our people have secure access to the most advanced AI capabilities, and as I think I may have mentioned at CAGNY, this is, to me, a huge unlock to drive productivity across the organization.

We'll move it into the next phase, certainly, as we go into 2030 more on a vertical basis, to really reengineer our processes and drive a lot more efficiency. But I thought I could talk about a couple of the areas that we're very focused on with regards to advancing AI and particularly as we move into agentic AI, which is the next big frontier for us that we're quite excited about. So marketing and content, we will be using generative AI, will be pivotal to transforming all of our marketing and digital strategies. We're going to significantly enhance consumer engagement through optimized real-time and compelling visual storytelling through AI-developed content. That's going to be exciting for us. We have some pilots in some pretty significant markets. They're showing very early [indiscernible] success. The second big focus areas, as I mentioned in my upfront comments is around innovation and how we're going to truly step up the quality and quantity of our innovation using AI and our ability to much more efficiently generate more consumer-centric concepts and get those tested and validated much quicker and incubated across core markets. So that's exciting for us.

As we look at some of the collaboration as we think about agentic commerce moving forward, an area that we're really thinking about collaborating closely with some of our big retailers, whether it's Walmart and OpenAI, whether it's Amazon, all of these will afford us the opportunity to unlock the potential that agentic commerce will bring, and we're certainly thinking about strategically how to make sure our brands play at the forefront of that and that exciting change that we're going to see from shopper behavior. So rest assured AI is central in terms of our strategic growth enablers for the 2030 strategy and the investments that we put in place over the last couple of years we think position us very well to continue to maximize on the trends that we're seeing with that exciting technology.

The next question comes from Michael Lavery with Piper Sandler.

Covered already, there's been good stuff already just maybe a couple of quick ones on Pet. Cats are gaining share of the U.S. pet population. You pointed out some innovation in the EU. Is there a similar shift there in terms of the market dynamics favoring Cats? And you also pointed to the 20,000 distribution point gain in the U.S. Can you give a sense of maybe some of the timing and how much of that wraps into 2026? And maybe just on inventories as well. You cited a little pressure there. Are those at the right levels now? Or should we expect any more retailer reduction still to come?

Thanks, Michael, for the question. So let me more broadly cover Hill's again, and I'll address in turn some of your specific questions. Overall, given the category slowdown and impressive quarter for Hill's and what I would characterize as pretty tough circumstances. Overall, we delivered 2.5% organic ex-Private Label and that came with some E-commerce inventory reductions we saw at the end of the quarter from some of our retailers. Therapeutic, which I didn't talk about in my upfront comments, continues to be a real growth driver for us. The Prescription Diet business is doing exceptionally well with market share growth, which is obviously helping our mix and gross margin and operating margins on that business moving forward.

We saw a greater impact, as we've mentioned in the upfront comment on Private Label this quarter to the tune of about 300 basis points. Clearly, strategically, we're not in the business for producing private label. So this is going to get cleaned out as we move through the fourth and into the first half of 2026, which will be terrific for the business allow us to really focus on the short-term growth opportunities and longer-term strategic growth opportunities that we've talked about.

So if I go back to the year-to-date and importantly, in the third quarter, we grew organic sales in almost every combination of Vet, Dry, Treats, Cat, Dog, Prescription Diet and Science Diet. So it was very broad-based strength despite the slowing category. So we're really pleased with the underlying structure of the business. Continued strong margin performance on the business. That's driven by the fundamentals aided to be sure, by a little bit lower private label, but we're obviously getting more leverage through the P&L as we continue to optimize the supply chain. And we're able to do that despite obviously softer volumes in general. And as the category remains sluggish and ultimately should come back medium and longer term, we'll get obviously more leverage moving through our facilities.

We're gaining share across channels as well, which is terrific. The science-based innovation that we're bringing behind the increased brand investment is clearly working. Active biomes, multi-packs, a series of price pack architecture moves getting better assortment in store, particularly on the growing segments like Cat and Vet are generating real benefit for us. And my compliments obviously, to the supply chain with all the changes that we've executed over the last couple of years, our supply chain now really seems to be executing well, to talk about the ramp-up of [indiscernible] obviously unlocking a lot of opportunities for growth in the Vet segment and driving more efficiency. So overall, a pretty strong performance despite the slowdown in the market.

And I think longer term, as we've always said, the dynamics of this category will continue to be excellent. Even though we're seeing some slowdown, the strategic growth segments are growing fast, and we have an opportunity to get our fair share in those segments. And lastly, I would say is the Prime acquisition that we made in Australia continues to perform really, really well ahead of expectations. We're learning a lot about fresh in that market, and we will continue, obviously, to fuel that growth in Australia, and learn from that important segment.

The next question comes from Andrea Teixeira with JPMorgan.

Noel, are you planning any selective pricing to offset the additional commodity headwinds? And then a second part of that is that, with effect coming in better than anticipated is any positive, for especially LatAm transactional effects into 2026 and even in the fourth quarter as you phase out the Total impact?

Yes. So Andrea, why don't I take the first one. So on the pricing, as you go through, Noel has covered, pricing here and what we would look at, the pricing actions we have in place try to address in balance with competition as well as the commodities that we see. And FX clearly did come in favor here over the past quarter, and if it stays in the current place, should be a tailwind for us heading forward.

Now at the current spot rate, we still see it as a flat low single-digit negative impact for the year, but Q4 would be more favorable than Q3. Europe has the biggest marginal benefit, but most currencies in channel have moved favorable. And in fact, you mentioned Latin America currencies. Those have also moved recently, which is a benefit to the business. So FX becomes a bit of a tailwind here at the current spot rates.

Yes. And the other thing, Andrea, I'd mention is that we were positive pricing in every single division in the third quarter, which, again, I think is a clear indication that, our brands are strong. The investment we put behind them over the years is allowing us to offset some of the commodity inflation and some of the foreign exchange inflation that we've had in the first half. But overall, we're encouraged with that, and we will continue to look for pricing opportunities as we move forward, certainly, as we look to bunch the volume component of the business in the medium and longer term.

The next question comes from Olivier Cheang with Raymond James.

Can you talk a little bit about offset EPS unchanged. Gross margin guide obviously came in 50 basis points but you're maintaining the low single digit EPS. Are you expecting to be on the lower end of the range? Or is there some kind of offset that we should be mindful of? And then as we think about this more challenged environment. Is there more that should be done with respect to restructuring given the current backdrop?

So let's talk a little bit about the guidance on EPS. So if you kind of go back and look at the overall guidance, we said that we still expect [indiscernible] to be up low single digits and that's including a flat to low single-digit negative impact from foreign exchange, so that improves as we get to the back half of the year. We updated our organic sales growth to be roughly in line with year-to-date, which would indicate to be around 1.2% for the year. And that includes a 70 basis point impact from the exit of private label. So as you're thinking about run rate going out, it's important to keep that in mind.

And then on gross profit margin, we said to be roughly in line with the year-to-date gross profit margin of 60.1%. And and including advertising, roughly in line with the full year of last year. And we've held our EPS guidance. And I think if you step back in our commentary the last few years, we've made significant changes to the business model. The strength of that business model enables us to weather the challenges that we had here in Q3 and still deliver bottom line dollar-based EPS growth, and we expect to be able to continue that here for this year.

On the restructuring question, for our sales Growth and Productivity Program. This is designed for two facets. First, we're doing this, we believe, we're in a position of strength to enable us to fund incremental investment as well as the second piece of delivering savings to continue to deliver dollar-based earnings growth. It facilitates the changes that help us make us more flexible, simplify our processes, increase our speed and efficiency. Now the program is consistent with what we announced last quarter with estimated charges of $200 million to $300 million and concluding by the end of 2028. And we anticipate those kind of first charges to start to roll through in the fourth quarter. So we're doing a lot of planning. We're going to execute this carefully because we're changing the way we work and not just slashing cost.

So it's important that we're looking to design and allow the future [indiscernible] our organization, which aligns with our 2030 strategy. That's going to include investments in things like omni demand gen, increased innovation, scaling our capabilities and Noel has just covered AI and agentic AI, deep investments in those areas and educating our teams at the same time to be able to go execute that. This also will help continue to drive flexibility in personalization in the supply chain. We talked about those investments that we made, and we think that will continue to benefit us going forward.

Oliviia, if I can just add one thing to what Stan said, we spent a lot of time over the last 12 months talking about building flexibility into the P&L. And I think that is the key thing from that standpoint, which is we work all through '24 to build that. We use some of that. We're still building flexibility in the P&L. So again, when we think about achieving our targets, we're still continuing to think about that. And I think if you look at the '25 results, we've had incremental tariffs, year-over-year, we have foreign exchange. We've had higher raw materials, the category slowdown, what have you, it's that focus on the flexibility that allows us to get to that. And yes, we're going to use that up as we go through the year to deal with headwinds, but that's really the focus of building that up in the first place.

The next question comes from Steve Powers with Deutsche Bank.

Great. And I guess picking up on some of that. So Noel, when you step back and you think about the initiatives that you opened and then Stand just walk through in support of SGPP, innovation model, omnichannel diversification, RGM, et cetera, they're all underpinned by AI and predictive analytics. Those all seem like the right points of emphasis. But I guess, a couple of questions around, how do you think about the upfront cost of all those things in the aggregate? Number one.

Number two, to what extent are they really points of category acceleration or points of Colgate-specific differentiation versus more just the cost of doing business these days. Because if i was going to be devil's advocate, I'd say that the thematically, that's what a lot of companies are doing. And I guess all of that in terms of how that plays into your '26 planning?

Yes. Thanks, Steve. So listen, I think we clearly want to look at these as a way to gain a competitive advantage in the market, but more importantly, utilize the capabilities to drive incremental category growth for our retailers and for us. So let me start with innovation. We're learning a lot about how to use technology to innovate faster and to get better premium innovation in the market that's validated expeditiously in terms of how we looked at it before. So all of that is intended on giving us a way to go to our retailers, partner with our retailers with better innovation, faster and in more quantity than we've done before. So it's going to allow us to hopefully accelerate that if we gain a competitive advantage on that.

Getting a clear understanding of how to use -- let's take agentic AI and how to make sure that we're participating in them. Once again, drives premiumization, drives more purchase intent, the three more is more money, more households, more volume allows us to really get much more personalized with our messaging, which will drive incremental consumption in the category. So all of that if we believe we're doing it right and partnering with our retailers in an effective way, should drive more category growth.

Now getting the -- taking AI aside from the top line aspect of the company and the growth aspect it's using it to really effectively be more productive internally within the organization. So let me take demand planning as an example. Clearly, we have -- we see real opportunities in demand planning space to use AI to more automated demand planning and demand replenishment, which allows us to generate more cash for the business and lower working capital. So clearly, opportunities for us to gain an advantage there. So not dissimilar to how we embarked on the whole SAP journey 20 years ago, we feel technology can be a real competitive advantage for us as a company, and we're making sure we're putting the training and the investments in place. And we've been doing that for the last 3 years given some of the flex that John mentioned in the P&L. So it's not like we're starting from square one here. Our teams are well equipped to understand the applications of technology, and we're investing in the right capital given the strong cash flow that we have to ensure that we're positioning ourselves for success moving forward.

Yes, I'd just pick up on your question on the upfront cost. We're not starting. We're well underway and have been for some time. And in fact, as we look at our 2030 strategy, one of the things that's changed over the last few years is that the total number of investment you see may look relatively static, under the covers, we're practicing good resource allocation. So we are driving productivity, getting more efficiency, using AI to help us drive that and then making strategic investments, which we've been doing over the last several years on data, digital, AI, those investments on educating our people, all help enable this going on. So it's not like we're going to come and say we have to make this big, large incremental investment. We're reallocating resource, making strategic investments and have been for some time, and we'll continue to do so as part of our 2030 strategy.

The last question will come from Edward Lewis with Rothschild & Company Redburn.

Yes. Noel, I wanted to return to China. I guess it's another quarter of familiar trends with growth at [indiscernible] China and then challenges at the H&H subsidiary. Can you talk about what's going on at the latter and how you're looking to turn around performance? I mean, is it as simple as a bricks-and-mortar business essentially losing share to online?

Yes. Thanks, Ed. So clearly, we're we're not pleased with the overall performance in China. We see real opportunities for longer-term growth. Clearly, that market is challenged from obviously a little bit slower growth and a more intense competitive environment. and a pretty transformational transition into E-commerce, which our Colgate business has managed exceptionally well and our Holly and Hazel business now is putting the right investment in place to get the premium side of their business, which is what's driving that marketplace right now.

So we spent some time, as I alluded to in previous calls, as you well point out, getting the go-to-market fixed on Holly and Hazel. And I think the go-to-market, particularly in brick-and-mortar is quite advanced now and we'll start to see benefits at in the next couple of quarters. Where we're really doubling down now is on building the brand more effectively through our online communication and how we do that and move from both -- from basically a more transactional business today with some of the strong aligned platforms to a more strategic basis and how we advertise top of the funnel, what we talk about, to build the brand, and ultimately drive ultimately persuasion and conversion. And that's going to require a more deliberate focus on how we spend our money online with intentionality in my view and a better understanding of how Colgate has done it successfully, which we're sharing those learnings and then more importantly, getting the premium side of the Holly and Hazel business stepped up and.

Excited that we've got a pretty significant premium innovation coming in the fourth quarter. which they will introduce, and they're really ramping up the '26 grids to ensure that we have much more online e-commerce ready products to launch to that segment of the market, which seems to be growing quite nicely.

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

So thanks, everyone, for your questions. Not a lot more to add, but obviously, while the external environment provides challenges, I hope you feel we are very confident in our ability to continue to execute against our strategy, we're particularly excited about the changes we're making to adapt to the current environment to ensure that we accelerate growth, both for Colgate-Palmolive and for our retailers. And let me make sure I thank again the incredible tireless effort by Colgate-Palmolive all around the world to continue to drive our results, and we look forward to talking to you again in the first quarter. Thanks, everyone.

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

Okay. We're going to get started. So next up, we're pleased to welcome Colgate's CEO, Noel Wallace, to the stage. Noel is going to start with a presentation highlighting the success of Colgate's 2025 strategic plan, give us a little peek into a few topics of the 2030 strategy. And then after that, I'll come back on stage for a brief Q&A.

Well, thank you, Lauren, and good morning, everyone. A reminder, I'm sure you've seen this a couple of times already. Okay. So in terms of my prepared comments, I'll spend about 15, 20 minutes reprising our '25 strategy, more specifically, the short-term results that we've seen this year in 2025, the longer-term results over the period of that '25 cycle, which started in 2019. And then I'm going to jump into some of the capabilities that came out of that '25 strategy that set us up for our 2030 strategy, which we just introduced to the company 2 months ago and we will begin to execute come December 31 of this year.

Okay. Financially, in terms of where the quarter was, you saw the highlights in the second quarter, 2.4% organic growth ex the impact of private label. That's really the key number. to take away from this chart. If you look at other aspects of that second quarter earnings call, we announced a new productivity initiative, which is quite exciting for the company, particularly as it parallels the 2030 strategy that we're introducing. And it will give us the resources and the funding to not only continue to accelerate the top line growth of the company, but hopefully continue to accelerate the bottom line growth of the organization as well.

A couple of initiatives to that productivity. It will be a supply chain realignment in terms of getting the supply chain to work more efficiently in the current environment where customization is highly required and more personalization from our retailers. And secondly, getting our organizational structure more aligned behind this concept we call omni demand generation, which requires us to behave differently and process the inputs a little bit differently to execute more effectively on the ground.

Our 2025 outlook, no change from the second quarter. Okay. So let's jump into the strategy and what's working over the longer period of time. And more importantly, as we kicked off the 2025 strategy back in 2019, the key aspect of that strategy was to get back on our front foot from growth. And we really wanted to drive more sequential consistent top line growth. And you can see for 6 consecutive years, we've been at or above our long-term range of 3% to 5%. As you heard me say in the second quarter, we expect 2025 to be at the low end of the 2% to 4% organic that we communicated on the second quarter call.

Importantly, it was getting that growth to be more broad-based across all of our categories, and that certainly transpired over the last 5 years. And importantly, likewise, the breadth of our business geographically, both here in North America and around the world, particularly in emerging markets, ensuring that we're growing all aspects of the business, and that has continued to prevail.

An important part of the 2025 strategy was reinvesting in our business to accelerate growth. And you can see that we have stepped up our advertising investment over the last 5 years. That's growing brand penetration, but most importantly, growing brand health, which particularly in the market that we're competing in today is critically important to sustain the penetration and the continued growth of our brands. Productivity, cost controls and despite increasing a lot on the advertising line, you've seen obviously the sequential dollar earnings per share growth that we've seen over the period of that '25 cycle.

Likewise, record cash flows from in-house productivity initiatives, managing our working capital more efficiently, which has allowed us to invest back behind the business in terms of different acquisitions, but more importantly, increase our dividend for the 61st consecutive year. Likewise, share repurchases, but we balanced our cash very effectively across the company to ensure that we continue to drive investment in the business and shareholder returns.

Okay. Let me get into this 2025 strategy, which I talked about quite a bit over the last couple of years in terms of the capabilities that we've been building and focused upon. What I want to talk about are 2 important ones, which are innovation and revenue growth management, and that will set me up for some of the things that we're going to talk about relative to the 2030 strategy. So 2 aspects. Science-led innovation was a key aspect that we wanted to invest behind as we went into the 2025 strategy and build our innovation capabilities. I'm pleased that we're progressing quite well there. You see some examples of that. And then I'll come back and talk about how we're scaling different capabilities that we've invested behind as we've had more flexibility in the P&L over the last 3 to 4 years, it was critically important for us to look where the businesses were going to need operational benefits in the future and investing behind those capabilities in the short term.

elmex, a great example of innovation, premium business in Europe that we strategically decided to leverage much more effectively across the European market in the select markets around the world. Let me show you an example of some of that innovation and advertising that supports that.

[Presentation]

Great innovation at the premium end of the market. And you can see over the last 5 years since deploying this strategy, both innovation, stronger support in this part of the market. You can see the sequential growth, which elmex is one of the fastest-growing toothpaste in the European market. And importantly, as we look at the incrementality of that share on the franchise, coupled with the growth that we've had on the Colgate franchise, we've seen now a record European share the world to Asia, a serum-infused toothpaste, again, capitalizing on the anti-aging benefit and the insights that we're seeing in the Asian market. This one in China. We have revital technology, which restores the collagen in your gums to prevent further collagen loss, which is an exciting proposition in terms of anti-aging, new innovation, new segment and very, very premium.

Going now more south into India, which is very interesting. I talked about that earlier this morning in one of the tabletops. Our anti-cavity core businesses is a big, big part of our franchise around the world and particularly in India. Here's a breakthrough technology combining amino acids and arginine with calcium in order to provide 2x stronger teeth. Again, the anti-cavity segment in India is the biggest part of the market. We need to continue to innovate in our core businesses to ensure that as we launch premium businesses, they come suitably on top. Here's an advertisement that reflects that piece of innovation.

[Presentation]

What's important strategically here is that the cavity segment continues to be a major prevalent disease worldwide. And although most of us think this is old school stuff, we need to be very focused on bringing new technology to continue to provide the efficacy that our brand has always stood for and ensure we're bringing more users into the category.

Moving into Personal Care Protex, one of our largest antibacterial franchises around the world, a great example of taking a strong existing business, bringing new science to it with a new 24-hour claim and superior breakthrough technology, new packaging, new advertising and interesting in a very, very mature market like South Africa, where we've just introduced this, we've seen 450 basis points of share growth in the market since its introduction, which clearly shows that the science-driven technology that we're bringing to the market is playing out with consumers in that marketplace. Here's a piece of that advertising.

[Presentation]

Again taking big core franchises and ensuring that we bring technology and innovation and the best science to those brands. Moving into our premium skin care, EltaMD. Hopefully many of you over the summer, just an extra product, #1 brand recommended by dermatologist here in the U.S. 100% mineral sunscreen that we've now brought a skin barrier repair technology to it. Redness is a key issue with many people around particularly in the U.S. This product reduces redness and sensitivity in your skin by 52%. So great technology not only in terms of the SPF side, but on the skin side as well. So an exciting add-on to our strong skin care portfolio in derms.

Moving on to Hill's, our Science Diet relaunch again this year, upgraded with an ActivBiome. We've been spending years understanding the microbiome in pets, understanding the importance of the microbiome and digestion. We now have an improved product that delivers on improved digestion and organ health. On the therapeutic side, or prescription diet side, many vets are dealing with complex problems, sometimes multi-dual issues in pets. These 2 products allow vets to address dual problems that are quite common in pets with one product, which is quite exciting for the veterinary community.

A big piece of the relaunch this year has been a new campaign for Science Diet, which has been based on quite a few years of really understanding consumer insights in the category. And the basic tension or insight behind this is that we can't possibly love our pets as much as they love us. And the guilt that you feel with not providing as much love to your pets, the best thing you can do in that regard then is to feed them Science Diet. Here's an ad that reflects that.

[Presentation]

Great emotional insight that we've now captured with our strong scientific value that we bring to pet owners. So off to a great start with that campaign.

Okay. So that's on the innovation side. Just a quick peek at that. Let me move on to some of the capabilities that I think are critically important as we embark on our 2030 strategy, but that we've spent the last 3 to 4 years building in ways that we think are going to provide significant benefits to us down the road.

And the one I really want to talk about is revenue growth management, where -- we started with basic analytics and have now moved into really advanced AI on all the proprietary tools that we've developed under RGM, which RGM is our revenue growth management initiative, intended to drive more pricing and value in the categories by using data and now AI to generate better solutions.

So let me take you through that in more detail. This chart really depicts the journey that we've been on over the last 5 years. We started with a basic version, which was more on the descriptive side. So basically just doing analysis. We then moved into the predictive part, bringing AI into it, which allowed us to predict pricing models based on vast amounts of data. And more exciting now, we're going to be expanding across the world and scaling is our new prescriptive AI, which is going to allow us to not only combine all these data resources that we've had globally around the world, but now start to provide recommendations on solutions to drive value for the category, whether your inputs are on volume, your inputs are on sales or your inputs are on margin. So a very, very advanced piece of technology that's going to allow us to make much smarter decisions and work collaboratively with our retailers as we share their data with our data to drive category growth moving forward.

Here's just an example of that. Again, it's an AI optimizer that we can take over 1 billion data points and inputs now and get recommendations in less than 30 minutes on how to optimize based on the objectives that both ourselves have and our retailers have collaborating together. So it provides significant flexibility to drive value for us.

Okay. So let me look quickly at 2030. I'm not going to get into a lot of specifics here. What I'm going to do is try to give you some sound bites in terms of how we're thinking about 2030. As I mentioned earlier, we have rolled this strategy out to the entire organization, which is really exciting that we're basically ready for '26 to come. We're starting to put our money where our mouth is in terms of the strategic choices that we're making and the operational benefits that this 2030 strategy will unlock for us moving forward.

So the 5 key thematics for you to think about without getting into too much specifics, big global business. We need to leverage the penetration of our brands around the world and market those a little bit differently moving forward in terms of how we organize ourselves. We're going to put more money into innovation, particularly in key geographies around the world, North America being one, our Hawley & Hazel business in China being another. We're going to harness the best-in-class omni demand generation. I will spend more time on this in just a moment and tell you why that's so important to how we see the market evolving moving forward.

We'll continue to double down on the capabilities that we've been building in the last 3 years in data and analytics and advance our AI even further to generate more ROI, efficiency and productivity for the company, and importantly, continue to develop our high-impact culture by aligning our KPIs and our training and development and inclusion numbers.

Okay. So a couple of examples of omnichannel. I'm going to take you through some specific examples in China, which I think is really the best example around the world on markets that have truly evolved omni, but we're seeing this issue, quite frankly, evolve all over the world as we speak. This is about as simple as you can get in terms of trying to map out the consumer journey that we're dealing with today in terms of how do we lock in our media strategies to address all these different touch points and ensure that our communication and our content is truly addressing the moments that matter.

Now why is this simple? Because it's not done by demographic, by age group, by region or other segments that we have. So you can multiply this exponentially to really get a sense for the complexity and organizing yourself to deliver a message that truly drives awareness, conversion, purchase and loyalty in the end. And that's what we're spending a huge amount of time over the last couple of years to ensure that we have a structure and a capability in place that really brings all these skill sets together in a much more harmonious way to drive a seamless integration and consumer centricity to our marketing strategies.

So China is a great example of that. 40% of the China market is online today. So one of the biggest online markets that we compete in the world. That means that almost 60% of the business is still on brick-and-mortar. What's interesting in China is 80% of the media today is digital. Interesting sound bite to give you a little bit of sense of the complexity of getting the path to purchase and the consumer journey understood. 15% to 20% of Alibaba's flagship store sales happen between 12:00 p.m. and 6:00 in the morning.

So I use that simply to demonstrate the fact that to really understand the consumer journey, you have to organize yourself in ways to really understand what are the moments that matter in the target consumer that you're after. And China is doing an exceptionally good job at that. So if you take what they're trying to do is how do we develop a brand when you have a good percentage of the market that only buys online, yes, you can market on those specific platforms. But I still have 60% -- almost 60% of my business is buying brick-and-mortar. How do I influence those consumers together, so I have a very harmonious strategy behind building my brand in a very consumer-centric way.

And so what we do here in this example is we're advertising on the online platforms and understanding which consumers are buying offline and online to ensure they were impacting both online and offline purchases. And here, we're doing it exceptionally well. Perfect example of that is Sam's. Sam's Club is one of the strongest and fastest retail environments in China today. They have both an online and an offline platform. What we've done here is we partnered with a Little Red Book, which is an online platform. We advertise specified where we were going after Sam's consumers, allowed to drive content that excited the Sam's consumer, got them to either buy the product in store or offline.

The example I'm showing you is a Colgate Pump. This brand has been in the market for 8 years. With the integration of data from online and offline and the personalization that we do, we increased sales at Sam's 30x simply by truly understanding the target market that we're after. That is what omni demand generation is all about, truly making sure that your media is working in a much more synergistic way to drive effectiveness and spend.

So here's some of the learning. Obviously, consumer centricity at the heart of it. You have to have the consumer journeys mapped out well. Omnichannel orchestration requires you to think about the entire channel. What you can't do is operate in silos any longer. You have to be thinking about the choices you're making on how you're going to purchase and repeat over the long term. And obviously, it takes strong cross function of collaboration to make that happen.

So in summary, overall, we feel our strategy has worked. We've gone from $15 billion to $20 billion in the last 5 years. Clearly, the strategy we have in place for 2030 is to continue to accelerate top line and bottom line growth for the company. And we're excited about obviously beginning on that journey despite the challenges that we currently see in the marketplace.

So with that, I'll invite Lauren back up.

Perfect.

Want to stay over here?

I was grabbing my glass and then my water. Granny over here. Okay. Perfect. Great. So the comments on your success on the '25 strategic plan were really interesting. I was curious if you could share sort of what areas of that plan do you think were the ones where you were the most successful and what are ones where you could still improve upon?

So if you go back to, I guess, 2019, I mean, clearly, the whole focus for the company in 2019 is we've got to get back to growing dollar top line growth and dollar earnings. And so as I mentioned, we've grown from $15 billion to $20 billion and at the same time, increased our advertising based on the leverage that we've been able to generate through the middle of the P&L and grow dollar-based earnings per share. So holistically, that's been an extraordinarily part of our success.

But the top line growth was one thing. What we needed to do was ensuring that we weren't just focusing on the quarter and the year that we were building capabilities for the long term. And that's what we're most excited about that we've spent a lot of time building AI capabilities across the company. We've trained an enormous amount of people in terms of how they can enhance their current jobs. We've showcased those examples around the company, so people can leverage those. We built capabilities in digital where we were behind and now we're much more advanced. We've increased our level of innovation. Our level of innovation as a percent of sales over the last 5 years has grown 500 basis points. That's good, but in my view, not good enough. We need to step that up as we move into the 2030 strategy.

So innovation, capabilities around digital and AI and certainly getting more focused around top line growth has been key. The other aspect that I think is important for the audience to take away is we're much better at strategic planning. I mean we now have made real choices on where we're going to differentiate ourselves in the marketplace and how we're going to continue to drive sustainable growth for the company. And that has allowed us to get much more aligned in terms of what we're trying to accomplish. We're not having a lot of inefficient discussions about whether we should do this or that. We have a clear strategy and a clear purpose for the company that's well understood by everyone, and now the 2030 strategy is the next step in that.

Okay. And you gave us a peek on several topics for 2030. Why was omnichannel demand generation, the one that you chose to spend more time on?

A lot of the learning that we've garnered over the last couple of years has showed us how complex that consumer journey has become. And the days of flooding the networks with prime time commercials now those days seem so simple, but they're so far in the 8past now. We truly have to understand those moments that matter. And there's nothing more important for our company than the media spend that we have to build our brands. And if that media spend isn't targeted and choiceful and isn't working synergistically between how consumers buy offline and how they buy online, we're going to waste a lot of money moving forward.

Our responsibility is to drive more consumers into our franchise and more top line growth for our categories. And the omnichannel demand generation is a behavior change for the company. So you can't have a channel per se, the days of here's e-commerce and here's our e-commerce spend. that doesn't work anymore in my view. We have to have -- here's a channel where consumers may buy their product, but the spend that we have has to work for the entire market in terms of what we're trying to accomplish. And if we're too siloed in terms of how we organize ourselves to address that, we're going to waste a lot of money, and we're not going to drive consistent top line growth for the company.

Okay. What are going to be the biggest changes as you transition to the new strategy?

Well, we're going to continue to step up innovation, as I mentioned. North America will be one area where we'll put more resources into. I mentioned the Hawley & Hazel, which is a great business that we have in China. Clearly, we're going to spend more money in some of the key growth regions that we've allocated. We've been more specific and more choiceful around the markets around the world where we're going to disproportionately overinvest. That will be a change for us as we move into the 2030 strategy.

Our omni demand generation will be a big change in terms of how we organize and structure ourselves. We've been playing with that for the last couple of years, and we're now optimizing that model, and we're going to drive consistency around the world with that model. We have pockets of success today that we were testing, but we haven't scaled that. So it's going to be about looking at that 2030 restructuring plan and making sure that we're putting the right capabilities into our market and doing that consistently around the world.

The next would be our tech stack. We will continue to invest significantly in that space. AI will obviously be at the forefront of that and how we're thinking about that. So those would be the 3 probably biggest areas that I would say will be a change for us.

Okay. Okay. The new productivity program, you touched on it a little bit, but you announced the second quarter earnings. Can you talk more about the -- give us more color, I guess, on the goals for that program?

Yes, it was certainly, I guess, serendipitous now that we put this productivity program given, obviously, there's been -- we've seen a slowdown in the categories that you've heard many talk about. So this is going to be fuel and a catalyst for us over the next 5 years for us to execute our strategic plan. And what's exciting is that we've got the strategic plan. We've got the organization motivated and inspired about the opportunities that we're going to go after. And now we're going to have some funding to help them make that happen. And that will be in the areas that I talked about earlier.

But the important thing is that it's going to allow us to continue to do the things that work so successfully in the '25 strategy while we deploy and spend behind initiatives that we think are critically important to set us up for continued success, and that will take some funding. Some of that funding will drop to the bottom line for sure in terms of how we think about it. It's going to make us more streamlined. I think it's going to make us more efficient, and it's going to make us more choiceful about where we're investing for the long term.

Innovation, as I mentioned, we will spend more money on resources across the organization to ensure that we're getting more stepped up on the premium side of the business, particularly in North America, which is where we have fallen behind a bit. And I'm excited about some of that innovation spilling over into our other categories as well.

Okay. If the category growth globally hasn't slowed as it has, would you have needed to do this restructuring to find the funding for 2030?

I talked about that a little bit in the meeting earlier that at least where our leadership team sits is that don't do restructuring when you're in trouble. Do restructuring when you're on your front foot. Why? Because that allows you the insurance to continue to have the investment needs as things go south. We didn't anticipate the markets were going to decline and slow as they did.

But now based that we've done all the work on the restructuring efforts, we think the restructuring not only obviously unlocks more funding for us, but more importantly, operationally sets us up for more success. So if you take our supply chain, we will invest in optimizing our supply chain for a very new and dynamic environment where our retail customers require more customization, our consumers require more personalization. That can create significant complexity and cost in your supply chain if you're not structuring and anticipating that. And so the restructuring will allow us to do that.

And the organization was prepared, obviously, to continue to go. This is something that we do at the senior level part of the company that we want to ensure that we're giving them the flexibility and the resources, and we'll be more choiceful on where we allocate that money to be sure. But in essence, to me, we would have done it because we're trying to stay on our front foot and make sure that we're investing in the capabilities and where the future of our CPG industry is going.

Okay. Great. I'm going to switch gears for a second and talk about Hill's, which on an underlying basis has continued to outperform the pet food category. The category is flat to down now, I believe. So why is it that Hill's continues to outperform? How sustainable is that when the category does come back?

Yes. Well, certainly, the category has slowed a bit. And importantly, as we've talked about the last couple of years, we have stayed highly disciplined on our swim lane. And we know where we compete. We know what differentiates the brand, and we've spent resources to continue to invest behind that differentiation and to invest in the channels where we can be successful, particularly the profession and pet specialty and obviously, some of the neighborhood pet stores. That has allowed us to stay true to what the brand stands for.

Over the last 4 years, we've invested significantly in advertising to build brand awareness. As we've talked about in previous calls, our brand awareness remains still quite low. So the head space there is clearly available for us as we increase the awareness of our brand and what it brings to pet owners. Penetration is still low, particularly in certain segments of the category. We have made sure that our strategy addresses those segments, whether it's wet, whether it's cat, whether it's small dogs, and we've been able to capitalize on the growth that we're seeing from those growing segments.

We've invested significantly in our supply chain. This is a capital-intensive category. And the strength of Colgate's balance sheet has allowed us to invest in the supply chain where we now have optimized our network around the world. What that's delivered for us is not only increased capacity when we saw the category growing quite significantly, and we anticipate the category long term, obviously, will come back. But more importantly, it's allowed us to be much more distinctive on where we produce certain formulas and recipes around the world and given us significant optimization on packaging forms as well.

So that technology is part of our innovation, quite frankly, to bring new forms and packaging to the market in terms of how consumers are looking to buy pet food products. That with the brand, we've stayed very, very true to what the brand stands for. And clearly, having both a therapeutic and a wellness portfolio, therapeutic being the prescription diet side of the business has been an anchor to the strength of our strategy, which is building further vet endorsement behind our product. And that only happens when you invest truly in developing science-driven technology.

And the nutritional value that our Hill's business brings to pet owners is, we think, the best in the business. We're very proud of that, and we're very proud of the fact that we continue to bring in PhDs and vets to develop new and improved science for pet owners moving forward. And staying true to that space has allowed us to be quite successful. There are opportunities, obviously, in the spaces that we see around us, but we want to make sure that if we do anything in terms of taking the Hill's brand elsewhere, it has to reinforce the scientific credentials that, that brand has been built from.

Okay. Great. You and the other -- many other companies this week -- well, 2 days already and through the summer have been calling out weaker category growth year-to-date, and you just mentioned it again a minute or 2 ago. Why do you think this has continued in these daily use categories? And what do you think it takes to bring category growth back up?

Yes. Clearly, consumption outpacing shipments, and that's a function, we think of obviously a much more challenged consumer environment today. And I've talked about it in quite a few meetings that I'm not sure I have anything very different than what you've heard. But consumer uncertainty is the #1 driver for category vitality. And if consumers are uncertain, they will be more cautious, particularly even in nondiscretionary categories. And what that specifically means is consumers may not have 3 tubes of toothpaste or 2 bottles of mouth wash in their pantry, they may have one. And they may purchase from cycle to cycle instead of having extra inventory at home. That clearly has transpired over the last 12 to 15 months.

Likewise, they will be more discerning on their purchases. They will -- what we have seen, they will front-end their purchases in large sizes and back end their purchases as they move into the end of the month in small sizes. So the key aspect here is they may be saving on nondiscretionary to perhaps save up for some of those discretionary categories. My personal prognosis is the discretionary will suffer as we move through the back half of the year. But consumers in our categories are just being more choiceful. They're being very cautious on how they use their products.

The only really nondiscretionary category that we have, arguably, nondiscretionary is toothbrushes, meaning that consumers can extend the life of their toothbrushes and not replace it every 3 months like they should. We've seen that category struggle a little bit. So clearly, consumers are being very thoughtful on how they're using everyday products in order to maximize the mileage behind that. We've seen these cycles before. 2007 and '08 was a good analogy for that.

Clearly, we saw the value and mid-price being more discerning, but we saw the super premium part of the market continue to grow. And that's exactly what we're seeing today. Take the elmex business in Europe, very super premium, one of the fastest-growing franchises in the market. Our responsibility in a market like this is to bring innovation across all touch points. The fact that we have big core businesses that I demonstrated in the presentation like anti-cavity, like Max Fresh, we have to bring a constant stream of innovation in those segments in order to ensure that we're trading consumers up through the price ladder in our portfolio, but most importantly, bringing excitement to the mid-price and the value range of the business and not just simply focused on the premium side, which seems to be continuing to be quite robust today.

Okay. Great. And then just destocking has been called out by a number of companies in terms of organic sales versus consumption. You haven't really called out destocking very much. So are you seeing something that's different, and why do you think that is?

Listen, what I have said is that destocking is a function of the consumer, right? First and foremost, if the categories are sluggish, the trade is going to manage their working capital more effectively. We have seen in certain trade environments that are growing faster than others, whether it's the big box retailers like Walmart and Amazon who carry less inventory, obviously, that tends to have a bigger impact on the overall category and more acute perhaps as category slow.

In this quarter, we have seen some of the online retailers take more significant inventory reductions that don't seem driven by consumption patterns. They just simply look at reducing inventory online. We have not seen that necessarily in the big brick-and-mortar retailers. So I think it's more a pattern of retailers managing their consumption. That's not to suggest we wouldn't be immune to that. If a big retailer decides to reduce inventory at the end of the quarter, we would suffer from that. But not necessarily a brick-and-mortar issue, more of an online issue today. And I think it's a function of just the uncertainty around the consumer environment that retailers are seeing.

Okay. We have to wrap up. There will be a breakout. I know that wasn't advertised, but there is, in fact, a breakout. So please join me in thanking Noel and John and hope for being with us, and we'll go over the breakout room.

Thank you very much. Thank you.

Good morning. Welcome to today's Colgate-Palmolive 2025 Second Quarter 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.

Thanks, Betsy. Good morning, and welcome to our second quarter 2025 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 2024 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. As we noted in the prepared commentary, our guidance includes the impact of tariffs that have been announced and finalized as of July 31, 2025. This does not include the tariffs announced by the United States last night. While these tariffs are not yet finalized, based on our preliminary analysis, we do not expect them to have a material impact. Our remarks also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in tables 4, 6, 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the second quarter 2025 earnings press release and is available on Colgate's website.

Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with some thoughts on our Q2 results and our 2025 plan. We will then open it up for Q&A. Noel?

Yes. Thanks, John. Good morning, everyone. Thanks to all of you for joining us today as we discuss our Q2 results.

In Q2, we grew net sales, organic sales and earnings per share despite significant raw material pressure and negative foreign exchange. Excluding the impact of lower private label, organic sales growth accelerated by 60 basis points to 2.4% in the second quarter with slightly positive volume driven by the improvement in North America and Africa/Eurasia. We also generated additional pricing through strong revenue growth management execution in key markets.

We launched significant innovation across categories, geographies and price tiers, and we closed the acquisition of Prime100, the #1 vet-recommended fresh pet food brand in Australia.

As I said to you on the Q1 conference call, throughout 2024, we had prepared for a more volatile and uncertain operating environment in 2025. This preparation is paying off as the Colgate-Palmolive team continues to execute with resilience even as the environment remains difficult with category volatility, geopolitical, macroeconomic and consumer uncertainty, high raw material and packaging costs, including as a result of tariffs and lower levels of mid-market inflation. Through all of this, we remain committed to our strategy. And while we may shift tactics depending on the short-term fluctuations of the operating environment, our strategic focus keeps us on track for long-term performance. So first, I'd like to discuss how we're making short-term adjustments in light of what we're seeing in the world. Because we have a portfolio with broad-based strength across geographies, categories and price tiers, we think we're very well positioned for the current environment. We're sharpening our offerings to appeal to consumers who are looking for value. And the work we have put into core innovation over the last 6 years means that our big core brands provide consumer recognizable value. We are actively leveraging price pack architecture to deliver consumer perceived value. This can be through larger size, multipacks where consumers pay a lower price per user or through smaller sizes for consumers who are looking for a lower out-of-pocket expense. We can then leverage our global supply chain's breadth resiliency and agility to respond to these changes in consumer preference. The cost environment is difficult as we're dealing with tariff increases, higher raw and packaging material costs and less underlying category inflation. This means that our revenue growth management strategies need to drive additional pricing and mix with lower levels of elasticity as we look to improve organic sales growth in the second half of the year. As I talked about at CAGNY, AI will be a difference maker for us in our RGM efforts as we work with our retail partners to use data analytics and machine learning to optimize our portfolio and promotional spending to solve for the best combination of sales and profit growth. What is not changing is our commitment to our long-term growth strategy. We are focused on driving household penetration and brand health, which we see as the key building blocks of organic sales growth and consistent compounded earnings per share growth. We're doing this by launching innovation to help drive category growth of Colgate-Palmolive and our retail partners. Even in difficult environments, there are still many consumers that are looking to trade up with innovation, delivers incremental benefits. This is well represented in our investor presentation this morning through premium innovation like Colgate Miracle Repair serums, Elta UV skin recovery, along with relaunches on core brands like Sanex, Protex, Suavitel and of course, [indiscernible].

Our commitment to core innovation is vital as we work to bring news and consumer perceive value at every price point, and we remain committed to building our brands through investing in advertising and scaling capabilities in areas like digital, data and analytics and AI. Today, we also announced the productivity initiative that is focused on prioritizing incremental investment and accelerating our capabilities to build a more future-fit organization as we transition to our 2030 strategic plan.

While RGM and our Funding the Growth initiatives provide strong opportunities for investment and margin expansion, we are moving proactively to deliver incremental savings that can be levered to drive growth and create capabilities or apply to our bottom line. While we are mindful of the challenges in the current market, we are excited by the plans we have in place, both for 2025 and beyond. We have the brands, the strategies, the capabilities and, most importantly, the people to deliver on our short- and long-term goals.

And with that, I'll take your questions.

[Operator Instructions] The first question today comes from Dara Mohsenian with Morgan Stanley.

First, just wanted to get a bit more detail on the restructuring program. What are the key operational changes? How should we think about the savings payback versus the charges, and why now? Is this just sort of a natural evolution after the conclusion of the prior program and as you look forward to the 2030 strategy? And then; b, I was just hoping you could also touch on U.S. category growth. We've obviously seen a slowdown in household products. It seems fairly unique versus other parts of the world, keeping in mind your geographic diversity it also seems fairly unique versus the broader U.S. consumer. So I just love a bit of perspective on what you think is occurring in the category in the U.S. And any thoughts on the potential recovery as we look going forward.

Yes. Thanks, Dara. So let me talk about the productivity initiatives. So if I take the audience back to 2020 or 2019, when we put together our 2025 growth strategy. The intention of that was very much about our growth mindset and where we needed to start to invest more in order to accelerate the growth of the company. And importantly, within that program, we had a lot of capability building, data analytics, our digital transformation, more resources and, obviously, AI at the early onsets of that and particularly innovation. Similarly to what we did in 2020, this plan is intended to accelerate all of the things we want to do and the excitement we have with our 2030 strategic plan. I'll be talking to the teams more in detail at CAGNY as well as the back-to-school conferences. But you'll hear us talk more about our 2030 strategy moving forward. But this program is potentially set up to get us on our -- keep us on our front foot relative to how we're thinking about driving growth for the organization. So we're going to invest in more capability building, particularly in innovation. We're going to invest in getting omnichannel correct our omni demand generation initiatives, we're going to bring those to a much more harmonious view on the ground, so we continue to execute more efficiently and effectively on the ground, all over the world. We're putting more resources into innovation and AI into our data analytics. So it's an exciting aspect for the company right now as we embark on our 2030 plans to have this tailwind behind us, so we continue to invest back behind the business. I've asked Stan to lead this initiative. And so maybe I'll turn it over to Stan to give you a bit more detail on how we're thinking about the savings and more importantly, the cost associated with the program.

Yes. Thanks, Noel. So as Noel said, our areas of focus are going to be to continue to invest in our strategic imperatives here: accelerating the innovation, our investments in data and analytics, optimizing our supply chain, of course, AI is a big focus on driving our omnichannel demand generation. So as part of that, we've announced a productivity program here that will be $200 million to $300 million of a charge over a 3-year period. That program will encompass a number of items, including optimizing our supply chain and looking at where we need to make key strategic shifts. In terms of savings profile, if you look back at history, and how we've achieved those in our last initiative, you should think about savings roughly in the same range as what we've demonstrated in the past. So while this program, we've done a lot of planning, we're ready to go. It's going to be done thoughtfully and done with the right opportunity to drive our structural changes to continue to invest and the key objectives for our 2030 strategic plan.

Yes, Dara. So let me come back on the North America. You clearly heard it from others. There's a persistently cautious consumer in North America right now. We saw some rebound in April, May. The categories took a little set back in June which we weren't expecting. So ultimately, over time, we fully expect all the categories to normalize and get back to historical growth rates. But right now, given the level of uncertainty that we see externally and particularly in the U.S. I think you're going to see the categories kind of hold where they are right now in the short term, but certainly get better as we start to exit 2025. Clearly, the North America business improved in the quarter. You saw the improvements there, particularly on a volume standpoint. We've got good plans in place in the back half. As I mentioned in my upfront commentary, we're very focused on getting price pack architectures right, building innovation both at the premium side as well as our core businesses. Overall, the market share has improved during the quarter. So as we lap some of the significant promotions we had last year. We're pleased with where we see things now. The overall promotional environment is still quite constructive. I think everyone is focused really on innovation and driving value back into the categories. And again, when you go back to our productivity initiative, a lot of this is about generating more investment in the categories to get the categories growing again based on the current cautiousness that we see with the consumer.

The next question comes from Robert Ottenstein with Evercore ISI.

I know the total relaunch had a great start this year, particularly in Latin America. I'm wondering if you could kind of give us an assessment of how it's going on around the world. What you're seeing? And then drilling back to Latin America, we're hearing from some other companies that maybe things are getting a little tougher in Mexico and Brazil. So perhaps give us an update in terms of what you're seeing in Latin America, and if you have to pivot there at all? And then just big picture, what we should be expecting in the second half of the year from the global program.

Great. Thank you, Robert. So in total, as we talked about big core relaunch for us out of the gates quite strong in Latin America, we're seeing good incremental share and incremental growth coming from that. It's got a wonderful formulation. We obviously launched it collectively for the first time in quite some time with a whole new regimen portfolio associated with that launch. So it's not just the toothpaste, it's a toothbrush and mouthwash to complement each other, to give us the opportunity for very strong efficacy claims. We're in 75 markets so far with that launch around the world, and LatAm was the lead. So we're encouraged by what we're seeing there. We're also very encouraged by what we're seeing in Asia, with some of the early onsets of that as well as Europe. So early days, but the early indications are very positive for us driving our share in premium and certainly driving some incrementality into the toothpaste business. So overall, pretty good there. LatAm, as you said, I mean, we've seen a little bit of improvement in Mexico in terms of the categories, but a little bit of deceleration in the categories in Brazil. So overall, LatAm, I think, likewise, you're seeing a bit of cautiousness right now relative to the consumer environment in general across Latin America. And I expect that as things get -- the tariff noise gets behind us, you'll start to see that improve through the back half of the year. We will -- obviously, we talked about taking a little bit of pricing in the first quarter. That has happened, and we've seen that start to flow through through the back half of the second quarter, and we'll see that benefit as we move through the back half of the year. Good innovation plans across Latin America, good investment there. So I think our responsibility is to drive more excitement into the categories, and that's certainly how we're approaching the back half of the year.

The next question comes from Andrea Tesaro with JPMorgan.

I just wanted to -- perhaps, Noel, you spoke about the program a bit on an earlier question. But just to drill down where we should see this -- I mean, you clearly said that you're not going to -- we're not going to see the benefits, obviously, this year. But just thinking how we should see go through the P&L, is just more ammunition for innovation. Digital, as you said, AI, and how we should be thinking in terms of timing there. And then on a separate question, just a follow-up around the world. You gave us like some color on Latin America. But then in Europe, can you talk about how we should be seeing both Western and Eastern European or EMEA?

Yes. Let me let Stan take the productivity initiative, and I'll come back and answer your question on Europe.

Yes, on the productivity initiative, you shouldn't assume any major impact here in the back half of the year. So as we go to execute this, it can be over a 2- to 3-year period. We believe will conclude within 3 years. And as you see [indiscernible] some cash here in late in the year as we start to execute those programs. And you'll see that roll through the P&L, both in overheads as well as in margin because it's going to be a combination of events. In terms of the investment, those investments will occur over that period as well. So any of those are incorporated into what we have for our guidance for this year. So overall, for this, not a material impact for the back half of the year.

Yes. And the only thing I'd add is we're very excited about some of the opportunities we've identified within our 2030 plan. And again, this program will serve as a catalyst to get ahead of those programs as quickly as we can. It's clearly in investments in the area of innovation and resources, we're putting AI into our innovation process. So there's going to be investments there, getting our tech stacks continuing to use technology to enhance productivity across the organization. We're going to accelerate that. I talked a little bit about omni demand generation. We think that's a significant opportunity for us to get the consistency of how we deploy our marketing and commercial strategies on the ground more in line with each other. And we've seen some opportunities based on some of the success we've seen at Hill's and other markets around the world to drive more consistency of that deployment around the world. So overall, we'll see that's an exciting space to invest behind. On Europe and some of the other geographies, a little softness in the Europe business as we saw some of the volumes come down, volumes obviously still positive pricing still positive in that region. But again, I think a little bit of a pushback from consumers as they wait and see what's going to happen with inflationary pressure. I think 1 of the things we're seeing both in the U.S. and around the world is the inflation has hit food a little bit quicker than it hit other products. And as a result of that, consumers are spending more money on their food choices, and as a result, perhaps being more cautious in other categories right now. But the key for us is getting exciting innovation back in the categories and making sure that we can continue to trade up consumers into some of our brands as we think about the innovation moving forward.

The next question comes from Filippo Falorni with Citi.

I wanted to ask about the gross margin outlook for the balance of the year. Obviously, there's a lot of puts and takes, lower tariffs, now $75 million versus your prior $200 million, but you mentioned offset by higher raw material costs. Can you give us a sense within the raw material costs, what is driving the increase? It seems mainly palm oil, but maybe give us a sense of the rest of the cost basket and any other offsetting factors that you can think in terms of offsetting the tariffs on the productivity on the productivity front.

Yes. So let me take that here. For gross profit. So the gross margin was down year-over-year in the quarter, driven by a combination of greater anticipated raw material inflation and tariffs. And although tariffs are below our earlier expectations, there's still an impact to the margin. But 1 point to note, Q2 24 was our lowest level of material inflation. So if you look at last year, it was 140 basis points versus 420 basis points this year. So you can see the impact of the material -- raw material costs. Our gross margin guidance stays roughly the same. It's based on lower tariff exposure, offset by higher raw material costs and lower organic sales. So we guided that gross margin to be roughly flat for 2025. And as a point of context, that guidance, if you look at the first half gross profit, it's flat year-to-year. So we feel like we're in a good position here to deliver the guidance. Now in terms of what's driving the raw materials as we go into that is primarily what we said in the prepared comments, and that is that palm, veg oils and fats and tallow all have moved higher. They're higher on a year-on basis. We don't see a lot of relief here yet. Keep in mind that like most companies, we have a buy-ahead program we lock in, so these are largely locked in for the third quarter. And if they ease, we'll see some of that easing in the back half of the year. Now some of the other categories have softened a bit. But in total, we still see that increase driven by fast and oils.

Yes. The only thing I would add, Filippo, is we had strong funding the growth in the quarter as well. We're encouraged by the 250 basis points that we saw move through the reconciliation. And obviously, we're very focused on that and accelerating our programs as much as we can in the back half to continue that strong pace.

The next question comes from Kumail Gajrawala with Jefferies.

Can you talk maybe a bit about Hill's. We're seeing -- you're seeing a bit of an acceleration. There's been some kind of debate about the category, the pet food category in general, on if they had been fading. So obviously, you have you have new products out and such, but is there a macro component to it, or is it more some of the initiatives that you've made that's leading to some of the acceleration?

Yes, thanks. Great performance on Hill's in the quarter and what you characterize that, which is what we see is roughly a flat category operating environment, particularly in North America. But we delivered mid-single-digit organic across almost every hub on Hills, including the U.S. and Europe. Hill's ex private label, as you probably run the numbers already, was 5% organic, consistent with where we were in the first quarter. And that is obviously in a flat category. And we're really encouraged with the fact that volume was 2% and price was 3%. So well balanced on the quarter. The comp as well, remember the comp was just shy of 8% last year. So again, I think supporting the fact that the underlying business remains very, very strong. What was different in the quarter and particularly encouraging for us is the therapeutic side of the business continues to grow faster than the wellness size. So -- and that's very consistent with our strategy and the professional advocacy that we continue to generate behind the brand. Good mix and obviously some good growth on the margin line. We did see a greater impact from private label this quarter, about 300 basis points, as you picked up in the commentary. We're not in the business as I repeatedly have said of producing private label. So I continue to insist that the best way to look at the underlying health of both the Hill's and the total Colgate-Palmolive business is ex private label. We grew organic sales in every combination this quarter of wet dry treats, dog, cat, you name it, prescription diet particularly in Science Diet. So the good news is the growth is broad-based across all of our segments, the strategic areas that we're focused on as well as geographies. We also launched a new advertising campaign in the quarter, which we're excited about, seems off to a great start. The margin performance was good, again, driven by a lot of the fundamentals and the resurgence of funding the growth opportunities that we've seen across that business. Category growth has stabilized. We haven't seen a decline any further, and we anticipate that it will continue to be more or less flat for the next quarter or so, but overall, the long-term dynamics of this category would suggest we'll continue to get some tailwinds, but perhaps later in the latter part of the year. I will say that we have stopped producing private label as of July. So we will continue to have some shipments through the quarter, but the private label will cease to be produced as we move exit -- as we exited July. So overall, good business, good results for Hill's.

Next question comes from Bonnie Herzog with Goldman Sachs.

I had a question on your FY '25 EPS guidance. You've previously talked about building P&L flexibility in the years ultimately to deliver consistent performance year-on-year. So I guess I'm curious what gives you the confidence in your low single-digit EPS growth expectation this year? I guess if end market trends don't pick up meaningfully, the promotional intensity remains elevated and tariffs certainly lower now, still weigh on margins. So I guess I'm hoping you could maybe walk us through the key growth drivers given all of that.

Sure. Thanks, Bonnie. So clearly, there's a lot of uncertainty in the market, and we've built that into our guidance level. We feel pretty good about where we are in terms of the first half of the year in terms -- and at least in what we see for the outlook of the year. Now things could go materially different if the categories go into further decline and we see heightened tariffs and raw material prices continue to move north. But based on where we see things today, based on current spot rates of raw material prices, current spot rates of FX, we feel very good about the guidance that we provided on call this morning. So overall, we feel we're in a good situation. Strategy seems to be working. We would like to see the categories turn. We've got good investment in the back half of the year, combined with with good innovation. So we feel we'll see some excitement go through the categories through that. But overall, we seem to be in a pretty good place. Stan?

The only thing I'd add to that, if you kind of look at what changed from last guidance to this guidance. We saw a reduction in tariffs. We saw a benefit netbacks, but those were offset by slowing categories where we saw that impact on organic and then the increase in raw materials. So those kind of balance out. But when we look underneath what gives us confidence for the year, we're still going to invest in this business. We have roughly flat advertising. We're going to deliver roughly flat gross profit margin so the team's ability to manage productivity to drive funding the growth, to manage our expenses, we're confident in those to be able to deliver this guidance on the year.

The next question comes from Robert Moskow with TD Cowen.

Another CPG company mentioned...

Sorry, Robert. Robert, we're having a real hard time hearing you. Can you -- it's something you get a connection...

Is this any better? Sorry about that. Can you hear better now?

Yes.

I heard another CPG company mentioned higher food prices in Brazil as putting pressure on consumer spending in their category. And now you're raising prices in Brazil. Can you give us like just kind of ballpark, like how much are you raising prices? And what's your confidence level that competitors follow your increase and that the elasticity will be strong raising prices in the U.S. hasn't worked out so well. What -- why will the Brazilian consumer absorb it better?

Yes. First of all, we've taken prices consistently over the years in Brazil, and that environment tends to be far more accommodating price increases. Now we've seen the food prices, as you mentioned, moved pretty quickly. And overall, I think that's created a short-term cautiousness with the consumer. But again, this plays back to the fact that we've been investing in brand health for the last 4 or 5 years. And the brands are as strong as they've ever been in Latin America relative to how we measure them. So we feel quite comfortable, particularly with the innovation that we have, that we can take pricing through the innovation on the premium side. We talked about Colgate Total and some of the success we're having incrementality there, and that was launched at a premium price. So we feel a collection of innovation, good RGM efforts and the strength of the brand gives us confidence that we can continue to take some pricing. Foreign exchange was obviously a headwind initially. So we've had to adjust for that. We took some pricing in the second quarter at the end of the quarter. We'll see that balance through the back half of the year. But overall, we feel good about where we are from a pricing standpoint. As I mentioned upfront, though the Brazilian categories have been a little softer than we expected, but we'll anticipate that as we move through the back half. I talked about price sizing changes, getting the elasticity across our different price points in the right place, and we feel that we've got a good strategy as we've done historically in that market where things have slowed.

The next question comes from Steve Powers with Deutsche Bank.

I wanted to pick back up on the prioritization of innovation within the 2030 strategy because it's a bit big focus of the 2025 strategy. So as we look forward, when you think about doubling down and stepping up innovation capabilities, is it simply objective of more and more broad-based innovation? Is it specifically more premium innovation? Is it innovation better aligned to unique insights to enhance ROI, probably a combination of all of the above, but I'm just curious if we could hone in on exactly where you see the most opportunity for further innovation efficacy. Again, in the context of what I think has been a pretty good innovation advancement story over the last 5 years.

Yes, thanks, Steve. So you're right. I mean we feel very good about how we've deployed some of the that we used in the 2025 strategy to accelerate innovation. And the KPIs that we measure it internally against that would suggest it's working. But at the same time, we feel we need to do a much better job in H2 and H3 innovation. You've heard me talk about that. That's more of the breakthrough in the transformational innovation, which a little bit longer to develop and obviously, a little bit longer to see it come through. We're going to be looking at incubating more H2 and H3 innovation around the world that takes resources and money. So that's going to be stepped up. We have a couple of geographies where we're still not 100% comfortable that we're agile and quick enough with the H1 innovation. So we need to do a better job, bringing new news to the trade, particularly on H1 and that we feel -- historically, we weren't bringing real big ideas on H1. Now we need -- we've done a much better job in that space. But there are a couple of geographies where we would all say we need to step it up a bit, and that's where we're focused on of those resources.

The next question comes from Peter Galbo with Bank of America.

Noel, I just wanted to circle back on Hill's. And maybe 1 is -- maybe this is a question for Stan. Just a modeling point. So just as the private label kind of you exit that effective in July, right, that will still impact the P&L through, I guess, the first half of next year. Just; a, to clarify that. And b, look, Noel, I think at a 5% organic, you'd probably not only be the best pet comp in North America, but probably globally. So just -- what is it about the category at this point that's allowing you to just outpace at such a high rate, again, we cover a lot of the different pet food companies. They all seem to be struggling. I know you've talked about the category kind of flattening out. But -- it's a very broad question, but I just want to maybe drill a little bit deeper on what really is allowing Hill's just again outperform at such a high level at this point.

Great. Thanks, Peter. I'll take the latter part of the question, and I'll let Stan talk a little bit about the other part. So overall, the strategy is very consistent with what we've been talking about for the last 4 or 5 years. We've obviously put -- stepped up the investment levels, but it's not just increasing advertising behind that brand that's paying off. It's the innovation and the breadth of innovation that we brought into the market and staying very, very true to the swim lane that we find ourselves in, and that's high-end therapeutic brands that drive real nutritional value for pet owners, and getting the advocacy of those brands deliver to the profession. And so we've been very consistent with that strategy and very consistent on going after the growth segments that where we see the brand can play the most effectively. We've talked about vet. We've talked about cat. We've talked about small dogs. And so we've been very strategic on investing R&D resources into the growth areas for the category. And that's how we're seeing the growth coming through in the business. Certainly, this quarter, we saw great growth in vet, great growth in cat, great growth on therapeutics, which is driven by our prescription diet innovation and great growth on small pause. So again, I think it's the consistency of the strategy. And again, recognizing that we still are a low brand awareness brand, and low brand penetration. So there's a lot of upside potential for us as we continue to expand the awareness of the brand and get the distribution where we need to, and more importantly, get the omnichannel strategy executed as effectively as we possibly can. So overall, consistency of strategy.

So let me take the impact of private label. So as we said, we stopped producing private label in the month of July. There will be shipments here as we ship out that volume, that will be a modest amount here in third quarter. But now if you think about what happens, we have private label last year, so there will be an impact in the second half. If you think about the impact in Q2, it was roughly 60 basis points. It will be slightly more than that in 3Q and 4Q on a year-on-year basis. So you will see that impact as we have private label last year, and we'll have essentially 0 here in the back half. So the impact will be closer to 80 or 90 basis points.

And that is factored into our guidance.

The next question comes from Chris Carey with Wells Fargo.

I wanted to unpack a little bit of the evolution in Asia. India has been a topic this quarter. You called out maybe some softening in urban markets, where are you seeing this business going from here? And can you just maybe balance the Colgate China versus JV performance and also just how you see the evolution of that business going forward as well?

So let me take the overall Asia first, a little softer than we expected as volume and pricing came in weaker on the Hawley & Hazel business in China, and we're not pleased really with the performance we had in India, but we feel good about where we're headed in the back half, and I'll talk about that in specificity when I get into India. Specifically on the China piece. Again, curtailment to city, the Colgate business continues to perform exceptionally well. The learning that we're getting from that is go-to-market execution that we have that we've revamped over the last 3 to 4 years is playing out very effectively in the market and how we're targeting the growth opportunities we see in that market as well as a very comprehensive and concerted and thoughtful digital strategy to grow in the e-commerce class of trade, which is obviously growing very, very quickly. On the Hawley & Hazel side, we're having to make adjustments in terms of what we do with our go-to-market there, particularly in China, where we need to get the go-to-market addressed and get the wholesaler channel address in a more effective way, and more important to make sure that we effectively compete on digital in the online world, where we're stepping up our resources that we've learned, both on the Colgate side as well as in other parts of the world. To ensure our Hawley & Hazel people have the tools necessary to grow a very competitive online environment moving forward. So again, we feel we're starting to see things improve. It will take some time for sure for the Hawley & Hazel business. But over time, we feel comfortable we will get that back. On India, as you said, we saw some [ smug ] [indiscernible] in urban class of trade. We will certainly address that as we move into the back half through a very stepped-up innovation strategy. We're launching our biggest core business in India as we speak. We've introduced and relaunched the Colgate Total line in India as we speak. And we have some more higher-end premium innovation coming through the back half and into 2026. So getting the urban markets right and executing more effectively there is critically important. Pleasingly, we're seeing great growth for our e-commerce business there. We're up almost 500 basis points in market share in e-commerce. So as that trade class grows, we'll see some tailwinds come from that. But overall, executing better in the urban, keeping the rule and getting the core brands we launched. We also have some price pack architecture that needed to be addressed at entry price point. And we had done -- we had completed on the INR 20 part of our business, but the INR 10, which is the entry price point wasn't addressed, and we're addressing that as we speak. So we're optimistic that we'll see the benefits of that coming in the second half.

The next question comes from Olivia Tong with Raymond James.

I was wondering if you could talk about the sales run rate and the expectation to improve slightly in the second half versus first half to get to sort of a 2% for the full year. If you could talk a little bit about what's going to drive that acceleration? Is it more of a view of a slight rebound in the category or more of your initiatives to improve your share? And on the restructuring, a lot of the things you discussed on the restructuring, it sounds like things you were already doing. So is there a component of it that's new, or is it more of a fast track of existing initiatives? And is there any headcount reduction or a particular look at resin category that will be more of a focus.

Great. Thanks, Olivia. Let me take the first part of that, and I'll let Stan take the second. So on our confidence on the guidance relative to the back half, again, first and foremost, we've got good advertising levels planned in the back half consistent with where we were in 2024. So we feel good about that. We've got a strong innovation pipeline that we've executed in some of it in the second quarter, which will play out more in the second half. We've taken some pricing and have opportunities and surely areas to take more pricing in the back half. And clearly, we don't expect the categories to get worse from here. In fact, we expect them to get modestly better, but not significantly better. So the guidance anticipates all that. So again, we'll see where the consumer goes, but we're being cautiously optimistic and prudent based on what we're seeing in the categories right now, and that's reflected in our guidance.

So on the productivity program, as we said, $200 million to $300 million completed in 3 years. We're not going to go into detailed specifics here. But as you said, it will be a combination of optimizing our supply chain and then looking at areas where we think that we can optimize where we have our allocation of resources. So as we look to invest in some areas, we're going down to get more efficient in other areas. And what I would say is, as we grow over time, inherently, we have to rebalance those assets over time. That includes hard assets as well as headcount. So we'll disclose more on that in time as we execute those programs.

The next question comes from Lauren Lieberman with Barclays

I wanted to go back, Noel, to the prepared remarks on this call at the [indiscernible] one when you talked about sharpening offerings, value the consumer and so on. So I was curious, and that was in a tactical bucket. So I was just curious, any particular market where you would call out the need to do that. And then in tandem, you also mentioned needing to drive -- find ways to drive incremental pricing with RGM because there's less inflation. So sort of -- it's a bit of like [ tritening ] to do 2 things at once. So I'd just love to understand better how 1 can approach that if we're sharpening value but also needing to find incremental price. So first is the markets where sharpening price points, the other is kind of pulling these 2 kind of different streams, if you will.

Yes. Thanks, Lauren. So on the price side, this is pretty much is going to be consistent around the world. But the area where we see a little bit more sensitivity are clearly in some of the emerging markets where opening price points are critically important. So I mentioned the INR 10 price point in India, getting the price-pack architecture right on that. We see some opportunities in Latin America. I would say likewise in Europe and in the U.S., getting price back architectures in some of our categories is critically important, to ensure that we not only are providing value at the opening point but making sure that, that value transcends through the entire portfolio. Now the way we balance that is the portfolio we compete at opening price points, mid-price points and premium price points. And we have a very conservative effort to continue to drive premiumization and that continues to be the biggest growth opportunity we have around the world in terms of where our category sits today. So the Colgate Total relaunch, as an example, we've taken significant price behind that in certain markets that will give us more RGM and more pricing and value in the category. So we'll continue to execute that. Our premiumization in the whitening category, likewise, we'll continue to execute and support that quite aggressively to drive the top end of the market. So it really is, is a balanced approach. How do we think about making sure we're being a little bit more tactical with price [indiscernible] promo packs while at the same time, making sure that we're driving value through the categories by some of the premiumisation opportunities we have. So again, balance between the 2.

The next question comes from Kevin Grundy with E&P Paribas.

So -- no, I want to come back to North America, but I wanted to ask you in the context of balance that balance between top line growth and margin restoration. We spent a lot of time on these calls talking about the appropriate need and focusing on profit dollars and not necessarily margins. But for -- given the competitive landscape of consumer market share issues, you kind of had both where it's been top line has been not where you'd like it to be and margins are down considerably. So as we think about and as you think about where you like the North America business to go, how much of a priority restoring some of the North America product margins where we see a considerable amount of erosion here in recent years? Your thoughts there would be appreciated.

Yes. Thanks, Kevin. Listen, simple, a significant priority for us. We need to get the profit margins back up in the U.S. That's going to be through a combination of our innovation strategy and the resources we put into North America to ramp up the innovation, particularly on the premium side. We've seen some of our competitors do some innovation that's driving some real value in the categories. We know we can replicate and do better than that. We'll continue to accelerate that. But getting profit margins, both from a dollar and a percent up in the North America business continues to be a significant priority. I'm very encouraged by how the team is approaching the business how we're thinking about the opportunities across all of our categories, not just the focus that we had on oral care, but both on personal care and home care. And as we look at some of the productivity initiatives, we clearly will be allocating some resources into North America to dial up the innovation particularly. But good funding there, we need to get the margins up both dollar and percentage wise and that focus for that team.

The last question today comes from Peter Grom with UBS.

So I wanted to just round out the category commentary. Noel, you mentioned that you expect categories to get modestly better as we move through the balance of the year. And I would be curious, is that a broad-based comment, or are there certain markets where you have greater confidence in that improvement? And conversely, are there any markets where you see category trends moderating or at risk of moderating?

It's pretty much a broad-based comment. Overall, if I take on a constant dollar basis, maybe to provide some granularity here, our categories are growing somewhere between 2% and 3%. And on a constant dollar basis globally. Volumes are slightly positive if we take the aggregate category growth around the world. So if you go back historical, you've seen, obviously, volume performed a little bit better, closer to 1% historically and the constant dollars improving probably 100 basis points historically. So we expect a very modest acceleration across the board. Certainly, in categories like toothpaste to see that probably come back sooner rather than later some of the all of our categories, not necessarily discretionary, their daily use categories, but there are certain businesses that in the home care were consumers amortize their usage over longer periods of time and are more cautious. So we set some of the home care categories to perhaps come back a little slower than we'd see some of the personal care and oil care categories.

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

Yes. Thanks, everyone. Again, I think we're deploying our strategy very effectively around the world. We saw that through the consistency and the improvement in the quarter. We have great confidence in our ability to keep an eye into both the short term and the long term with our strategy, particularly excited about the 2030 and getting on -- getting started with that. Let me put a special thanks out to all Colgate from all the people around the world, who are operating in, obviously, a more challenged environment, but we appreciate all the hard work, and what they're doing to deliver for our shareholders. Thanks, everyone. We'll talk to you soon.

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

Great. Why don't we get started? I'm Robert Ottenstein. I do Global Beverages and Household Products with my teammates, Javier Escalante and Greg Porter and JD. We're super excited to have Colgate with us today. From Colgate, we have John Faucher, Head of Investor Relations, Executive Vice President for M&A.; and with John Faucher is JP Zamorano, President of Latin America.

So I'm going to start off big picture, a little bit with John just to kind of frame the Colgate story and update investors big picture. So John, you joined about 9 years ago, I think, at this point. When you kind of stand back and think about 2 or 3 major changes that have happened in the company, whether it's culture or goals, targets, whatever they may be, what comes to mind?

Sure. So I'll start off and then JP has an even longer perspective. He's been with the company about 35 years. So I'll ask him to sort of comment as well. I think if you think about one of the biggest changes, in my mind, it would really be in terms of how we're approaching growth and really approaching with what -- we used to talk a little bit more about this, but this term gets used a little bit less now is a growth mindset, right, which was really about as the category leader in many of our categories, we needed to be focused on driving category growth, right? And the best way to gain share is to drive the category yourself.

And so as part of that, going back to 2019 as we transitioned from Ian Cook to Noel Wallace as CEO, we focused on a couple of key things, which was, first off, we had these big core businesses that were about 60% of our business that weren't growing. And so we saw the opportunity to really focus on turning around our big core businesses. They're big drivers of penetration, big drivers of market share. And so we decided to invest in those core businesses through things like Science Diet Growth Plan or what work we've done on Colgate Total. And that's been a big driver of growth.

We also attacked what we call faster growth adjacencies. So segments of our categories that were growing faster that we weren't really taking advantage of. So you can think of segments like whitening or some of the indications we have on the Prescription Diet business for Hill's. And then finally, faster growth channels and markets. And so we made a big push on e-commerce. We made a big push in terms of pharmacies, particularly in Latin America that JP can talk about.

And so it was a really more active view of growth. Now as part of this, we needed to fund that growth. And so we took a look at the income statement, and we've always had maybe a maniacal focus on driving gross margin, but we really kept at that. We've been able to get gross margin back up towards peak levels, and that has allowed us to invest back in advertising. And that's really been one of the biggest changes is a very consistent commitment to using advertising to drive brand health, to drive brand penetration.

And so that's really turned into -- we've taken the advertising to sales ratio from 9.1% up to 13.5%. We're supporting more of our brands in more geographies. And I think that's helped us to, again, drive brand health and drive brand penetration, and it's allowed us to deliver very strong organic sales growth.

And then the key, I think, from a bottom line perspective is getting back to consistent compounded dollar-based earnings per share growth. We went through a period and a lot of this had to do with foreign exchange, where we weren't delivering that dollar-based earnings per share growth.

And now if you look at 2025 and you look at our guidance for this year that we talked about on the first quarter call, despite some incremental impact from tariffs, despite some weaker consumer, despite some negative FX, we're still guiding to dollar-based earnings per share growth, which we think is important as we think about delivering strong TSR for our shareholders.

So JP, anything you would add?

No, I think I will add that in addition to what you mentioned, we were pretty disciplined on identifying what were the capabilities that will ensure that we continue to deliver the results we were delivering today, but more important that we will be successful in the future. So areas like innovation, areas like data and analytics, areas as like digital, we really -- were very focused on them and significantly upgrade the capabilities we had in the company.

And another one, which obviously is super important is how we evolve the culture of the company to be guided against the environment that we were facing today. So we maintain some of the values. The best example is the carrying value that will always stay there. But we also start saying, okay, we need to take more risk. We need to be more courageous and we need to be able to drive a stronger performance in certain areas of the company.

Great. Great. So John, 2 mantras of the company, consistent growth and flexibility in the middle of the P&L. This year, 2025, you've mentioned and everybody has noticed a little bit tougher than people thought 6 months or so ago. So maybe if you could start talking about where the demand pressures are, where it's a little bit weaker than you may have thought it would be. If there are additional cost pressures and then how -- what are the levers that you're using? How are you looking at that flexibility in the middle of the P&L to overcome some of those challenges?

Sure. So we put together really strong organic sales growth in the first half of last year. I mean, through all of last year, but particularly in the first half, where we delivered about 9.4% organic. And while there was definite benefit from Argentina there, the underlying strength was really good. We were getting volume growth. We were getting pricing growth. And the key -- this is consumer staples. You're only going to grow so fast for so long.

The key in that situation is, okay, understanding what's our sustainable long-term growth rate. And so we knew really through the back half of 2024 that 2025 was going to be a tougher year. And we plan for that. And that's when we started talking about having more flexibility in the P&L because we saw organic sales growth and therefore, probably also net sales growth because we could see where currency was heading in the back half of the year.

We knew it was going to be a tougher year. So we started talking about flexibility in the P&L to give shareholders confidence again that we're focused on delivering that dollar-based EPS growth. And the flexibility, you mentioned the middle of the P&L. It's not just the middle. We have to think about using all the levers in the P&L. The best way to drive leverage and bottom line growth is through the top line, right? So we remain committed to investing to drive top line growth, as JP talked about, through our capabilities, through the advertising, brand health and penetration.

We saw a relatively benign raw material environment, and that's kind of turned out to be the case, but we're delivering really strong funding the growth off of another record year in 2024. We want to use the other levers in the P&L. We went into the budget process this year, Stan worked with the division presidents to come in with a more aggressive approach as we look at tackling inflation in our overheads. And then we're generating strong cash flow to pay down debt, lower interest, buy back stock. We work to get the tax rate down. So that's a lot of different levers in the P&L before we get to the advertising, right?

And as I mentioned, we've done a lot of work building that advertising to sales ratio up. We want to keep it. We'd like to keep it going up if we can, but we know we need to do that in the context of delivering appropriate returns for our shareholders. And so it may fluctuate here and there. When we have the opportunity and JP can talk about this, there's lots of ways for us to not just maintain the advertising, but improve the effectiveness of our advertising. That's another key factor. Do you maybe want to talk about that?

Yes. I think that a super important point is how well we have developed the analytics in the company. I believe, today, we have much better coverage of tools to measure the return on investment of the advertising that we do in each one of the markets. We use marketing mix modeling, and therefore, we can look into where we have efficient investment and where are areas of opportunity for us to improve over time.

And on the same line, which also helps the health of the P&L, we -- today, we have much better analytics on revenue growth management. We have a very good understanding of what areas of the business we can take higher risk, what areas of the business we need to be super careful and therefore, drive the top line of the company.

Great. Great. So John, 2 other things that you focused on is the opportunity to premiumize the business as well as do more impactful innovation. And presumably, those 2 are tied together. So maybe if you could talk about kind of the key innovations for '25, when they will hit the market. So first half, second half, so we can get a sense of timing. And then an early look, if possible, in terms of the '26 pipeline?

I'm not going to get an early look on the '26 pipeline. I appreciate you asking. So as we look at this, again, I would go back to -- if you look at where we were putting our resources into play, if you go back 7 years ago, 10 years ago, what have you, if you're focused less on driving the category and maybe more on driving market share, which is kind of where I think we were going back to that growth mindset question.

You're probably looking at more things like line extensions, right? And we had too many of our resources devoted towards line extensions, and we weren't really focused on driving the incrementality that we needed to truly grow the category and grow our business.

So over the last several years, we have shifted our resources on innovation to more breakthrough transformational or Horizon 2, Horizon 3 innovation, right? And these may be smaller businesses that we need to incubate and build up over time. And I think we have gotten better at sizing up these opportunities using the capabilities that JP talked about in terms of understanding, okay, how do we come up with more of these ideas? How do we come up with them more quickly?

And then how do we have the patience and the resources to say we're going to take this small business, which may not be that big or that incremental in the shorter term and really build that up over time.

So I think that's a big mindset shift that we have had over the last several years to build more on that innovation. We brought in more external talent to do that. We're bringing in even more external talent to do that going forward. So again, I think it's a real investment behind bringing the people, the processes in place. We have created different incentive structures for our businesses where they are basically compensated. More of their bonus is tied into the benefit of innovation and the incrementality of that innovation in their business. And that's really driving some of the behavior and cultural changes that JP talked about. Anything you would add?

No, I would say -- and we have tried also to take advantage in some areas of global platforms. And a good example of that is called Colgate Oral, where we develop a relaunch proposition that is based on our global concept, global technology, a global in a way, go-to-market, which obviously we can do really well.

Great. Well, that's a good segue into my next question, which hopefully kind of ties this a bit together, John, is can you just talk a little bit about the rationale of bringing in Shane Grant into the company from the outside? What were the key accomplishments at Danone? What had he done at Danone that was attractive? That's part one. And then part two, why does it make sense to put Latin America and North America together under one person?

Well, I mean, I'll let JP talk about that because JP has run both North America and Latin America, and I think he'll provide good insight from that standpoint.

Look, we have increased the number of people we brought in from the outside over the past 10 years or so, particularly when you look at some of the capabilities that we've talked about in terms of digital, data and analytics, AI, innovation. So I think we have gotten more comfortable bringing people in from the outside. And then JP mentioned culture and culture is really important at Colgate and particularly important to Noel.

And when you find someone who has different experiences and different capabilities and you can get them to work effectively within, what we think is one of the best cultures in the consumer staples space, it creates just a lot of power in the business model to bring in new things.

And I always said when I joined, one of the great things about Colgate, people was they really wanted to learn. And they wanted to learn to compete more effectively. And so as someone who came in from the outside, that's been a great experience.

As far as bringing Shane in, there was a view that he's done great work in the Americas in terms of driving growth in Danone in categories that have been a little more troubled from that standpoint. So he's viewed as a good growth driver and the feedback has been that he's going to be a very good cultural fit from that standpoint. I think as we look in terms of bringing the divisions together, I think there's so much great work that JP and his team do in Latin America that we think can influence the North American business, but I'll let you add your thoughts on that.

Yes. I think that there is efficiencies to be have in terms of supply chain. I think that there is a great opportunity from the consumer point of view as we see the influence of the Hispanic population within the U.S. market. I think we can get better aligned in terms of the innovation that we develop in both regions for some time. We do leverage in some of the innovation, but we are not fully integrated. I think that there is also opportunities on how we better transfer talent between the 2 different divisions. So in general, something quite positive for the company.

Great. Let's do a deep dive now on Latin America, which is truly one of the most extraordinary franchises in staples. So 80, 90, 100 years in some countries, 70%, 80%, 90% market shares. Can you kind of just give a brief description of the key countries, exposures, a little bit of the history, how Colgate became such a leading player in Latin America?

Thank you for the comments, Robert. Latin America is the largest division for Colgate. We have 2 of the largest international markets, Brazil and Mexico. But we also have very strong presence in the other regions of Latin America. We have presence in Andina, Southern Cone, Central America, Greater Caribbean.

We have our biggest business, Oral Care is our biggest business, but we also have a strong presence in Personal Care and Home Care. As you mentioned, we have a long history a couple of years. A couple of weeks ago, we celebrated 100 years in Mexico. We've been in Brazil and Argentina over 90 years. We've been in Colombia, Central America over 60 years. During all these years, we have been able to build very strong brands, in many cases, recognized as local brands, very strong market share positions across many categories.

And I think that incredible go-to-market and supply chain capabilities. All that combines with a super passionate team that have multi-country, multi-category experience. Many of our leaders in Latin America were leaders that grew up in Latin America, but as in my case, we went out and worked in other divisions during our career and now have come back to Latin America to continue the cycle of development of talent and development of the business.

Great. And what -- roughly, what percentage of the business is Oral Care and then Home and Personal, just to...

Can you answer that very roughly?

Yes. Think about half one and split the other 2 in equal parts.

Great. Okay. And we'll come back to Oral Care. But just so we kind of understand -- so you've got Home and Personal Care. Is that in terms of Latin America, is that a growth business? Or is it just there to kind of add scale?

The short answer is a growth business. And as I mentioned, we have very strong presence in Oral Care, but we also depend of Personal Care and Home Care. Our global brands, Colgate and Palmolive allow us to compete quite well in categories like toothpaste, toothbrushes, mouthwash, even bar soaps. The regional brands that we have, and we have many -- let me mention some of them, Sorriso, Protex, Suavitel, Fabuloso, Axion allow us to: one, compete in more categories that we will not be able to compete with the global brands; and second, be able to compete in other segments of the market in which we even compete with global brands.

So we can compete in multiple price tiers in the region, which is important in Latin America, and we can compete in more segments of each one of the categories. Good example will be Suavitel, which is very strong market share positions in the fabric conditioners category in Mexico, Central America, Andina. And another good example will be Protex, which is a great complement of Palmolive. Protex competes in the antibacterial segment of skin cleansing, a super important segment in the region.

So net-net, we have a really good balance of global brands against regional brands and all of them playing an important role in the portfolio with the performance.

And if I can just add, it's important to note also that Suavitel and Fabuloso have great businesses in North America that exist because of the strength that they built up in their home markets with Fabuloso being the #1 portable cleaner and Suavitel having great market share within fabric softeners.

Is there any opportunity for Hill's in Latin America? Is that worth that?

I mean Hill's has a pretty good business in Latin America. The premium dog food segment is still relatively nascent from that standpoint. But Mexico, in particular, has been a really nice growth market for Hill's, and I think we will continue. We've got so many growth opportunities at Hill's across the world. I was just in Europe meeting with the European Hill's team. There's a lot of room to go. When your best market has 6%, 7% market share, there's just a lot of opportunity on a great brand like Hill's, but Mexico, in particular, is a good market for us.

And so while we run the business independently, we provide -- we are co-located. We provide all the support that we can. And more important, we provide plenty of talent to the Hill's business in the region.

Great. Let's just touch on briefly how well the consumer is doing in Mexico and Brazil. I know your business was very strong through COVID, and then you had a little bit of an election boost and the flip side. But obviously, a lot of stress, at least psychologically on that area. How is the Mexican consumer today? And then maybe touch on what you're seeing in Brazil just in terms of consumer demand and the general marketplace and how that's evolved over the last 6 months?

Okay. So as you mentioned, during COVID and during the period of significant inflation in Latin America, we saw the consumer holding up pretty well. During that time, through marketing and good innovation and execution, we were able to drive very high organic growth for several years with good combination of volume and pricing.

Most recently, and probably we will talk about 12 months or so, we saw less growth in the region. We probably connect that with the cumulative effect of inflation. We connect that with a little bit of consumer sentiment, and we connect that with some of the economic news that, obviously, tariffs and all the communication around that topic that happened in the market.

In the case of Mexico, and we saw the slowdown. In the case of Mexico, as Noel mentioned, we have seen recently an improvement. I think that, that also is going to combine with some pricing that we have taken in both Mexico and Brazil a much better comparisons versus last year.

So I would say, to summarize it, it has been slow. I think we had a first quarter that was slower than everybody was expecting, but some conditions improving over time. As we think more longer term, I'd like to think that we're going to go back to pre-COVID levels and having the market growing, I would say, on the higher part of our corporate guidance and obviously, that growth being a split between volume and value.

And Brazil?

I think Brazil most or less have followed the pattern of Mexico with a little bit of lag, but has followed the pattern of Mexico. Mexico, we saw the slowdown right after elections. It was incredibly fast. Brazil took a little bit of more time. Brazil also has some tough comparisons in the first half versus the second half, tougher comparison.

Well, I think one of the most visible or important innovations this year has been the Total relaunch. And I think you started first in Latin America or certainly one of the first markets. So can you talk a little bit about the importance of the Total brand, so we get a sense of how relevant it is, what the relaunch was, what the relative price point is? Is this really going to push the premiumization agenda? How does it compare to your core toothpaste? And how it's going? How -- what sort of traction are you seeing?

Thank you for the question. Colgate Total is a super important component of our portfolio. Just to give you a reference, before the relaunch, Colgate Total was about 15 points of market share out of the 74% market share that we have in Lat Am. It represented -- or having that franchise strong represents a tremendous opportunity for us, one, because it continues to really to fit within the purpose of the company to provide better health for the population; second, because it represents a wonderful opportunity of premiumization.

So you get our reference, Colgate Total is priced between [ 180 to 220 ] price index versus our base business. The relaunch was a wonderful opportunity to bring new technology to the region, technology that will be aligned to the rest of the world. A new concept approach talking about prevention, new advertising, great packaging and unprecedented levels of activation. We started with the main variant in the fourth quarter of last year, results have been super positive, and we expect that to continue during 2025.

No. Great. So it's 6 or 7 months now. In terms of the incremental Colgate Total sales that you're getting, how much of that is trade-up within your portfolio? How much of that is maybe market share gains? Is there any color that you can give us just so we can understand the incrementality?

I think it's too early to be able to drive those conclusions. I can tell you that we started at 15%. We are now at 16.1%. And so it's driving about 1 point top line for Colgate Total market share and a portion of that is translating depending on the market in the Total market share.

And what kind of competitive response has there been? And this is obviously a big deal in those markets. How has the competition responded?

I don't like to say none, but I don't think that at that level of premiumness and with that level of execution, we haven't seen a major reaction from our competitors about that relaunch.

Great. Sticking with Mexico and Brazil, just globally, there's been huge changes in route to market, particularly with e-commerce. But also, I think there's been changes in the pharmacy channel in some countries. And love to get a sense of what the route-to-market and the retail environment looks like in Mexico and Brazil, the modern retail, specialty pharma? And then how you play that with your portfolio strength. I think you're bringing in elmex more than in the past. So how do you match your portfolio to the changes that are going on in terms of route-to-market and the retail environment?

Okay. So you mentioned retail environments, e-commerce and pharmacies. Let me step back and say, obviously, with the critical mass we have with the market shares we have, we have excellent performance across all the retail environments. We have good market shares in direct trade, indirect trade, cash and carry, discounters, any retail environment, we will have a very strong presence.

In the case of e-commerce is small but rapidly growing. From the beginning, we decided that, that was a retail environment where we needed to succeed and be on the leading edge, not only in terms of performance, but also in terms of providing the right level of support to our customers to develop that business. We have overinvested in terms of structure. We have a center of excellence. In Mexico, we have dedicated resources in each one of the markets, and we're doing really well.

In the case of pharmacy, a more established retail environment in Latin America, we started to see a transformation from traditional drug stores to a more nice retail environment and better shopper experience. As such, we saw a tremendous opportunity to drive our market share. There is a significant gap between the share we had in that retail environment, about 45% and the market share we have in the total market, about 74%.

Over the last 5 years, we have been able to increase about 500 basis points of market share in that retail environment, driving premium therapeutic conditions, which also, again, bring that opportunity to grow the top line.

As you mentioned, we have done that with a combination of strategies. In some markets like Brazil and Southern Cone, we brought some of our brands from Europe, more specifically elmex, and we focus on the pharmacy channel, those brands, and we are doing quite well.

In some other markets where Colgate can drive the dental recommendation and is the leader in the segments, we have used our own Colgate bundles in Latin America to be able to compete in pharmacy. But net-net, good opportunity for us, good progress in terms of market share and good prospects in terms of what we're doing in the marketplace.

Robert, if I can just add something. I mentioned earlier talking about sort of incubating and being patient in things like this. And one of the things that JP has led with this elmex push in pharmacies is we've been incredibly patient about building this business the right way using the heritage that we learned from the way it's been built up in Europe. And it's not innovation per se because these were existing products, although elmex does have innovation, but it's almost treating it like it's innovation and taking time to build that up.

Great. Looking at sort of the macro challenges that come in Latin America, I mean, over the years, currency has been incredibly volatile, right? I mean -- and you've gone through a huge multiple devaluations of the Brazilian real, currencies are -- the fluctuations are extraordinary. So can you talk a little bit about how that impacts the business, how you manage through that -- those type of currency changes? And if perhaps we're in a period in which the dollar versus the Latin currencies is flat or maybe weaken slightly, to what extent that gives you more flexibility? So kind of the tough scenario and the hopeful one.

Yes. I will start, listen, if you do business in Latin America, you better know how to deal with movements in currency. And I think we are very fortunate to have people on the ground with plenty of experience who have gone through many crisis in their careers. And given the tenure of the people that work in the company, they have done it with us. So that's the first element that I will mention.

Second, we are super disciplined, and I think we talked about this a little bit in our previous meeting to understand what is the transactional effect of foreign exchange into our P&L. And with that, I refer to what is the dollar-based component of our cost in our raw and packaging material. And as we face movements in -- negative movements in currency, we immediately take pricing to be able to offset the nominal effect of those transactions.

The benefit of doing that is that, one, obviously, we minimize the urge to do it all through productivity. The second one is that the pain that you feel because you're taking that pricing is the same pain that -- or the same cost pain that others are feeling because they will have similar cost structures as you will do. So net-net, something we have done always something that, in a way, crisis will always allow us to get stronger and something that we have managed really well.

Are you allowed to give us a rough idea of what percentage of your COGS are dollar-denominated or not going to go there?

Not going to go there.

Okay. Understood.

But it changes a lot by category and even by region. So it's not one exact number. And obviously, over time, you want to localize but it's very difficult to do.

But the one thing I would say, right, as you think about it, given our scale advantages, we are going to have a higher gross margin than our competitors in these regions, which means that their dollar-based costs are going to be a higher percentage of sales than they are for us. And so that helps us from that standpoint in terms of making sure we price effectively, as JP talked about, but then also we have such great productivity that allows us to get the gross margin.

Great. Brazil has one of the highest incidences of oral care use. I mean they really take care of their teeth in Brazil. Are there anything that you can learn from that, that are applicable in other countries just in terms of what has worked so well in Brazil in terms of oral care use and that could be then transported to other countries?

Yes. You're absolutely right. Brazil has super high per capita consumption in toothpaste. It's not only in toothpaste, but also in other categories. They take 2 shows per day. So very high per capita consumption in skin cleansing. I think it has to do with the culture and the desire to look good and be healthy. I know we have a Brazilian in the room. So I'm pretty sure that he will connect with that comment.

I think that what we have taken from Brazil and from other markets is you have to identify what are those opportunities that will help you to drive that per capita consumption. A good example of that inside will be people normally are pretty disciplined about brushing in the morning, but plenty of people are not so disciplined about brushing at night. So finding the key insights and key motivators to have people brush at night represents a wonderful opportunity for us to continue growing per capita in the region.

Great. So to wrap things up, I think you said that you were hoping or planning to deliver over time at the high end of the 3% to 5% algorithm. Maybe talk a little bit about how that would work. And then just as importantly, what does that mean -- what can you do on the bottom line? I mean you already have extremely high margins already. Is there operating leverage? So if you do 5% top line, you get operating income growth of 7%. I mean how should we think about that?

I think as I mentioned, we think categories are going to go back to pre-COVID levels. I think that we will continue to be able to deliver on the higher end of the corporation. I think we will have a better balance between volume and pricing. I think that we will remain with the opportunity to continue to drive productivity within our P&L. While margins may be high, we have a tremendous opportunity in terms of premiumization across our business. And we have, as you mentioned, a critical mass that allow us to manage overheads and our investment in a much more efficient way. So I do believe that we have very positive in the mid and long term of driving good growth and continue to improve profitability in Latin America.

Sounds to me operating profit growing ahead of sales. That's kind of what I...

I mean I think as a total company, yes, we would want to do that, and we would like to do that across divisions depending on the opportunities to invest, et cetera. But yes.

Certainly for Latin America. Great. Well, thank you very much, John, JP. Really appreciate it.

Thank you, Robert.

Thanks, Robert.

Okay. Welcome back. Thanks, everybody, and thanks, especially to the Colgate Company, who we're thrilled to have back, especially thrilled to have back Noel Wallace, Chairman, President and Chief Executive Officer of the company. And we're going to use the entirety of our time for Q&A. So thank you, Noel, for joining us.

Pleasure.

We'll just jump right in. So I'm going to start -- the way I've started a lot of these conversations was just sort of the environment that we're all finding ourselves in. Very eventful start to 2025, lots of different competing pressures essentially on both the consumer and really your retail partners, especially in the U.S.

Maybe we start there, just talk about your assessment of the consumer broadly and how recent dynamics have impacted your categories?

Yes. We came into '25 expecting to see a slowdown. Obviously, a lot of inflationary pricing in '24 -- '23 and '24, strong volume growth in the back half of '24.

So sort of ... we've had some environment that we're all finding ourselves in '25...

So the full expectation thing will slow down. I mean what's changed that is, I think, a much more pensive consumer. And I think you've heard it consistently throughout the week that the consumer is a bit uncertain and as a result, being more cautionary in their purchase patterns. And as a result, we're seeing slowdown in the categories. If I move around the world, I mean, obviously, the U.S., we talked about it on the call. We had -- just in context for those of you who didn't hear what I explained, 12 categories down in February. We had about half those categories improve in March, half go the other way. And in April, everything got a little bit better.

And I would say, consistently, we're seeing a little bit of slight progression in the categories that we saw from the beginning of the year. But you can just see the volatility and the movements that we're seeing based on what I would consider a consumer that's very cautious on their purchasing patterns. As we go around the world, Europe is still doing okay. I've been with the Western Europe team. I was with our Europe division this past week. And overall, we're seeing, obviously, a little less pricing in the category, but we're seeing great share growth in perhaps a more muted category, volume starting to come back into the categories, which is nice. So overall, I would say, pretty good.

Latin America, in general, pretty consistent with what I talked about on the call. Mexico has gotten a little bit better. Brazil, perhaps a little bit softer. But overall, pretty consistent, not significant moves. Asia, maybe a tale of 2 stories there. India, a little bit of slowdown in the urban market, pickup in the rural market. China is still kind of moving sideways up and down and not really seeing more stickiness in terms of where the categories are going there. And obviously, that's a bit concerning in terms of predictability of where China will go, but not a big business for us, but we watch it very, very closely.

Africa doing quite well, doing better than we had -- we saw in the first quarter. So overall, some pretty good signs coming out of Africa. And did I leave anyone. And the Hill's business in a muted category, executing extraordinarily well, growing market share in every single segment in which we compete and driving some pricing in the category as well. So overall, a mixed bag, a consumer that's cautious. But a reminder, we compete in nondiscretionary categories. And as a result, we fully expect the categories to improve as we move through the back half of the year. Things just need to settle down a bit. I mean all the noise that you're hearing in the market has created a consumer that's going to be more discretionary on the purchases.

Yes. What about from a retailer perspective, I think most of the controversy has been around the U.S. and retail inventory levels. We've heard this week some companies that seemingly avoided destocking in the March quarter are now seeing it in the June quarter. Others have said it's better. Others have said it's continued. Where do you stand in the U.S.? And then is there any other dynamics around the world to think about?

Yes. We haven't seen a major move on trade inventory levels. Again, trade inventory levels are a function of a couple of things. I imagine they're managing their working capital very carefully based on where their input costs are coming from. And as a result, they're very cautious. And in categories where they feel they can squeeze a little bit back, they may do so. In categories where we're seeing consumer destocking, i.e., consumers perhaps not buying 3 bottles of distillate where they're buying one. As a result, when they see the category slow down, they'll take inventories down as a consequence of that.

But overall, we haven't seen a dramatic impact on our business. That's to say that, that could happen certainly in the back half of the year based on the economic and political environment that unfolds. Around the world, pretty consistent with that. I mean I would say internationally, I generalize, given we operate in markets around the world that we've seen a general improvement in the retail environments around the world. We've seen constructive promotion environments. We've seen at least the buyers very focused on growth and innovation and growth in value, and we're delivering against that.

So U.S., a little bit more cautious. We're international perhaps closer to what I would consider normal.

Okay. And as you net it all out globally, just in terms of your scorecard from a market share perspective. You mentioned Western Europe as a point of strength in general, satisfaction with market share trends?

Very satisfied. I mean when you go back to where we were in 2019 and really getting an inflection back on the top line of the business, that's translated into brand penetration, which is everything for us, translated into obviously increased market shares on our Oral Care business. We've seen a little bit of mix change. Obviously, our very high shares in Latin America. You've seen the dollar improve. Most recently, obviously not, but historically, over the last 6 to 9 months, strengthen, we've seen the mix effect a little bit in our market shares, but our volume shares and penetration continue to be very, very strong across the world.

Good. And tariffs, another big topic. Less so the -- well, I guess, most of this the dynamic and the ever-changing assortment of tariffs and kind of the moving target. I guess remind us of sort of your direct, indirect exposures in terms of -- from an import-export perspective and then how you're managing through this volatility?

Yes. A lot of moving parts to tariffs, I'm sure, as all of you well know. And we were quite clear to try to get out in front of that as quickly as we could in the quarter earnings release. And we announced the impact of tariffs that were implemented and announced as of April '24, and we've stayed very true to that number. We'll see where things ultimately unfold. There's been some puts and some takes to that, but we're holding to that. What's interesting is not dissimilar to what we -- what happened during COVID, we've really taken the opportunity to continue to optimize a highly efficient global supply chain and find ways to make that supply chain more efficient.

And we operate on what we call a net corporate benefit. We look for opportunities to move production around from one site to another based on the net corporate benefit to the company, and we've built a lot more agility and flexibility. There are some longer-term implications that we will consider and be very thoughtful of once we see a real clear line of sight on where things will ultimately settle out. But right now, we're simply trying to manage some of the uncertainties and handling that, I think, quite well.

Productivity, we've stepped up within both the manufacturing space as well as our funding the growth initiatives. We're looking at more efficiencies across the P&L. So we're doing the best job to offset that. We -- as you know, in our quarter update, we provided continued dollar-based earnings growth despite the tariff, despite foreign exchange because we think we've got a good line of sight to the predictability of that.

Yes. If we -- kind of stepping out or stepping back, I think you talked about this at CAGNY, your strategy has been working to deliver consistent top line and bottom line compound growth, and that's the objective. What would you -- how would you articulate the key building blocks of that strategy? And I'm assuming it is, but why do you feel it is so well suited or especially well suited for the current environment?

Yes. I just had some discussions earlier this morning on really kind of reframing some of the really transformative changes we made at the company back in 2019, and that was coming off a period of basically no growth on the top line. We were a $15 billion company. Market shares were stagnant or in decline, innovation wasn't performing, and we really had to get a growth mindset back into the organization.

So we put together a '25 strategic plan that gave us a clear line of sight on the opportunities that we had to drive growth. We were much more selective and choiceful on where that growth was going to come from, much more deliberate in the category composition of where that growth was going to come from. And we unlocked opportunities that were very different for us in terms of our go-to-market. So case in point on Oral Care would be we really were leveraging the multiple equities we had in the world versus just Colgate. We tried to make Colgate work for everything in the world, and we found that in places like Europe, unlocking elmex and meridol were a huge growth potential.

We've taken those into certain markets around the world. Hello in the U.S., a huge growth opportunity. We very much focused on the Pet Nutrition industry. We felt that was a business that we could truly win in based on the strength of our brand. We put advertising, significant innovation, improved our supply chain. That's unlocked a lot of top line growth as well as operating margin. And we got the organization focused on really understanding where innovation needed to go. And we uplifted our resources and innovation, focused on the core businesses. The composition of our categories where we compete and we have very strong shares. The big part of that is core, and we weren't renovating the core business nearly as frequently as we needed to, more resources in R&D.

And then while we built the gross margin back in the P&L and grow the top line, what that afforded us was the opportunity to really build capabilities that we saw were going to be absolutely necessary for the long-term health of the company. And it was all about building durable, sustainable top line growth and capabilities that we think are going to help us grow faster in the long term despite the volatility that we see in the world.

So digital capabilities, data capabilities, AI capabilities, science and innovation capabilities. And the strength of the P&L and the flex that we had in the P&L afforded us the opportunity to build all those. So as the markets start to slow, we're not having to spend additional money to catch up to those capabilities today. We have those capabilities well entrenched. We've got more to do to be sure. But the good news is we've had the ability to kind of get ahead of the curve, so to speak. And as I often say internally, get back on our front foot. And we were on our back foot and we needed to really think about the future rather than the quarter, and that's where we built the plans against.

Great. You mentioned flex the P&L. You've talked a lot about your ability and your intention to do just that in the face of obstacles or frankly, in the face of opportunities in both directions. I guess what does that mean in practice? And how do you, I guess, guard against over flexing the P&L, especially in the face of headwinds and get yourself kind of back maybe hopefully not all the way back, but even a little bit back towards where you were when you started the journey in 2018.

What -- the key headwind we faced back in 2018 and '19 is we just weren't growing the top line. And as all of you well can understand, if you're not growing your top line, it's very difficult to get leverage through your P&L. And the sustained growth that we've had and in some respects, peer-leading growth in the top, particularly on an organic basis, has afforded us the opportunity to make a lot of strategic choices within the middle of our P&L. And when you make those strategic choices on how you want to grow margin, where you want to invest, the categories you want to emphasize, the capabilities you want to build, that's building long-term health for your business. And where we're not reacting to how do we deliver a quarter, we're thinking about where do we want to be 2 to 3 years out.

So we developed a '25 plan that really helped guide the organization on very specific choices that we needed to make as an organization. You have 34,000 people working in 200 markets around the world. The biggest challenge a leader like myself has is ensuring they're aligned behind the growth opportunities that we have. They may see a local opportunity, but we need to fully exploit the leverage and the scale that we have as an organization by going after global opportunities. And that's what the '25 strategy did and helped us accelerate it.

We're going to California in a couple of weeks to launch our 2030 strategy. And it's a wonderful position to be in where you're not saying, okay, here's a new strategy for the company. It's taking what we know we do well, what we didn't do well in the '25 plan and now building from that in terms of the capabilities that are well on their way to hopefully unlock continued predictable growth for the company.

Are there things that you feel you didn't do well in the '25 strategy? And what would they be? And what are your early thoughts on how to course?

Yes. We put a lot of -- at least some of the feedback that we've received from our employees is a lot of change. And change is never easy for an organization, and I think cultures adapt and weather the change as effective as the people feel engaged in that change. And we've done a great job in getting the organization to see where we want to take the company and that change has happened.

But there are areas where I think we can do better. Innovation is one. We've really stepped up innovation, but I wholeheartedly believe that we have a lot more to do there on getting the innovation to be more insight-based, getting the innovation to be more premium. We still consistently around the world, despite the strength of our business, under-indexed in the super premium side of the market. And that's what's driving a lot of the category growth. So we need to bring true science-based perceivable superior products into the market, and we're very focused on doing that not only from a science basis, but also from an advocacy basis in terms of how we get our partners in that space along with us, whether it be the profession or key opinion leaders.

Okay. Yes. So go back to what I tried to ask this question. I think I might have made it unclear. But just you've spent -- you've rebuilt the middle of the P&L from an A&P perspective. I think when people hear it flex the P&L and we're worried about top line headwinds, and that means protect the bottom line and flex the P&L by potentially pulling back on demand building expense, including A&P, which I think gets people nervous in the extreme. How do you think about that? Is that a point of flex with A&P in the P&L? And how do you reassure people that you won't overflex it?

We have spent a considerable amount of time, obviously, building the advertising line in the P&L, and that has been a key driver of our top line growth. I think there are other aspects that have really helped top line, the choices, the strategy, obviously, the execution against the fundamentals. But certainly, in our business, advertising is very important. We needed to build the advertising line to build back the health of our brands. Our brands have deteriorated, particularly as we moved away from the core. And I can confidently sit here and say that over the last 3 years, the amount of advertising we put behind the business has absolutely improved the health of our businesses. So they're in a much better place than they were 5 years ago.

I mentioned the capabilities earlier that we had the leverage in the P&L to invest in capabilities, whether it's at the margin line or the NBO line. Those capabilities have now made us much, much smarter in how we think about our media allocation. So we were having discussion with Western Europe that despite in a certain market, they have held advertising, their ROI is up 15% on their advertising. So arguably, you get the same impressions by spending 15% less. So we -- in a market like we're operating in today where we've seen a slowdown in certain categories, by all means we're going to be cautionary to ensure we're driving top line growth and return for our shareholders.

So yes, advertising can be a lever in that. We will decide that lever based on the effectiveness that we have in the market and the return on the investment that we're seeing based on the category growth aspects that we have. So my sense is we have other aspects. The other one I would talk about lever in the P&L is the margin.

Our business has great gross margins, and we've done a really good job in getting the gross profit back to peer-leading levels. The Hill's margin and operating margins have come back to really, really strong levels. Having high margins is great in fast-growing categories. It's even better when the categories have slowed because you're generating still good operating dollar leverage in the P&L. So we feel good about where we are in the constructs of the P&L. We'll see where things unfold. But the strength of the equities and the investment that we put in, that is the single most important thing to take pricing in the market. If you want to take pricing, your business has to be strong and the investment that we put behind both the Colgate side of the business and the Hill's business would indicate that.

Okay. You've also put a lot of money and effort behind commercial capabilities. Some of that surrounds A&P, as we talked about. But you also talked a lot about investments in data analytics and AI as an enabler of the business, whether enabler of revenue growth management or enabler of -- across a lot of your execution. How would you describe that journey? How advanced do you feel like you are relative to competition? And how much more opportunity or need do you see on the -- I guess, on the technology front?

Yes. One of the more significant changes we made going into the '25 strategy is we made our IT organization part of the growth strategy. They were a cost center before. We're obviously at the forefront of SAP. We've got great tech stacks across the company and enterprise systems to use via our partnership with SAP. But we weren't using technology as a growth facilitator for the organization. And so what we've done is we've evolved them into an important part of the growth pillars of our organization by ensuring that we're developing tech stacks that make our people smarter and faster in the decisions they make.

So SAP, we're going to S4. That will be one system around the world. We're now going to structure all of our data around the world so we can now use AI on top of that data architecture that we have. That's going to unlock significant learning and much faster execution. We've invested in capabilities, digital capabilities with -- internally with our media partners. We've gone to programmatic buying across the Board. We've really moved the organization digitally as assessed by external partners on how we're doing. We've moved up to, I would say, in the top tier, more work to do, but we're certainly making great advancements. We're moving to much personalized marketing back to the ROI nature of how we think about our media spending.

And AI now is just a truly exciting aspect for us. We've talked about it back in CAGNY. We've been investing in it for a couple of years, and we think we're very much at the forefront of this. The biggest excitement for me is making our people more effective. And yes, everyone wants to see where is the cost savings, where is the cost savings and efficiency. The real efficiency to be gained in the short term is making our people a lot smarter and faster what they do, letting our people build their own agents to manage their work and do it more effectively.

And the creativity that we're seeing coming from our organization in this space is daunting. I mean they're finding much better ways to run their businesses, to get insights out of their business quicker and make decisions. And I think that's personally the biggest unlock we're going to see in the next year. No question, we'll find business cases to drive productivity in the R&D space, which we're working on with digital twins in the manufacturing space, which we'll work on. A lot of excitement there, but the power of making someone a lot more effective in their day-to-day is going to be, I think, the most exciting piece to watch.

How pervasive is that like across the organization, across the thousands of people who work for Colgate? Is it early innings? Or is it -- are you at the point where you feel like you have a mass scale?

We made a big strategic bet 2 years ago on this. We have trained every single one of our S&C employees in the company on AI. We now have 3,000 people in the company that we would consider subject matter experts on AI. So they're building use cases for the organization to share best practices across 34,000 people around the world. And this is where the real unlock is that we got ahead of it early back to building flexibility in the P&L.

So we're not having to play catch up. We played catch-up in the digital transformation back in 2019. We were behind. And we realized that we were going to have to bring an outside expertise in to really help catapult us into a better position. That was a lot of work, but we got there. AI would be -- we've learned from that. We got ahead of it very, very quickly. We're very thoughtful on where we think we're going to get the best return on our investment. A lot of shiny objects out there, but we're very pragmatic on how we want to think about the spend.

Okay. If we move back to the business in the current environment, and we kind of move beyond 2Q into the second half, your outlook is predicated on improvement in the back half relative to the first half. How much of that improvement is to come from category improvement? How much of that is to come from drivers that you are in control of? And do you feel on track?

Yes. Listen, the updated guidance we provided, certainly, if you run the math, there's some improvement there. Is it significant improvement? No, it's not in the categories. The categories don't have to significantly improve in order for us to achieve that. They need to at least modestly improve versus where they were in a very disruptive first quarter.

So we feel good about, particularly given our global footprint and the fact that the international business seems to be a little bit more vibrant than we've seen, particularly in the U.S. market. That combined with strong market share, strong innovation, great RGM, we feel pretty good that we're going to be able to get a combination of volume and pricing acceleration as we move through the back half of the year. My feeling is where I sit today, we've got a pretty good line of sight of that. But things are very volatile in the world right now, as everyone knows, and we'll watch it very carefully, but we're pretty confident.

Are there any key advertising campaigns or key innovations that are especially important in achieving that outcome?

Yes. We've taken a major global relaunch of Colgate Total back to the premiumization. We've taken significant pricing on that business and early days is market shares are holding and growing across -- in general, across the Board. So we're very excited about that.

The Hill's business has launched an entirely new equity campaign in 80 countries around the world. The early signs on that are outstanding. We've got a great innovation pipeline coming behind that. So across some of our Fabric Care and Personal Care businesses, the Sanex business in Europe, we've got some great relaunches on that business that are doing very, very well.

So overall, innovation doing well. But the single biggest opportunity we have is still mix opportunity in driving premiumization, and we'll be very focused on leveraging our portfolio systematically around the world in that regard.

Maybe you mentioned strength in Europe. Your business has exhibited strength in Europe, and it's seemingly exhibiting strength in Europe for longer than some other companies. To what do you attribute the success? How sustainable do you see it? And are there learnings that you can take from Europe to other markets?

Yes. First, we've got a great team. Anne Sophie is here, who runs our Western Europe organization and doing some terrific work with her team. But across the Board, it's a consistent deployment of a strategy. And I come back and I realize this sounds somewhat elementary to some of you, but if you're not consistently utilizing the resources you have on the ground against the key growth choices that you've made, you'll get inefficiency and disparity in terms of execution. We know what we're trying to accomplish. We know the premium opportunities we have in the categories, and we're consistently going after those.

The pricing that we've been able to achieve in Europe versus a decade of negative pricing clearly indicates what's possible. We have really stepped up our innovation and renovation strategies to get more pricing in the category. And that's not only helping category growth for our retailers, but helping obviously our market share growth. Our Oral Care market share is at a record level.

And again, I talked about flexing the portfolio a lot more in Europe, our elmex and meridol brands driving significant growth, Colgate brands growing as well. And when you have the two working in combination, you can do a lot of special things with the trade to drive more category health longer term. So we feel the pricing mechanisms and discipline that we have in place, but it's all anchored against the consistent strategy that we're trying to execute around the world.

Okay. At CAGNY, Prabha highlighted India as a key market opportunity, which obviously is operated by an independent company in India. But just how do you frame the outlook there for your business, both near term and long term? And where does India rank in terms of the growth drivers of the company over the next -- in the 2030 strategy that you're putting together?

Yes. Depending on what you read, India will produce probably the biggest contribution to the middle class society in the world over the next decade. And middle class is everything to our businesses. That drives premiumization, that drives penetration in the categories that drives per capita consumption. And so we -- long term, we're very bold on India. We've got a fantastic business there. Obviously, we've seen some slowdown in the urban markets as of late, but the rural market seems to be performing well.

You've obviously met Prabha. We have an outstanding team on the ground that's very digitally forward, thinking about where the future is going in that market in terms of both our distribution mechanisms as well as our marketing mechanisms and we think executing very, very well. We've seen a little bit of slowdown, as I mentioned, in the urban. But long term, a huge middle class opportunity. We're well positioned to go after that. And I think we've got some very clear strategies in place on the ground to deliver on that. We're going to see -- it's going to move up and down other sideways. But long term, how we think about that business, it's a top priority for us.

Okay. You mentioned -- you talked -- kind of implicitly talking a lot about Oral Care. You mentioned a couple of times, Hill's favorably. Maybe kind of focus there. How would you assess current momentum in Hill's? The Pet category more broadly has slowed. Hill's has, to my eye, kept pace ahead of that category, but it's not -- it's facing similar dynamics. So your summation of Hill's performance today and maybe an update as to how you -- where you are in the migration away from private label in that business?

Yes. My overall assessment is excellent. I mean the business is performing tremendously well up and down the P&L, you see all the KPIs moving in the right direction. But I think most importantly is the brand health is as strong as we've ever seen it. And I think that's a reflection of the advertising investment, our continued strong participation with the veterinary community and partnering with them on driving nutritional -- positive nutritional outcomes for pet owners. And that partnership is obviously elevating the brand and its resonance with consumers.

The segments, while the category has slowed in the first quarter, Hill's grew in every single segment that we compete, grew market share. And I don't think there's another major global player out there that did that. And again, science still is highly relevant to the category. Our Prescription Diet business, which is obviously providing a therapeutic benefit to pet owners in terms of sick pets, is driving a lot of that growth. That is wonderful for the brand and the equity long term.

The supply chain acquisitions that we made, that has unlocked a significant amount of efficiency. You've seen obviously the operating leverage and margins improve dramatically in that P&L. While the category has slowed, Hill's is still low brand awareness and low brand penetration. So we still think there's a lot of growth.

The segments that we're focused on and the emerging segments in the market, we under-index in all of them. So we see real growth opportunities there. And the innovation pipeline is terrific. Big market is the U.S. We will remain very focused on that market. But obviously, international continues to afford us nice growth opportunities in time. We're going to be selective. That brand has a very regimented approach to how it goes to market. It's not a traditional mass market brand. We sell in very select distribution channels, and we build the brand from the profession up, similar to what we do with elmex here in Europe. And that model has worked very effectively in driving premiumization, pricing and loyalty to the brand.

Right. So leaning in playing offense. And the -- where are you exactly in the migration away from private label capacity, which the plan is to convert to Hill's? And how do you frame the margin unlock that follows?

We're kind of reaching the tail end of it. We'll have -- we talked about a slightly more significant impact in the second quarter than we had in the first quarter, but I would anticipate by the beginning of the fourth quarter, we will be fully out of private label. We make basically no margin on private label. So while it's absorbing some overheads, we have found ways to potentially mitigate that overhead absorption in other areas. And so we will have an accretive aspect of the margin and using that manufacturing capacity to build obviously much more profitable growth.

But the biggest unlock, I think, is the network optimization in our supply chain. And while we were limited in '23 and '24 due to supply chain constraints, while there's a short-term impact, obviously, on your top line, the longer-term impact is you're not able to put the portfolio assortment into the trade and you're not able to provide innovation on a very consistent basis. That is behind us now. That supply chain is unlocking real efficiencies, thinking about how to continue to optimize productivity as it moves through there, while also bringing a lot more innovation and funding the growth into the business.

And I think I'd mentioned we couldn't run any of our funding the growth projects in '23 and into the first part of '24 because we were at capacity. And when you're not -- when you're running at 90% utilization, you just have no time to shut those lines down to do anything. Now we're able to be much more thoughtful how we think about the long-term aspects of the category.

Got it. Earlier this year, you announced the acquisition of a fresh pet food business out of Australia. Essentially, as I understand, more of as an experiment, a learning vehicle. Granted it's only been a few months, but how has your thinking evolved, if at all, around that business? What are your plans and aspirations for it?

Yes. Great brand, Prime100. No secret that we've been looking to enter the fresh segment for quite some time. We've obviously seen a lot of interesting trends. But the barrier to entry for us was we had to find a brand that represented the same criteria that we have for Hill's, which is premium, which is significant nutritional value to the vet and a value that they see in the product itself and obviously, a nutritional value to the pet owner.

And Prime100 fit all of those, growing business, profitable business, obviously, very strong underpinning from their profession in Australia and an incredibly great quality in terms of recipe and manufacturing. So that's going to be a great learning for us in Australia, and that's our plan is to stay focused on that, and we'll see where it goes. The business is performing very well in Australia, above our expectations. So we feel very good about it, but it's a learning. It's going to take some time. It's a different category with a different go-to-market. And ultimately, we'll see how we think about that longer term. But right now, we're focused on Australia.

Okay. I mean, in general, despite kind of a difficult environment around you, it seems like the business is firing on many of the right cylinders. I won't say all because I know you could do better. But has that changed your appetite for M&A, kind of building on the Prime100 example to bolster capabilities? Has your thinking at all changed in terms of what role M&A plays with regard to portfolio reshaping?

Yes. Listen, be totally honest with you. M&A is really hard, very, very hard. And I think what's nice about our current business environment is that our 2030 strategy is not contingent on any M&A. It's completely organic growth within the business and the opportunity spaces that we see. So by definition, we're not chasing M&A to fill a gap. If we see strategic M&A that complements just like Prime100, that's a beautiful thing and that we can drive efficiency and learning into our own business that we think long term is right, assuming the valuations are right. And I think valuations certainly have come a little bit more in check with where they were historically. But we don't need a major M&A investment in order to change the trajectory of our company. That being said, if we see some strategic bolt-ons that we would certainly consider that.

Okay. Last week, you announced a series of leadership changes. I think they're scheduled to take effect in a couple of weeks, really essentially creating two COO positions and a Chief Growth Officer, among some other shifts. But I guess maybe summarize the change. And really, I guess, what drove the change and how will the new structure better serve the company?

Yes. And what's been, I think, so characteristic of our company is our ability to attract and develop talent within the organization. And this was an excellent opportunity to bring in a very proven leader from the outside who's demonstrated and arguably a very challenging category food to drive growth and new thinking into the business. And so bringing Shane into the business is a great add-on. Historically, if I went back 10 years ago, we have not been successful bringing people in from the outside. In the last 6 years, we've brought in probably close to 200 people from the outside. This fresh thinking has really been well accepted within our organization and people recognize that there are a lot of great ways to drive growth in the business and drive productivity, and we can learn from the outside. And I think that speaks to the humility of our organization.

So Shane is going to bring in a great thinking. The Americas combination is great, in my view, because, one, they're inextricably linked from a supply chain standpoint. Two, there's a huge Hispanic influence in the U.S. where we have very, very strong businesses and being able to leverage Latin America more effectively in that regard, we think will unlock possibilities. Latin America has great resources in the space of innovation, digital and online. Those resources can be shared in best practices, transferred a lot more expediently across the organization. So we think there's going to be a lot more efficiency there.

Getting Panos focused on another part of the business, particularly Asia, where we see a significant amount of growth, much more of his time in that area, and he's a well-versed Colgate person who knows particularly developing markets extremely well. It's going to give us a lot more focus on that.

Bringing John in, John Hazlin was our President of the Hill's business, a great strategic mind. He has seen omnichannel develop at a much more rapid pace in the Pet Nutrition business than in the classic Colgate business. That's the future of CPG in my view, is how do you interrupt the very disruptive consumer journey today with an omnichannel strategy and dealing with retailers who want to be omnichannel. And we've done that the best with Hill's, bringing his strategic mind into the Chief Growth Officer will allow us to continue to elevate the capabilities.

And Stan, our CFO, 20 years out of IBM, he is as tech savvy as they come and getting him to focus on obviously using our IT infrastructure to really drive growth and unlock it will be exciting. And we've got Prabha for at least up through October. And what's exciting is now we have a senior executive leader really focused on some transformative things that I believe are going to be necessary for our 2030 strategy and accelerating those specific areas with a single-minded focus on getting to execution and deliverability across the P&L.

Great. Stan is a great example of someone that came from the outside and thrived.

Yes, exactly in terms of future.

If I'm not mistaken, you can correct me if I am. It looks like the management of skin care will move to Panos. Does -- assuming there's no resegmentation that comes with this org change, does that mean that skin care moves back under the European segment? Or have we figured that out yet?

No. The skin care business is so spread around the world that we want to ensure that we get great execution. We brought in someone from the outside about 2 years ago to really rethink the strategy. Where do we want to play that we can play in and be effective in. That strategy is well in place now. Panos is going to go out and execute that strategy. He does that extraordinarily well in getting his face time on the sales fundamentals required to open up new doors and distribution, getting promo improved that's the kind of stuff that we need to do.

We've got a great pipeline of new products, and we've got a great strategy that we can execute. That business has obviously been severely disrupted by the China business, particularly with Filorga. But our U.S. business, which is where we will predominantly focus, continues to operate quite well.

Okay. And from a segmenting purpose, reporting perspective, no change.

Today. No change. Today, no change.

In the 1 or 2 minutes we have left, I guess, just how would you sum up? And how would you sum up? I guess, what would you tell investors that should keep most top of mind as they think about Colgate as an investment opportunity over the next several years?

Yes, the history of our company has been on durability and predictability. And I think we've spent a lot of time internally in the organization, getting the culture to understand the importance of a growth mindset and the accountability that comes with that. And getting the organization to understand that, yes, that great organic growth needs to translate to dollar-based earnings growth for our shareholders. And we've spent a lot of time getting them to understand the mechanisms of what does that and why we need to get the balance of pricing and volume, the premiumization in the categories and why we're focused on making very deliberate choices on our investments around the world.

We've got a great balance sheet. Our return on capital is best-in-class in the industry. We will continue to obviously leverage our capital very, very carefully in the context of thinking about our shareholders in that regard. But overall, it's making sure that the income statement works. We're driving great innovation to drive the top line and brand penetration, which is happening and deleveraging our balance sheet as we see necessary.

Perfect. Right on time. Thank you Noel. Thank you, everybody. Thank you, Colgate.

Thanks, everyone..