Colgate-Palmolive Co. Q1 FY2025 earnings call

• Challenges: Weaker consumer with slowdown in volume growth due to macroeconomic and consumer uncertainty, and tariffs with an incremental impact of roughly $200 million in 2025 vs initial guidance.
• Opportunities: Leveraging global portfolio with products across price tiers, strong P&L and balance sheet allowing investment in brands, capabilities (AI, data analytics, innovation), and geographic breadth for growth. Strong brand health positions brands well in difficult market environments.
• Innovation: Focus on value-added, science-based core innovation like relaunch of Colgate Total and Hill's Science Diet with ActiveBiome technology. Accelerating innovation in the back half to stimulate consumption at varied price points.
• Supply Chain: Built flexibility over past years, invested ~$2 billion in US supply chain, and developing plans to deal with tariffs via alternative sourcing, formula simplification, shifting production, etc.

The transcript does not provide detailed absolute revenue figures or revenue contribution percentages for specific product segments. However, key segments mentioned include oral care, personal care, home care, and Hill's Science Diet. Hill's Science Diet business saw organic growth, with ex-private label up 5% in the first quarter across various categories like wet, dry, treats, cat, dog, prescription diet, and science diet.

• Tariffs are expected to have an incremental impact of roughly $200 million in 2025 vs initial guidance, with the impact fairly equally split from Q2 through Q4.
• Anticipate category improvement in the medium term, with signs of improvement in April. The second quarter is expected to be soft given ongoing uncertainty, but the back half of the year may see improvement as macros get slightly better and comps get easier.
• Guidance includes gross profit margin roughly flat for the year, with low single digits for earnings per share.

• Tariffs: Incremental impact of tariffs announced since Q4 2024, which is a fluid situation requiring ongoing monitoring and response.
• Consumer Uncertainty: Weaker consumer with slowdown in volume growth in categories due to macroeconomic and consumer uncertainty, leading to pantry de-loading and retailer destocking in some quarters.
• Commodity Inflation: Modest raw material inflation is expected, which will be tackled through driving productivity, formulation, and supply chain efficiencies.

Q: Peter Grom from UBS asked about consumer pressures and consumption across categories.

A: Noel Wallace responded that the focus is on driving household penetration and improving brand health. Volume growth in categories slowed, with some improvement seen in April, and expected to normalize in the medium term.

Q: Andrea Teixeira from JPMorgan asked about North America consumption and competitive environment.

A: Noel Wallace said North America categories saw sequential slowdown through February, some improvement in March and April, with focus on innovation, price architecture, productivity, and advertising ROI. Competitive environment is constructive with focus on innovation to drive growth.

Q: Filippo Falorni from Citi asked about pricing approach.

A: Noel Wallace said pricing was as expected, with improvement sequentially. Latin America saw pricing announcements, US pricing improved sequentially, and Europe had strong pricing due to premium innovation. Focus on RGM and innovation for pricing effectiveness.

Q: Dara Mohsenian from Morgan Stanley asked about emerging markets.

A: Noel Wallace said volume was positive ex-private label, Latin America market shares strong, Africa/Middle East shares strong, China had challenges with Hawley and Hazel, but Colgate business performed well. India saw urban market softness.

Q: Bonnie Herzog from Goldman Sachs asked about advertising spend and innovation.

A: Noel Wallace said no change to innovation plans, revision in advertising spend is due to optimized spending and balancing P&L flexibility, with local currency advertising still strong.

Q: Robert Moskow from TD asked about Hill's and wet formats.

A: Noel Wallace said no trade down in Hill's, strong organic growth ex-private label, broad-based growth across categories, and focus on under-indexed segments for growth.

Q: Kaumil Gajrawala from Jefferies asked about consumer slowdown in February and reassessment of inflation.

A: Noel Wallace attributed slowdown to consumer uncertainty, and Stan Sutula said modest raw material inflation expected, tackled through productivity and supply chain efficiencies.

Q: Robert Ottenstein from Evercore asked about Europe strategy and shifting to other markets.

A: Noel Wallace discussed strong Europe performance due to volume growth, Elmex strategy, and selective approach to expanding to other markets with long-term view.

Q: Kevin Grundy from B.N.C. asked about tariffs sources and offsetting.

A: Stan Sutula said tariffs impact is ~$200 million, predominantly on raw materials and finished goods from China, mitigated through local manufacturing, supply chain flexibility, productivity, and revenue growth management. Noel Wallace added focus on category-based offsetting and innovation.

Q: Chris Carey from Wells Fargo asked about back half of year growth.

A: Noel Wallace and Stan Sutula said expectation of top line improvement in North America and Asia, with benefits from pricing roll-through, brand health, and innovation. Confidence in oral care and Hill's businesses.

Q: Olivia Tong from Raymond James asked about US pressure areas and Latin America elasticity.

A: Noel Wallace said North America volume issue due to consumer uncertainty, expected improvement with innovation. Latin America strong with brand strength, innovation, and pricing, expecting improvement with macro stabilization.

Q: Bryan Spillane from Bank of America asked about private label exit.

A: Noel Wallace and Stan Sutula said private label exit expected by third quarter, with impact on volume, but Hill's business strong ex-private label, and focus on controlled core business.

Q: Lauren Lieberman from Barclays asked about emerging markets competitive activity.

A: Noel Wallace said some markets like Turkey and South Africa had challenges, but other emerging markets performed well, with focus on addressing specific market challenges.

Q: Korinne Wolfmeyer from Piper Sandler asked about tariff mitigation pace and scenario analysis.

A: Stan Sutula said mitigation will increase through the year, with scenario analysis done but tariffs hard to predict, noting USMCA compliance for some toothpaste from Mexico.

Q: Stephen Powers from Deutsche Bank asked about Hill's idle capacity and P&L flex.

A: Noel Wallace said Hill's productivity improved through private label exit absorption, and P&L has flex to address growth opportunities and offset economic circumstances.

Q: Mark Astrachan from Seaport asked about channel shifts and Hill's Walmart online.

A: Noel Wallace said market shares strong in club, mass, and dollar stores, with challenges in drug trade. Hill's added to Walmart online to clean up unauthorized sellers, with positive impact on brand representation.