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27.CTW20.Colgate-Palmolive2

Toothpaste tubes have long frustrated green-minded consumers. The hybrid composition that makes such tubes squeezable—a mixture of laminated plastic and aluminum—also makes it impracticable to recycle most of the 20 billion tubes that consumers discard each year.<br />
<br />
Colgate-Palmolive, which claims 41% of the global toothpaste market, poured five years of research into this puzzle, and in 2019, the effort paid off. Colgate’s new recyclable tube is made from high-density polyethylene (HDPE), the recyclable plastic found in shampoo containers and milk jugs. (A key phase of the research: grinding down the tube prototypes and recycling them as new bottles.) This year, Colgate introduced the tubes in multiple brands and it will soon use them for Optic White, which alone accounts for 8.5% of U.S. toothpaste sales. The company aims to make 100% of its packaging recyclable by 2025. In the meantime, it’s sharing the HDPE design on an open-source basis, so others can adopt it too.

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Colgate-Palmolive, founded in 1806, manufactures and sells hygiene products in the U.S. and internationally. Its wide variety of offerings range from toothpaste and toothbrushes to hand soaps, shampoos, and household cleaners. Popular brands include Palmolive, Tom’s of Maine, Irish Spring, Softsoap, Speed Stick, and Fabuloso. It’s also the parent company of Hill’s Pet Nutrition, which sells its products through pet supply retailers and veterinary clinics.

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Colgate-Palmolive (CL): Company Profile, Stock Price, News, Rankings

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Colgate-Palmolive

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Good morning. Welcome to today's Colgate Palmolive twenty twenty five First 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 and A, John

Thanks, Betsy. Good morning and welcome to our first quarter twenty twenty five earnings release conference call. This is John Poche. 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 ks 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 three, five and six of the first quarter earnings press release. A full reconciliation of 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 Sotulla, Chief Financial Officer.

Noel will provide you with his thoughts on our results and our 2025 outlook. We will then open it up for Q and A.

Great. Thanks, John, and good morning, everyone, and thanks to all of you for joining us today as we discuss our Q1 results. We came into 2025 prepared for the volatility and uncertainty. As such, we flexibility into our plans knowing that this year would be more difficult than the years that preceded it.

And while 2025 is shaping up to be even more volatile than expected, we believe the work we have done and the work we continue to do leaves us well positioned to deliver solid results in this challenging environment. I see two key challenges and two key opportunities as I look to the rest of 2025. The first challenge is the weaker consumer, as you've heard throughout the week. While a slowdown in category pricing was always built into our assumptions for 2025, the macroeconomic and consumer uncertainty we saw in Q1, not just in The U. S, but also in other countries around the world, had a negative impact on volume growth and therefore category growth in the quarter.

Our strategy is focused on selling daily use products. We believe that consumers are still brushing their teeth, taking showers, cleaning their floors and feeding their pets. Where there may have been some pantry deloading and some modest retailer destocking in the quarter as a result, we have seen some signs of category improvement in April and our experience tells us that consumers will return to these categories. And we're focused on giving consumers reasons to come back to our brands. We will continue to deliver value added, science based core innovation like the relaunch of Colgate Total and the relaunch of Hill's Science Diet with ActiveBiome technology to add meaningful value to our products so that consumers choose our brands.

The second is tariffs. As we said in the prepared commentary, we expect the impact of tariffs that have been announced since our conference call in January and that are currently in effect to have an incremental impact of roughly $200,000,000 in 2025 versus our initial guidance. This is a fluid situation, and we will continue to monitor and to respond to it over the course of the year. That's why we remain focused on continuing to take advantage of and build on the flexibility we have built into our supply chain over the past several years. As I mentioned on the Q4 call, we have changed many of our sourcing strategies and also invested approximately $2,000,000,000 in our supply chain in The United States over the past five years, which leaves us better positioned to adapt to this changing environment.

We have developed and are continuing to develop plans to deal with the tariffs over the short, medium and long term, including alternative sourcing, formula simplification, shifting production and revenue growth management. But we also have opportunities in this environment through advantages we have built up in our commitment to executing against our strategy. We are taking advantage of the breadth and strength of our global portfolio. In the majority of our categories, we offer products across all price tiers. We are fine tuning our promotional strategy so that consumers can still choose the right Colgate Palmolive product even if they feel less certain about their own financial well-being.

And our geographic breadth gives us more opportunities for growth as we are less exposed to any single market. Our focus over the past few years on building brand health means that our brands are stronger now than they ever were before. We believe healthier brands will perform better in a difficult market environment. The second advantage is the strength and flexibility we built into our P and L and the balance sheet over the past several years. The strength of our P and L enables us to continue to invest in our brands and capabilities.

While all companies may experience pressure on brand investment given the volatility, we ended 2025 with the advertising spending at an all time high and feel that our focus on driving ROI leaves us well positioned to compete effectively. We also remain committed to investing in and scaling capabilities like AI, data analytics and innovation, areas that will take an even greater importance in this more volatile environment. We also have the advantage of a strong balance sheet with low levels of net debt and plans to drive significant cash flow to fund growth and productivity. We think you can see the results of this focus on the P and L and balance sheet in our first quarter results, where we delivered strong profit growth despite the volatility in the quarter. So we look to the balance of 2025 knowing that we are well positioned to deal with the known challenges as well as the ones yet to come.

Our commitment to our strategy and the strength of our execution and team give us the confidence that we will deliver on our 2025 goals while positioning ourselves to deliver long term growth and strong shareholder return. And with that, I'll take your questions.

We will now begin the question and answer session. The first question today comes from Peter Grom with UBS. Please go ahead.

Thanks, operator. Good morning, everyone. So Noel, you touched on the consumer pressures and weakness, as you said, been a big topic of discussion across the group this week. But I would love to get your perspective on what you've seen from a consumption perspective across your categories as you move through the quarter and into April? And then just as we look ahead, how do you see that consumption or category growth evolving as we move through the year?

Yes. Good morning, Peter. Thank you. So maybe let me just step back and talk about contextually and strategically how we're approaching the operating environment in general and pretty consistent with a lot of the discussions we've had, CAGNY, Boston and over the last couple of years, which is our focus is on continuing to drive household penetration and improve the brand health, which is ultimately going to deliver that long term sustainable growth for us. We've improved the health of our brands, and that we believe is a function of the investment and innovation cycles that we have.

And we're executing against that strategy, we think, in an extraordinarily difficult environment. We highlighted coming into the year that this year would be a little bit slower. That was reflected in our guidance and was based on the fact that we would have less pricing given some of the hyperinflationary pricing we had last year, and we would be shifting more toward volume growth. What has changed this year is that the volume growth in our categories, as you rightfully mentioned and you've heard from others, has slowed a bit. So just to give you some context on that, let me take The U.

S. As a good example. That's where most of our data is from. We have seen that through February in our categories, all 12 of those 11 of 12 of those categories were actually down sequentially through February. I think importantly, we saw some half of those categories down sequentially in March and half of them improved.

And as you move into April, you've seen a better improvement across most of those categories, not to where we were historically. So we're not out of the woods yet, but the good news is we're starting to see more stability as we move through April. If you look around globally, consistent with that. A lot of uncertainty in the marketplace in February. We've seen a little bit more improvement in March.

And we expect over the medium term, probably more towards the back half of the year, that we'll start to see more normalization of the categories. Consumers will come back. They've destocked some of their pantries, but these are everyday use categories, as I mentioned upfront. And we have an expectation as we built into our guidance that categories will come back in the medium term. I expect the second quarter to continue to be soft given the uncertainty that continues to exist.

But the early signs that we're seeing in April at least give us some confidence that categories will slowly come back as the consumers settle down and the economic uncertainty that surrounds the markets around the world improves.

The next question comes from Andrea Teixeira with JPMorgan. Please go ahead.

Thank you, operator, and good morning, everyone. Noel, just building into what you answered to Peter. In regards to North America, you mentioned like the April, even in the prepared remarks had been slightly better. So is that like from a shipment perspective and consumption as well? Because what we saw obviously in the first quarter was a negative 3% organic sales growth.

And still obviously as you said not out of the woods yet. Can you comment a bit where you stand right now? And in terms of the main question that I would say is in that in thinking about your flat gross margin, right, and the investments that you rightly so have been planning for innovation, including what you called out, Total and Hello. How we should be thinking of the competitive environment as you go into 2025? Is that continues to be as relatively healthy in oral care and also in home care?

And how are you embedding that in the whole context of that improvement in the category and investments behind the brands? Thank you.

Endera, good morning. Let me take the obviously, the category discussion on North America First. And I think we're quite consistent with what you've heard from other CPGs throughout the last couple of weeks is that the categories took a real step down in February. As a result, trade started to adjust their inventories as a result of the slower consumption they saw from the consumer. And we highlighted this very early back at CAGNY, and we saw the slower consumption.

And the destocking that you may have heard is really a function of where the consumer is. And the consumer was soft in February, a little bit better in March, and we're seeing a little bit better in April. And subsequently, as you see things get a little bit better, you see the inventories typically hold or get a little bit better and you see consumption come back. And that would reflect in our shipments as well. I wouldn't say anything too material there, but the good news is indicative of where we've seen the categories, our shipments seem to be pacing well with that.

Now we have more work to do in North America. That team is very focused on implementing some sharpness in their strategy, particularly around getting innovation right, getting price pack architecture right, improving productivity through our facilities in the plant and getting the advertising ROI elevated. So a lot of focus in those areas. We feel good about the new team that we put in North America now. And as we go into the back half, we expect to see things generally start to improve.

In terms of the competitive environment in general, we're seeing, as I've, I think, characterized before, constructive. We don't see promotion numbers going through unusual rates as a result of that promotion volume on promotion is pretty consistent with where it's been. And you would hope that the category the focus from ourselves and our competitors will continue to be on adding value to the category through innovation. And that's historically what's driven our household penetration and our success, and we'll continue to focus on that. It won't be a promotion environment that will turn things around.

It will be the excitement that we bring to the categories through our innovation.

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

Hi, good morning everyone. I wanted to ask you about your pricing approach. Obviously, pricing has decelerated in Q1, but you mentioned some incremental pricing in some emerging markets throughout the quarter. So maybe you can give us a sense of how you think the pricing contribution to organic sales can evolve? And then specifically in developed markets, how do you think pricing as a way to offset some of those tariff headwinds that you called out?

I know you mentioned a lot of different levers, but I wonder how pricing falls within that rank. Thank you.

Yes. Good morning, Filippo. Thank you. Pricing was more or less where we expected in the quarter. And I think importantly it improved sequentially on a two year stack basis.

And particularly you will remember that the comp was quite difficult. Latin America less the Argentina benefit obviously we've announced some pricing in Latin America, is consistent with our strategy and we'll see that execute in the second quarter and into the third and fourth quarter in Mexico and Brazil. And we'll see obviously that continue to normalize as we move forward. Well, anyone's guess on where Argentina will be with inflationary pricing, but right now that market seems quite constructive. And importantly, we see ourselves gaining both volume and value share in that market.

So we're quite pleased with that. U. S. Pricing improved sequentially, which is encouraging. But as we had indicated back at CAGNY and on the fourth quarter call, pricing would we had made some adjustments in the back half of twenty twenty four and we expected those to flow through the P and L in the first half of twenty twenty five and that's exactly what we're seeing and I would expect the second quarter to be quite consistent with that and we'll start to see improvements as we move through the back half.

If I then go around the world a bit, we're really encouraged by Europe and the pricing that we're getting there. I think our real focus on premium innovation and improving mix in Europe has played out and has certainly delivered another very strong quarter for the European business. And that's a function, I think, the strategy that we're deploying there. And if you look at the rest of the world, good pricing in Africa, some challenging issues in Asia, more on the volume side, quite frankly, than on the pricing side as we saw the China market slow a bit. But overall, I think all the work we put into RGM over the last couple of years and the sophistication that we're using now with AI to help us get better diagnosis and better predictability of how our promotions and our pricing will take effect in marketplaces is allowing us to get more in there.

But most importantly, I think, is the innovation that we're putting in the market. You saw an improvement in mix this quarter, which is terrific to see. The pricing environment will continue to be challenging, think, in terms of where things go. Now, as tariffs take hold, there's I think everyone will be looking for ways to create value in the category. That will be principally driven in my view through innovation, but there will be some pricing that will have to take place in certain markets around the world and we'll take that on a market and category basis as we move forward.

The next question comes from Darren O'Sinhan with Morgan Stanley. Please go ahead.

Hey, good morning. So just to follow-up on a couple of those questions. I was hoping to get a little more granular in emerging markets specifically.

us a bit more detail on what you're seeing at the consumer level, given some of the broader macro concerns in general? Sounded like India softened a bit, but just curious for your perspective on any change dynamics and what you're seeing there. And then b, just your market share performance in the quarter in emerging markets. Latin America is obviously a key area, but also just touch on China and what you're seeing there. That'd be helpful.

Yes. Great, Derek. Good morning. So overall, again, if I take a step back, volume was positive for the in the quarter ex private label. And I think our exposure to emerging markets continues to play favorably for us given that we're seeing certainly an impact from the economic uncertainty and the volatility that we've seen particularly here in North America, but that is certainly spread across the world.

We saw that in February. But as a result, we've seen things come back a little faster in some of our emerging markets as we move through the end of the quarter and into April, And we expect that we'll see some improvements moving forward. If we look at specifically on Latin America market shares and your comment there, market shares are very, very strong. Our volume share continues to perform exceptionally well in Latin America. We are up value share holding in the quarter and that's obviously at a very high number.

Market shares in Africa, Middle East continue to be very strong and growing in those markets. So we're encouraged by that despite some of the softness that we saw in Turkey on the volume side as well as South Africa. And then if I take specifically on Asia, China continues to be a challenge and that market continues to be quite soft, particularly on our Holly and Hazel business. And I talked about that quite extensively. I was just in China with the team, and we are in the midst of executing a revised go to market strategy and doing some things around the innovation side, particularly on our joint venture with Holly and Hazel.

Colgate business happily continues to perform very, very well. The Colgate side of the business delivered mid single digit organic growth, both on both pricing and volume growth in the quarter, so we're encouraged by that. But China continues to be a challenging environment. On India, not much I can say as they'll announce in the next couple of weeks, but we did see the continued softness in the urban markets as we've highlighted before.

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

a question on your advertising spend. You updated the guide to flat spending as a percent of sales for the year versus flat to up slightly previously. So just wondering, is that a function of any change in your innovation plan and timing of launches for the rest of the year possibly to reflect reduced appetite given end market softness? And then specifically on innovation, curious to hear if your plans have changed or evolved given end market slowdown perhaps more towards the value end of the spectrum given consumer pressures? Thanks.

Yes. Thanks, Bonnie. Good morning. So no change at all relative to our innovation. Quite frankly, if I get into specifics on innovation, in this environment, we're having lots of discussions about accelerating our innovation in the back half to stimulate consumption more at a varied degree of price points.

So if anything, innovation will continue to accelerate. The revision is a function of a couple of things. One, as I mentioned, I think at CAGNY and in previous discussions, we're very focused on ROI. We're seeing opportunities to continue to drive our reach and our frequency through optimized spending, and that will continue to be a sharpened focus. Second, particularly given some of the softness in categories, it's only prudent and appropriate at this point to balance the flexibility that we've built into the P and L, and that's exactly what we're doing.

We don't see it hindering at all our strategy in terms of what we're doing through our accelerated core innovation and adjacencies. We don't see it hindering on our premiumization strategy, which we think continues to be a real growth opportunity for the business. And we're focused on that spending in markets where we're seeing the best growth opportunities for the company and that will continue to be the case. So and the other point I would make is if you take that on the local currency, local currency advertising will still be quite strong and likely up on the year and that's really what we need to look at in terms of the effectiveness of the spend and the absolute dollar spending that we have going through the P and L.

The next question comes from Robert Moskow with TD Cowen. Please go ahead.

Hi, thanks. Noel, I was hoping you could dive a little deeper into Hill's. I think you talked about some signs of consumers trading down during first quarter.

Hill's brand holding up okay in this kind of dynamic? And secondly, you have a lot of growth in wet, you've added capacity to expand in wet. How do consumers view wet in the Hill's portfolio? Did it get more expensive? Is there any kind of trading down within formats like that?

Great. Thanks, Robert. Just a clarification. Some of the trade down that we've talked about was specifically in the super premium to the mid tier in North America on toothpaste. And that's to a certain extent what we're seeing.

I will characterize that we've seen no trade down into private label. In fact, quite the opposite private label is either flat to down in The U. S. As well as Europe. So the trade down is not necessarily there.

We've seen some trade down from super premium into mid tier, but nothing that is terribly concerning, but something that we will obviously address as we move through the back half of this year. Specifically on Hill's, no trade down. And the Hill's story, quite frankly, is really, really exciting. So ex private label, that business was up 5% in organic growth on fundamentally a flat category. So we're obviously doing exceptionally well from a top line standpoint, and that's really across all price tiers that we operate in, which is very focused on, obviously, the super premium.

But a couple of data points that I think are interesting. We grew organic sales in every combination that we measure. So wet, dry, treats, cat, dog, prescription diet and science diet. So the strength of the business in the first quarter was broad based. And we saw that in market share, we saw that in penetration, and we saw that consistently across all retail environments here in The U.

S. So typically, we don't have that broad based of success. We're very pleased with that. Why is that? A couple of things.

One, we continue to keep strong investment in the category. Two, we've had terrific innovation that's seeded itself in the market in the first quarter, and we'll see that play out through the rest of the year. Three, we've talked very extensively about the fact that even though the category has flattened a bit, we still have significant growth opportunities in areas like wet, as you rightfully point out, Robert. We see significant growth opportunities in cat, and that's exactly the way we're executing our strategy, to go after those low index categories that we operate in today and get the incremental growth versus the category. That's bringing value to our retailers, which they love.

That's bringing penetration to our brand and that's ultimately growing the market share for our business. I think the other pleasing aspect was the incredible strong margin performance of the Hill's business in the quarter. So up roughly four fifty basis points, part of that private label going out, but the other half was again very focused on driving much more efficiency and productivity through our manufacturing facilities, which are operating much more effectively, getting pricing, a little bit of pricing in the category and the strength of our innovation on the premium side as well as the mix benefit we're seeing through improved prescription diet. So overall, a combination of innovation, funding the growth, productivity is playing out to a very healthy P and L that's allowing us to accelerate advertising in an area where we see significant growth opportunities, particularly in those under indexed segments.

The next question comes from Kamil Gajawala with Jefferies. Please go ahead.

Hey, everybody. Not to keep it too macro, but do you feel like you have a sense of the sort of why behind the slowdown in February as you kind of dug into it and I recognize things are evolving or getting better in April, but do you have a good sense of what exactly was going on with the consumer at that time? And then around the world, but in particular, we're looking at 60 oil. Many of your markets are very much linked to commodity cycles and such. So I'm just curious if you're sort of reassessing how you approach your forecast on inflation and pricing and those sorts of things in some of those markets?

Yes, let me take the first part of that and I'll hand the second part off to Stan. So listen, in our view, what happens globally and it's pretty consistent that uncertainty creates a pensive and anxious consumer. And when you have uncertainty in terms of macroeconomics and everything surrounding that, consumers tend to hunker down and they're very cautious about the outlook. You see that obviously in the travel industry, which people having questions on how they're going to spend their money. You see that obviously very forthrightly in discretionary products.

And even in our categories that are nondiscretionary, you'll see consumers destock their pantries and not necessarily buy that extra tube or that extra body wash as they see obviously a very volatile external environment. So historically, as we've gone through these shifts, we've seen the categories soften a bit in terms of consumption. But ultimately, they're everyday use categories. They will come back, but they will come back at a pace that's consistent with the consumer confidence levels that exist in the marketplace. And as you see consumer confidence continue to return, which we expect it will in the medium term, I would say, over the balance of the back half of this year moving hopefully into 2026, you'll see the consumption improve.

We will continue to accelerate our pace of innovation, which will bring excitement into the categories and give consumers a reason to come back into the categories. We'll continue to maintain our advertising as a way to drive excitement into the category as well. So as a result of that, we expect over the medium and longer term, the categories will come back, but it's really driven by the shock to the system in February based on all the rhetoric existing around the world and the concerns with where the economies were headed. And as a result of that, consumers were very cautious. So let me turn it over to Stan for the inflation question.

So on the inflation related to commodities specifically, overall, excluding tariffs, we continue to expect modest raw material inflation. And while there's been some volatility in their oils come down, but opposite that we've seen palm and tallow actually go up. So in total we expect that right now still modest raw material inflation. We tackle that the same way we always do which is going after driving productivity to help us offset those increases and then constantly looking at formulation supply chain efficiencies and optimizing that. So we'll continue to leverage funding the growth to drive that gross margin to help offset those commodities.

As you would expect, we watch them very closely looking to see if we'll see some changes in trajectory particularly in the second half. But as of now, on balance, we still see modest inflation.

The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead.

Great. Thank you very much. And first, I just want to give a quick shout out to the team at Hill's. We moved our dog over to Hill's Science Diet Small Bites. It's the only dry food she'll eat and her mood, her health has dramatically improved as has my family's happiness.

want to talk about Europe. Can you talk maybe just a little bit about why you're doing so well there, the role of elmex in the strategy, what you've learned from that? And then maybe even more importantly, can you shift that strategy to other major markets to get the same kind of amazing results that you're getting in Europe now? Thanks.

Thanks, Rob. And I'm nothing but pleased to hear that your dog is on Science Diet. And I'm pleased that the owner of that dog has recognized the value of our incredible brand and the nutritional compliments we bring to that relationship. Hopefully, you've seen our new campaign. We have launched a new campaign on Hill's and the new brand positioning, which has extremely well received in the marketplace.

And it talks about the love that pet owners have for their dogs and the guilt they feel when they leave them at home. And we feel like we've really anchored in on an incredible unique consumer insight that will leverage the wonderful product that we provide to our pet owners. On Europe specifically, obviously another very strong quarter for Europe with organic growth across all hubs. And I think what was important is to see the volume growth we talked about a little bit earlier, obviously some volume growth slugging this in emerging, we see that coming back. But the volume growth in Europe was terrific.

Remember, we were comping a four volume growth in the first quarter of last year and we put a three on top of that. So I think it continues to reflect a couple of things. One, as you rightfully point out, we've seen terrific market share point market share growth in the region, particularly in our Oral Care business and that's both on the Colgate franchise as well as the Elmex and Meridol franchises. And that has obviously helped drive incremental margin in the P and L that's allowed us to sustain and actually increase our advertising levels in Europe across more categories. And so that has certainly played out in the overall health of the business.

Your specific question on Elmex, that continues to operate very, very strongly as we strategically invest in those markets where we have strong pharmacy shares and where we have democratized the brand in certain countries. And the good news is that market that strategy of innovation, strong advertising, strong professional advocacy and endorsement is playing out to record share growth for the business. I've talked about in various public forums on we are being very selective on how we take elmex in into other markets around the world. There is very specific criteria that we look for. It's not a one or two year investment.

It's a five to ten year play out in terms of how we see the decision to make that strategic shift. And we're excited about what we've seen in Brazil. That business continues to operate very well in Brazil. We've seen it expand into a couple of other markets, particularly in The Middle East, where we're encouraged. We'll be selective, but that remains a growth opportunity for the business as we move into the balance of 2025 and 2026, but it will be very selective and a long term strategy, not a short term gain in terms of generating incremental margin and volume for a quarter.

We're going to look at it over a three year horizon.

The next question comes from Kevin Grundy with BNP. Please go ahead.

Great. Thanks. Good morning, everyone. Noel, my question on tariffs and I appreciate the situation sort of continues to evolve. Two questions, please.

One, if you could just speak broadly to the sources of the tariff exposure, China imports, reciprocal tariffs, retaliatory tariffs, just kind of broad brush strokes would be useful for folks. And then two, please speak to your ability to offset the $200,000,000 you called out. If I'm not mistaken, there was not offset in there per se, at least you spoke to the $200,000,000 gross. So maybe just talk about productivity, revenue growth management and sourcing. It doesn't seem like pricing is the preferred path from companies we've heard from and there's myriad moving parts competitively how you're positioned, where you're sourcing versus the competition etcetera.

But it doesn't seem like pricing is the preferred path for you or for others. Maybe just confirm that that is your stance as we sit here today. So thanks for all that.

Kevin, why don't I start and Noel can add on some color. For tariffs, our revised guidance includes $200,000,000 of gross incremental impact from tariffs that have been announced since our Q4 earnings release and are in effect. It does not include tariffs that have been announced and either delayed or postponed. So the incremental impact is fairly equally split from Q2 through Q4. And the incremental impacts are primarily tariffs and raw materials and finished goods coming from China into The U.

S. And from The U. S. Into China. That's a predominant makeup.

Strategically, we aim to have local manufacturing as the cost of shipping many of our products long distances can be very high. And over the last several years, we've lowered our supply chain exposure to China as part of our overall supply chain strategy. And we spent the past few years building more flexibility into our global supply chain, It's not necessarily about building more capacity, it's about making better use of that existing capacity and alternative sourcing. We've also invested meaningfully in The U. S.

We mentioned this in the prepared remarks in our U. S. Supply chain, almost $2,000,000,000 over the past five years between investment in our oral care, personal care and home care businesses along with the purchase of pet food capacity and the opening of our Togonoxi wet pet food facility. We've increased our number of U. S.-based manufacturing facilities by more than 40% over this time.

So we're working hard to mitigate the incremental costs from tariffs, but we're going to do that through a combination of approaches of productivity, revenue growth management, formulation, sourcing and optimizing our supply chain. So the impact of those tariffs are included in our revised guidance where we said that gross profit margin will be roughly flat.

Noel? Yes. So as I mentioned, it's a country category combination and you can't look at this holistically. You have to look at it on a category basis where the tariffs are having the most impact. And so we're going to be looking at all of our business to be able to offset these tariffs moving forward.

And I can assure you, we are extremely focused on this. As you heard from Stan, we've made a lot of changes over the last couple of years relative to mitigating our reliance on single source countries. We have reduced our reliance on raw materials and finished product coming out of China. And as a result, we have a lot more flexibility in the supply chain than we've had before. But the sheer size of some of these tariffs require us to balance our strategy moving forward in terms of how we think we can offset that.

The mitigation will come across not just the impacted categories, but all the categories where we feel we can offset with productivity, which will be our main focus, continuing to accelerate our Funding the Growth opportunities. Innovation, as I mentioned upfront, we will step up our innovation to particularly drive more premiumization in the category and more absolute dollar margin moving through the P and L. And of course, our revenue growth management, we will certainly look at that as an ongoing strategy that we've always looked at as ways to drive value in the category and drive more margin growth for the business. So it will be a combination of all those elements. I can assure you that the teams are deeply focused on this across the board.

We will watch the market very carefully, but there's no question that we want to get out ahead of this as fast as we possibly can and not wait for the what if to see if it happens. We need to take steps to make sure we protect the margin and importantly the advertising and the innovation plans we have in the P and L.

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

Colgate-Palmolive (CL) Q1 2025 Earnings Call Transcript

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