Colgate-Palmolive Co

NYSE:CL

Good morning. Welcome to today's Colgate-Palmolive Fourth Quarter and Full Year 2023 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 2023 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 Q4 and full year 2023 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2022 annual report on Form 10-K and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements.

This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 4, 6 7, 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the Q4 2023 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 Q4 and full year results and our 2024 outlook. We will then open it up for Q&A. Noel?

Thanks, John and good morning, everyone, and thanks for joining us to discuss our strong finish to a very good year in 2023 and our positive outlook for 2024. Over the past 2 years, we have been particularly focused on sustaining our strong organic sales growth, while rebuilding our margins and improving our cash flow performance. We deliver on all 3 of those goals this year while still investing behind advertising to strengthen our brands and building and scaling capabilities to deliver future growth. 2023 marked our fifth consecutive year of organic sales growth either in line or ahead of our 3% to 5% long-term target range.

We delivered balanced organic sales growth, growth in all 6 divisions, all 4 of our categories and with improved balance between pricing and volume as we exited the year. Volume rounded to flat in the fourth quarter and was up for the quarter, excluding the impact of lower private label volumes at Hill's. Our market share momentum is improving behind strong innovation, higher levels of brand investment with a focus on improving the effectiveness of each dollar spent. We are also seeing the benefits of our digital transformation as our efforts with data analytics continue to proceed.

Our commitment to revenue growth management and the strength of our funding to growth efforts, combined with our global productivity initiative drove gross margin expansion, double-digit base business operating profit growth and high single-digit base business EPS growth. We delivered these results while increasing the investment in marketing and strategic capabilities and absorbing the headwinds from higher interest expense, pension and tax. We drove greater than 60% free cash flow growth, allowing us to invest behind our brands, increase capacity and buy back stock.

We also increased our dividend for the 61st consecutive year. I am deeply proud of the results Colgate people have delivered in a challenging operating environment. 2024 will offer many of the same challenges as 2023, geopolitical unrest, foreign exchange headwinds and a challenged consumer, continued softness in China and a large number of political elections around the world. We enter 2024 with strong momentum and the plans in place to deliver in this environment as well as greater flexibility in both our income statement and our balance sheet.

As we have mentioned over the past few quarters, we're focused on returning to consistent compounded EPS growth and our 2024 guidance reflects this ambition. We will continue to invest to drive high-quality balanced organic sales growth in both volume and pricing growing. We plan to deliver on productivity to fund this incremental investment while growing earnings per share. This should enable us to deliver strong cash flow growth to invest back in the business and return cash to shareholders.

I look forward to discussing our 2024 plans in further detail at CAGNY next month, so you can share the confidence the Colgate Palmolive team has in our continued growth. And with that, I'll take your questions.

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

So just wanted to focus on market share results in Q4. And as you look ahead, Oral Care share was obviously strong again and you delivered healthy expansion for the full year. Can you just talk about your forward positioning on the share front in oral care. You've got a tougher comparison here. So how do you think about the sustainability of those share gains as you look out to 2024 and then a similar question on pet.

Obviously, some industry pressure points, can you sort of juxtapose your market share relative to those industry pressure points? And if the unlocked capacity is a significant driver of market share opportunity longer term in that business?

Great. Dara, thank you. So let me start a little bit broader on the categories, particularly Oral Care, we're really encouraged to see the inflection of positive volume growth in the categories around the world. And in many of the regions where we had seen negative volume growth, we started to see an inflection of that towards the end of the fourth quarter in the category.

So that gives us great confidence that the category and the pricing that we put in place is continuing to turn. And importantly, we're going to see that growth continue in 2024. As you bring that back to our business, a really strong quarter for Oral Care, as you mentioned, both from an organic and sales standpoint, but likewise, has that transferred into better market share growth.

If I take oral care in general, we were up double digits in the quarter. That translated into strong market share growth, particularly in regions like Latin America, Europe, Africa, Eurasia, and you saw some improved scanner data in the U.S. as well. I think this is a reflection of the core business strategy that we have in place, the increased advertising that we're putting behind the business as well as a strong innovation pipeline that continued in the back half of 2023 and will continue in 2024 as well.

So market shares around the world is strong, and we would anticipate that, that will see continued growth as we move through the balance of 24. And I would caveat with some of that, obviously, the markets will be challenged given some of the upfront issues I mentioned but pleasing to see the strong volume growth in some of our bigger regions. If you take Latin America, particularly 3 strong quarters of strong volume growth very much driven by Oral Care. But quite frankly, that was a cross-section of all of our categories, and you see that volume improving across all of our divisions.

So again, I think we're well positioned on that. Let me talk a little bit about pet because I think there's some important context to our strategy and why what we're doing is different for the market and what we're doing is working for the marketplace as well. We talked about Colgate being the most penetrated brand in the world. We also know that Hill's is low penetration. So we will continue to execute a series of differentiated strategies on Hill's in order to continue to accelerate our growth on that business.

So if I take the 3 aspects that we think about for Hill's, reach, awareness and conversion. Reach, obviously, is a reflection of the strong advertising that we're putting in place to get the message out with low single-digit penetration on Hill's. We want to ensure the awareness of our superior science is well understood. Hence, the strategy to drive more TV spending, more digital spending through consistently through the quarters. We're spending a lot of time on the effectiveness of that reach to ensure that we're getting the awareness of it.

We're using obviously, a strong professional endorsement that we have behind bets and continue to accelerate our science and our clinical communication with that key opinion new leader is critical to the success of the brand and importantly, as we think about conversion, a lot of nonusers in the category, as I mentioned, I think, on the third quarter call, of consumers are using a therapeutic nutrition, but theoretically, 80% should be using the therapeutic nutrition.

So a lot of opportunity to continue to drive share. The dynamics in the category hence, you're seeing a little bit of trade down from wet into dry. I mentioned that on the third quarter call, treats have suffered. Now we're not immune to the category softness but if you take a step back and look at our principal retail environments, pet specialty, neighborhood pet, we're growing share nicely across all of those environments, which means we're helping our retail partners grow category dollars.

Penetration was up roughly 10% in the U.S., our biggest and largest market. So we're very pleased with the progress we have there. Yes, the category is a little softer, but we have the right strategies and differentiated strategies in place to continue to accelerate growth.

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

Maybe this question both for Noel and Stan, just related to Argentina, I think there was maybe a write-down that ran through the other expense line. So if you could give us a little bit more color on that and how much of that may recur. And maybe, Noel, just kind of stepping back, I think this week, we've heard from several other companies who may be even rethinking how they approach Argentina, given the devaluation. It's been a while, right, since we've had this kind of currency crisis in Latin America.

So I don't know, just your perspective, both short term, how we should be thinking about it from accounting perspective stand? And then, Noel, just how you're thinking about Argentina maybe longer term.

Okay. Great. Bryan, thank you. Let me talk again a little bit of history in Argentina, and I apologize to go down with an extended answer, but I think it's important for the audience to understand how we operate in these hyper inflationary environments. We've been in Argentina close to 100 years. We have an extraordinarily capable management team that understands hyperinflationary accounting, understands how to manage the income statement and the balance sheet, understands how to prevent further devaluations on the balance sheet as we move forward.

And that's a reflection of just years and years of experience dealing with this level of volatility. We can go back to 2001, 2002, which I think was the last major devaluation in the country 2014 had one as well. So we're very accustomed to ensuring we're doing everything to manage the potential volatility in a market like Argentina, and that experience has certainly played out. We have always, always continued to invest for the long term in Argentina.

We have manufacturing on the ground. We have good relationships in terms of our ability to access dollars. But importantly, given some of the limitations that we've seen over the years on the ability to access dollars, we now have flexibility in the business to import product into the country as well. So we're very attuned to the volatility I would say, on the flip side, good news that price control seemed to have been settled a bit, and we're not going to see as much of those moving forward.

So we continue to operate in an environment where we can bring value to the consumer and take pricing in order to offset some of the significant transaction. Now we're not immune to the devaluation. We'll see that ultimately unfold as we go through the next couple of quarters, more on the margin line than the profit line. But ultimately, we will make sure we get pricing in the market, and that will take some time to flow through into the P&L.

But overall, experienced team, which I want to thank for their incredible diligence in how they deal with the economic environment there and feel pretty good that we've got real control of what's going on in Argentina, notwithstanding there will be continued volatility. So with that, let me give Stan a chance to talk a little bit about how we're managing more closely the income statement.

Thanks, Noel. And Bryan, let me start and pick up where Noel left off on the team. So as an example, we have a gentleman that I work with, Jose Fernando, and he is my CFO for Latin America. But he was also the CFO or the Finance Director in Argentina in 2002. So we have a depth of experience. And I think that manifests itself with a very proactive approach to market conditions.

So he and I talk on a very regular basis about changing market conditions and then more importantly, the proactive nature of what we do about that. So they've operated in a hyperinflationary environment for a very long time. They take the actions necessary where we look at the long term. So while we operate hyperinflationary environment, we account for it appropriately, you do see the impact of the devaluation and other income, other expense it was not the majority of that line item.

So there are other items in there. But we dealt with that. We delivered our overall numbers. We improved our productivity. We delivered margin expansion, profit expansion and cash flow so I think the team has done a very nice job looking at it proactively and dealing with it decisively. So you mentioned on a go-forward basis.

Obviously, when you deval, your balance sheet gets smaller, we'll continue to take those actions going forward. We have a growing business there. So going forward, I would not anticipate a major impact to our results from Argentina.

The next question comes from Andrea Teixeira with JPMorgan.

I was wondering if you can talk a little bit more about marketing investments, and you elaborated just recently that you mentioned increased advertising -- and are you also seeing a normalizing promotional environment in the past, you had said that you dialed down and you're reinvesting advertising promotional capabilities in the U.S.

Can you comment on how you stand right now and how the category promotional levels are? And separately, if you can talk a bit about the supply chain changes that you implemented with the new leadership and also how you're positioning in light of the disruptions in the Middle East and the learnings from the panic.

Great. So let me take the advertising and promotional piece, and I'll come back and add a little bit of context on some of the great work that Luciano has done as he's come into the new role. The strategy has been quite consistent for the last 3 to 4 years about our ability to build brands through great communication and great innovation. And you've seen that obviously flow through the P&L. And despite the fact that we have obviously grown and accelerated advertising meaningfully over the last couple of years, we've continued to deliver against our guidance and exceed our operating profit objectives, which is terrific.

But that just gives you a sense for the health of the P&L today and our ability to continue to fund investment going forward, and that will clearly be our strategy. Now likewise, it gives us flexibility to be very focused on the efficiency of that spend. And I can assure you there's not a discussion that goes by where we don't talk about reach and frequency and the ROI associated with our spend both at the digital level and the linear TV level. So we're very, very, very focused on the ability to drive more efficiency through the P&L as we accelerate our advertising.

And as we said in the prepared comments, we anticipate to continue to accelerate the advertising into 2024. Promotional environment is very constructive right now. I would say it's about 75% to 80% of the pre-COVID levels. So it's come down. It's more moderated. We -- as I've mentioned, in second and third quarter calls that we will be very selective on increasing the cadence of our promotions in some of the geographies where we may have taken a little bit too much pricing as we led in some of those markets that will be prudent and thoughtful and focused in certain select markets.

But overall, the promotional environment seems very constructive. And our objective is to drive category and healthy volume growth through obviously the accelerated advertising line. On the supply chain, Luciano has come in and really thinking about the continued transformation of that, bringing a lot of good ideas on automation and data analytics and driving network optimization. A lot of our focus over the last couple of years, particularly at Hill's was increasing capacity, and you saw that through our capital expenditure line.

That will moderate as we move forward with more spending being allocated towards efficiency and savings and optimizing the network and very much digitizing the supply chain and getting very aggressive on using data analytics to optimize our efficiency and our case field level. So overall, pleased with where he's taking the group and that team has done just an extraordinary job getting us ready for further optimization moving forward.

And Andrea, I'll just pick up on your last comment around the issues out in the Red Sea and the shipping. So we've been also proactive on that, looking at alternate methods where available, planning for the lead time disruption. And the rest of the supply chain has remained stable, so we don't see issues there but we have anticipated longer lead times than planned appropriately for 2024.

The next question comes from Filippo Falorni with Citi.

So Noel, going back to Health, clearly, high single-digit top line growth, excluding the private label, discontinuation, very strong results in the quarter. As you think about '24, like can you give us a sense of how you see the volume for that business evolving and also the pricing environment in pet food. And then at the margin line, you saw a pretty significant cost headwinds in 2023. Are you seeing any moderation on the cultural and protein side for the Hill's business.

We see more balanced volume and price as we move into 2024. Obviously, we've had roughly 6 quarters of aggressive pricing 7 quarters where we've had to take pricing to offset a lot of the inflation that we've seen in agricultural products. To get to your second part of your question, we do see ag prices beginning to moderate, which is good which, over time, as we see the pricing settle out in the markets, we anticipate that volume will come back.

But remember, this is the one category we compete in where we've seen prolonged and vision as we move through the back half of 2023. But we anticipate that will definitely moderate as we move into 2024, and pricing likewise, will moderate, and we'll see a return to really continuing to drive that successful household penetration number that I shared with you earlier which is obviously our ability to continue to support strong advertising.

So overall, we'll see that more balanced growth as we move through as we move through 2024. And on the margin line, as I mentioned again, a more moderating cost. We're still lapping some of the strong inflationary environments that we had in the first half of last year. So that pricing that we've taken in the back half of this year and early in the quarter, will stay, but we'll see the volumes start to come back as we move through the back half of the year more meaningfully.

The next question comes from Callum Elliott with Bernstein.

Really good to see the big uptick in brand spending this year and the success is having on competitive performance and growth. My question is, can you talk about some of the other investment buckets outside of advertising and brand spend I'm thinking R&D, CapEx, some of the more infrastructure capability investments that sit in the P&L. Where are you guys today now versus where you think you need to be?

And what's the relative importance of these nonbrand spend buckets in your view?

Yes, Callum, a good question because we've talked a lot about positioning ourselves to win in the short term, but more importantly, succeed consistently in the long term. And that has been a lot around obviously the advertising investment. But as you well point out, investing in other areas, specifically capabilities our digital transformation, would be at the forefront of that, training and developing talent, bringing in talent, ensuring that we're optimizing our agency and the talent that they have on that side.

So that's an important part of ultimately building the capabilities to continue to drive the effectiveness of our spend and ultimately setting ourselves up for better data architecture and the infrastructure required to do that and do it consistently over the long term. So a lot of investment going in that space as well. On the capital side, we've had, obviously, a lot of spending on the capital side in terms of increased capacity.

As I mentioned earlier, we're going to see that start to shift to a lot more optimization and savings projects moving through our manufacturing facilities. As I mentioned earlier, setting up infrastructure for our data architecture and our data transformation so overall, these are all investments for the long term that we think will continue to play out and allow us to drive that consistent earnings growth that we talked about earlier. Stan, anything to add to that?

Callum, the only thing I'd say is when you look at the face of the income statement or balance sheet, the absolute numbers, it doesn't reflect the one of our key jobs here is to allocate resources and we reallocate to those high-growth areas or the areas with the most potential.

While that may not show on the absolute line underneath the covers, that reallocation of resources, whether it's dollars or human capacity is what supports us in analytics and digital and data [ and that's for Hannah ] and to enhance all those capabilities. So lots of work under the covers to drive resource to those key areas.

And I'd mentioned very indirectly tied to your question, is the strong cash flow, right? The cash flow is giving us the ability to have a lot more flexibility in how we invest across the business, and that is pleasingly up significantly, as you saw in the quarter and the year.

The next question comes from Steve Powers with Deutsche Bank.

I wanted to ask about gross margin. It was obviously very strong in the quarter and you expect progress in '24. Maybe just some perspective on the work you've done to get here, the drivers this quarter. But then also, as we look at '24, I'm assuming from a year-over-year perspective, that expansion is heavily weighted to the first part of the year. But sequentially, how should we think about gross margin? Is the fourth quarter a high watermark? Or is there a sequential progress that can be made?

Yes. Let me top line, and I'll let Stan answer a couple of questions. Obviously, I think that pricing, I think cost think foreign exchange is obviously the big drivers in the cost line for us. So we've done a terrific job in delivering strong into 2024. The pricing has been a big part of the gross margin expansion that we've been very aggressive with over the last 6 quarters.

Yes, pricing will be more balanced as we move forward. So you would anticipate that will be a lesser impact as we move through the gross profit and raw materials will continue to, I think, be inflationary, but far more benign than we've seen in the [ place, ] and there's clearly a moderation there. So ultimately, hopefully, an opportunity for us. With that, let me turn it over to Stan to give you a little bit more construct to that.

So first, we're very pleased with the progress on gross profit through 2023. We had sequential improvement across the categories driven by a broad base of innovation, productivity that helped offset that commodity situation that we all had to deal with. Now as you think about going forward, coming off of Q4, there are a number of items that always impact the timing, Q4 to Q1.

And this year, there's a couple of new ones with a little bit of Argentina, timing of some events worldwide, like Chinese New Year, the timing of when that occurs and where some of this price rolls through, roll through from 2023 and incremental new price. So as we go through the year, we expect that, that will expand, but not at the same kind of levels, obviously, as 2023.

So working through that, the teams are focused on productivity. The balance of the top line will change from pricing being the predominant driver to pricing and volume and that productivity will help us drive the margin improvement as we go through the year.

Yes. I would just simply underscore that there will be a sequential impact at the margin line on Argentina as we will take pricing in the quarter, but that will take a while to flow through to recover the transaction impact of the DVA.

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

So I wanted to ask specifically about Latin America volume performance up 8% this quarter, 3 straight quarters of growth. And I recognize that the comps are somewhat easy, but the growth is still really impressive. Can you maybe just unpack how much of that is a function of category growth versus share performance? And really, how does that inform your view on volume growth looking out to '24 in Latin America specifically?

Thanks. We talked about it, I think, on the second and third call. Third quarter call the strength of our Latin America business and ultimately, our ability to lead in pricing and then the consistent history we have of seeing volume return to the categories. And so if I talk at the category level first, what's great is we've seen all 3 of the categories in which we compete, inflect positively from a category standpoint.

And you've obviously seen us growing quite considerably on the volume side, the last 3 quarters, which is generating good volume share growth for our business. So we're very pleased with the overall performance there. And based on where we see the categories inflecting right now, we're pretty confident that we're going to continue to see a balanced growth as we move forward. We'll have to take some currency pricing for sure through the year.

But as we've indicated before, we would expect the volume to come back in these markets, and that's exactly what we're seeing. If you drill down to some of our biggest markets, particularly Brazil and Mexico, really strong quarter for both those markets with double-digit volume growth for Brazil and for -- and strong double-digit growth for Mexico as well.

So again, a clear indication that the strategy of putting in strong innovation across all price points, getting the advertising, which we accelerated in the fourth quarter, likewise in Latin America is helping to recover the categories and drive good volume market share in that business.

Next question comes from Nik Modi with RBC Capital Markets.

Just wanted to follow up maybe on the raw material packaging inflation. Just some more perspective you cited specialty products. I just wanted to get some context around that and what exactly some of those elements are.

Sure. Let me throw that one to Stan and he can give you a little bit more context there.

Sure. Unlike the prior 2 years, we don't expect a material impact here. So we see modest inflation in 2024 and there are some areas like every year that go up and down. But there are some new ones this year, things like fish oil has increased significantly. But overall, we expect modest inflation. And so while commodities overall are off of their highs, they're still elevated versus pre-COVID levels.

And we expect that as we go through this, there might be a little bit of benefit moving in our favor, but not dramatically. And the only thing I'd say after that is raw materials are one component. So we deal with conversion costs, we deal with transport and logistics costs, and we drive productivity across all these areas through our Funding the Growth program, and that's why we're confident on margin expansion for 2024.

Great. And Stan, if I could just follow up on Filippo's question. I think he was asking on proteins as it relates to Hill. So you cited ag costs, but maybe just comment on protein?

Yes. Pleasingly, at least at the current point in time, we're not seeing an impact to Hill's in total on an increased basis year-on-year. So we look in total around Hills as ag has kind of stabilized here a bit as well as proteins, we don't see a big headwind heading into 2024 based on for commodities for Hill's.

And that's important because as we drive productivity with modest levels of flow-through on price and the innovation that will allow us to continue to expand margin on the Hill's portfolio.

The next question comes from Chris Carey with Wells Fargo.

So I wanted to ask about productivity and maybe go down to the regional level. I think this was the best productivity in our model anyway. It's going back roughly 20 years. And so is there anything abnormal about this quarter, any pull forward or productivity? Or are we talking about maybe just productivity muscle continues to build here? And that this is something that we can think about being at a slightly higher run rate go forward.

And then just connected to that, this was the best North America margin we've seen in some time. Was there any outsized productivity benefit in the quarter? Or are you just starting to see some easing costs and better efficiency relative to the stabilization we're seeing in the business.

Yes. Thanks, Chris. Yes, a little bit of all of that, quite frankly. Obviously, with the incredible inflation that we've seen over the last 1.5 years across the bulk of our commodity basket we've had to obviously accelerate the funding the growth and the higher cost obviously have allowed us to generate higher funding to growth. As I mentioned earlier, a lot more efficiency in the plants and our ability to utilize our manufacturing facilities to drive more of the funding the growth projects has likewise allowed us to step up a little bit of that funding to growth in 2023 that we historically had not had the time to do.

So a bit of it will be symptomatic of the year and the opportunity but I think the discipline that we've ingrained and the culture that we have at Colgate around funding the growth in parallel, likewise with the global productivity initiative that we put in place has allowed us to generate obviously strong contraction in our costs overall. I wouldn't say use it as a benchmark for going forward. There will be a lot of moving parts to that, but we feel like structurally, we're in a better place on funding the growth.

Structurally, we've managed to execute the GPI in line and slightly towards the high end of the guidance range that we provided earlier on that initiative. So we feel like we're in a good place. Pricing will moderate, so it's important that we continue to generate the strong funding the growth and through the P&L in order to generate the margin growth that Stan talked about.

The next question comes from Olivia Tong with Raymond James.

I also wanted to ask you a little bit about the top line, obviously, coming off a very impressive 7% top line growth in Q4. The guide for the fiscal year at sort of 3% to 5%. Can you just provide some perspective thinking about first half versus second half, perhaps the cadence of volume growth is the pricing contribution sort of begins to lap?

And then similarly on EPS, obviously, a very strong '23 in Q4, talking about the mid- to high single digits. That, of course, that range implies potential for growth deceleration in 2024. So just talk about what has to happen to get to the high and what you incorporate in terms of the low end and perhaps an incremental conservatism built into the guide?

Thanks, Olivia. So as I said in my front comments, we believe we are well positioned to deliver consistent compounded earnings growth moving forward. And that's certainly reflected in our guidance in the range that we provided. We have a good strong momentum coming out of '23 and heading into '24. And I think most importantly, the flexibility in the P&L and the balance sheet has allowed us to set ourselves up for continued success.

As we look at the cadence of that, we will see the balance overall change as we lap the higher pricing that we've had through the bulk of 2023, that will rebalance itself down to be sure and we'll see the volume come back in the categories. As I talked about earlier and ultimately, our focus on driving household penetration with the increased advertising and the market share position that we have. So we think we're in a good position.

Comps will get tougher as you say, but we feel that we'll see the volume growth come back and we'll offer balanced growth throughout the balance of the year. Recognize that we still have some inflationary markets, Argentina, we talked about, obviously, Nigeria and Turkey that will drive some pricing. We've got some flow through. Most of the pricing we'll see in 2024 will be pricing flow through. We are going to take a little bit of new pricing in certain select markets. But overall, we're going to see a much better balance, as I mentioned upfront. How that ultimately unfolds we shall see but we're definitely planning for more balanced growth as we move through the back half of this year.

The next question comes from Kaumil Gajrawala with Jefferies.

Everybody could you maybe just give us a kind of state of play in China, starting maybe with the market and then getting into your business specifically?

Sure. Thank you, Kaumil. In China, you've heard it, I think, consistently throughout the earnings season so far that there's a real slowdown in China, and we're not immune to that slowdown I will say with respect to some of the numbers out that we feel we've performed very, very well across Greater China.

Our business roughly down low to mid-single digits and that was very much commensurate with the category declines that we saw in those markets. Clearly, on the skin health side, we've seen a more acute decline in the categories and therefore, a bigger decline in our business as well. Long term, the market fundamentals remain intact. And I think it will take some time as we move through 2024 for those markets to come back.

Obviously, a lot of stimulus money, as you've read, going back into the market, but we shall see the impact that has on consumers and consumption. But we think we're well positioned. The business continues to build share on the Colgate side. We talked about the Holly and Hazel. We think we're now shipping more closely to consumption as we move through the price increase and some of the inventory allocations that we've seen across the trade and we've got a strong innovation pipeline for next year, but we will be thoughtful and prudent on our investment structure in China until we see the categories come back to levels that invite us to invest more.

But we feel long term, a good market and the dynamics are there, but we want to be thoughtful in the short term.

The next question comes from Lauren Lieberman with Barclays.

Great. On North America, it was great to see volumes inflect a positive this quarter, and you called out growth not just in Oral Care, but also in bar soap, liquid hand soap and cleaners. So I know there's a lot of things that kind of contribute to that better performance. You mentioned more balanced promotions. But was wondering if you spend a little bit of time talking about innovation across the business and any plans for '24.

And maybe also if you could talk a little bit about any plans you may have around hand dish and plans to kind of stabilize and regain share in that business?

I can't really talk specifically to the innovation that we have in 2024. But I can say, obviously, that we've got a strong pipeline and a much more balanced pipeline across all of our businesses. The acceleration in advertising is thoughtful and strategic as well that we will support more of our businesses in North America. I think that's a reflection of the really strong operating profit growth that we've reinjected back into the business.

So we feel like we're in a much better place to support some of the categories that had been -- that had been declining in advertising over the years. So we feel we're in a good place to reflect continued growth on the volume side. Obviously, the pricing will moderate quite considerably in the U.S. as we move through 2024. And we've got a strong innovation pipeline across the categories in order to ensure that we continue to drive market share. The other aspect of it is, as I've talked about, a more balanced cadence of promotions, and we will make sure we execute those very, very thoughtfully.

We have no intentions on going back to the historical numbers there, but we feel we've got some opportunities in select accounts in select parts of the country in order to accelerate where we've seen competition be quite aggressive. So good position. Really happy with the health of the P&L.. Really happy with the advertising that we put back in the P&L, which will bode well for the long-term health of that business.

The next question comes from Mark Astrachan with Stifel.

2 questions for me. One, on North America. So global market share better in North America markets for tops, a little bit weaker advertising spend obviously increased 4Q and for the year. How much is the right level? And is there a correlation in the U.S. between advertising and volume performance?

Is there more to it than that R&D, whatever it's curious there. And then on the Hill's business, given the weakness in pet specialty channel, has it made you think at all about whether your distribution mix in terms of where the product is sold, is it right at this point? Or do you potentially think about expanding that to other retailer areas.

Thanks. So North America first. Clearly, we're trying to get much more balanced investment across North America. We needed to get the P&L particularly the middle P&L in the right shape, and that was a strategic choice that we made. A strategic choice enabled by, I think, the broadness of health of our business around the world that has allowed us to obviously accelerate the investment in North America as we took more pricing in the market.

So we have a strong innovation pipeline. We anticipate that we'll continue to increase our investment levels. This is not for the short term, this is for the long-term health of that business, which we believe to be a very, very vital market for our success in the future. And we've seen the benefits coming through across our overall consumption. Some a little softness in the Nielsen track channels, I'll say that our nontrack channels are growing at 3 to 4 multiple of the tracked channels.

So we feel the overall investment in its entirety is proving to grow the consumption and the sales that we need in that marketplace. So long story short, we think we're in a good position for that. On your Hill's comment, our focus is in the channels where we compete. And we believe we're a differentiated unique product that drives the premium nutrition side. Science clearly is the segment that continues to grow, particularly amongst pet specialty.

We have no plans to expand distribution in the food drug mass. We believe that would deteriorate the brand and we have very unique distribution policies that require us to be in the channels that we're in. And we continue, as I've mentioned earlier, to feel we have significant upside in those channels and the brand penetration that I mentioned earlier continues to grow.

So in a good place, no intentions on expanding distribution. That being said, as you know, the bulk of our business is done in the U.S. We will be very selective about market expansion on the Hill's business, making sure we get the business model right, making sure the vet becomes a core part of that expansion strategy because that would drive long-term sustainable profitability for the business.

And so we'll continue to look for opportunities as we increase the health of that business and the expansion needed in markets around the world.

The next question comes from Robert Ottenstein with Evercore ISI.

Great. Noel, I was wondering if you can talk about India for a little bit. A lot of the companies that we talk to are very excited about the market and see it increasingly vibrant so perhaps maybe review your position there, market share trends, if you're seeing more opportunities and what your plans are?

And then just a kind of a housecleaning item for Stan. It looked like there was a $0.07 impact on the other income item on other income, but there were some offsets there and some asset sales and a value-added tax refund. If you could kind of just let us better understand exactly what's going on there.

Yes. Thanks, Rob. So India, you saw the results this week, very strong results across the board, 9% organic, continued strong pricing and sequentially better volume in that market. I would likewise say we remain very excited and bullish on the market in India. We'll see the continued return to the rural segment, the vitality of the rule segment, which will bode well for volume as we move.

As we look forward. The other aspect, which I won't get into a lot of specific details, we have some really strong innovation plan for India, particularly around our core businesses. and we're excited to see that obviously be delivered in the market and executed. The team is doing an exceptional job finding added distribution points to make sure that we continue to capitalize on investment strategy. So bullish on India good results and sequentially right where we'd like to see their business today and setting us up for ultimately another strong year in 2024.

Rob, let me pick up on your second questionnaire and other income, other expense. As we talked earlier, that is made up of a number of items, both from this year and last year. And Argentina devaluation is certainly an impact, but not the majority of it. We also have some start-up costs in there, some onetime items from this year and last year.

What I would say is that's not a new run rate. That's not going to continue into next at that level. And you should think about these as kind of onetime events in nature. So these change as you go through the year.

The next question comes from Edward Lewis with Redburn Atlantic.

Yes. Just wanted to talk on Europe. Another quarter of strong pricing this quarter. And looking back, I think it's 9.5% to 2023 or 4.5% in 2022. So just be really interested to hear how you're thinking about pricing over here because consistently, I guess, in the past, pricing hasn't been a big part of the story in Europe. Is this kind of a new kind of attitude we should expect to continue doing sort of more pricing in general coming out of Europe?

Yes. Thanks, Ed. Good question. We think we've learned a tremendous amount on pricing in Europe and really work closely with our retail partners to find ways to drive value and ultimately their categories. Clearly, a significant inflation over the last 6 or 7 quarters, which certainly helped to take more pricing in the marketplace. But I think our teams have exited 23 with more confidence.

Now there's no question, is inflation declines in 2024, we'll get a much more balanced view of pricing and volume moving back into the P&L but I think some good stories that have allowed us to really accelerate our innovation and drive real value in the categories by relaunching our brands. You heard Jean-Luc talked about that at Deutsche Bank Conference, and I think that continues to be a consistent theme.

So a lot of learning there, not saying it's going to be a challenge as we move forward to get more pricing in Europe, but we believe we've got the tools and the vehicle is to continue to find ways to accelerate category growth and therefore, our margin growth in the business

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

Well, thanks, everyone, for joining the call this morning. We hope you agree that the strategies and plans we have in place to deliver consistent compounded profitable growth to drive value for all of our stakeholders is there. And let me particularly thank all the Colgate employees around the world for their incredible hard work and dedication to deliver these strong results in 2023 and thank them in advance for the results they're going to continue to deliver in 2024. Thanks, everyone. We'll see you down in Florida.

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