Good day. And welcome to today’s Colgate-Palmolive Company’s Second Quarter 2022 Earnings Conference Call. This call is being recorded and it’s being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to the Chief Investor Relations Officer and Senior Vice President, M&Q, John Faucher.

Please go ahead, John. Thank you..

Thanks, Caroline. Good morning. And welcome to our 2022 second quarter earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements.

Please refer to the earnings press release and earnings materials and our most recent filings with the SEC, including our 2021 annual report on Form 10-K and subsequent SEC filings, all available on Colgate’s website, for a discussion of the factors that could cause actual results to differ materially from these statements.

This conference call will also include a discussion of non-GAAP financial measures including those identified in Tables 8 and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate’s website.

Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will now provide you with his thoughts on our Q2 results and our 2022 outlook. We will then open it up for Q&A.

Noel?.

Thanks, John, and thanks to all of you for joining us this morning. I am delighted to share with you our second quarter results. On the first quarter call, I talked about my confidence that our organic sales growth would accelerate from our first quarter results.

Some of this was due to the improvement in trends in February, March and April that we discussed on the call. But what really gives me confidence is the fundamental changes Colgate people have made to drive growth, which is why we are raising our organic sales growth guidance to 5% to 7% for 2022.

Our second quarter results including double-digit organic sales growth in Oral Care and Pet Nutrition, show that the growth strategies we put in place three years ago are delivering on our objectives and how the power of our global portfolio is working. We are delivering growth across all of our divisions and all of our categories.

We are showing the ability to take pricing because we have built healthier brands. We have built up our innovation capabilities so we can deliver more breakthrough and transformational innovation that can drive both category growth and market share.

We have accelerated our digital transformation across the company by leveraging the capabilities we have built at Hill’s and in China, and other developed markets to lead ecommerce in our markets where this important growth channel is underdeveloped.

And crucially in this operating environment, our revenue growth management tools are driving positive pricing and mixes our efforts to offset the significant raw material and logistics inflation we are seeing, although, the -- along with the productivity and our ability to improve our price mix, which has enabled us to rebuild our gross margin moving forward.

And looking at the quarter, the second quarter marked our 14th consecutive quarter with organic sales growth either in or above our long-term target range of 3% to 5% and that growth is broad based. We delivered organic sales growth in all six of our divisions.

We delivered organic sales growth in all four of our categories, Oral Care, Pet Nutrition, Personal Care and Home Care, with all four categories either in line with or above our long-term target range of 3% to 5%.

As we discussed on the first quarter call, our execution on revenue growth management and premiumization allowed us to deliver a 500 basis points sequential acceleration in pricing growth.

Encouragingly, despite this pricing, our volume performance also improved sequentially in the quarter on both a one year and a two-year basis, behind strong marketing plans, innovation and improved supply chain performance.

Our market share performance continues to improve with our global toothpaste and manual toothbrushes are now up on a year-to-date basis. We continue to deliver on productivity with another strong quarter of funding to growth, which is vital to our plans to regain lost gross margin.

As we enter the back half, we are just beginning to see early benefits from my 2022 global productivity initiative. Over the next 18 months, this program will help drive operating leverage. But we are still dealing with a very difficult cost environment.

We now expect $1.3 billion in raw material and packaging inflation, with higher logistics costs as well. Foreign Exchange has become a bigger headwind since our first quarter earnings release. The euro has moved to parity with the dollar and most other currencies have weakened as well.

But we will continue to invest in our brands, advertising spending was up on $1 basis, with continued shift to working from non-working and higher focus on digital spending. We are investing our capital to drive future growth as well.

We are building capacity to meet strong consumer demand, particularly for Hill’s, but also for other projects like our recyclable tube, which we continue to roll out across the globe.

As we look to the balance of 2022 and into next year, we are focused on executing our strategies with the right innovation, brand support revenue growth management and capital plans to deliver on our long-term growth targets, while working to rebuild our gross margins and deliver sustainable profitable growth in all four of our categories.

And with that, I am happy to take your questions. Caroline, can we move to the Q&A.

Caroline?.

Okay. If everyone can just hold on, we are working. It seems like there’s a problem on their end on the call..

Are we in? Yeah..

You are muted. Yeah. We are working on it. Everyone can just hold tight. There’s a problem on the conference call and so, hopefully, we will be back up shortly. Thank you..

[Operator Instructions] And we will take our first question from Dara Mohsenian with Morgan Stanley. Apologies, that question will actually come from Peter Grom with UBS..

Hey. Good morning, everyone..

Hey, Peter..

I hope you are doing well. Yeah.

So, Noel, I was just wondering if we could take a step back and can you maybe just give us an update on kind of the health of the consumer in some of your key markets, particularly emerging markets and maybe specifically Latin America? Are you beginning to see any signs of softening demand or trade down in your core categories? And I guess, how do you think emerging market growth evolves from here as we look out to the back half of the year and potentially into 2023? Thanks..

Yeah. Sure. Thanks for the question. If you scan at least the numbers we are looking around the world, you continue to see great pretty good vitality at the consumer level, emerging markets growing mid-single digits, obviously some slowdown in the developed world, particularly out of Europe where you saw some sluggishness in the categories.

But specifically to your question on emerging, it looks pretty good now.

A lot of pricing as you can imagine going through, but if we come back to our overarching strategy and as we really laid out in the first quarter that we would be continuing to take pricing coupled with strong revenue growth management, but more importantly, accelerating our innovation cycle into those markets.

Strong innovation on the premium and the value orientation side has allowed us obviously to continue to deliver strong topline growth, both in price and in volume. We will watch the consumer really closely, Peter. We obviously have a lot of teams on the ground, looking at exactly where the elasticities are.

But so far, elasticities are in line with what we expected or slightly better. But that will change over time as you see more and more pricing going into the market and other economic factors impact categories. But, overall, so far we have seen the categories behave as we expected. Not a lot of trade down, but its early days.

We will see how that evolves over time..

And our next question will come from Dara Mohsenian with Morgan Stanley..

Hey, guys..

Hi, Dara..

So, you just mentioned the elasticity looks pretty good so far.

Can you just talk a little bit about the competitive environment, given the strong pricing you are able to realize in the quarter? Are you seeing competitors move at similar levels? And then specifically, maybe talk a little bit about the Americas in terms of the sustainability of this growth turnaround we have seen in the U.S.? And if you could just touch on the consumer in Latin America, that would be helpful also? Thanks..

Sure. In terms of, just an overarching statement on competition, clearly, it’s been constructive relative to how we have seen competitors behave and I don’t pretend to understand their strategies or quite frankly react to them.

We are very focused on executing our strategies in the marketplace and as we laid out again in early on the first quarter call that we would be taking a leading pricing in some of the markets, and ultimately, we expected given the inflation is impacting everyone, we would see competition follow as well and that’s been the case by and large around the world.

So, overall, a constructive environment relative to pricing. In terms of the Americas, obviously, you have seen strong turnaround in our North America business.

Again, we highlighted that we were taking pricing and saw momentum build in the first quarter, and that continued as we mentioned in the first quarter call through April, and obviously, you see now with the performance of the North America business, a good performance overall.

I would call out that, obviously, they saw strong consumption across the categories. The innovation is certainly taking hold, excited to see the takeaway on Pro Series, which is at the premium end of the toothpaste. You have seen the market share and scanner performance, with scanner data in the U.S.

up in 11, eight -- eight of 11 categories over the last 13 weeks, which again, I think, shows the turnaround of that business, and importantly, the performance of some of our innovation coming in broad-based across all the categories in which we compete. So, overall, good. We are watching this closely.

It’s an unpredictable environment relative to where we see consumers evolving, where we see inflation evolving. But the good news is, we have taken pricing, we have more pricing planned across the world moving into the back half and we will watch the consumer impact of that very carefully..

Okay..

And Chris Carey with Wells Fargo Securities has our next question..

Hi. Good morning.

So pretty good progress on North American margins sequentially as pricing has built, you noted in the prepared remarks that, your supply chain headwinds are starting to abate and with pretty good traction with the consumer on this pricing, I just wonder if you have any updated thoughts on where we stand today on just the potential to rebuild margins in that segment even amidst the inflation, which is going to be a little bit higher than your prior expectations?.

Yeah. Thanks, Chris. You have known our company for many years, how focused we are on gross profit and we will continue to be laser focused on recovering gross profit as we move through the balance of this year and into 2023.

The pricing and innovation strategies and revenue growth management discipline that we have across the organization is clearly focused and tailored towards getting our teams equipped to find innovative ways to drive category growth, get value into the categories through pricing and other innovation initiatives and that will clearly be the roadmap moving forward.

And we feel quite confident given the health of our brands, the investment that we have been putting behind our brands, that we will have the ability to continue to take pricing in the marketplace. We will watch it very closely as I mentioned. But recognizing we have a very broad portfolio of products.

We compete at the high end and at the low end of the market, and historically, we have been able to flex our portfolio quite well in markets where we have had difficult economic circumstances. So we will continue to innovate across all price points and be sure that we are capturing any trade down if that happens, which we have not seen at this stage.

But, ultimately, I would expect you will see some trade down moving forward and we will continue to innovate the top end to drive the premiumization opportunity that we see..

And our next question will come from Andrea Teixeira with JP Morgan..

Good morning and thank you for the new call format and prepared remarks. So my question is on pricing and a follow-up on volumes in Europe and Asia-Pac. On pricing, you had an impressive 8.5 global uptick in the quarter globally and about 3% in North America.

So I believe there is additional pricing or as you mentioned coming through potentially oral care, I believe in the U.S. in July. Can you confirm the timing and the magnitude? And in Europe, in terms of volumes, you lost -- perhaps you lost temporary distribution, because you had a 3% decline in volume there.

I mean, not sure if it’s related to the war. And if you can round up the Asia-Pac exit rate also, Noel Wallace, because you exit and you had a minus 17, just to make sure that we recover all basis. I mean not to take the -- and obviously the 9% organic growth, but I just want to make sure that we know the puts and takes there? Thank you..

Yeah. Thanks. A lot packed in that one. So let me talk a little bit about the overarching thoughts around organic growth in the topline. Obviously, strong pricing is 8.5.

But I call out the positive volume growth where we saw across North America, Asia and Hill’s, and if you take obviously the impact of Russia, that volume moved up nearly 100 basis points.

So, overall, we are very pleased with the broadness of the pricing that we took across all divisions and the positive volume growth that we saw across some of the markets that I just mentioned.

When you look at, specifically calling out some of the other markets, Europe obviously was impacted by a couple of things, the negotiations on pricing certainly impacted categories.

We tend to see some elasticity in Europe happen early on as the market adjusted to the new pricing, but ultimately, that tends to become -- that is mitigated over time as you see everyone take pricing. Asia, you asked about, obviously strong growth in Asia, both in pricing and in volume.

We had an easier comp on Hawley & Hazel, but I would call out the CP China business, which grew significantly in the quarter as well on a more difficult comp. So overall really pleased with China, despite the lockdowns that we saw in the marketplace there.

So we were able to overcome that and deliver strong consumption growth across most of our business. So, overall, we are pleased with the balance of pricing and volume.

We are pleased with how we are getting pricing executed, and more importantly, we are pleased with the innovation that’s going into the market across multiple price points in order to sustain that moving forward.

Moving forward, I would say that, we will continue to be pushing pricing and my expectation is we will see some pressure on volume in the year to go, but that’s to be expected as we get more pricing in the market. The important part is the balance of innovation across all price points to mitigate that..

And our next question will come from Kaumil Gajrawala with Credit Suisse..

Hey guys. Good morning..

Good morning..

Can you talk maybe or compare and contrast what your market shares look like from a volume perspective versus revenue perspective. Obviously, elasticities are better than planned, but curious on how it looks like versus the market.

And then on your assumptions for commodity costs, are they linked to just assuming spot stays where it is or do you have some assumptions in there for things, particularly like palm oil and such? Thanks..

Yes. As I mentioned in the prepared remarks, very -- we are very pleased with the share performance. Now recognize that a lot of the share performance that we public -- that we make public don’t pickup ecommerce shares and some of the untracked channels. But that being said, our global shares continue to track well on both toothpaste and toothbrushes.

Obviously, we are taking pricing. So we are seeing value shares respond to that. Volume shares have been a little bit softer. But if you look back historically, where you have seen very acute pricing enter the marketplace, over time, you see volume come down.

But over time, as I mentioned, it’s our responsibility to bring innovation across price points, our responsibility to work with the trade to drive volume back in the categories. We have big traffic builders. Our brands are strong around the world and we know our retailers rely on us to bring traffic into their stores and drive volume and basket.

So we will continue to focus on finding innovation to ensure that the volume aspect of the category is protected. But I do expect, as we get more pricing in the market, volumes will be a little bit soft year to go, but we will manage that very, very closely.

On commodity specifically, again, coming back to the first quarter, we talked about $1.2 billion of raw material inflation. We have adjusted that up to $1.3 billion this quarter. There is most of that will come in the second quarter, but we will get a lot of that coming back through the back half of the year.

We have new spot rates as you mentioned and we have seen, obviously, some commodities come down, but we are pretty much locked in for the third quarter. Any benefit to any deflation that we see will get a little bit of that in the fourth quarter, possibly more of that coming in 2023.

But we will look to, obviously continue to take pricing given the unprecedented environment that we are seeing both on raw materials and logistics, and make sure that we have the marketing plans to execute that effectively..

And our next question will come from Kevin Grundy with Jefferies..

Great. Thanks. Good morning, everyone, and congrats on quarter as always..

Hi, Kevin..

Hey. Good morning. Good morning, everyone. Noel, just to kind of pull together some of the pieces of what you have touched on with respect and as it pertains to the guidance, so you hedged it up your 5% from 4% to 6%.

And, I am just looking to get at some of the macro and category-specific assumptions underlying that, understanding it’s going to differ little bit by category, but it does imply the midpoint of deceleration in the back half of the year, again to each of year-over-year comparisons.

And maybe just touch on that a little bit and maybe just some conservatism around elasticities that you have seen and should elasticities hold its upside, but maybe just comment on pulling together some of the commentary so forth and so far on the call relative to the guidance in the back half? Thank you..

Yeah. So, obviously, we have taken our guidance up based on the consumption we are seeing in the market based on the fact that we have been able to get strong pricing and early on, obviously, see some good volume moving through the P&L. FX continues to be the biggest incremental issue that we see based on where we were in the first quarter.

But, overall, we see the categories behaving as we expected. Now given the incredible unpredictability of what’s happening in the global world right now, we are watching those category performance very, very carefully.

Our estimations are based on the fact the elasticity will be consistent with what we expected it to be or slightly better and we will adjust accordingly as we move down the road, but it’s very difficult to predict exactly what’s going to happen at this stage. So we based our macros on what we can see today and what we can control.

So let’s come back to what we can control.

We control the execution of our strategy and we are executing against all the things that we have talked about, driving the core, looking at adjacencies, new channels and some of the faster growth channels particularly ecommerce, and you see that delivering in the results that we have had over the last 14 quarters.

So we are pleased with the strategies taking hold. I think the competencies we are building around digital across the entire enterprise, the competencies that we are building on innovation are all starting to track well in terms of how we evaluate them and we are seeing that play out in the performance..

Our next question will come from Bryan Spillane with Bank of America..

Good morning, everyone..

Hey, Bryan..

I wanted to ask a question about just -- more broadly about just the rebuilding of gross margins and so like forgetting about the constructs of fiscal years and timeframes.

Just is it -- can you rebuild gross margins if inflation were to or your cost of goods basket today were to stay at its current level so the inflation doesn’t proceed? Would it be possible to rebuild gross margins with cost at this level or does it somewhat depend upon some sort of disinflation, if you will, in the cost basket?.

Yeah. It depends on a couple of things, Bryan.

First and foremost, we believe that over the longer term our focus is on rebuilding gross margins and we feel quite confident that we can do that, particularly in the current environment, given the strength of our brand, the investment we are putting behind the brands and the innovation grid that we have out in front of us.

A couple of things that need to happen, obviously, the pricing in the market needs to hold, as you see inflation come down, it’s a real question of where competitors will go with pricing. We think it’s been quite rational to this stage.

We think that given the unprecedented levels that you will see constructive moves around pricing and promotion moving forward. But we are prepared for that. It’s really the flex of our portfolio across different price points that we need to manage very, very carefully.

So in my view, if inflation holds, the big determinant will be, will pricing hold, and my sense is, given where we see the marketplace today, that will be the case. So the answer is longer term, yes, we absolutely believe that we can rebuild gross margins..

Thank you..

Our next question comes from Rob Ottenstein with Evercore..

Great. Thank you very much and congratulations on terrific results.

Also kind of stepping back, Noel, over the last two years or three years, and what appears to us to be a very disciplined and systematic manner, you have kind of addressed various issues, whether it’s channel in the drug stores and in digital, whether it’s premiumization, whether it’s competition against local brands and really you have done a fantastic job executing and improving the momentum of the business on a commercial basis.

Apart from the macro factors that are going on today and not to diminish those, but in terms of the general commercial strategy, where is the focus now in terms of improving your actual business momentum and what are you doing to address that? Thank you..

Sure. Thanks, Rob, and good morning. So if you come back again, I think, to the heart of our strategy, which is big core businesses that need to be innovated against and you see that coming through. We have got a pretty significant innovation on our anti-cavity business going, coming out in some of the developing part of the world.

The premiumization aspect that we have talked about for quite some time, Rob.

We continue to obviously unfold that across different parts of our category, whether it would be on our Hill’s business or whether it be on our Oral Care business, most recently with the Pro Series launch, which is a great innovation with our highest level of hydrogen peroxide in the marketplace.

And obviously, looking into the adjacencies and new channels, if we talk about new channels specifically to your point, we still see a lot of runway there. Most of our markets, our online share is now above our general market share, which is terrific.

I call out China specifically where we are up as you saw in the prepared remarks, 600 basis points on our ecommerce share and that’s the largest ecommerce business we have in Oral Care across the world and that’s been driven through good premium innovation, a lot of good personalized marketing, getting into data driven decisions in terms of how we think about it.

I come back to the success we have on digital and really equate it back to what we did with Hill’s years back. I mean, that knowledge transfer that we had on Hill’s where we went digital and online is transferring all around the world and we are seeing great results in our ecommerce business specifically. It’s up to now about 14% of our total sales.

It was up nearly 20% in the quarter in terms of growth. So, overall, we are seeing a lot of those strategies we put in place. Moving forward, not a lot of changes, Rob. We are focused on the execution.

I think getting some of the supply chain constraints behind us is critically important for us and that allows us to get back to focusing on what we do best, which is execution and innovation across multiple price points and that’s exactly where we see things unfolding.

Revenue growth management will be critically important to our success moving forward. I think the discipline that we have on the ground quarter-to-quarter gets better. Are we where we need to be? No.

But the pricing you see reflected over the last two quarters where you see at least a two-year stack on pricing, which looks terrific for us, I think is a testament to the fact that we are finding ways to build off the strength of our brands and get value executed in the marketplace.

So, not a lot of changes, more focused on revenue growth management, more focused on our productivity initiatives. And in terms of funding the growth and our Global Productivity Program, which you are well aware of, getting that executed in the back half and early 2023.

So, again, let’s focus on what we do best, get on our front foot and continue to execute..

Our next question will come from Steve Powers with Deutsche Bank..

Yes. Hey. Good morning. Noel, actually picking up on some of the things you were just talking about -- at the end, I guess, based on your prepared remarks and your commentary just now, it sounds like most of your earlier supply chain issues have generally abated around the world.

I just wanted to confirm that and to see if call -- if -- see if there is any color you have around bottlenecks that you are still working through, number one. And then number two, on line of sight to funding the growth and savings from the Global Productivity initiative.

Just maybe a little bit of color around how those savings can accelerate in the back half, I think, they are expected to, but just maybe confirm that and whether we should expect that to skew at all to the fourth quarter versus the third quarter?.

Yeah. Thanks, Steve, and good morning. So let me address the supply chain first. Clearly, a lot of headwinds over the last six months to nine months, COVID related, obviously, at the heart of that, which has been somewhat consistent with the space and you are seeing others obviously talk about that more now.

A lot of the supply chain North America issues are behind us, you have seen that obviously translate into much better on shelf availability, and obviously, that translates into good consumption for our brands and the market share performance that we had over the last 13 weeks.

It is still a very, very unpredictable environment in terms of what we are seeing there. The team is all over it. But I think the tougher part is behind us certainly across North America.

I would say, given the strong demand that we are seeing on Hill’s, obviously, that team is doing an extraordinary job, continuing to deliver on what we need to have to meet the demand we are seeing in the marketplace.

Obviously, 18% organic, comping 15% from last year is a really strong performance and I give the supply chain -- our global supply chain who is pulling on resources from all of our businesses around the world to bring in thoughts and ideas on how to continue to meet that capacity. We made some good strategic decisions on our balance sheet.

Obviously, the Nutriamo facility that we have opening up in Europe will alleviate some of that, but we need to watch Hill’s carefully, because obviously, the consumption is high, which I don’t anticipate we will see that level of consumption quarter-to-quarter. We will see some strengths and some slowdown.

But, overall, the underlying fundamentals of that business are strong. We need to ensure we continue to execute from a supply chain standpoint. So, overall, we feel much better about where we are globally from a supply chain. On funding the growth and GPI. GPI as we mentioned will be more back half loaded and into 2023.

We had a marginal amount of savings come through in the second quarter. The bulk of the savings will come through in the third quarter and fourth quarter and into 2023, and you will see obviously that likewise in funding the growth. It’s pretty evenly spaced.

But, historically, we get a little bit more funding the growth in the back half and the teams are obviously very focused.

We talked about that in the first quarter call that we had a lot more focus against funding the growth given the unprecedented environment, and fortunately, the global productivity initiative that we put in place last year in anticipation of a more difficult marketplace, we are starting to see the benefits of that unfold this year..

And our next question will come from Olivia Tong with Raymond James..

I want to talk about how in your view the competitive environment might change given all the global sort of macro slowdown concerns? Does it --how do you think about this? Does it perhaps puts you in a better competitive positioning, particularly in emerging markets versus some smaller local players? And then just following up, you mentioned a couple of times that you do expect trade down.

You haven’t seen it yet, but you are expecting it to come. But you are still planning to price, and obviously, the Hill’s results speak for themselves. So if you could just kind of triangulate those different pieces of expecting trade down, but obviously, not seeing it yet, that would be helpful? Thank you so much..

Yeah. A couple of things. So, first of all, if I take the back end of your question first, the strategy that we have deployed in high inflationary times, which we have a lot of experience in this marketplace doing that is to balance our entire portfolio. We have -- we compete across multiple price points.

In some countries, five to six different price points in a specific category. That allows us to be very thoughtful on where we take pricing and when we take pricing.

And obviously, a lot of the analytics that we have in place, Olivia, now allow us to kind of see where consumers are trading in and out of to ensure that we are adjusting our strategies accordingly.

And I think that flexibility and agility that we have learned over the years in managing high inflationary markets has afforded us the opportunity to think very carefully about how we want to adjust to this moving forward. The competitive environment may change, for sure.

If inflation becomes more benign, there may be a decision by others to decide to put that into promotion to get some volume. But as I mentioned earlier on, I think, the market seems to be acting quite rationally.

This is an unprecedented environment for all CPG relative to the levels of inflation and so my instinct is you are not going to see a lot of people chasing volume by discounting price, they are going to try to get -- regain margin into the P&L. You know, Colgate is very focused on gross profit.

We will continue to be focused on getting pricing into the P&L as that allows us to maintain the advertising support to drive the topline and make sure we get our innovation while seated in the marketplace and I don’t really see that changing over the foreseeable future.

We will flex our portfolio accordingly and the good news is we compete across so many price points across all of our categories that we feel that buffers us a bit for against any trade down that we see in the marketplace..

We will now take a question from Mark Astrachan with Stifel..

Yeah. Thanks. Good morning, everyone. I want to ask a question on Pet Care, specifically, without obviously drilling down too much. But the performance has been really strong, right? You go back even pre-pandemic, just really has gotten better since kind of mid-2000.

I think what a lot of people know understand is that there were a lot of pet adoptions during the early parts of the pandemic, which continue.

I guess if you could unpack a bit of how much of the contribution has come from that and maybe if you could talk about how you measure your success amongst that newer cohort in terms of your market share amongst those that have adopted pets over the last two years? And given that they are probably somewhat new to pet ownership, how do you think about the risk if any of trade down given where the economy maybe going?.

Yeah. Back on Hill’s. Clearly, strong performance. The strategies that we have deployed on Hill’s are the same strategies we have deployed across all of our categories. And the learning that we have had from Hill’s, it certainly is they have been much more at the forefront on digital and online, as I mentioned earlier.

That knowledge transfer has been terrific and shared the cross the world relative to how we are thinking about the business. And if you go back to the essence of our strategy, it’s faster growth channels, and obviously, they are looking at ecommerce as an opportunity for growth.

The expansion into new markets, our global supply chain, as well as our global footprint allows them to think about more expansion. Clearly, they are seeing a pickup from pet ownership in the U.S. that works in perpetuity in many respects, because consumers are going to -- pet owners are going to continue to feed their pets.

We have benefited, I think, from getting back to what we stand for which is science.

Science is inherent to all of our core categories, whether it’s Oral Care, Skin Health and we use that platform to really drive innovation, drive superior consumer benefits and health benefits across the value chain and you are seeing that obviously translate into strong growth for that business.

So, again, core adjacencies, channels, get back to what we stand for, which is science and superiority, leveraging our professional model across the enterprise. They have done a terrific job obviously with their vet partnerships, which again is akin to what we do in oral care and what we do in skincare.

The digital work that Hill’s is doing is the best-in-class for us as a company. As you know, they built that business with a digital-first mindset. Obviously, now we are taking digital into thematic advertising as we expand penetration for the brand and expand brand awareness, which candidly are quite low still.

So, all in all, we feel very good about where we are. Strong growth, we have got tough comps moving forward, as I mentioned earlier, but we feel pretty good about where we are and where the consumer is. If you go back to 2007, 2008, during the last recession, we did not see a lot of trade down out of the Hill’s business during that time.

So we feel pretty good. The brand is stronger. We are innovating and we are spending behind the brand moving forward. Obviously, the supply chain is an opportunity to move this forward and we are using our balance sheet accordingly to address that..

Your next question will come from Lauren Lieberman with Barclays..

Hi. Thanks. Good morning..

Hi, Lauren..

I just had two questions.

First of all, just to clarify, you would mentioned earlier, plans on second half pricing and I was just curious and if you can tell us geographically, I think, it was in regard to North America, specifically, but I just was -- if you are looking for a little bit more detail on that? And then the second thing was on advertising spending.

In the release, you had mentioned a plan now for it to be flat as a percentage of sales, still up in dollar terms and you did raise the sales outlook, but I just wanted to get a sense for how you might describe advertising spending plans today versus where they maybe were at the start of the year? That would just be helpful. Thanks..

Sure. So, on pricing, let me just make it more on a global basis. Clearly, with the inflation that we have seen as we talked about in the first quarter and we are very clear in laying out visibility in the first quarter around where we saw pricing evolve through the quarter.

Obviously, it accelerated in the back half of the first quarter and into April. We expect pricing will accelerate as we look at our organic growth composition through the balance of the year. That means obviously that we will have new pricing executed in the back half of the year and that will be pretty broad based across the world.

I am not going to get into specific regions. But I will say that we will be taking pricing across both to developed and developing world in the back half of the year and that will be depend on categories, competitive situations and we are looking at each of that very closely, but broad based we are taking pricing across the world.

Relative to advertising, obviously, given the strong topline, the percentage of sales came down. Our absolute dollar was a little bit up.

We expect our dollar increase to be up in the back half of the year as we continue to support our strong innovation plans and as a percentage of sales, we are estimating that, that will come in more or less in line with where we were last year.

You saw in the prepared remarks, we are spending a lot more time thinking about our digital advertising and the return on investment. We are getting there. We are moving a lot more money from non-working into working media in order to balance some of the growth opportunities we see in the market.

So we feel pretty good about where we are from an advertising standpoint and intend to continue to invest to build our branch..

And our final question will come from Jason English with Goldman Sachs..

Hi, Jason..

Hey, there. Thanks for spotting me in. If -- sorry, if my question is redone into maybe your prepared remarks, your 10-Q, but we got a lot of information dumped on us today. I must confess, I have not been able to get through all of it. But a couple of things that stood out to me.

North America, the sequential improvement in margins was certainly impressive and better than I was expecting.

I haven’t been able to get to the drivers in your Q yet, but can you give us any more color on what contributed to, I guess, the statement of year-on-year decline and the sequential uptick and whether or not just anything transitory aiding that?.

Sure. Thanks. So, obviously, the North America had strong sequential improvement in margin, obviously, up around a couple of hundred basis points that you saw as we put it in the prepared remarks. Dollar sales growth is driving that and obviously good topline growth, a good consumption growth across our categories.

I mentioned earlier, Jason, that at least the last 13 weeks we have seen share growth in eight of our 1 categories, which again, I think, is the result of obviously the execution results we are getting in the marketplace, the innovation, working our promotions effectively in the marketplace and some of the new products that we put in place.

But, obviously, we are going to continue to focus on gross margin expansion across both North America and the company. Gross profit is the key focus. The funding the growth initiatives that we have in place, getting the mix right, getting the innovation right in Oral Care as we move through the back half of the year will be critically important.

Supply chain was a contributor to that as well. Obviously, we have got some of those issues that are behind us, still a lot of pressure. We need to focus on logistics, which continues to be a real headwind for both North America and the company, and as we see opportunities in the back half, we will certainly look to take those..

Good stuff, Thanks a lot..

And we have no further questions at this time. So I will turn the conference back over to Noel Wallace for any closing remarks..

Well, thanks everyone. Again, broad based growth across the company, executing and transferring knowledge across our core categories, we are seeing obviously good consumption.

Obviously an unprecedented environment around pricing, we will continue to be focused on revenue growth management, our funding the growth initiatives and our global productivity initiative as we go into the back half. Thanks for the call this morning and we look forward to talk with everyone soon..

And that does conclude today’s conference. Once, again, thanks everyone for joining us. You may now disconnect..