Title

Presentation

Colgate-Palmolive Company beats earnings expectations. Reported EPS is $0.91, expectations were $0.858.

Operator: Good morning. Welcome to today’s Colgate-Palmolive 2025 first quarter conference call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn this call over to Chief Investor Relations Officer and Executive Vice President, M&A, John Faucher. Thanks, Betsy.

John Faucher: Good morning and welcome to our first quarter 2025 earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2024 annual report on Form 10-K, and subsequent SEC filings, all available on our website, for a discussion of the factors that could cause actual results to differ materially from these statements. These remarks also include a discussion of non-GAAP financial measures, which exclude certain items from reported results, including those identified in tables three, five, and six, of the first quarter earnings press release.

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 Sutula, 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&A. Noel?

Noel Wallace: Great. Thanks, John, and good morning, everyone. 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 built 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 positions us well 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 have heard throughout the week. While a slowdown in category pricing was always built into our assumptions for 2025, macroeconomic and consumer uncertainty we saw in Q1, not just in the US, 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. But there may have been some pantry de-loading 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. We are 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 challenge 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 million in 2025 versus our initial guidance. This is a fluid situation, and we will continue to monitor and respond to it over the course of the year. That is 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 billion 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. 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&L and the balance sheet over the past several years. The strength of our P&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 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 on 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&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 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 will take your questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star, then one. You may reenter the question queue. Once again, if you would like to ask a question, please press star. The first question today comes from Peter Grom with UBS. Please go ahead.

Peter Grom: Thanks, operator. Good morning, everyone. So Noel, you touched on the consumer pressures and weakness. As you said, it has been a big topic of discussion across the group this week. But I would love to get your perspective on what you have 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? Thanks.

Noel Wallace: Yes. Good morning, Peter. Thank you. So maybe let me just step back and talk about contextually and strategically how we are approaching the operating environment in general and pretty consistent with a lot of the discussions we have had at 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 have improved the health of our brands, and that we believe is from upon, and we are executing against that strategy, we think, in an extraordinarily difficult environment. Now we highlighted coming into the year that this year would be a little bit slower.

That was reflected in our guidance. It was based on the fact that we would have less pricing given some of the hyperinflationary price we had last year. 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 have heard from others, has slowed a bit. So just to give you some context on that, let me take the US as a good example. That is where most of our data is from. We have seen that through February in our categories, all twelve of those eleven of twelve of those categories are 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 have seen a better improvement across most of those.

Not to where we were historically, so we are not out of the woods yet, but the good news is we are starting to see more stability as we move through April. If you look around globally, pretty consistent with that. A lot of marketplaces in February, seen a little bit more improvement in March. And we expect over the medium term, probably more towards the back half of the year, then we will start to see more normalization of the categories. Consumers will come back. They have 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 are 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.

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

Andrea Teixeira: Thank you, operator, and good morning, everyone. Just building into what you answered to Peter, in regards to North America, you mentioned, like, the middle of 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 so obviously, as you said, not out of the woods yet. Can you comment a bit on 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 rightfully 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 investment behind the brands? Thank you.

Noel Wallace: Thanks, Andrea, and good morning. Let me take the obviously, the category discussion on North America first. And I think we are quite consistent with what you have 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 are 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 would not say anything too material there. But the good news is indicative of where we have 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 by 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 are seeing, as I have I think characterized before, quite constructive.

We do not see promotion numbers going through unusual rates as a result of that promotion. Volume on promotion is pretty consistent with where it has 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 is historically what has driven our household penetration and our success, and we will continue to focus on that. It will not be a promotion environment that will turn things around. It will be the excitement that we bring to the categories through our innovation.

Operator: The next question comes from Filippo Falorni with Citi. Please go ahead.

Filippo Falorni: 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.

Noel Wallace: Good morning, Filippo. Thank you. Pricing was more or less where we expected in the quarter. And 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 have announced some pricing in Latin America, which is consistent with our strategy, and we will see that execute in the second quarter and into the third and fourth quarter in Mexico and Brazil. And we will see, obviously, that continue to normalize moving forward. Well, anyone’s guess on where Argentina will be with inflationary pricing, but right now, that market is quite constructive, and importantly, we see ourselves gaining both volume and value share in that market.

So we are quite pleased with that. US pricing improved sequentially, which is encouraging, but as we had indicated back at CAGNY and on the fourth quarter call, you know, pricing would we had made some adjustments in the back half of 2024, and we expected those to flow through the P&L in the first half of 2025, and that is exactly where we are seeing, and I would expect the second quarter to be quite consistent with that, and we will start to see improvements as we move through the back half. If I then go around the world a bit, we are really encouraged by Europe and the pricing that we are getting there. I think our real focus on premium innovation and improving mix in Europe has played out, and it has certainly delivered another very strong quarter for the European business, and that is a function, I think, of the strategy that we are 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 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 are using now with AI to help us get better diagnosis and better predictability of how our promotions and our pricing will take effect in the marketplace is allowing us to get more in there. But most importantly, I think, is the innovation that we are putting in the market. You saw an improvement in mix this quarter, which is just terrific to see. The pricing environment will continue to be challenging. I think, in terms of where things go now.

As tariffs take hold, 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 will take that on a market and category basis as we move forward.

Operator: The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Dara Mohsenian: 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. A, just can you give us a bit more detail on what you are seeing at a consumer level given some of the broader macro concerns in general? It does seem like India softened a bit. But, you know, just curious for your perspective on any change dynamics and what you are seeing there. And then B, just your market share performance in the quarter in emerging markets, Latin America is obviously a key area. Also just touch on China and what you are seeing there. That would be helpful. Thanks.

Noel Wallace: Great, Dara. Good morning. So overall, again, if I take a step back, volume was positive in the quarter ex-private label. And I think our exposure to emerging markets continues to play favorably for us given that we are seeing certainly an impact from the economic uncertainty and the volatility that we have seen particularly here in North America, but that has certainly spread across the world. Saw that in February. But as a result, we have seen things come back a little faster in some of our emerging markets as we move through the end of the quarter into April. And we expect that we will see some improvements moving forward. If we look specifically at Latin America market shares and your comment there, the 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 is obviously at a very high number. Market shares in Africa, Middle East, continue to be very strong and growing in those markets. So we are 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 Hawley and Hazel business, and I have 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 Hawley and Hazel.

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

Operator: The next question comes from Bonnie Herzog with Goldman Sachs. Thank you. Good morning.

Bonnie Herzog: Hi. I had a question on your advertising spend. You updated the guide to flat spending as a percent of sales for the year versus flat to 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, you know, given end markets, you know, softness. And then specifically on innovation, curious to hear if your plans have changed or evolved, you know, given end market slowdown perhaps more towards the value end of the spectrum given consumer pressures? Thanks.

Noel Wallace: Yes. Thanks, Bonnie. Good morning. So no change at all relative to our innovation. Quite frankly, if I get into specifics on innovation, this environment, we are having lots of discussions about accelerating our innovation in the back half to stimulate consumption more at a varied degree of price point. So if anything, innovation will continue to accelerate. The revision is a function of a couple of things. One, as I have mentioned, we are seeing opportunities to continue to drive our reach at our frequency through optimized spending. And that will continue to be a sharpened focus. You know, second, you know, particularly given some of the softness in categories, it is only prudent and appropriate at this point to balance flexibility that we built into the P&L.

And that is exactly what we are doing. We do not see it hindering at all our strategy in terms of what we are doing through our accelerated core innovation and adjacencies. We do not see it hindering on our premiumization strategy, which we think continues to be a real growth opportunity for the business. And we are focused on that spending in markets where we are 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 a local currency, local currency advertising will still be quite strong. And likely up on the year, and that is 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&L.

Operator: The next question comes from Robert Moskow with TD.

Robert Moskow: 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 the first quarter. Are you still seeing that, or is the Hill’s brand holding up okay in this kind of dynamic? And secondly, you know, you have a lot of growth in wet. You have added capacity to expand in wet. How do consumers view wet in the Hill’s portfolio? Is it more expensive? Is there any kind of trading down within formats like that?

Noel Wallace: Great. Thanks, Robert. You know, just a clarification, some of the trade down that we have talked about was specifically in the super premium to the mid-tier in North America on toothpaste. And that is to a certain extent what we are seeing. I will characterize that we have seen no trade down in the private label. In fact, quite the opposite. Private label is either flat to down in the US as well as Europe. So the trade down is not necessarily there. We have seen some trade down from super premium in the 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 are obviously doing exceptionally well from a top-line standpoint, and that is really across all price tiers that we operate in, which is very focused on, obviously, the super premium. But, you know, 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 US. So typically, we do not have that broad base of success. We are very pleased with that.

Why is that? A couple of things. One, we continue to keep strong investment in the category. Two, we have had a terrific innovation that seeded itself in the market in the first quarter, and we will see that play out through the rest of the year. Three, we have 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 is exactly the way we are executing our strategy to go after those low index categories that we operate in today and get the incremental growth versus the category. That is bringing value to our retailers, which they love. That is bringing penetration to our brand, and that is 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, you know, roughly 450 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 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 spend benefit we are seeing through improved prescription diet. So, you know, overall, a combination of innovation, funding the growth, and productivity is playing out to a very healthy P&L, allowing us to accelerate advertising in an area where we see significant growth opportunities, particularly in those under-indexed segments.

Operator: The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead.

Kaumil Gajrawala: 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 know, 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, you know, we are looking at $60 oil. Many of your markets are very much linked to commodity cycles and such. So I am just curious if you are sort of reassessing how you approach your forecast on inflation and pricing and those sorts of things in some of those markets. Thanks.

Noel Wallace: Yeah. Let me take the first part of that, and I will hand the second part off to Stan. So listen, you know, in our view, what happens globally and it is 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 are very cautious about the outlook. You see that obviously in the travel industry, with people having, you know, questions on where how they are going to spend their money. You see that obviously very forthrightly in discretionary products, and even in our categories that are nondiscretionary, you will 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 have gone through these shifts, we have seen the category soften a bit in terms of consumption. But ultimately, they are everyday use categories, they will come back, but they will come back at a pace that is 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, you know, over the balance of the back half of this year moving, hopefully, into 2026, you will 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 will 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 is really driven by the shock to the system in February based on all the rhetoric and existing around the world and the concerns with where the economies were headed. And as a result of that, consumers were very cautious. So with that, let me turn it over to Stan for the inflation question.

Stan Sutula: So any inflation related to commodities specifically, overall, excluding tariffs, we continue to expect modest raw material inflation. And while there has been some volatility in there, oil has come down, but opposite that, we have 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 and supply chain efficiencies and optimizing that. So we will 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 will see some changes in trajectory particularly in the second half. But as of now, on balance, we still see modest inflation.

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

Robert Ottenstein: 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 is the only dry food she will eat, and her mood, her health has dramatically improved as has my family’s happiness. So thank you for that. I am going to talk about Europe. Can you talk maybe just a little bit about why you are doing so well there, the role of ELMEX in the strategy, what you have 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 are getting in Europe now? Thanks.

Noel Wallace: Thanks, Rob. And I am nothing but pleased to hear that your dog is on Science Diet. And I am pleased that the owner of that dog is nutritional of compliments we bring to that. Hopefully, you have seen our new campaign. We have launched a new campaign on Hill’s and a new brand positioning, which has been 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 have 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, you know, obviously, some volume growth sluggishness in emerging, but we see that coming back. But the volume growth in Europe was terrific. Remember, we were comping up 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 have seen terrific market share point market share growth in the region, particularly in our oral care business, and that is both on the Colgate franchise, as well as the Elmex and Meridol franchises. And that has obviously helped drive incremental margin in the P&L that has allowed us to actually increase our advertising levels in Europe across more categories.

And so that is certainly played out in the overall health of the business. 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 strategy of innovation, strong advertising, strong professional advocacy, and endorsement for the business. I have talked about in various public forums on we are being very selective on how we take Elmex into other markets around the world. It is not a one or two-year investment. It is a five to ten-year play out in terms of how we see how the decision to make that strategic shift. And we are excited about what we have seen in Brazil.

That business continues to operate very well in Brazil. We have seen it expand into a couple of other markets, particularly in the Middle East, where we are encouraged. We will 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, you know, generating incremental margin and volume. For a quarter, we are going to look at it over a three-year horizon.

Operator: The next question comes from Kevin Grundy with B. N. C. Please go ahead.

Kevin Grundy: Great. Thanks. Good morning, everyone. So, 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, recyclable tariffs, retaliatory tariffs, just kind of broad brushstrokes would be useful for folks. Then two, please speak to your ability to offset the $200 million called out. If I am not mistaken, there was not offset in there per se, or at least you spoke to $200 million gross. So maybe just talk about productivity, revenue growth management, and sourcing. It does not seem like pricing is the preferred path from companies we have heard from, and there are myriad moving parts competitively, how you are positioned, where you are sourcing versus the competition, etcetera.

But it does not 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.

Stan Sutula: Okay. Well, why do not I start, and Noel can add on some color. For tariffs, our revised guidance includes $200 million 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 on raw materials and finished goods coming from China into the US and from the US into China. That is the 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 have lowered our supply chain exposure to China, part of our overall supply chain strategy.

We spent the past few years building more flexibility into our global supply chain. It is not necessarily about building more capacity. It is about making better use of that existing capacity and alternative sourcing. We have also invested meaningfully in the US. We mentioned this in prepared remarks in our US supply chain. Almost $2 billion 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 Tonganoxie wet pet food facility. We have increased our number of US-based manufacturing facilities by more than 40% over this time. So we are working hard to mitigate the incremental cost from tariffs, but we are going to do that through a combination of approaches: productivity, revenue growth management, formulation, sourcing, and optimizing our supply chain.

So the impact of those tariffs is included in our revised guidance, where we said that gross profit margin would be roughly flat.

Noel Wallace: Yeah. So, you know, as I mentioned, it is a country-category combination, and you cannot 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 are 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 have 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 products coming out of China. And as a result, we have a lot more flexibility in the supply chain than we have had before. But the sheer size of some of these tariffs requires 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 impact of categories, but all the categories where we feel we can offset with productivity, which will be our main focus. Continuing to accelerate our funding to 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&L. And, of course, our revenue growth management. We will certainly look at that as an ongoing strategy that we have 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 is 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&L.

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

Chris Carey: Hi. Good morning, everyone. I wanted to ask about the back half of the year. Again, in a slightly different way, but when you look at the improvement in category growth rates, which appear to be slightly embedded into the back half of the year, how do you think or in what regions or product categories do you have the highest level of confidence or where you are seeing early signs that give you some confidence that regions or categories are going to be accelerating? And then just connected, if the category growth rates prove a bit more volatile, as we have seen, what are the areas of the portfolio where you feel best about your ability to maybe accelerate outperformance relative to categories, in other words, control your own destiny may evolve despite how the macro? So thanks for those.

Noel Wallace: Yeah. Let me touch on some of the macro aspects, and then I will let Stan be more specific on how we have phased the balance of the year. One thing that we do expect the macros to get slightly better. We do not think there will be a material change based on the uncertainty that will continue to persist, as I said, through the balance of this year. But we do expect the macros to improve, and therefore, as you categories will get better. Comps get easier as we move through the back half of the year. The pricing that we are taking in the first half will obviously roll through some of that into the back half of the year. And then, as I said, we will have a little bit more stabilization on things. If I look at, you know, a lot of the work that we have done over the last couple of years to improve the health of the brands, they are in a better position today to withstand the economic uncertainty that exists and, obviously, the value that they bring to consumers, particularly in oral care.

Where I believe we put a significant amount of investment improving the brand equity. We put a lot more time into improving our core innovation. We have got the total relaunch this year, which is a big core business for us. We have our anti-cavity relaunch in some of our big emerging markets. So we have got good news coming to continue to stimulate and excite the category and give consumers a reason to continue to stay within our brands. But the strength of the brands, to me, gives me confidence, particularly in oral care, that we are in a good place. Hill’s, as I mentioned, that goes without saying, we will continue to focus on those segments where we have low shares and then low ground penetration. And we are bringing a lot of innovation both in terms of form and packaging into the market to deal with some of the economic uncertainty that exists.

But that business, we believe, will continue to perform well in the back half despite the fact that I do not anticipate the category necessarily reversing itself from where we have seen, but we are getting good growth out of that business as we speak.

Stan Sutula: That will pick up a little bit, you know, we expect the top line to some improvement in North America and Asia to improve as we go into the back half. You know, we expect, as you saw the performance here in the first quarter, and we think Africa Asia will also get better. Those will flow through. Now we have the impact of tariffs that will roll through, but all the work we have done, as we look at countries like South Africa and Turkey, on, you know, looking at pricing, the roll through, remember that the private label will also roll off here as we go through the year. That will be a tailwind. And we have two of our strongest categories with oral care and Hill’s, with strong margins as they continue to grow and outperform the category, we get a positive mix effect. That will help us offset the impact from tariffs and deliver our guidance for kind of flat margin for the year and then low single digits for earnings per share.

Noel Wallace: Yeah. I would also probably say, I think our expectation, we saw a little bit of softness in Mexico in the first quarter as well as Brazil. But we, you know, given the strength of our business in both those markets, I would anticipate that as we move through the back half of the year, we should see some improvements there as things settle down. The market shares look terrific, and as the categories come back, we will recapture.

Operator: The next question comes from Olivia Tong with Raymond James. Please go ahead.

Olivia Tong: Great. Thank you. Two questions. First, in the US, if you could provide a bit more granularity in terms of where you are seeing more of the pressure. You mentioned trade out from super premium to base, but it does not sound like the middle traded down to the lower end. Why do you think that that was the case when the pressure seems to be a little bit more heavier on the lower end consumer? And then in Latin America, historically, we have been able to maintain a certain level of inelasticity and volume. When you price, but you have been quite transparent that Latin America has been a bit more challenging of late. So what gives you the confidence that you can continue to get back to historical levels of elasticity given the evolving backdrop? Thank you.

Noel Wallace: Yeah. Good morning, Olivia. Thank you. So, you know, specifically on North America, it is really been more of a volume issue as we talked about. In the first quarter, we saw some weakness in the volume. And that is fundamentally driven by all the things I characterized upfront and obviously to a certain degree a function of lower store traffic and lower conversion in-store. But overall, I think as the market settles down, we should see, you know, a better impact in terms of promotional velocity. Like, as I said, promotions are not increasing, but the velocity on those promotions was softer in the first quarter given short traffic was down. But we expect that to come back a bit as we move forward. And we are certainly stepping up our innovation as a way to hopefully get some more volume in the category in the back half of this year.

In terms of Latin America specifically, you know, this is, you know, one of our strongest markets globally. The brands are exceedingly strong. We have a big relaunch on Colgate Total, which I talked about, which is doing very, very well across the region in terms of driving incremental value and market share into the business. A really solid innovation pipeline, particularly starting in the second quarter and moving through the back half of this year. As I mentioned, we will get some pricing in those markets, which we are taking and announced. That will help as well. So overall, it is just a matter of the market settling down a bit and continuing to execute our strategy of driving brand penetration and ultimately delivering category growth and market share.

So I do not see any fundamental issues in Latin America that give me concern, but it will largely depend on the macro obviously improving globally. And that will certainly help Latin America as we go into the back half. So it is not uncharacteristic to see this softness, but we fully expect as we have seen historically that in the medium to long term, those markets come back nicely.

Operator: The next question comes from Bryan Spillane with Bank of America. Please go ahead.

Bryan Spillane: Hey, thanks, operator. Good morning, everyone. Good morning. I guess hey. I had a question, maybe a good it is a follow-up to Chris Carey’s question as we are kind of thinking about the puts and takes balance of the year. In the press release, and I just want to make sure I understood this correctly, if I read the within the guidance and related to Hill’s and pet nutrition and private label that the drag from exiting private label actually will become more pronounced after Q1. So I guess a bigger drag, do not know if it is balance of the year or just over the next quarter or two, but I just I guess I want to understand if that component is if that is a headwind we need to consider as we are thinking about reaccelerating organic sales growth over the balance of the year.

And maybe connected to that, if you can just remind us all the whole drama around the private label. I know there was you know, you were going to exit more originally than you originally expected. Now it was less. I do not know. Just kind of where we stand on just you know, exiting private label and when that should be you know, behind us, I guess.

Noel Wallace: Yeah. Thanks, Bryan. So, you know, we have been I think extraordinarily transparent and consistent with that. We had said that prior we will exit private label in 2025. That we anticipate to be fully out of that likely by the third quarter. We will you know, the pace of that exit, obviously, we saw the impact as I mentioned in the quarter for Hill’s. Ex-private label was up five. And if you take the company, our volume was positive, ex-private label. So that obviously had an impact in the first quarter. We expect more or less the same, slightly more in the second quarter.

Stan Sutula: Yeah. So, Bryan, it was 40 basis points to total company volume in the first quarter. Okay? As we ramp down to get to zero in the back half of the year, it will be a slightly greater impact on a quarterly basis. Now what is going to happen is, you know, we are going to be out of private label at some point in the back half of the year, so then it is zero for a couple of quarters, and we are still going to be lapping a little bit in the prior year as we go through the first half of the year. So this will continue to be a little bit of a drag, but as we said, you know, really starting with the fourth quarter guidance, that is baked into our organic sales growth guidance. It is not an incremental. We are providing you with the organic or the volume we are providing you with the organic impact quarter by quarter for a transparency standpoint.

But, yeah, that will be a little bit of a drag. A little bit more than 40 basis points per quarter as we go out through the balance of the year. You know, it is providing a nice margin benefit. You know, transparently, you should be thinking about the Hill’s business from a branded standpoint. What is PD doing? What is FD doing? Not with the private label impact is, so we think that is going to give you a little bit more transparency, and you can see the strength of the underlying business.

Noel Wallace: Yeah. And it is going to be, you know, moving forward to the second part of your question, Bryan. I mean, this was, you know, I think long foreshadowed. Our core business is what we control. We do not control private label sales. We were as part of the acquisition, agreed to do that. There is no issue whatsoever with our exit. We are doing this as smoothly and efficiently as our retailers require. But we do not control their sales. What we focus on is what we produce, and I think that is the better way to look at the business is how are we performing ex-private label, and that first quarter is one eight ex-private label. And we are pleased with that, and we will balance the exit of this as efficiently as possible for the business and continue to focus on the things that we control and we do best.

Operator: The next question comes from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman: Great. Thanks. Good morning. Wanted to talk more pointedly about some of the emerging markets that last quarter we discussed there being some competitive activity that you were, you know, watching and monitoring. It was we talked about India a bit already, but Turkey and South Africa. And when I look at the dynamics for the APAC region in Africa, Eurasia, sequentially. Last quarter, it was interesting because pricing was negative. This quarter, pricing in both inflected to up pretty solidly, but volumes went the other way. Just wanted to hone in kind of on those two buckets of emerging markets specifically and some of the local competition that we started to talk a bit about last quarter kind of status report there. Thanks.

Noel Wallace: Yeah. Great. Thank you, Lauren. So listen, it is really just a couple of markets on the emerging side that really drove some of that. Obviously, we talked about China earlier and the Hawley and Hazel business. I mentioned Turkey. I mentioned South Africa. And clearly, those would they if you take the other markets in Asia, outside of China, they had a terrific performance in the quarter. So Philippines doing well. Thailand doing very, very well. So across the board, and likewise across Africa with the exception of South Africa and Turkey, we saw some very balanced growth both on volume and price moving forward. A little bit of the pricing, to be more specific, we obviously had some pricing challenges on the Hawley and Hazel business in the quarter.

A little bit of adjustment. Again, you know, part of that Hawley and Hazel was the Chinese New Year shift that you have heard. But again, the stuff that we can control, we did do a little bit of adjustment on some pricing and promotions in the quarter. But I anticipate that will hopefully hold again a little bit better moving forward. But it is really those three markets, and we are not at liberty to talk about India yet, but we as I mentioned and you were referred just now, the urban market continues to be soft, and we had anticipated that would come back a little bit faster this year.

Operator: The next question comes from Korinne Wolfmeyer with Piper Sandler. Please go ahead.

Korinne Wolfmeyer: Hi, good morning. Thank you for taking the question. I would like to touch or dive a little bit deeper on some of the tariff impacts and kind of the pace of mitigation and how we should be thinking about, you know, over the next couple of quarters, how we should start to see that $200 million start to get, you know, a little bit more offset. And then as it relates to the tariffs that are on pause and still to be enacted, is there any scenario analysis that you have done so far that can help you give us a little bit more context on the extent of those impacts if they were fully enacted? Thank you.

Stan Sutula: Sure. As we said, the tariffs that are announced and currently in effect make up the $200 million, and the impact of those is roughly linear through the quarters. As you would expect, it takes time to try to offset all of these, and that is why we have updated our guidance to look at gross profit margin, you know, roughly flat for the year. So you will see more mitigation as we go through the year to help offset those tariffs. Now in scenario planning, we have run a large number of scenarios, and there is really no way to predict exactly which tariffs will go in, what their retaliatory response would be. While we run various scenarios, we can only deal with ones that we actually know. Now one part that we do look at is we had mentioned in the last quarter call we do import some toothpaste from Mexico.

And we have concluded that that toothpaste is compliant with USMCA. So it is not subject to that. Some of those raw ingredients could be subject to some tariffs, but that is a big improvement for us as we look at tariffs, and that is included in our guidance. So we will continue to do that scenario analysis, and we are going to play this day by day as we see different tariffs get implemented and lifted. But it is really not possible to predict that through the end of the year.

Operator: The next question comes from Stephen Powers with Deutsche Bank. Please go ahead.

Stephen Powers: Hey, everybody. Good morning. Thank you. Two follow-ups for me, if I could. The first one goes back to Bryan’s question on Hill’s and private label. I am just curious, to what degree you will be carrying idle capacity on Hill’s, you know, related to that into 2026. And how quickly you can fill that with Hill’s and just to what extent that could be a, you know, a margin tailwind as we go forward, number one. And then number two is just, you know, you talked about this a couple of times, but going back to the macro and category assumptions over the balance of the year, I just want to so I had this question come in during the call. Just if the improvement that you are expecting does not play out, and because consumer confidence remains soft, is the planning assumption that you would have enough incremental flex in the P&L, Noel, to protect the bottom line in that scenario or, you know, or is there risk associated with that? Thank you.

Noel Wallace: Yeah. Thanks, Steve. Good morning. So, you know, let me talk about the Hill’s piece first. You know, we talked about it, and I think I have been quite outspoken on, you know, coming out of all the capacity constraints we had when we made the acquisition of Red Collar, how in time driving those efficiencies throughout the entire network was going to be a real opportunity for the Hill’s business, and that allows us to truly optimize all of our facilities in terms of their asset utilization and the productivity that comes out of those. And that is exactly what that team has done. They are doing an exceptional job really isolating plans to be more specific and more focused on driving efficiency through the specific SKUs that we could now run through those plants and the specific diets versus the widespread strategy that we have, which was just trying to meet demand.

And now we are being much more thoughtful about that vis-a-vis how we think about the business. The private label exit, we have obviously built that into our guidance in terms of the absorption to your point that would move out of the business. But in time, as we continue to grow market share in the business and continue to drive efficiency in some of the new areas that we are focused on that I have outlined, that productivity will be picked up by the rest of our plants. So we feel good about where that impacts our business and the guidance that we have set relative to Hill’s, and we do not anticipate that we are going to see significant variances move through the P&L as a function of this, and that is all within our numbers. In terms of the investment levels that we have in the business and the flex that we have in the P&L, you know, this is something that we have talked about now for two years.

And that we were missing historically was having different levers within the P&L to pull to offset economic circumstances or more importantly, as we look at it, address the opportunities that we see for growth around the world and where we can step up investments as an example in certain markets. And that will continue to be the case. We are very focused on building flex into this P&L. You know, I would say the $200 million of incremental tariffs be holding gross margins flat is a clear testament to that. We think we have flex to be able to continue to drive productivity in certain facilities around the world to generate the savings that we need. Now I cannot predict exactly where things will go. All I can suggest to you now is that we do have flex in the P&L.

If things move materially worse, we will have to adjust accordingly. Yeah. I think we have done a terrific job handling an extremely turbulent environment that we are seeing out there now. And, you know, bringing the quarter in that we did this quarter, and we anticipate that things will get, you know, equally challenging through the balance of the year, but we will continue to deploy the same strategies and continue to look for ways to build flexibility into the P&L. I think our geographic footprint, the category diversity that we have, and the price points that we play in set us up for, hopefully, continued stability throughout the balance of the year.

Operator: The last question today comes from Mark Astrachan with Seaport. Please go ahead.

Mark Astrachan: Thanks, and good morning, everybody. I wanted to ask specifically about some of the channel shifts in North America. So where is the company from a market share perspective in the context that mass and club and e-commerce continue to outperform and there is weakness in drug and to a lesser extent and just general food, how does the company market your stack up there? And then more specifically, I saw that you recently added Hill’s to Walmart online, not in-store. I guess, curious to how that decision is arrived at. You know, if it is successful, does that expand into Walmart? And, you know, how does that then relate back to my comment on the market share overall for the company? Thank you.

Noel Wallace: Sure. Let me take the Hill’s question first. Obviously, there is a significant three pillars, three P environment out in the marketplace today. We focus very heavily on the integrity of our brand and making sure that the brands are represented the way they need to be represented. We have now a three P, three P L distributor selling to Walmart that allows us to clean up a lot of the three P L’s that were not authorized sellers for the business. And as a result, that three P L is responsible for dealing with that. And so that is where that is. On the second part, first part of your question, on market shares, you know, obviously, we have seen a transition to big box retailers. We have seen a migration towards the club environment.

And to a certain extent, e-commerce. Not as much, but certainly club and mass. Our market shares continue to be quite strong in those three classes of trade. We have seen obviously some struggles in the drug class of trade. We have higher market shares there, but not materially higher than what we have in the rest of the country. Food continues to perform okay, and we have decent market shares there. The dollar stores are strong market shares for us, and we will some of their operational things resolved that that business will continue to improve in terms of holding our shares there. But overall, the migration to club and to mass bodes well for us. We have strong market shares and strong margins in those retail environments. Okay. Well, thank you, everyone.

I greatly appreciate the team in a highly turbulent and uncertain environment with a lot of volatility. This team continues to execute exceptionally well, building flexibility into our business, delivering brand penetration, market share growth, and ultimately delivering what we intend to do, which is great shareholder value. So I appreciate all the work that they do, and I look forward to talking to everyone soon here in the second quarter.

John Faucher: Thank you.

Operator: Conference is now concluded. Thank you for attending today’s call. You may now disconnect.