Colgate-Palmolive Q3 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. Welcome to today's Colgate-Palmolive 2024 Third Quarter Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com.

Now, for opening remarks, I'd like to turn this call over to Chief Investor Relations Officer and Senior Vice President, M&A, John Faucher.

[John Faucher, Chief Investor Relations Officer and Executive Vice President, M&A at Colgate-Palmolive]

Thanks, Betsy. Good morning, and welcome to our third quarter 2024 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 third quarter 2024 earnings press release and related prepared materials and our most recent filings with the SEC, including our 2023 Annual Report on Form 10-K and subsequent SEC filings, all available on Colgate's website for a discussion of the factors that could cause actual results to differ materially from these statements.

This conference call will also include a discussion of non-GAAP financial measures, including those identified in Tables 4, 6, 7, 8, and 9 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the third quarter 2024 earnings press release and is available on Colgate's website.

Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with his thoughts on our results and our 2024 outlook, and we will then open it up for Q&A. Noel?

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Thanks, John, and good morning, everyone, and thanks, again, for joining us as we report another strong quarter of top-line and bottom-line performance.

Our strategy of delivering more impactful core and premium innovation, increasing our advertising spending and scaling capabilities to drive improved brand health and higher household penetration, is paying-off through strong volume-led organic sales growth. You've seen this best represented in the fact that we have delivered volume growth in all six divisions for the second straight quarter, with 3% growth in developed markets and 4.6% growth in emerging markets. It won't be every division, every quarter, but we believe our geographic breadth and category mix will enable us to better weather volatility over time, whether that's from economic, geopolitical or other factors and deliver organic sales growth in-line with our long-term targets, despite difficult comparisons. This will be well considered in our plans and it's why we've been talking about building our business model to deliver sustained, profitable growth, even as category growth decelerates as pricing growth recedes.

Our commitment to reestablishing our gross margin is paying-off in gross profit dollar growth, even as we lap more difficult comparisons. We have used this gross margin expansion to continue funding the investment in advertising and capabilities, enabling us to deliver best-in-class volume growth, which is driving strong organic sales growth. And we believe the flexibility we have built into our P&L gives us the ability to turn that organic sales growth into consistent compounding earnings per share growth to deliver top-tier TSR over the long-term.

And with that, I'll open it up for questions.

Questions and Answers

[Operator]

We will now begin the question-and-answer session. [Operator Instructions]

The first question today comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

[Dara Mohsenian, Analyst at Morgan Stanley]

Hey, good morning.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Good morning, Dara.

[Dara Mohsenian, Analyst at Morgan Stanley]

So, I just wanted to drill down into North America. NA pricing was down significantly for the second quarter in a row. You'd warned us about that last quarter. But just take a step back and help us understand the competitive environment you're facing and what your strategy is from a pricing standpoint and how much volume payback you think you're getting, given a muted result in the quarter, albeit with some timing caveats and just how that business is set-up going forward as we look forward to 2025 and beyond?

And hopefully, this isn't cheating, but I wanted to slip in a second question on Pet, which is mostly North America actually. But the Hill's performance was really striking relative to industry trends. Can you just talk about the sustainability of low-single-digit Pet pricing going forward, given that difficult industry pricing environment and the market share gains with your volume performance, again, in light of that difficult industry environment? Thanks.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Good morning, Dara. Thank you. So, North America, structurally, we came in exactly where we more or less expected, little soft on the volume, which I'll explain in just a moment. But what we're seeing is, this category [Phonetic] growth decelerates a little bit as expected and what we talked about in the second quarter, volumes returning, but not necessarily as fast as we would like, but I think there's more normalization on the volume line. We expect that to continue to inch up moving forward.

Pricing was in-line with Q2, as you mentioned, and as we talked about in the second quarter with similar adjustments that we expect to continue as we move through the balance of this year and into the first quarter. I talked about volume being a little bit softer than it was expected. This was, as we mentioned in the prepared remarks, a little -- due to shipment timing on a couple of orders. We had the benefit of some promo moves from the third quarter, which we'll see a little bit more in the fourth quarter. And as you've noted that we've -- with the skin health business now in the North America, we obviously had the impact of lower skin health volumes, principally driven by China and a little bit of reduction due to some e-commerce business that came -- didn't come through in the quarter. But overall, more or less where we expected.

The team is very focused on obviously setting ourselves up for a really strong '25, a strong innovation growth plan that we have in-place, and we'll see. Obviously, the volume start to inch back as we've seen the category start to normalize more. But overall, the good news is, we've been able to weather some of the softness in North America with really strong broad-based growth across the business.

You talked about Hill's coming in exceptionally strong. It was a strong performance for Hill's in the quarter. Strong volume, which was really encouraging, given the impact of lower private-label. So, you take the private-label up, we were up mid-single-digits on volume and a really strong margin performance on the business. And we've been consistent with what we've articulated in the past, which is that we want to continue to reinvest that margin into driving category growth and that's exactly what we're doing.

A little bit of pricing that came through in the quarter, and we'll think -- well, we've got the ability as ag prices move around to take some pricing given the strength, again, of the brand in the market. We're gaining market share. We're the fastest-growing brand -- global brand in pet specialty and neighborhood pet stores. So, we feel good about where we are. We're continuing to expand that business into segments that we weren't aggressively competing in below, specifically, wet. So, overall, we feel very good about where the Hill's business is and our ability to continue to drive strong sustained growth behind strong advertising levels.

[Operator]

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

[Filippo Falorni, Analyst at Smith Barney Citigroup]

Hey, good morning, everyone. So, Noel, I wanted to ask you some initial perspective as you start thinking about next year. I know you're not going to give guidance today, but you mentioned you feel confident in your ability to be in the long-term algorithm on a multiyear basis. So, as you think about cycling those tough comparisons, what are the areas of the business that you expect could accelerate? Is it more innovation from -- contribution from innovation, maybe better volume in developed markets, or maybe the Personal business, just any perspective on how you're thinking about cycling those comps and areas of the business that could accelerate? Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks, Filippo, for the question. We've been talking for, I think, the better part of three years now on how important it is to invest in the long-term capabilities that we think are going to be essential to drive sustained growth. And I really attribute that ability to do that to the flexibility that we've built into the P&L.

So, what we're focused on right now is elevating and accelerating innovation, particularly H2 and H3. We think we have a continued very strong new product grid moving into '25 and into '26. We've built gross margin flexibility into the P&L that allows us to invest back behind the business that advertising level. We will continue to do that. That's the way you improve brand health and drive long-term sustainable share growth. You've seen the share growth really inflect over the last couple of years, as you've seen global shares, particularly in toothpaste and in toothbrushes continue to move upwards. That's a reflection of the innovation and the sustained growth that we have and -- the sustained advertising growth that we have in the P&L.

So, a lot of the same, Filippo, continuing to invest back behind the business, drive household penetration where we're getting much better with the analytical work that we're doing to understand where those growth opportunities are, building per-capita consumption in those markets where we see real opportunities, driving our brand through advocacy. So, all the things that we've been talking about clearly will play-out in '25 and into '26.

[Operator]

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

[Robert Moskow, Analyst at TD Cowen]

Hi, thank you. I want to know about Europe. Obviously, a very strong quarter and a lot of your peers have been delivering strong results in Europe as well. But one of your peers said not to expect this on an ongoing basis. So, I wanted to know if -- what's driving it? What were your market shares like in Europe during the quarter? And what do you expect going forward?

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks, Robert. Again, a great quarter for Europe. My congratulations to the team out there, which is doing exceptional job, really focusing on the fundamentals. We've clearly put significant investment back into Europe, which we're seeing really play-out in that sustained top-line growth. Volume growth was terrific. We're getting a little bit of pricing. Pricing will -- we're not immune to the challenges of pricing in Europe. But the good news is, we move into '25 with much stronger market shares, good penetration across our categories and a very strong level of advertising that's improved brand health. So, again, very consistent with the theme that we've been talking about, reinvest behind those growth opportunities.

Our Oral Care shares are at record high levels now. We continue to see growth opportunities there, particularly building penetration amongst very specific targets. The advertising levels across the business, not just in Oral Care, are coming back in. So, we're seeing more broad-based growth across the European business. But we're not immune to some of the softness and challenges that always seem to plague the European market long-term. But the good news, the business is in very good shape. Gross margins are at very high levels, advertising is strong and market shares have inflected very positively.

[Operator]

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

[Bonnie Herzog, Analyst at The Goldman Sachs Group]

Thank you. Good morning.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Good morning, Bonnie.

[Bonnie Herzog, Analyst at The Goldman Sachs Group]

Good morning. I wanted to ask about your emerging markets business. Organic sales growth has been strong in these markets, but most of it's been driven by pricing to offset FX pressures. And I guess as a result, this isn't necessarily translating into significant growth on a net basis. So, I guess, I'd be curious to better understand how you're thinking about these businesses and, ultimately, how we should think about the contribution of volume mix going forward?

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks, Bonnie. Listen, the emerging market numbers were terrific, even ex-Argentina, very positive volume and positive pricing, ex-Argentina. So, we're encouraged very much so. Some of our larger markets, particularly Brazil, India and Mexico, continue to perform very, very strongly. And if you look long-term strategically, this is where the growth is going to come from. I mean, there continues to be per-cap opportunities, premiumization opportunities in those markets, which we think we're executing very well. I'm sure we'll get into some discussions on Latin America, but they continue to perform exceptionally well, despite some of the choppiness that we've seen in some of those markets, particularly Mexico and -- post-elections. But overall, the emerging market strategy that we have in-place continues to deliver.

So, you go across the board, Asia, strong performance this quarter, particularly China steps our -- our Colgate China business performed exceptionally well. India is strong. Africa, Eurasia, despite some of the volatility that division is going through, again, quite strong. So, we think the re-focus on some of the real basic fundamentals that we had to put back into the business on driving household penetration, making sure we're looking at the premiumization opportunities, getting gross margin back into the P&L has allowed us to get a lot more flexibility in targeting some of those markets.

Now, as you well know, there's significant volatility in emerging markets. We've seen some of the exchange rates move negatively over the recent periods and we'll have to adjust accordingly to that moving forward. But overall, we feel very good about it, but we're not immune to some of the economic and political issues that I outlined earlier, that impact those markets. But overall, the underlying performance is kind of right where we'd like to see it.

[Operator]

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

[Kevin Grundy, Analyst at Exane BNP Paribas]

Great. Thanks. Good morning, everyone, and congratulations on the really strong quarter and results year-to-date. Stan, I was hoping maybe we could pivot to gross margin. Again, strong in the quarter. We're seeing the pricing contribution start to step-down here commensurately with lower level of cost inflation, funding-the-growth continues to be quite good, has been for a very long time at the Company.

Without giving guidance for next year, can you maybe just help us think about the building blocks and how you're thinking about gross margin development over the next 12 months or so? And then, relatedly, what that may mean as you think about reinvestment further down the P&L? Thank you for that.

[Stanley J. Sutula, Chief Financial Officer at Colgate-Palmolive]

Hey, good morning, Kevin. Thanks for the question. So, gross profit, we're very pleased with the gross profit margin here in third quarter and, candidly, it was better than our expectations, up 270 basis points year-on-year and improved sequentially. As we've disclosed before, we continue to see raw material inflation and you saw that in our gross margin roll-forward. Also, we're going to wrap around on even tougher compares here on a year-on-year basis in Q4.

So, as we think about the components, I think, the teams have done a really nice job of looking and driving funding-the-growth to drive productivity, which will help us on the margin. And then, openly, we also get benefit from volume. So, as the volumes have been increasing, we get the ability to get more overhead absorption and that's always a benefit when we think about the variances.

Now, as Noel talked about earlier, we expect that the pricing contribution will mitigate over time. So, we're not going to give '25 guidance here, but I think if you look at our history, you would see that we drive funding-the-growth. We have a great program here to drive that productivity over time. And that funding-the-growth, combined with revenue growth management, will help us balance out that P&L. The model we continue to expect, which would be gross margin dollars will drive that profitable growth, we'll invest that back in the business through innovation, through advertising to deliver both top and bottom-line.

[Operator]

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

[Lauren Lieberman, Analyst at Barclays]

Great. Thanks. Good morning. I was just curious if you could talk a little bit about the philosophy on advertising and reinvestment spending. Like, how high can you go? Is there a point at which there's, sort of, a diminishing rate of return, so whether it's -- not necessarily about '25, but let's call it '25 and beyond as you've created this flexibility? Stan just spoke to ongoing productivity programs, funding-the-growth continues. So, how do you think about that spending and making sure it's still coming back with that same ROI and it's not diminishing? Thanks.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah, good morning, Lauren. Thank you. We've talked about it for quite some time. And the fundamental strategy within the Company is obviously building that flexibility, so we can reinvest in building our brands. I mean, we've got great penetration opportunities. We've got brand equity and health opportunities. And ultimately, that's how you drive sustained growth over the long-term, is making sure that consumers understand our product benefits and are excited about using our products. And so, we find -- as you see through the volume line, particularly, and we have a lot of internal measurements to assess ROI. But if you take it at the simplest level, continuing to drive volume growth and broad-based penetration around the world is the most important benchmark for us to ascertain whether our advertising is working for us or not.

How high is high? We continue to assess this on a geographic basis. Are we getting the returns? Are we -- do we need to move money, which is a new for us from one division to another where we're seeing better returns on that? I talked about Europe earlier. We're seeing exceptional return on investment with our advertising investments, particularly in Oral Care. We've obviously have the flexibility to now put some more money into the North America business, which I think will benefit from that. But overall, we're getting better at understanding what's working for us.

And particularly, as we look at some of the work we're doing around analytics and using AI to really improve our digital impact, that's going to have a better ROI for us moving forward. I would very much like to find even more efficiency in the advertising P&L. That will be a primary focus for us as we move into '25 and '26, is really beefing up the analytical capabilities we have around our media buys and making sure that we're really understanding what's working for us on a much more fluid basis than we've had before, so we can make decisions on an intelligent basis as quickly as possible.

So, overall, we're pleased with the advertising investment. We've been able to now support more of our brands broadly across the business. That is certainly helping drive overall health. And most importantly, again, we're seeing good penetration numbers and good premiumization opportunities through some of our innovation. So, overall, we feel good about that. We're going to continue to invest as long as we see the top-line and penetration moving.

[Operator]

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

[Kaumil Gajrawala, Analyst at Jefferies Financial Group]

I'd like to follow-up on that a little bit. I think it was interesting when you said, better at some of the things that are working. Can you maybe just talk about some of the changes that you've made, maybe it's in being tactical on the advertising versus longer-term brand-building? If you could just maybe get into some of the tweaks, because when we see such a good result, especially in some markets where CPG peers have struggled, this feels like there's a lot more going on. And if you could just give a little more detail to what's behind that, I think it would be helpful.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah, sure, Kaumil. Thank you. Listen, over the last three or four years, our team here in New York working really closely with our operating heads, has spent a significant amount of time in the strategy of the Company. And what that really entails is making sure that we are collectively working together on prioritizing where we see the biggest growth opportunities.

Historically, I'd say, we were a bit democratic in our spending. We're now much more strategic and we're able to pinpoint where we're getting the best ROI, where we see the best growth opportunities and the division presidents aren't afraid to move money around within their divisions and across divisions to ensure that we're putting our money in areas where we're going to get the best return for that. And that clearly is demonstrated through the volume growth that we're seeing across all six divisions. I think it really comes down to not only just Oral Care and pet health and skin health, but now looking at opportunities both in the Personal Care businesses, the classical personal care businesses, body-wash had a great performance in Europe this quarter. They're supporting some relaunches with great innovation and advertising. Likewise, we're seeing some great opportunities in Home Care across Latin America, which had a nice Home Care result in the quarter. So, it's broad-based support and it's making sure strategically that we're very thoughtful about where we're putting the money in terms of geographic.

The second aspect of that is exactly how we spend our money. The media environment has become far more complex. There are various platforms to choose from. We're being very selective and focused on how we spend that money. It's easy to get enamored with a lot of shiny objects out there in terms of media opportunities, but we're focused on where we can build -- reach and build the frequency accordingly to build brand health. And the digital teams here in New York helping to share best practices around the world and getting that ROI up, specifically in the digital area across different mediums has really paid out nicely for us.

[Operator]

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

[Christopher Carey, Analyst at Wells Fargo & Company]

Hi, good morning. Can you expand a bit on what you're seeing in Latin America? You made a comment about Mexico and elections, but in the prepared remarks, there was also a comment about stabilizing and still positive. So, just what's the direction of travel in Latin America, specifically Mexico and perhaps Brazil?

And then, just connected to that, you talked about some currency volatility and needing to respond in different ways. How do you think about pricing in this market, specifically if the macros are stable, but maybe not as strong as they were a year ago? Just any thoughts on how you'd approach strategy in these markets over the next 12 months? Thanks.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Sure, Chris. Thank you. Good morning. So, again, as you mentioned, really strong performance in Latin America and notably against tougher volume comps. We did expect some slowdown in organic sales growth and that's what we're seeing, but very much in-line with our expectations. So, we feel very good about that. And the underlying health of the business, i.e., specifically, market shares, Latin America had a terrific quarter.

Pleasingly, if you look at that business on a two-year stack basis, volume has increased sequentially for four consecutive quarters. So, despite the fact that there's a lot of volatility, we're seeing volume come back into the categories. And you'll remember that we took significant pricing in those geographies over the last two years. So, to see volume come back as quickly as it did and sustained is important now.

Post-elections, we've seen some choppiness in Mexico, particularly around the category. There may be more of a normalization. We're going to have to watch that carefully and make sure that we're thinking about our spending accordingly in that market, but we've got a really strong innovation plan. You saw in the prepared remarks, we've relaunched Colgate Total, which is a very significant business across Latin America and affords us a very important opportunity to continue to drive premiumization. But behind, what we think is, the best formula we've ever put in the market on Colgate Total and one that we are very excited about seeing the results of that across Latin America. But again, pricing up ex-Argentina. So, if foreign exchange continues to move against us, the strength of the brands and the support that we put behind that business, we think we can take more pricing in those markets to help offset that, but we're not immune to some of the sluggishness and the foreign exchange that hits those markets as you well know.

I talked about Mexico at Barclays. And overall, I think, we continue to have a very strong performance there. But the sluggishness that we're seeing across some of the categories as we ended the quarter, we need to watch that carefully. And I think, again, the team is very well-positioned to execute based on what we see. So, overall, good. Brazil, a terrific quarter for Brazil, despite, obviously, some -- a little bit of uncertainty in those markets that continues to plague them. But I feel good about what we're seeing coming out of Brazil across the rest of the region. The performance continues to be quite strong. This is a team that knows how to execute in volatile environments, knows how to continue to drive penetration and premiumization. So, I feel pretty confident that, while despite the lack of aggressive pricing given the inflationary pressures, we will still get some foreign exchange pricing in the business over the subsequent quarters.

[Operator]

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

[Olivia Tong, Analyst at Raymond James & Associates]

Good morning. Thank you. I wanted to ask you broadly about affordability, given the macro-environment, particularly in North America, but I think this is relevant to all markets. And as consumers continue to scrutinize your spending, can you talk about some of the initiatives that you have that help with respect to either promotional plans or at mid-tier price points with product? Just sort of thinking about the broader picture and how consumers are thinking about their total basket spend and actions that you're taking to maintain, if not grow, share in that backdrop? Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks. Good morning, Olivia. So, again, let me come back to strategy. Our strategy has been to accelerate our innovation, particularly on the premium side of the business, providing value-add benefits to the big core businesses that we have around the world, supporting that with advertising and ultimately getting the brand penetration and share growth. Our volume shares performed well in the quarter, in general, across the world. Likewise, our value shares, we saw -- obviously, toothpaste performed quite well in that regard. So, overall, again, the consumer may be a little bit challenged, particularly in North America. It's making sure that we continue to dial-up our innovation and provide real added value for -- across the multiple price tiers in which we compete.

The other aspect of that is making sure that you are very thoughtfully thinking about your promotional cadence and how you promote your digital coupon strategy, your paper coupon strategy, your promotions, on-pack promotions, your price pack architectures. All of those are critically important in making sure that we have the analytics to really determine what's going to drive category growth for our retailers and continue to drive performance for our business.

I was just reviewing the other day some incredible work that we're doing with some of the retailers in the U.S. with real AI and analytics around our promotions and seeing great results for that. So, I think the point is, yeah, the environment is a little bit more competitive. Coupon redemption rates are up. Promotions seem to be more or less in-line, which I would say normalized, still not back to the pre-COVID levels, which is good, but more or less normalized and ultimately is making sure that we're spending our money as thoughtfully as we possibly can to get the best ROI. But I would say a more normalized consumer, slightly higher promotional redemption rates behind coupons. But across the world, it's pretty consistent in terms of where we were post-COVID.

[Operator]

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

[Robert Ottenstein, Analyst at Evercore ISI]

Great. Thank you very much. Terrific results, Noel. So, if you I think stand back and listen to at least three or four of the questions, I think the underlying question is, why are you guys doing so well in so many places and it's -- and I think a -- is it just that, hey, you're spending more money -- you can spend more money, you've got the data, so you're spending in the right places. And that's kind of a very broad sort of answer.

But I'd -- what I'd like to do is drill-down a little bit more on that point and see -- and maybe just talk about Oral Care, how much of your success is driven by technology, by the whitening initiatives and then marketing that or other specialties? Just trying to get a sense of things that can drive sustainable continued market share gains that go beyond just spending more money in marketing. And I know that's going on, but I just want to give you the chance to talk about that a little bit more.

And then, also if we have the time, looking at what you're doing in China, which is just -- you're just being much more successful than anybody else at this point and how that model applies to that very tough market? Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Great. Good morning, Rob. Thanks. Thanks for the question. So, again, it comes back, I think, with just consistency of performance in our focus categories around the world and our ability to really dial-in on where we see the growth opportunities. We've spent a lot of time talking about building capabilities. And I really want to emphasize that, because you don't necessarily see the immediate impact in the quarter, but those capabilities are all intended on building long-term sustainable health behind our innovate -- behind our business. So, it's innovation, it's digital, it's our advertising return on investment, it's our data acquisition and using data to drive better decision-making, it's making sure that our innovation across H2 and H3 is where it needs to be, making sure the core is where it needs to be, making sure that we're addressing new channel behaviors. But it's all the basics that we've been talking about and making sure then that we invest accordingly.

And we had to get the middle of the P&L addressed [Phonetic] to do that. So, we deliberately took a lot of pricing over the last three years to get our categories where they needed to get to. And then, ultimately, that is paid out and allowing us to really invest consistently behind our brands. And we measure internally our brand health, the health of our equities and they are in a really good place and that's what we want to continue to build.

Now, we're not immune to what everyone's talking about. Clearly, we're going to see some divisions take a step back, but the breadth of our business and our geographic footprint, we believe, allows us to weather some of these -- the volatility that you're seeing and referring to better than most and we want to continue to do that, but we can't be complacent. We need to build more capabilities and sharpen those as we move forward. We need to continue to address the opportunities we see in certain geographies, where we think there's real growth for us there. But again, it's deliberate, thoughtful approach to this business. We're going to be consistent. We're not going to necessarily try to hit home runs, a lot of singles, to take a sports analogy, but making sure that we do that in a way that drives broad-based growth over time.

So, again, a lot of the strategy, Rob, particularly on Oral Care, to your question, we think the focus on premiumization, the great new product innovations that we brought on whitening adjacencies. We now have Colgate Total rolling-out in Latin America with some significant new innovation behind the core. You heard about some of the great technology that we're bringing into Max Fresh across India and some of the Southeast Asia markets, that will continue to roll-out. So, again, the stepped-up innovation and resources that we're putting behind that will ultimately play-out.

On China, specifically, it should be said that we had some pretty easy comps. But that being said, our China business continues to perform really, really well. I'll talk to Colgate first and then the Hawley & Hazel business. The Colgate business continues to do very well, up high-single-digits, driven primarily by premiumization, great innovation across the calendar moving forward. We're improving our brand health behind some of the investment that I've referred to. And overall, we're getting a good mix of volume and pricing against tougher comps on the Colgate side.

Hawley & Hazel, as you know, has come out of quite a few quarters of challenged growth. We're starting to see that come back nicely, which is good, but not where we need to be yet. So, we still have room for opportunity. We are looking at our go-to-market approach on Hawley & Hazel moving forward. That team is really deliberately thinking about how we want to be structured over the next couple of years to ensure that we can continue to invest in a very competitive market and drive sustained volume and value growth for the business.

But overall, I'm pleased with the China performance, but we're not immune to the slowdown that we're seeing across that business. But we think the consistent performance behind our innovation and supporting those business will drive sustained growth moving forward.

[Operator]

The next question comes from Andrea Teixeira with J.P. Morgan. Please go ahead.

[Andrea Faria Teixeira, Analyst at J.P. Morgan]

Hi, good morning. My question is just what was the exit rate for organic sales growth in the quarter and what is embedded in your guidance for Q4? Because even if the guidance raised, it's a wide range. And Noel, from your tone on this call, it seems that you're close to keep the pace of 6% globally. So, in other words, if your current trends continue, is that the way we should be thinking that the top of the range would be that, embedded around 6%?

And if I can squeeze a clarification on Hill's, can you comment now on the potential for more international expansion with more capacity into 2025? Thank you for both.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Great. Andrea, good morning. Thank you. Listen, we don't guide by quarter, so I don't want to get into the specifics. But I do think we feel pretty good about the underlying health of where the quarter came in. So, overall, we're good. And as I said in my upfront comments, we think we're positioned for consistent growth. But we're not again, as I mentioned, immune to some of the issues that many of the CPG companies have talked about throughout the earnings season. But that's reflected in our guidance. And I think you see that in our numbers and the guidance speaks for itself in terms of where we think we'll be. Obviously, we've seen a little slowdown, a little move in foreign exchange. We'll see ultimately where the categories unfold as we exit the year. But overall, we feel, like, we're in a pretty good position.

On Hill's capacity, that is continuing to obviously allow a lot of good things on the Hill's business. It's allowing us to build more flex in the middle of the P&L. We continue to find ways to truly optimize that supply chain and build more positive variances through those factories. Secondly, it's allowing us to obviously expand into higher growth segments in the wet segment, which we saw nice growth in the wet business in the quarter and continuing to drive overall share in that segment. So, it's giving us a lot more flexibility.

There's more work to be done. We'll continue to obviously be very, very diligent about how we think about allocating volumes across the world and addressing some of the growth opportunities that we see, particularly, internationally. But overall, a terrific quarter and the supply chain team at Hill's is doing just an exceptional job, integrating the new facilities and finding ways to really optimize the network.

[Operator]

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

[Bryan Spillane, Analyst at Bank of America Securities]

Thanks, operator. Good morning, everyone. So, I have just maybe one point of clarification and then a question. And the clarifying, Noel, I think earlier -- excuse me, you talked a little bit about gross profit dollars and gross dollar profit growth. And I think it's maybe created a little bit of a question about whether there's a signal here that the focus may be more shifting to gross profit dollar growth versus gross margin percentages. And I know you've had a view on that in the past. So, if you can just sort of clarify that, just is there any sort of message that you're trying to send, or we still leave [phonetic] gross margin expansion?

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Let me throw it to Stan, Bryan, and good morning. No message whatsoever here. We could -- as we -- I think we've been quite consistent, we understand the importance of gross margin, both gross margin percent and gross margin dollars. Encouragingly in the quarter, we saw both and that's important for us.

But again, as we strategically look at the growth opportunities, whether it's innovation geographically, we're thoughtfully thinking through exactly how the impacts on gross margin will be. But ultimately, what we're looking for is our ability to continue to drive gross margin dollars to invest in the business. And it's hard to get there without gross margin percent. We're not just going to chase volume to drive dollars is what I'm saying. It has to be a very deliberate choice. But let me give it to Stan, he can provide a little bit more color.

[Stanley J. Sutula, Chief Financial Officer at Colgate-Palmolive]

Yeah, Bryan. So, first of all, it is obviously a combination of the two. And if you think about the business, we have benefit -- you saw a great margin improvement in a number of the businesses, particularly in Hill's. And as we look, the only part we're trying to point -- we're trying to make is that how we deliver that margin improvement in those -- in that dollar growth is going to shift. So, pricing will be less of a benefit. Volume has been a help here going in and productivity will continue to be a driver as we look at that.

But obviously, as we look at both margin and dollars, it's a combination of both. And that is part of our overall business model on how we drive the investment back into the business and deliver top- and bottom-line growth.

[John Faucher, Chief Investor Relations Officer and Executive Vice President, M&A at Colgate-Palmolive]

Bryan, if I can just add one point to Stan's point, the bottom-line growth piece is key, right? We need EPS growth in dollars, right, because that's what creates long-term TSR at the top-end of our peer group. So, we talk about organic sales growth, but we're focused on driving dollar-based sales growth. We talk about driving gross margin percentage, but we also know we need to drive those gross profit dollars to drive EPS growth in dollars to drive TSR. So, it's a very thoughtful way to look at it. But as Stan said, you need both to drive that bottom-line growth.

[Operator]

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

[Korinne Wolfmeyer, Analyst at Piper Sandler & Co.]

Hey, good morning. Thanks for taking the question. I'd like to get a little bit more clarity on some of the dynamics that were going on in North America in the quarter. I mean, it sounds like some shipments were pushed from Q3 to Q4. Can you just clarify what that was due to?

And then, the pullback in the e-commerce, what that was attributable to? And then how should we be thinking about some of the macro-dynamics in Q4, especially in the U.S. as some retailers are talking about pulling back inventory orders? Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah, Korinne, thank you. Again, we talked about three specific things. Obviously, there's some shipment timing that moved from third to the fourth quarter. That was just due to some disruptions in our network and ultimately getting that order out in time, but ultimately, it will move into the fourth quarter, but nothing systemic there that we feel would be reoccurring.

The e-commerce issue was specifically on the skin health business. We've seen a little -- obviously, there's some softness coming out of Asia, specifically China, but this one was more specific to the U.S. market where we saw some of our big online retailers pull-back a little bit on orders at the end of the quarter. We think those were inventory adjustments more than anything, but in any case, or -- we need to watch that carefully and see if that's going to be sustained or not moving forward.

And overall, the macro-dynamics in the North America, I would say, a more stabilization. We haven't seen anything deeply unusual on the promotion side. I think the percent sold-on promotion is more or less pretty consistent, still not back to where it was as high as it was pre-COVID. So, overall, I would say, more normalization. As I did mention, little higher redemption rates coming through on couponing and a little bit more broad-based activity in terms of the number of promotions, but overall, depth and proportion to what we've seen in the past seems pretty normalized right now.

[Operator]

The next question comes from Steve Powers with Deutsche Bank. Please go ahead.

[Stephen Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, thanks and good morning. I wanted to ask Noel on skin care. I guess, first, just mechanically and following-up to your [Phonetic] North America, are you able to quantify how much of a drag the restatement was on growth in that segment this quarter to the extent that it was?

But then, more generally, I guess, you've talked a little bit about it. But maybe could you expand on what you're seeing in skin care trends across key markets, because I'm assuming there's a good deal of variability? And do any of the reporting structure changes that you've made this year carry with them shifts in strategy with respect to how you approach skin care or skin health opportunities longer-term? Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks, Steve. So, overall, let me just generalize, North America was -- with the order changes and the skin, if you take skin out, was closer to flat for the quarter, but I'm not going to quantify any more specifics than that.

But specifically around the skin sector, I think you've heard from others, there's been some sluggishness, particularly in Asia, likewise in Europe and, to a certain extent, in the U.S. as well. So, we're not necessarily immune to that. But what we have been doing very specifically is, we are thinking about that business quite differently. We brought in some outside talent, somebody with over 20 years experience at L'Oreal. We're getting very clear and articulate about what we -- where we want to compete and how we want to compete in that space. We feel very good about that organization now being much more centralized here in the U.S. in order to drive global decisions from the center and making very deliberate choices on how we invest and where we invest.

We had to clean-up some of the market expansion opportunities there that we didn't think were sustainable for the business. But overall, the economics and long-term health aspects of where we see that business growing continue to be very favorable. And we're encouraged, obviously, by the long-term strategy. We've got some short-term issues with obviously Asia and some of the softness that we're seeing in some of the European markets to address. But overall, again, we feel the strategy we're putting in-place will get us back to the sustained growth that we expect.

[Operator]

The next question comes from Mark Astrachan with Stifel. Please go ahead.

[Mark Astrachan, Analyst at Stifel Financial]

Thanks, and morning, everybody. Wanted to go back to U.S. Oral Care and kind of ask more of a deep dive question there. So, if you [Technical Issues] take a look at its market footprint for a long period of time, there was four or five quarters where it was back to growth '22 to '23, but largely it's been in a decelerating or share loss situation going back quite a long-time. I guess, the question is, what contributed to that period of outperformance? What has contributed to this period [Phonetic] of back to share loss?

And maybe if you kind of like deep-dive on what you think competitors are doing well, where they're gaining share. Where do you think Colgate could do a better job from a share perspective? And how do you broadly kind of think about it? Because I know there's been a lot of thought, innovation around this from Total relaunch just to refocus on whitening, and yet, the general trajectory remains kind of where it is. Thank you.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah. Thanks, Mark. Listen, overall shares are roughly flat, down 20 basis points on toothpaste and up on toothbrushes. And clearly, we've seen some impact of our refocus on some of the untracked channels that we've had over the last couple of years and seeing good performance in those untracked channels. So, overall, business is good. It's not exactly where we want it right now and we're very focused on getting the innovation strategy dialed up. We've got to get the premiumization side of that business addressed. We've got strong core businesses that we're seeing benefited as you see the consumer, to a certain extent, some of the consumers trading more into the mid-tier.

But overall, it's getting the premiumization side of the business addressed moving forward. And we're very focused on that in the strategy. Toothbrush business continues to perform very, very well. So, again, putting more investment into that market, getting the innovation right, executing the fundamentals around distribution and shelf sets, all the basics that we think are necessary. And the plans that we have in '25 with some of the big core relaunches that we're not privy to talk about, we think we're set-up for stronger success moving forward.

We've seen some, again, choppiness with some of the retail environments, particularly the drug class of trade where we had higher shares, has struggled to drive traffic and turn in their retail environment. So, we're having to shift accordingly, but we still feel the drug channel long-term provides a growth opportunity for us, but you've seen some sluggishness in that retail environment in the short-term.

[Operator]

Our last question today comes from Edward Lewis with Redburn Atlantic. Please go ahead.

[Edward Lewis, Analyst at Redburn Atlantic]

Yes, thanks very much. I guess just looking back when you launched your sort of new strategy a few years ago, you talked about the core products. Obviously, we see you doing a lot around that. You talked about adjacent categories. And you also talked about adjacent channels, the opportunities there. And just looking at the results today, I mean, we've seen the success for a number of years now in e-commerce in China. But how much has the channel mix changed in regions like, say, Latin America and Asia, ex-China, relative to where it was before? And how much is that helping the success you're seeing with the premiumization strategy?

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Yeah, good morning, Ed. Thank you. Interesting question. It's back on the channel expansion. I mean, the initial focus on that was predominantly e-commerce, but we address -- we identified real unique opportunities in the expansion of very innovative discount formats around the world, the expansion of the club store format in certain parts of the world, you're seeing club stores, particularly in Asia and more specifically, China grow quite significantly couple of years.

So, it's making sure that as we think strategically around where we want to invest, we're investing in those retailers that are going to drive long-term growth for the business and we've been very quick to adopt to new formats. And that's been one of the successes we've had here in North America when we initially got into the dollar stores decades ago and, ultimately, we've got strong shares there, but it's making sure that we are working with our retailers -- all of our retailers to bring products that drive innovative growth for their sectors. And that's the key focus for us: category growth across all channels and making sure that as we see new retail environments come on-stream that we're thinking very thoughtfully on how to do that in a way that drives growth for our retailers, for the category and for the whole market.

So, I think it's just being very attuned to what we're seeing in the markets. You're seeing a lot of very innovative things happening at the retailer level. I think that's to be expected given some of the challenges and the move to e-commerce. So, there's big-box retailers that are having to change their shopping experience and we're very much working in tandem with them to ensure that we have the products that they need, the price pack architectures and configurations that they need in order to drive excitement at the shelf.

Okay. With that...

[Operator]

This concludes the Q&A portion.

[Noel Wallace, Chairman, President and Chief Executive Officer at Colgate-Palmolive]

Thanks. Thanks, everyone. Again, a strong quarter. We're having a good year so far through three quarters. Net sales were up 4.5%, organic up 8.5%, with again a very strong balance between volume at 3.3% and pricing at 5.2% and EPS double-digit on a year-to-date basis, and importantly, getting that flexibility across the income statement and the balance sheet. But this is the hard work of Colgate people all around the world aligned to our growth strategy and executing extraordinarily well.

So, thanks, everyone, for the questions today, and thanks to all the Colgate people for delivering a strong quarter.

[Operator]

[Operating Closing Remarks]

Participants

Corporate Executives

• John Faucher, Chief Investor Relations Officer and Executive Vice President, M&A
• Noel Wallace, Chairman, President and Chief Executive Officer
• Stanley J. Sutula, Chief Financial Officer

Analysts

• Dara Mohsenian, Morgan Stanley
• Filippo Falorni, Smith Barney Citigroup
• Robert Moskow, TD Cowen
• Bonnie Herzog, The Goldman Sachs Group, Inc.
• Kevin Grundy, Exane BNP Paribas
• Lauren Lieberman, Barclays PLC
• Kaumil Gajrawala, Jefferies Financial Group Inc.
• Christopher Carey, Wells Fargo & Company
• Olivia Tong, Raymond James & Associates
• Robert Ottenstein, Evercore ISI
• Andrea Faria Teixeira, J.P. Morgan
• Bryan Spillane, Bank of America Securities
• Korinne Wolfmeyer, Piper Sandler & Co.
• Stephen Powers, Deutsche Bank Aktiengesellschaft
• Mark Astrachan, Stifel Financial
• Edward Lewis, Redburn Atlantic