Good day and welcome to today’s Colgate-Palmolive Company First Quarter 2022 Earnings 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 the call over to Chief Investor Relations Officer, John Faucher. Please go ahead, John.

Thanks, Cristina. Good morning and welcome to our 2022 first quarter earnings release conference call. This is John Faucher. Today’s conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2021 Annual Report on Form 10-K and subsequent SEC filings, all available on Colgate’s website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures including those identified in Tables 5 and 6 of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate’s website. Joining me on the call this morning are Noel Wallace, Chairman, President and Chief Executive Officer; and Stan Sutula, Chief Financial Officer. Noel will provide you with his thoughts on our Q1 results and our 2022 outlook. We will then open it up for Q&A. Noel?

Thanks, John and good morning to all of you. Given the release of the prepared commentary earlier this morning, I will keep my remarks fairly short as I am certain you have a number of questions. Obviously, 2022 is shaping up as a more difficult year than we anticipated with greater-than-expected increases in raw materials as you have seen from others, particularly fats and oils and logistics. This is offsetting what we think will be a very solid year for organic sales growth now that we are seeing our global supply chain stabilize following COVID-related lockdowns and stress in logistic networks around the world [Technical Difficulty] sales growth for the balance of the year. First off, we knew that Q1 will be the most difficult quarter given comparisons, supply chain issues and pricing negotiations. We exited the quarter with high single-digit pricing as we took more pricing in developed markets starting in February and continuing into April. We believe this is more indicative of the pricing we will see for the balance of the year. Elasticity seemed to be either in line or better than expectations and this should help limit incremental volume weakness from the higher pricing over the balance of the year. Encouragingly, as we said in our prepared remarks, volume and organic sales performance improved in February and March versus January and organic sales growth has continued to accelerate in April. Importantly, we are beginning to see the benefits of the stabilization in our global supply chain network with the impacts of COVID-related factory closures behind us and the opening of the global logistic capacities. Our guidance does not assume further COVID-related lockdowns in the balance of the year that would impact our ability to manufacture and distribute our products. Our U.S. on-shelf availability for toothpaste has been below normal for several months as we dealt with the same supply chain challenges you have heard about from other companies. By tapping into our global supply chain, we were able to restore shipments and our availability is now back to normal levels, which you are seeing reflected in better market share performance in toothpaste. And with the improved share performance in manual toothbrushes in the U.S., where our share is up 4.5 points year-to-date, we feel better about the trajectory of U.S. oral care. Combined with increased advertising through the balance of the year, significant innovation, particularly around whitening in the U.S. and in Asia and the relaunch of two important core brands, our Hawley & Hazel brand in China and the Hill’s Prescription Diet business, we feel confident in our forecast for an acceleration in organic sales growth for the balance of the year. This gets us to our new guidance of 4% to 6% organic sales growth. Tempering this outlook obviously is the difficult cost environment. Our entire cost factor has risen over the past few months, but the biggest impact has come in the area that we call fats and oils. That’s palm oil, palm krona oil, soybean oil, tallow and others. This has historically been our second biggest area of raw material spend behind coal new resins. Although given the inflation we are seeing this year, our spending in the second half on fats and oils will equal our spending on resins. These ingredients are used in every category we compete in and we expect a more than 60% increase across fats and oils this year. And while you know our global supply chain is a strategic advantage, the global nature of our supply chain is adding to costs in the current environment. Freight rates from Mexico to the U.S. are up 30% year-over-year and ocean freights have basically doubled. We continued to take significant steps to offset these headwinds. We are taking additional pricing and we are launching premium innovation. We established our 2022 global productivity initiative to drive further cost savings for this year and next year while accelerating our Funding the Growth initiatives. We have reduced our overhead ex-logistics spending by $30 million in the quarter versus the first quarter last year already. So, as we open it up for your questions, we know we need to execute on during the balance of the year and we are very focused against that. While we know our guidance is below our previous expectations, we believe that our cost forecasts are prudent and that our plans are well thought through and well supported to deliver on our organic sales growth guidance, while leaving us well positioned as we look to return to profitable growth. Thanks. And I will be happy to take your questions now.

[Operator Instructions] We will take our first question from Dara Mohsenian with Morgan Stanley.

Hey, guys. So just a two-part question on guidance. Noel, when you have this large external change in terms of higher costs, clearly, it requires a change in the level of guidance that we have today, but it also requires a change in sort of choices around the P&L in terms of pricing, levels of investment, productivity, etcetera. So a), just short-term with the new guidance, you quantified very well in the prepared remarks, the cost changes. Obviously, the org sales change. But can you just be a bit more specific on maybe some of the other drivers in terms of incremental price you are expecting with the new guidance for 2022, how you think about incremental productivity? Will it change ad spends at all? I am just – and part of the reason I ask it is you have got $650 million in higher costs, so that’s a high-teens earnings impact. That’s sort of doubled the earnings revision in the guidance. So I am just trying to better understand the offsets, just some of the cost pressures? And then b), just wanted to really extend that same question more strategically longer term. You have obviously had success reaccelerating organic sales growth to some extent with the changes under your leadership. Do these sort of P&L decisions this year – how might, if at all, it impact the strategies you put in place or sort of the long-term top line growth trajectory as you look beyond this year? Thanks.

Sure. Thanks, Dara. Let me start a little bit about the pricing comment, because I think it’s obviously core to how we are thinking about the balance of the year. As you know, we took pricing in at least the developed markets a little late in the quarter. As we had talked about in the fourth quarter, we have planned to take pricing in February, March and April and that’s exactly what happened. So, we didn’t get the benefits of the pricing in the first quarter P&L, largely in North America as well as Europe, while we were able to get significant pricing across the developing part of the world, it was North America and Europe, which lagged a little bit in the quarter. As we exited the quarter, we saw high single-digit pricing being executed, particularly in the March month and obviously, that has continued to transpire as we look at the strong sales that we are seeing in April. We have likewise continued to accelerate pricing in the developing part of the world in the year to go. So, a combination of what we are doing in the developed world and the execution of those prices, which was lagged a little bit, particularly in Europe as we were going through some longer negotiations than we anticipated as we entered the quarter – and we have consequently taken more pricing in the rest of the world, we feel very good about where we are for pricing and March being more indicative of the type of pricing that you will see in the balance of the year. So, so far so good, particularly around elasticities, volumes are more or less in line with where we thought. But it’s early days on elasticity. We will see how that unfolds in the balance of the year. But we obviously have, we believe a very strong innovation plan, very strong promotional plan as well. So, on pricing, which I think is core to our guidance, we feel pretty good based on what we have seen in March, as I said, where we see it in April and more importantly, the plans that we have put in place for the balance of the year. Strategically, in terms of choices no big changes there. I mean, we have a really strong growth plans. We have talked about going into the year on premium innovation as well as core innovation. You heard a little bit of that in my comments, two significant launches on core innovation. That’s our Hawley & Hazel business, which is the number one brand in China that is a complete portfolio change across the entire business. That was obviously some of the softness we saw in volume in the first quarter was driven by the fact that we were transitioning into an entirely new bundle across the entire portfolio. And likewise, on our prescription diet business, which you know we have had great success on the science diet, we are now taking a lot of those learnings into improved nutrition, improved packaging and conceptual execution on the Prescription Diet business, which is at a premium price. I would also say that on some of our other core businesses around the world, particularly given the pricing environment that we are faced with, we are now in a much better place to execute re-launches given we have more – a better line of sight on our supply chain issues that we were faced with. That was obviously taking time away from putting new products in the market – so strategically, when we start thinking about how that lays out for this year and next, we will get back to a lot of those core re-launches, which will allow us to take pricing obviously bolster volume and value at the same time. So that’s kind of where we are strategically, making the right choices, we think about getting pricing in the market, making sure we execute against our very strong innovation plan and protect the core businesses, which will be very, very important as we move into a potential recessionary environment.

We will go to our next question from Peter Grom with UBS.

Hey, good morning everyone. I hope you are doing well. So, I just wanted to ask about the organic revenue outlook. Noel, I know you mentioned the sequential improvement in February and March and into April. Can you maybe unpack that a little bit? How much stronger was the growth versus what you saw in January? And then just for the high single-digit pricing that we should expect through the balance of the year, is the volume assumption in the 4% to 6% organic revenue outlook predicated on historical elasticities or what you are seeing in the market today? Thanks.

Sure. So, let me deconstruct a little bit of Q1. January was a little softer than we anticipated. As I mentioned, we obviously saw a little softness in Europe given some of the delayed pricing negotiations. We saw little softness in our Hawley & Hazel business as we mentioned, that’s really transitory as we are moving from the old bundle to a new bundle. We saw little softness in our French business and we saw a little softness in the rural areas in India. So that led to a somewhat soft January. Sequentially, we saw all that improve in February and March, both volumes improved February, March versus January. And as I mentioned, we had strong pricing starting to get executed early March and towards the end of the month and into April. So, we feel quite good about where we ended the quarter. And as I mentioned, we have seen that translate into a strong April as well. So, that’s kind of how we have set up the guidance for the year. So, 4% in the first quarter, we believe will be the low end of organic for the year and that will sequentially grow as we move more pricing into the P&L as well as continue to innovate and provide some volume enhancements as we move through the balance of the year. I will say that again, getting the supply chain constraints behind us from a ball point, yes, it cost us money relative to doing some of the things that we did to get more toothpaste on the shelf to get more toothbrushes in the market. We have seen that translate into more volume in the business as a result as well. And that’s a good thing because we are seeing it translate into consumption and category growth for our retailers. So from an organic standpoint, you will see it sequentially grow through the quarters, particularly as we execute more pricing in the second quarter. And as I mentioned, we have now looked to take more pricing in the back half as we will see the peak in raw materials come through later in the year. Relative to the pricing aspect, I think not much more to add there. We have taken – we took strong pricing in developing part of the world. You see our 2-year stack on pricing at roughly 10%. And there is more pricing to come. And you will see pricing as a percentage of our organic growth likely accelerate certainly in the second and third quarters. And we will see where we end up in what situation we are in, in the fourth quarter, but pricing will accelerate. That’s a combination of a couple of things. Obviously, the revenue management initiatives that we have been taking – we are getting more premium innovation and I won’t get into some of the success we are having behind the Optic White Pro Series, which is our most premium-priced whitening bundle that’s doing quite well out of the box. We are obviously, as I mentioned earlier, importantly using our supply chain now to get core re-launches executed quicker, which will give us a pricing opportunity as well. So, those would be the three key initiatives relative to getting pricing up in the back half.

We will go to our next question from Andrea Teixeira with JPMorgan.

Thank you. Good morning. I just wanted to perhaps focus on North America and talk about home care, which was obviously a headwind as you called out. And Noel, you just pointed out that some of the new franchises and the premiumization efforts have been bearing fruit. So, I was wondering how we should be thinking in the balance of the year? And just as a prior question regarding elasticities, how we should be thinking it looks as if, as you said, like you have a stacked 10% pricing. I am assuming that is U.S. So, how can we be thinking as you rollover more pricing? Just a fine point there, is that pricing coming in at the end of the summer into the fall or actually earlier than that in the U.S.? Thank you.

Sure. Thanks, Andrea. Good morning. Let me talk a little bit about home care. So again, a little bit of the constraints that we had with contractors and the implications of certainly the COVID-related issues that have challenged a lot of the contract manufacturing in the U.S. that certainly plagued us a bit on some of our home care, particularly our dish liquid business. And we have specifically addressed that and starting to see the improvements of that as we move through the balance of the first quarter and as we moved into April as well. So, we see home care from a volume standpoint starting to come back nicely. We are taking pricing on some of that home care business in the second quarter as well. And so that will obviously translate into improved performance. Overall, the cleaner business is solid. The fabric softener business is quite solid from a share standpoint, a little softness in dish liquid and we have plans on particularly the Palmolive and Ajax business in the U.S. from a combination of both pricing and some new product initiatives to hopefully bolster that business as we move through the back half. On elasticities, again, it’s really early days here. And I think you have seen it consistently across most of the sector. Everyone is assuming that elasticities will be better than historical numbers. Why? It’s because everyone is consistently taking up pricing – so therefore, everything is going to be up and we are everyday or products that consumers use everyday. And so, as a result of that aspect, I think you will see a little bit less and less elasticities than we have seen in the past and that’s what we have seen so far. But again, there is a couple of factors to take into consideration. There will be significant inflation across the entire consumer segment and we will be watching that very closely. But if you go back historically, our franchise and our portfolio positioning plays well in inflationary environments, because we have big core businesses, widespread distribution and we compete across multiple price points. But we know that we can continue to grow the premium segment of the market, which is where we under-index, high indexes in the core business, but we are going to take ambitious plans on our core business to bring value to the category and to our retailers. So we feel pretty good about where the elasticities will ultimately end up here just because we’ve experienced it before. We’ve got good innovation going into the market. And as I said, kind of all ships are rising in this case to the categories are all taking pricing across the board.

We will go next to Wendy Nicholson with Citi. Wendy, your line is open please check your mute button.

Can you hear me?

We can, Wendy.

Okay, sorry about that. So just a follow-up on that line of questioning about the elasticities. If I look back in my model, the one business that really suffered during the – great recession for you was the Hill’s business. And I honestly can’t remember whether that was something specific to the Hill’s business, whether it’s innovation or a competitive thing or whether that was an area where consumers really did trade down. So I guess number one, you don’t need to recreate history for me, but just in terms of your confidence that the Hill’s business this time around is going to remain strong. Your volume growth there has been amazing. Just your confidence that if we do go into a recession, consumers are going to trade down and look for cheaper pet food? Thanks.

Yes. If you go back to – I believe you’re probably looking at ‘08, ‘09, and that was at least the beginning of the naturals boom, as you remembered. And as we have openly stated, we made in our view, some strategic errors in how we chase the naturals rather than staying true to the core business. So I think that was the biggest driver. And certainly, at that point in time, when the Hill’s business was nowhere near as salient and had nowhere close to the momentum that it has today, and we’re certainly on our front foot and continue to think about that business in terms of investment. You heard today that we closed the Nutriamo contract manufacturing facility that we bought in Italy. That is going to unlock more wet capacity for us, which is one of the fastest-growing segments, particularly in Europe, which is exciting. We’re relaunching the Prescription Diet business going into the back half of this year, which is obviously about half of our business, which we think is going to be an exciting innovation for particularly our veterinarian professionals. So the business is in a much different place today than it was back in ‘08, ‘09. Obviously, much more on us on it. We’re going to maintain the investment spend there, which we think is critically important. Again, this is a business that has low penetration and low share, so a lot of upside in North America and capacity constrained today, hence the reason of why the purchase of Nutriamo. So again, we think we’re in a much different place than we were in ‘08, ‘09. The brand itself is significantly stronger than it’s been in the past.

And we will go to our next question from Olivia Tong with Raymond James.

Great, thanks. Good morning. Thanks for taking my question. I was hoping to get a little bit more granularity around your full year EPS expectations and how much of the EPS revision is due to input costs versus FX rate as you handicap, but perhaps a 10 points ring on EPS expectations from one end of the pendulum to the other. And realizing, obviously, there is no shortage of uncertainty. But can you talk about what the most meaningful changes are there? And mathematically, how do you get from where you were to mid-singles down the singles? And then specifically for international markets, can you talk about what your peers are doing not just the multinationals, but the local players with respect to pricing, is the expectation that they are pricing or the realization what you’re seeing so far that they are pricing at a commensurate level to what you’re doing? Thank you so much.

Yes. Thanks, Olivia. Great to hear from you. Let me just talk conceptually on the EPS, and then I’ll have Stan jump in and give you a little bit more a bridge in terms of how we’re thinking about it. But fundamentally, listen, this comes down to the extraordinary acceleration that we saw in our raw materials post the January guidance, which as you’ve heard, is around $0.5 billion. So just add on its own is driving, obviously, the significant change in EPS, combined with the fact that our logistics have continued to accelerate. Part of that, we will work out of as we move through potentially the back half of the year with improved manufacturing and supply chain, which is obviously important for us to get that product on the shelf, as I mentioned, which is we’re doing at a higher cost, but we anticipate logistics will stay high. Ocean rates, we are keeping ocean rates at where they are today for the balance of the year. And obviously, some of the transit rates that we’re seeing, particularly out of Mexico, which are up about 30% versus the year ago period, we’re assuming that will maintain itself as well. So, raw materials, largely driven by fast and oils, I will get Stan. Why don’t I have Stan open that up a little bit for you. And then I’ll come back and we will talk about the international markets and pricing.

Sure. Thanks, Noel. So as we entered the year, we knew the commodity costs were going to be up year-on-year, and we planned for that. In January, we entered the year, we saw in the market. We expected that material cost would moderate as we went through the year. At that time, in January, we anticipated roughly $750 million or 13% and year-to-year increase. But as we stated in January, if the commodity costs don’t moderate, that would represent a headwind. So what’s happened? Since January, as you heard in our prepared remarks, we’ve seen significant movement in those commodity costs. And now we see an incremental $500 million of cost for the year. What that means is that material costs will be up over 20% for the full year on a year-on-year basis. So we put some context a little bit underneath what’s happening in those commodities. Natural gas is up over 60%. And natural gas is used to power many of our plants and importantly, many of our suppliers’ plants, which puts pressure on their costs and timing. Soybean and corn are up by over third; palms, up 25% and increasing. So as we said earlier, what that means for the year, fats and oils, including palm will be up over 60% year-to-year and doubled since 2020. Resins are up over 20%. And these two categories combined fats and oils and resins make up a significant portion of the material spend and on a combined basis are up nearly 40%. Take glycerin, another important material, and that’s more than doubled year-to-year. So as we’ve looked at logistics, we saw similar cost inflation. And since we’ve seen that increase, we’ve over $150 million since our expectations in January, that translates to logistics being up nearly 20% for the full year. And some of this increase is because we prioritize meeting clients’ needs. We talked briefly about this, our decision to prioritize toothbrush shipments given client demand and market opportunity, particularly in North America, we grew that category double digits and gained over 450 points of share. Now I think importantly, Noel talked about this would represent over a 20% increase to our cost over $1.2 billion. But what are we doing to tackle that and mitigate some of that significant escalation? On materials, we’re leveraging alternate materials, we’re viable, reformulating where that makes sense, taking price to reflect the cost increase. We’ve talked about price significantly here. And then, things like leveraging analytics to enhance our procurement process and driving our robust Funding the Growth program to help mitigate that profit impact. On logistics, we are taking a number of actions. As our supply chain stabilizes from things like COVID-impact and material shortages, we’re going to streamline our logistics use less expedited transport. Now temporarily, we’re carrying more finished goods inventory due to erratic and longer transit times. We’re also making things like investments in automating our warehouses. So while these remain volatile, we’re being aggressive to tackle those. So from a P&L point of view, as you translate that down to EPS, those are going to be a headwind for us for the year. We’re taking aggressive pricing, aggressive funding the growth and productivity actions but we’re still expecting margin will contract for the year. And we are going to maintain investment in advertising. We believe that that’s an important component of our long-term model, and that’s why we’ve taken that our organic growth up to the 4% to 6% range. Take that down, we will continue to drive improvements in overhead. And stripping logistics, our overhead improved on a year-on-year basis. And the team has done a very good job of managing that prudently, but that’s what yields us down to a EPS when you take into the effects the multiple interest rate hikes, a headwind on tax, that drives the EPS here down on a year-on-year basis to mid-single digits.

So let me come back to what we’re seeing on local brands and certainly private label to a certain extent as an extension of that. I would just return for some travel around Asia. We’re certainly seeing some of the local brands take pricing there. And likewise, I think we’re going to see private label follow very quickly. Obviously, these increases impact them, and their cost of goods are obviously materially higher than ours. So we will watch that carefully. We don’t have a lot of categories that index highly with private label. Obviously, oral care very low single digits. The two categories that we need to watch carefully are liquid hands open toothbrushes. But so far, we have not seen a significant erosion or migration to private label and so [Technical Difficulty] as we see the environment unfold over the next few months.

And we will go to our next question from Steve Powers with Deutsche Bank.

Yes. Hi, thanks everybody. Good morning. I guess I’m curious as to how you think about the supply chain impacts in terms of quantification in the quarter, whether in terms of volume or market share, particularly in North America, but throughout your remarks or supply chain issues, including in Europe and Latin America, holding you back. So just curious as to how you think about how much you were held back and how that – how much of that kind of reverses and releases for the balance of the year, number one. And then number two, just maybe just some further details on China. It was down overall. I think in your release, you said that you called out Colgate China itself as a point of strength. So obviously, some timing there with Hawley & Hazel, but just some – maybe some more color on what happened in China and how you think about that market going forward, which is obviously a very dynamic context? Thank you.

Sure. Thanks, Steve. Listen, the supply chain, as we talked about throughout 2021 has been really choppy with a lot of second and third derivative impacts of all the implications related to COVID. But if you take specifically the impacts to us, where you really feel it is on shelf availability. And we have historically been best-in-class in that regard across our categories and some of the setbacks we saw from COVID lockdowns in China where we saw some of the challenges we’ve seen in logistics coming out of Mexico, raw material suppliers as well, having shortfalls that caused a lot of choppiness in our supply chain throughout 2021 and certainly accelerated a bit as we went into the first – out of the fourth quarter and into the first quarter. The good news is, as we finished off in the back half of February and into March, we saw a lot of those issues structurally get much, much better for us as a company. Our on-shelf availability, which should dip way below norms, was now back right at top of class. And you see that directly in our point-of-sale data in some of those customers where we actually now are measuring detailed on-shelf availability at the daily and weekly basis that allows us to react very, very quickly. We have taken decisions through 2021 and in the first quarter, to ensure that we have sufficient inventory to compensate some of those – the shortfalls that we we’re seeing and the uncertainty that we had from various contractors or raw material suppliers. That has cost us some money but we feel in the end is now given the trade, obviously, far more – a clear line of sight in terms of our ability to source an increasing demand, particularly behind our toothpaste and toothbrush business here in the first quarter. So on-shelf ability significantly improved as we exited the quarter and has maintained itself as we went into April, that has translated into better market share performance. Take the U.S. in the last 5 weeks, we were up or flat in seven out of 11 categories, which is a marked improvement versus where we had been in the past. Some of the issues likewise translated into the European business where we saw some shortfalls in terms of service levels there, that now has been addressed through some decisions that we have taken, and we’re seeing likewise, as we exited the quarter a little bit better volume. So all in all, across the board, – most of those issues now are behind us, particularly the lockdown issues that really had a significant impact on part of our business. And I give credit to the supply chain for doing a tremendous amount of agility work that I think is only going to set us up for stronger resilience moving forward as we see some of the uncertainty continue to unfold in certain parts of the world. China is actually a really good story from the sense of our CP China business was up high single digits in the quarter. Our CP China business, combined with Holly & Hazel, was up 650 basis points in market share in the online business, which is obviously the fastest-growing part of the China – the retail sector. Hawley & Hazel business was migrating, as I mentioned, Steve, to an entirely new portfolio and repositioning of the brand, including a brand name change that will incur – that was rolling out in the first quarter. As a result of the significant distribution scale of China, we were moving down inventories of old product distributors. We’re obviously taking their inventories down in preparation for the excitement behind the relaunch. We’ve started to see a lot of that unfold in the back end of March and now into April, and we will see it ultimately, it will take a couple more months before we see full distribution of that new product across the China market. So overall, the China business looks quite strong for us. For the first time in many, many years, our overall China market shares in toothpaste, that’s combined, Hawley & Hazel and Colgate are up. So it’s been a long time since you’ve heard me say that, but I think that’s a testament to some big strategic changes that we made in China. Now going back 2.5, 3 years, both in terms of portfolio strategy as well as go to market that we’d say is definitely paying dividends. And we will watch obviously the Hawley and Hazel relaunch carefully but quite excited about that thus far in terms of how we’re seeing it hit the market.

We will go to our next question from Jason English with Goldman Sachs.

Hey, guys. Thanks for slotting me in. I guess a couple of questions. First, kind of building off your last comments around the online or the exit of the Darlie brand, when did that begin exactly like in the execution? And I imagine you’re planning assumption is that you’re not going to retain all of the sales as you migrate away from the brand. When do you think that pressure will be behind us? I think even or how many quarters do we have to live with what’s likely going to be a drag from the rebranding?

Sure. Listen, I mean, we expect, obviously, that we will not only hold but ultimately build share with this relaunch, Jason, that’s the intent. I mean we have significant investment planned behind this relaunch. It is the number one brand in China, has incredible salience. We’re putting in improved technology as well. We have an innovation stream that’s coming behind this. Now there is no question there is always risk when you change a brand name, but all of the work that we’ve done thus far and what we’ve seen early days, that transition really started at the tail end of January, early February, the bulk of it starting to happen in March. And as I mentioned, will unfold more than likely over the next couple – 2 to 3 months. We will know by the end of the second quarter, third quarter, where we are. We will get a good sense, particularly in the online world. As I mentioned, the vast majority – the fastest-growing channel is online in China. And we will get a read pretty quickly in how we are doing relative to our online business with Darlie in that market. But overall, this is a widely distributed product, very, very strong, obviously gets into C, D and E cities. So, it’s widely distributed. It will take time to work through the old product, but we are starting to see some of the new product already on shelf in the modern trade, and so far, so good. But I would say, give us another quarter, the balance of this quarter to really assess how we are doing and come back to you with the point of view as we move into the third quarter.

We will go to our next question from Lauren Lieberman with Barclays.

Great. Thanks. Good morning. I wanted to follow-up on the supply chain question, because I do know that in fourth quarter or even third quarter results, you had talked about supply chain dynamics impacting North America. But at least to my recollection, this is the first we have heard about supply chain bottlenecks and headwinds for Latin America and Europe. And given it impacted sales in the quarter, I would think that you would had a sense of that by the time you reported 4Q. Same goes, honestly, for the sort of softer start to the year in January. So, I just – I wanted to ask specifically about the supply chain dynamics in Latin America and Europe. And then a broader question just on visibility because it just feels like – I know it’s a volatile environment, but that there seems to be an intra-quarter moving target and just level of confidence, frankly, as we look forward for the balance of the year? Thanks.

Sure. Lauren, let me just clarify. We have not had supply chain issues in Latin America. The supply chain issues and the volatility that we have seen has principally been driven by the North America complexities that we have incurred as well as some shortfalls from some of our raw material suppliers in the middle of the quarter in Europe, which created obviously some constraints there. So, specifically, it’s been North America driven by some lockdown issues in China as well as some of the COVID-related issues we had in some of our facilities here in North America. So, as I mentioned, we feel very good about where we have now in March. Structurally, things have gotten much better, efficiencies in the plant, asset utilization, capacity output, all are moving in the right direction, which are good indications that we are moving to where we want to be. And as I mentioned, some of the service level challenges that we have had. And I think everyone has moved through, but we were somewhat exacerbated by those in terms of our ability to get what we needed into some of our key customers are now back to historical high levels. So, good news there, no issue, Latin America. On Europe, specifically had dealt with a some raw material shortages that came from some of our suppliers mid-quarter. So, that was after we discussed it, we set guidance in January, that particularly hit us in Europe, and that has now moved behind us and things are back to a much more normalized level. We see that, quite frankly, all around the world. I mean if you look at a number of issues that we dealt with in 2021 and moving into the quarter this year with raw material suppliers or contractors, those seem to have subsided. Let’s watch it carefully because anything can happen in the current world, given the uncertainty that everyone is faced with. But we have put a lot more resilience into the system now to deal with some of the unforeseen circumstances that we are seeing. Listen, in terms of visibility, Lauren, we were – we came out of last year understanding that we were faced with $750 million of incremental cost and we had the pricing in place to deal with that. And the gross margins came in more or less in line, actually just slightly below where we expected, a little bit above guidance to the Street in the first quarter. And then we got hit with the significant incremental increases to the tune of $0.5 billion post the January call, which came in mid-Feb and into March. So, that’s been the single biggest issue in terms of visibility for us. We did not anticipate those. We had cost becoming more benign in the back half initially when we set guidance, obviously, with the war, all of that change. So, the visibility for us became dramatically different as we exited the quarter and hence the change in our guidance that we have communicated today.

Lauren, if I could just add one thing, going back to your Latin America comment. There was some impact in Latin America, really, over the last couple of quarters relative to the supply chain issues we saw with plant lockdowns in Asia. So, that was what we were referring to in the prepared commentary.

But no, nothing relative to LatAm for themselves, they have been able to obviously continue to do what they need to do. But as you know, we source quite a bit of product out of Latin America. The costs have gone up, but we don’t have anything that we would consider significant there.

We will go to our next question from Javier Escalante with Evercore ISI.

Hi everyone. I say that two things that it would be helpful because – and it’s really on Lauren’s question. This is that it feels that your supply chain is very global. And when you speak about Colgate, you talk about toothpaste and not toothbrushes. And then the problem in Latin America seems to be that you have problems sourcing toothbrushes out of Asia and toothpaste in the U.S. is out of Mexico. So, I think that there is a little bit of a disconnect between our understanding of the supply chain and your conversation. So, if you could clarify, in the U.S., what are the supply chain issues? Is it that Mexico is not delivering into the U.S.? And then in Latin America, is it that toothbrushes in Asia are now coming through into Latin America? And finally, in Latin America, you basically said that you had no supply chain issues, but volumes dropped. So, why is the drop, because if you think about Procter and Unilever, they grew organic sales in Latin America in 16%, so the consumer seems to be fine. So, what is that – why is it that Latin America is lagging your competitors? Thank you.

Sure. Okay. Let me address the supply chain first. Toothbrushes, first and foremost, is a global supply chain we source predominantly out of Asia as well as some sourcing out of Latin America. Obviously, given the lockdowns that we saw in Asia in 2021 and subsequently having an impact in the first quarter that impacted most of our global toothbrush business around the world, more acutely here in the U.S., where we have taken decisions in the fourth quarter and in the first quarter, to ensure that we accelerated migration of those toothbrushes when supply came back online, back into refill inventories and improve on-shelf ability. So, we had issues there, particularly for North America, where we are having to bring product in expediently in order to fulfill demand. That impacted some of our sourcing – some of our toothbrush business likewise in Latin America, likewise in Europe, but it was more acutely faced by the North America business, and we addressed that. Our toothpaste business historically has been a balance of a global supply chain that works very, very efficiently. Given some of the challenges that we had in the North America, we were bringing more product out of Mexico, they were fulfilling increased demand for our product. It came into additional costs. Obviously, as we talked about earlier, that freight rates out of Mexico increased. We did have some delays getting product across the border at times, but that was not a function of our problem. It was a function of what was happening systemically across the marketplace. So, our toothpaste supply chain is global. It has been a competitive advantage for us for years and years. We are able to now transfer products from one market to another quite consistently and quite efficiently. But as you have delays in one market or supplier implications in one market, it obviously creates a little bit of a bottleneck for you. We have taken decisions to ensure that we are having locations that are efficiently sourcing local markets where needed. And I think today, we are in a much better position than we have been in the past related to dealing with the uncertainty of the supply chain network that exists in the world that we live in today. So, overall, we think we are in a good place. On volumes for Latin America, listen, the only real shortfall in volumes for us in Latin America was Brazil. We took high-double digit pricing, 15% pricing in that market. We saw volumes come off a little bit, which historically has been consistent with where we have seen. We have taken significant pricing. Mexico had positive pricing, positive volumes across the board. So, I would really attribute it to some of the softness we saw in Brazil, because the rest of the business is okay, and we will see how Brazil unfolds. But this is quite consistent with what we have seen in the past when we have taken significant pricing.

And we will take our next question from Mark Astrachan with Stifel.

Thanks and good morning everyone. I guess I wanted to go back and try to understand the pricing strategy for ‘22. So, you talked obviously about being $750 million or so cost headwind in January, which has obviously gotten bigger, but it was still a big number back then. It seems others were a bit more proactive, at least it seems to me, more proactive and got stronger pricing earlier in the year. And I guess your comment to gross margin for you all was better than guided, but it was still down a lot. So, I guess I am curious, was there a volume calculus in your decision to seemingly lag some peers on pricing. And now that you are taking more price, how should we be thinking about volumes relative to pricing for ‘22? In other words, kind of what has changed or how do we think about the change in your assumptions there. So, if you could talk about the decision kind of first of all, whether that’s right or not? And then how we think about the volume change as a result? Thank you.

Yes. What happened in the first quarter, obviously, as we saw a little bit of delays in our pricing execution in Europe, which I mentioned earlier in the prepared remarks, given some of the annual negotiations and ultimately how those unfolded. The good news is those are behind us as we exited the quarter, and we will see that pricing fully reflected as we move into the second quarter. We were a little late in the U.S. arguably, I think in terms of how we sell things, but we did lead pricing in our core business ahead of competition. We have seen competition ultimately follow, but we did lead in the U.S. So, we felt like we got to have it pretty quickly, but obviously, the costs moved a little bit beyond what we expected. So, coming back to gross margin, we were kind of more in line with what we thought. We thought we would see most of the pricing come through in the back half of the quarter, which would obviously deliver accelerated sequential gross margin through the balance of the year. That was the initial assumption. But obviously, all things changed when the February-March – mid-February, March cost increases came through. We have now subsequently taken more pricing. We will be taking more pricing in developing part of the world as we move through the balance of the year. And we are also looking at obviously accelerated pricing, particularly through re-launches in the developed part of the world as we move through the back half.

We will go to our next question from Kevin Grundy with Jefferies.

Great. Thanks. Good morning everyone. Noel, I think we covered a lot of this. I wanted to kind of pick up on Lauren’s question and some others. Just the degree of the downward revision of your outlook versus peers and even more broadly staples, so everyone can appreciate how challenging the environment is. It’s not lost in anyone for a moment. But it’s difficult for everyone, right, at the same time. So, without being redundant because we spend a lot of time on the cost headwinds and supply chain issues. But what do you feel like is materially different about your business, product categories, commodity basket, the speed or scope with which you can move on pricing, supply chain, scope of productivity savings, controls around FP&A, your stance on conservatism in guidance. As you look at that relative to the peers, which I know you guys are following closely, what do you think is very unique about your business that’s causing a sharper downward revision than we have seen elsewhere? Thanks for that.

Sure. Thanks Kevin. Listen, I think we stated it upfront. What is uniquely different for us right now is obviously the significant move we have seen in fats and oils. And that is a significant part of our cost structure of our business in addition to things that have moved up quite significantly, that historically have been quite benign relative to our cost of goods, things like glycerin, which have doubled in pricing. So, fats and oils is the big driver here. We are assuming that those costs will stay at the current levels and slightly increase through the balance of the year. I don’t know how others have assumed that. As a result, we have seen – we have taken oil more or less at current levels with a slight increase through the balance of the year. That may be a different assumption than others have taken. And we obviously have the logistics on cost given our short-term implications of our global supply chain, which we ultimately think as we move into 2023, will move behind us. So, that’s predominantly the biggest difference. We have very strong brands that allow us to take pricing. You have seen that consistently year-in, year-out, our ability to take pricing, particularly in the developing part of the world, and we will continue to execute against that, but we will watch the consumer environment very carefully. We are maintaining our investments in the business. That’s very important for us to continue to accelerate the top line growth. That’s hence why we feel good about the 4% to 6% organic, given that we will be maintaining our investments in that piece. So, it’s really that. Our logistics – our overhead structure, just to talk to that, we have the global productivity initiative, as you know, that we have launched. We are accelerating the savings in that through the back half of this year. Our operating costs or just our direct overheads were actually down in the quarter, which again, we will get the leverage from that as we move and accelerate sales through the back half of the year. But the biggest difference is we are assuming a continued – a very, very costly inflationary environment through the balance of the year. We don’t see that changing at this point. I am not sure the assumptions that others have made or whether they made any assumptions at this stage, but we feel it’s prudent for the business to create the visibility that you need that we are assuming, those costs will continue to be at current levels or slightly above.

Our last question is from Andrea Teixeira with JPMorgan.

Thank you for taking my follow-up. Just on the Brazil comment, I understand like, you mentioned Noel, that the pricing and there was some price elasticity. I was just hoping if you can touch, was it more on the personal care side or auto care, or what are your plans to kind of make it perhaps more competitive given that the currencies went to your favor, I think that’s the good news there. Is there any ways of trying to defend the share – the volume share given that you probably took pricing more in dollar terms than you would appreciate at that point?

Sure. Listen, it’s early days. We obviously took pricing very, very quickly, as I mentioned, we saw volumes come off a little bit in the business. And it was quite frankly, more in the personal. Our market shares in toothpaste are actually up 20 basis points in Brazil. So, overall, we have seen again, coming back to the core strategy, we have re-launched our Sorriso business, which is performing very well in the market. We launched Colgate Total, which is performing well in the market, and you have heard us talk about MX. So, market mix, so market shares are actually up. We will see or we will watch that very closely, but we feel pretty good about where we are, but we have got pricing in the P&L. We anticipate that, obviously, competition will follow given our leadership position in the marketplace, but that will be up for them to decide. But we feel good about where we are. And the volumes, historically, when we have taken pricing at these levels are more or less consistent in terms of the falloff that we would have expected.

That concludes today’s question-and-answer session. Noel, I will turn the call back to you for any additional or closing remarks.

No. Thanks everyone. Let me again extend my appreciation to all Colgate people. Let me specifically call out our employees in the Ukraine, who our thoughts and prayers are with you, and we continue to support you and your health and your safety with all the possible opportunities that we can provide you. Thanks everyone. We will talk soon.

This does conclude today’s call. Thank you for your participation. You may now disconnect.