Colgate-Palmolive Company (CL) Earnings Call Transcript & Summary

Good morning, and good afternoon, everybody. I'm Steve Powers. I'm the Head of Deutsche Bank's U.S. Consumer Goods Research. And I'm very excited today to welcome the Colgate-Palmolive Company back to our conference. Joining us today from Colgate is Noel Wallace. He is the Chairman and President and Chief Executive Officer of Colgate. So a big thanks to Noel for joining us. Before we get into Q&A, I just want to make a couple of housekeeping points for those of you listening in. If you're joining us via the conference portal, you should see the ability to submit questions in the window in front of you. Please feel free to make use of that window at any time. I'll be paying attention to it, and I'll do my best to integrate your questions into our conversation as we go. And with that, thanks, again, Noel, for making time. We appreciate it.

My Pleasure.

Great. So I guess, I just want to start kind of open-ended in general. From my perspective, still fairly early in your tenure as CEO of Colgate. And it's been a very eventful couple of years, I think, to say the least. As you just reflect back on that early journey, I guess, a couple of questions. One is just how different and how would you describe Colgate of today versus the kind of the Colgate you grew up in. And what do you think have been the biggest accomplishments that -- the biggest points of pride for you over the last couple of years that give you confidence in the path ahead?

Yes. Let me start with the accomplishments. And I guess if I go back to 2019, Steve, we really reoriented the company around growth. And internally, we had this a rallying car called our growth mindset. And if you go back to CAGNY in 2019 where I laid out a refocused approach to growth around the world, and that included making sure that we innovated behind our core businesses, which as you well know are significant and drive the household penetration that we have around the world that have been quite shrieky in the past, and we needed to bring technology to those. We were seeing significant changes in retail environments. We had to change our go-to-market approach. We wanted to go after faster growth channels. And we recognized the strength of our brands, which is the heart and soul of our company and understood that we needed to utilize those brands differently around the world, a full portfolio, so to speak, or strength of our brands and as well as pushing those into new adjacencies. At the same time, it was not only about the strategic focus around growth, but it was how we were going to get work done. And I'm deeply proud of how the team has really pivoted the organization around getting faster, getting rid of waste in the system, putting agility into it, thinking about our innovation structure entirely differently from the process we use to the incentives we have around the company, thinking about the digital transformation that needed to happen. All of this was kind of pre COVID, and as you went into COVID, we couldn't have asked for a better strategy in terms of how we were trying to approach the transformation of the company in many respects because all those aspects that I just described were perfectly set up for a COVID world where there was significant volatility. We had to adapt really quickly. We had to rely on systems that had proven very successful and reinvent processes that we had never approached in the past. And so all that being said, I think the focus around growth and shaping the way we work internally as a team was part of the bigger accomplishments that have really helped lead to more sustainable, profitable growth for the company.

Yes. And I think there's a lot in there that we can and we'll try to drill into. For me, and you mentioned this, but just the focus on enhancing digital capabilities within Colgate, which I think, a humble opinion, I think maybe we're behind the curve, if I go back 5, 7-plus years ago. Putting those fun center was definitely apparent as you came in. And also the focus on premiumization was quite notable. I guess just where do you think you are on the journey in terms of getting Colgate to where you want it to be on those 2 measures? And where are the biggest opportunities yet reside?

Yes. Let me rephrase that a bit in the sense of -- the premiumization was an extension of really our whole innovation strategy. So the 2 aspects you mentioned there were fundamental to the changes. So one is, how are we going to approach innovation completely differently, making sure from process to people to everything else that goes along with innovation were different. And what was going to be the digital transformation. So I consider those really the 2 key enablers for us in terms of where we wanted to reorient the company. And I would agree with you. I think when we started on this journey 3 years ago, we were a little late. I mean we've been pushing aspects of digital, but we recognized and saw where things were going, particularly as we started to benchmark some of the success we're having in Hill's and what we need to do in China, and we realized we really needed to step change it across the company. And I would still say we're in our early days of it. There's still so much opportunity for us, and it's changing so quickly, but I'm really encouraged with the discipline we have around that. So let me address innovation real quickly. We had gone from just a basic close in innovation with the line extensions, which we define as H1, and we've now structured the company around H1, H2 and H3, and H2 and H3 are breakthrough in transformational teams. And so rather than having those all integrated in one team, we've now separated those teams completely differently in the organization, and we have 3 verticals in terms of approach and groups that are incentivized for their specific area to develop innovation for the short and the long term. And that's been, I think, very eye-opening for the organization. You've heard from Pat at CAGNY and very recently, I think she's helped to spearhead some of this. And it's really embolden the corporation to think differently about the art of the possible what we need to do. And I think to a certain extent, we were a bit risk averse, and this has certainly opened us up to new and different ideas. A great example of that would be the beauty innovation that we put into Ulta recently. We did that over the span of 6 months, an entirely new line of premium driven innovation that we think is a real change for the category. Early days, one account, we'll test and learn our way through it and iterate moving forward, but it really opened us up to the opportunity to really focus the teams differently. China was another great example, great innovation going on in digital and e-commerce, but we weren't transferring that well enough to what we need to do in brick-and-mortar. So new processes, new teams in place. And I give a large part of the credit to bringing in new thinking from the outside, both on the innovation side. And then the second piece that I'll go into, which is the digital transformation. And we have really, really pivoted the company around digital. And I'm sure you've heard it from many companies. We've done that in 2 ways. We brought in great talent from the outside, which is different for Colgate. They've been embraced. And I think the team has been excited because they've brought in skill sets that we didn't have. And people are learning from those as well as we've now organized ourselves very differently around digital, and the impact that can have on the business moving forward. And again, we're seeing great results out of that, particularly from an ROI standpoint on our content, better search returns, better content around the world. So all, again, work in process, early days, but that's exciting for us because I think there's still a lot of upside opportunity to deliver a return for our shareholders on.

Yes. And like the journey that you've been on is not wholly unique, right? I think in a lot of ways, CPG was slow to adapt sort of fast-to-market iterative innovation, kind of set in older ways and probably slow on the digital front, too. And it feels like -- much like you have a lot of companies have moved up that curve and moved up their investments and their focus quite quickly. Does that on the one hand that raises the bar for you as well as you try to kind of keep up with competitors are moving, but on the other hand, I think it makes your categories more vibrant, that everybody is much more in tune with the consumer and delivering value to categories that maybe have become a bit stagnant. Do you agree with that? And how does that shake out for you? Is that a net benefit for you as CEO of Colgate? Or is that somehow a threat?

No, I think it's absolutely a benefit. I mean, if you go back 5 to 7 years, Steve, we had extensive discussions around the long tail of local brands and brands that were emerging on the online space. And I think as big manufacturers now have really embraced the digital world that we live in, the benefit that we're seeing in terms of these big infrastructures that can dedicate resources to understanding things like search, understanding things like programmatic buying, have given us a distinct advantage now to really make sure that we're getting better ROI and compete, I think, much more targeted with some of the local brands. At the same time, it's allowed us to really premium, I think, it's going to allow -- the online world's going to allow us to premiumize the category a lot faster. What I mean by that is, one, we're clearly seeing a consumer that's more apt to buy premium products online. I mean, if you take China as a great example, the vast majority of our growth is at a super premium price. We were selling at RMB 10 in brick-and-mortar, and we're selling from RMB 40 to RMB 80 online now, and that's what's driving the growth and our share. We then take that infrastructure of what we're learning online and transfer it to this incredible infrastructure we have globally to scale those innovations quicker. So I think it's afforded us significant opportunities now. We've made some mistakes and we're learning, and we've got more work to do, but I think it's really invigorated the company around what we need to do from an innovation standpoint. And certainly going to enable the premiumization standpoint, which we think is an important part of our growth. We're in the early innings of that. We're still under-indexed versus the category. But if you take China as an example, if you take the Hill's business as an example, we're using online to quickly drive premiumization in some of the big markets around the world.

Great. The other big picture topic I wanted to just bring up at the open, so I think it also has raised -- been raised in stature progressively during your tenure, just ESG and sustainability. It's a big topic for many companies, a big topic this week at the conference. I guess, little bit -- feel free to give a little bit of background in terms of the main sustainability goals, but I'm really curious about how sustainability goals, ESG, in general, fits into the overall corporate strategy, and is an enabler and not just something you're doing separately?

The area of sustainability has always been a very important part of how we get things done at Colgate. And very recently, we recognized how important it is to talk about what we're doing as a company, the purpose of the company, what we stand for around diversity, equity and inclusion. How important protecting the environment is because consumers are looking for purpose-driven brands and purpose-driven companies today. And so that aspect of who we are, we were a very humble and very quiet company. We recognized that our story is a powerful one, and we need to get it out there. And certainly, as I came in, I felt very passionate about the need to take our ESG areas and really take them to the next level. And obviously, some of the circumstances that we found ourselves in, whether it be from the environmental needs that we're all faced with or obviously, the circumstances that transpired last year around June 10 really opened ourselves up to talking about this much more openly within the company, and we quickly realize that the company is yearning for much to get far more external with our communication and to do more in the area because we believe we can make a difference. Come back to the fact that we're in 60% of the world's households. We have this incredible responsibility and asset to drive change in the world. And if you take our 3 key ambitions, which are: one, driving social impact; two, helping millions of homes around the world, and that plays to our penetration, worldwide penetration; and third, preserving the environment. Each of those have very specific goals set against them, helping millions of home, obviously, with some of our sustainability goals, driving social impact, as you may have seen, Steve, that we've just issued our D&I report externally, very transparent about the opportunities and the needs that we have as a company. And the importance in the role that we play in the communities we serve. And then you talk about our preserving the environment, and we've set bold and ambitious targets for ourselves as a company, net 0 carbon by 2040, 100% renewable energy by 2030, 100% 0 waste facilities by 2025 and so forth and so forth, all of which are covered in our sustainability report. And again, I think it's anchoring the company against a greater purpose, and it fits so nicely into our strategy and something that we've done from a long time. So we're not starting from square one, we're building from a strength.

Great. Okay. So if we drill into more of the here now. We're somewhere, hopefully, approaching recovery, definitely in the midst of some level of reopening, probably still aways from any kind of new normal to settle out. As you just think about the demand conditions that you're -- demand, I guess, and supply conditions that you're grappling with around the world. Maybe you can just -- however you want to best kind of divide it up. But just give us the lay of the land about how you're thinking about end market conditions, developers, emerging markets. Again, however you want to parse it, however you're thinking about it, just to give folks a sense of how you're seeing the world and a little bit of the trajectory that you're extrapolating forward?

Sure. I presume I'll be somewhat consistent with what you've heard throughout the week. I mean, obviously, we had a percentage of our categories that were heavily impacted by COVID in a positive way. Whether it was liquid hand soap, whether it was dish liquid, whether it was floor cleaners, and you saw a significant growth in 2020 in those categories. We anticipated that those categories would drop off, particularly in the developing world pretty quickly. They dropped off further than we thought. They're still above the '19 levels, but those categories have certainly come off where they were in 2020. But again, I think the important thing is they're up versus '19. But we had a lot of categories and quite frankly, the majority of our categories that were not impacted by COVID. They kind of moved sideways based on different aspects in different parts of the world, whether you had pantry loading that occurred in the developed markets, particularly Europe and the U.S., whether you had closures that impacted all categories as COVID spread around the world and then the reopening that came with that. Some categories were more buoyant due to the e-commerce penetration that we saw in some markets. But by and large, where we are today is we've seen the COVID categories come off a little more than we anticipated, a little quicker than we anticipated. And we've seen the non-COVID categories more or less moved sideways based on the circumstances. The difficulty right now is the unpredictability of what's going on in the world. And we've seen significant lockdowns again in Asia, whether it's Philippines, Malaysia, Thailand, Vietnam, likewise, some of the challenges that we're all familiar with in India have certainly impacted the business. We've seen political disruptions in places like Colombia, which are a very large market for us, where we've seen significant disruptions to logistics and a complete closure of many of the markets in that area. And obviously, we've seen the U.S. started to come back a little quicker based on the rate of vaccination. So it really is -- depending on where you are, what categories in different parts of the world. But by and large, the good news is we've got real diversity of our categories and diversity of our business around the world. And nothing moves in a straight line here. We're able to try to push other areas of the world that are more robust and more buoyant as others struggle. The good news is, as consumers move back into stores, which is certainly starting to happen, that's a good thing for Colgate. We operate really well in store given our scale and our distribution. And as we see the vaccination roll out over the next 15 to 18 months, we think that bodes well for us.

Okay. And as you said, your categories, your portfolio responded to the moment that we've all been living through differently. You also talked about one of the imperatives coming in was to leverage the full portfolio of brands, maybe better than have been done in the past. I'm just curious, as you think about -- and clearly, you try to put a lot of attention on Hill's and try to reinvigorate the Oral Care business. But I also felt like you try to have basic personal care and basic home care play a differentiated role in layering on higher end skin care. As you think about how those businesses are situated today, how they responded to the past year, do their roles going forward change at all? Has it made you rethink how you view the portfolio at all? In either way, like what is your view in terms of the role each one of those businesses play in the Colgate of tomorrow?

Yes. Very importantly, I think what is the heart of any good strategy, Steve, is the choices you make and where you allocate resources and prioritization. And given the volatility that we've seen around the world, it was important to make sure that we were empowering the teams to respond locally as needed. But if you take a step back from that, our strategy still remain the same. I mean, oral care, premium pet nutrition, personal care with a much sharper focus on skin health and obviously, our home care businesses. And we still see that as the growth engine. That prioritization is the growth driver. It will be different in different parts of the world. Our Home Care business is more pronounced in Latin America, the U.S. and Europe than it is in other parts of the world. Personal care, strong in Latin America and Europe. But if you take the first 2, those were, again, very strategic choices for the company. Let's take pet nutrition and 3, 4 -- 4 years ago, we decided to really double down on that business and recognize that the category dynamics were excellent. That was obviously helped a little bit by COVID and pet adoptions have grown significantly. It fits our business model of winning online, winning with the profession endorsement, winning with real science. And you see us investing aggressively behind that because we see real benefits to that category and real long-term durability to that category and the growth that we've had. Again, recognize that, that -- our biggest market is the U.S. and we're still hovering below a forward share in that market, yet despite the significant growth we have. So we still see significant upside potential in pet nutrition, particularly as we start to roll it out in new markets around the world. In your earlier question around new brands and in taking our portfolio, it comes back again to the premiumization strategy. We're underindexed in pharmacy. We need a pharmacy line of products that we can compete aggressively in. We've got the GABA brands from Europe that we're rolling selectively in certain markets around the world. So it captures where we're seeing retail environment trends and the prioritization of driving premiumization in a new channel that we didn't have strong shares in. And likewise, I used the example of driving premiumization in oral care relative to moving online. So again, oral care continues to be real opportunity, per cap still quite low in the majority of markets in which we compete. We continue to focus on driving that. And we see real benefits as emerging markets are starting to see some tailwinds from higher commodities that will translate, we think, to longer-term better GDP growth in those markets. Hopefully a little benefit in terms of currency as well as our ability to then drive more per caps as more and more people enter the middle class based on the growth of those businesses long term. So overall, we think we're in a good position, notwithstanding the fact that we've seen significant headwinds in the short term. Obviously, you probably heard a lot about raw and packing materials. Those have moved beyond where we talked about in the first quarter. We're obviously responding to that as aggressively as we can with a series of different initiatives, but things continue to be quite volatile in that area.

Yes. And that's actually what I want to ask about next. Can you give us a sense -- I mean, we all see the spot market moves, but a little bit of sense of how you're covered and where you're seeing more of the pressure versus less in here and now? And it's not just raw materials and packaging, right, it's logistics, and labor condition. So just there's an inflationary backdrop in general. Will come to -- that gives you some opportunity to take price, perhaps. But in the meantime, just can you frame for us the inflationary pressure that you are sensing? And how it has progressed since the first quarter?

Sure. I mean it's beyond where we guided and what we talked about in the first quarter, I mean, I think you've heard that consistently from everyone. It's been quite extraordinary to see month in and month out the raise in prices. And obviously, a lot of our strategy coming into '21 was our ability to push premiumization, really accelerate our efforts and focus around revenue growth management, embedding that discipline and measurements within the teams. Obviously, we've been taking pricing where we needed to, particularly given we see raw materials impacting everyone and that creates at least a more conducive environment for taking pricing. But these things, Steve, never move in a linear fashion, right? You constantly seem to be playing catch up in the current environment. And we're planning for the long term. Obviously, we want to drive category growth, continue to keep our penetration high, but we anticipate that we're going to continue to see these headwinds longer term. And we need to ensure that our strategies reflect that in the focus, funding the growth. Listen, we set those goals out at the beginning of the year and while we push teams to accelerate those, there's not a lot you can do in the short term, particularly given some of the lead times associated with some of those projects. So we need to pull on all the levers that we have within the company to continue to deal with that. Now logistics is a whole another area. And fortunately, as we went into COVID, we tried to really build a more flexible supply chain to deal with some of the disruptions that we're seeing around the world. But that being said, we have seen freight costs go up quite significantly since we talked about that in the first quarter, particularly those costs coming out of Asia. And we're adjusting as much as we can to that in terms of our strategies as well as thinking about our portfolio and our sourcing strategy. So it's a full-court press within the company to deal with it, but you've heard it consistently, it's a real headwind to the CPG right now.

Yes, for sure, you're not alone. And normally, we're not -- I don't know, normally -- often, when we're talking about this kind of inflationary pressure and this much pricing flowing through the value chain across the consumer's basket, you start to worry about elasticities and trade down risk. But my sense is that, that is not as much in the calculus today because the consumer seems pretty robust. And retail -- everyone seems relatively accommodating. Savings rates are up and so on and so forth. How are you thinking about those macro variables? Or -- is it more about, hey, look, we've got momentum. We don't -- we're doing the right things. Yes, there's cost, but we've got the right to push for better price per unit through whatever mechanism we choose, and we should be fine? Or is there a concern in the background about the consumer just not being able to bear this at some level, maybe it varies by geography, but just curious your take there?

Yes, it does, Steve. It varies. It's always -- you're balancing a tightrope here, right? And fortunately, we have a lot more data now to kind of understand where our elasticity is. Obviously, our digital transformation is allowing us to focus and personalize our messages more to get content and value to the consumer so they can appreciate the benefits of our products and be willing to pay more for them. So it's, again, all those things that we've talked about. Now the inflationary pressures we see, all boats rise on that one, everyone is faced with them. So when -- as categories go, and particularly the retail environments where we compete, seems the need to take pricing, that makes it a little bit easier. That being said, I mean, we still have some markets that are very competitive around the promotional side, particularly the North American business. But we recognize that we need to be bold as we always have. You've seen consistently out of Colgate, our ability to get pricing to move through the income statement. And that's incredibly important, whether it's foreign exchange headwinds, which have been obviously far more benign this year or raw and packing material inflation. And our teams are prepared to deal with that. The uncertainty is it just continues to go up month-to-month. And so we're making sure that our strategies are sufficiently adaptable around pricing RGM funding the growth to go after this as much as I can. But I think at the heart of that, Steve, is still, we need to focus on premiumization driving value into the categories. And yes, we'll take some risk price increases where the market will bear it. But again, I think fundamentals our RGM and our innovation strategies that will help us weather this -- the transient inflation that we think we're all seeing.

Great. Okay. I mean, you've done a very good job of rebuilding gross margin over the past couple of years. And your outlook was for -- is for positive gross margin trajectory in '21 as well, which is the time of the first quarter call for sequential gross margin progression throughout the year. Clearly, things have changed as you talked about in terms of the costs and maybe some timing variables. But can you give us a sense for your confidence in gross margin progression throughout the year and into the future, given I think some of the variables we talked about. But also, I got to think mix to some degree works in your favor as oral care reaccelerates, premium skin care layers back on as opposed to the -- some of the core Home and Personal Care businesses that were so vibrant during COVID, but I think carry a lower gross margin. Can you talk about those variables and just your overall confidence in gross margin?

So as we've talked about, I think, throughout the call, the guidance we provided in the fourth quarter and Q1 was for gross margin to be up on the year. We didn't quantify anything beyond that. And obviously, as we discussed in the first quarter call, costs have continued to move. And we're all hands on deck on adjusting and addressing as much of that as we possibly can. And you mentioned mix, Steve, which I think is an important area, particularly around the COVID categories that we see coming back as we move into the back half of this year. Skin health would be a good one. Skin health was fundamentally shut down in 2020. And you're starting to see the early emergence of those categories becoming more vibrant. And I think you'll see an acceleration of that probably as we go into the back half. Likewise, premium pet nutrition, more people visiting the vets, more people getting on our prescription diet business as we see the traffic flow to veterinarians increase. And then obviously, the Oral Care business gets back in store, I think that will benefit a lot of the new innovations that we're bringing to the market. We're seeing that, particularly as we look at the channels, where we're expanding in, whether it's online channels, beauty channels, the pharmacy channel, the cash and carry channels, we'll see more of that traffic flow in and the innovation that we brought to the market over the last 9 months and have plans over the next year to bring in. I think we'll certainly benefit from that. But it's volatile, that's the way I would describe it right now in terms of where we see the cost environment.

Yes. Yes. Alongside the gross margin build, as you build the gross margin, you've also replenished A&P, the advertising line, which I think has fallen to a level that wasn't sustainable. And I think by your actions, it seems like you agree with that. Do you think where you are now is in the right spot? Does it grow more or less with revenue? And if there are pockets where you think there are incremental return justifications to lean a bit harder on A&P to fuel more growth, where do they reside? Just your overall perspective on advertising and promotion and the health of your current position and where you think you'll see the most incremental opportunity for -- to fuel future growth?

Yes, good question. I think spending on its own isn't going to necessarily drive growth. It's what you spend it on and where you spend it. And obviously, we've accelerated our spending over the last couple of years, and you see that translated to more top line growth for the company. So we are seeing the benefit of it. But we need to be absolutely relentless on challenging that spend all the time to get better ROIs. And certainly, as we move more and more of our funding into the digital space, we can do exactly that. And we brought in, as I mentioned earlier, talent from the outside to really step change our analytical prowess around how we spend. And we've always been an executionally, financially-driven organization. So the fact that we now have data that opens us up to really interrogating how we're spending our money and doing it more effectively, I think, is tremendously important to the organization. And we're putting resources in place to do exactly that. So I'm always looking to put more money back into the P&L to drive our brands, but there's always a level that you get to where it's how much incremental growth are you getting for it and are needing to continue to provide the top-tier TSR. And so it's a balance there. But the good news is we're investing behind the business. I think the high gross margins that we have on the business affords that opportunity. The penetration in our categories and the growth of our categories that we see going forward, certainly get us excited about the continued way we're approaching, driving category growth through our spending vehicles.

Yes. Coinciding with the investments you've made in digital, data and analytics has been a big part of that. How has that changed from where you sit? Like what information are you getting today that maybe you weren't getting a year or 2 ago? How does that data and analytic engine actually help Colgate make better, faster decisions?

Yes. The most obvious one would be probably programmatic buying, which is really allowing us to get far more efficient in how we use, particularly our digital spend and where we target. There's a lot of shiny objects out there, Steve, right now. And I think back to the focus we have as a company on doing the right things in the right way, the organizations really embrace that need to get into programmatic buying. It was an orientation that required education, required courage in many respects from the team to get their hands around, but we brought in resources to help educate the company and think about spending our money more wisely and the data that comes from it. So we know the impact in certain digital vehicles it's having on our brand. And we don't have to wait for 60 days to get those impacts. We can get those live and immediate and do a lot more testing and learning, a lot more A/B testing in order to optimize our spend. We've now focused and have subject matter experts in the area of search. And that's a big spend within the digital medium. So now we can really identify when we want to play in the auctions on search, what are the words we're looking for because we have a lot more data that shows us the performance of when we do that. So things are getting more transparent. But that being said, we've got a lot to do still there. And that's exciting for the organization because I think it's only going to yield more productivity of our spend in the future and get our organization excited about the new skill sets that they're building.

Great. I want to touch upon this portfolio construction. I guess I want to kind of get into it through the lens of Hill's. I think several years ago, Hill's was a question -- Hill's was a business that a lot of investors questioned whether it belonged in the portfolio. And I think the contributions of the business have spoken for themselves over the past several years. I guess, maybe part of your question of Hill's just in terms of the progress you've made in that business, the ability to build on that to compound that progress and if there are lessons that, that you can parlay it on the other aspects of the portfolio? And then part two of that is it -- does that -- does your success in Hill's, which, again, from the outside, was conceived as being outside of the core. Does it think -- does it make you think at all differently about where Colgate plays? You've made a little bit of a push into premium skin care you mentioned. But should we -- should investors over the next 3 to 5 years think of you sticking close to your current home for portfolio construction? Or is there any incremental appetite to look a little bit broader in terms of white space places for the company to play?

Yes, good. A lot packed in that one. Let me touch that back for a second and kind of come back to elements of our purpose statement, which is to reimagine a healthier future for all pets and our people and our planet. And anchored in that is the fact that we have always and will continue to be a very science-driven company. And if you take the Hill's business, I mean, it fits perfectly and squarely in the middle of that. It's truly a product that leads to better health outcomes for people's pets. And there's nothing more emotional, quite frankly, than feeding your dog a prescription diet and seeing perceivable and tangible changes in their behavior or their health. And that's no different than the health aspects we bring in oral care, whether it's gum protection, whitening, carries, which continues to be systemic around the world in many locations. And so there's real power in how we think about science-driven brands and Hill's fits perfectly in that. The go-to-market model of that business is exactly consistent with what we're trying to build around the company right now. So take oral health. We're the #1 brand recommended in most markets around the world. In premium pet nutrition, and -- we're the #1 brand recommended by vets for sick pets. And in skin health, we purchased these brands to the point that you made that really fit within that business model. We're not looking for big scale mass market brands, but brands that have real efficacy and deliver a real need to the consumer where we can create emotional connection. And Hill's has done that extraordinarily well as well as we're learning from our skin health business and certainly applying oral health across all of that. Now what's interesting about those 3 businesses is they're all now really integrated digitally as well. I mean we've learned tremendous from how Hill's has pushed the success and the leadership they have in the online world, a lot of the analytics and the work that we've done there, we've transferred that into our businesses. We're now co-locating teams around the world, so the Hill's teams are more integrated to the Colgate team, where historically, they were very separate. We're looking at more synergies in that moving forward. When you think -- if you take a step back and think about the digital world, Steve, what's interesting here is historically, we would have had pet nutrition going to a pet specialty store. Of course, pet specialty don't sell any of our other products, but the digital world, it's all the same. So all the skill sets that we build and need to succeed in the digital world, where they apply to Hill's, apply to Skin Health and apply to Oral Health. And so there's great, great harmony as we think about how we build our digital transformation around the world to integrate a lot of our go-to-market approaches across those 3 businesses. So we like, obviously, the -- all 3 of them and how they work together, and we see real benefits as we look forward in terms of managing them more modestly.

Yes. That's a good -- that's an interesting point. So from an M&A perspective, it sounds like -- I think you've been consistent about this over time is that you're looking more for smaller add-on kind of complementary assets that fulfill that purpose in the categories that you're already in, like a Filorga or Hello versus something that would be considered as more transformational. Fair?

Yes, that's fair, very fair. We like the category brand. Penetration is still significant. Per cap is still significant. The newer categories have a real orientation to endorsement and premiumization. The economics of all of the categories we've talked about today, we think provides significant value longer-term to the business. So we love the categories we're in, but we'll never say never. But our focus is very much on what we have, integrating the acquisitions, building those businesses, particularly given the volatility that we've experienced over the last 18 months. We're not in a hurry to make any deals. Valuations are high. We think our shareholders are going to best be rewarded by our continued focus on driving the value in the categories we have, and that's certainly what we're doing today.

Great. We only have a few minutes left. I guess I wanted to loop back on some of the geographic considerations that we were talking about earlier in terms of your outlook. I guess from -- if I think back to my own expectations in investor dialogue over the past year through the pandemic, I think emerging markets in general have held up better than feared in terms of demand in your categories in general. But as you said, they're still grappling with a pandemic that is still quite real and vibrant. If you think about the, I don't know, 2019 base and whatever your baseline was for normalized growth, developed versus emerging markets, is it -- I don't put words in your mouth, but is it fair to say that the developed markets, given what we're seeing with reopening and vaccination rates that they can hopefully claw their way back to that normalized trend in a reasonable time frame, whereas the emerging markets may not have dipped as low, but do you have that same confidence that they can kind of revert to normalized trend kind of in sync with the developed markets? Or is there a risk that it just takes longer for them to recover from a pandemic that may not have been as deep in terms of the demand we see in your categories? Does that make sense?

Yes. Let me see if I can answer that. Certainly, as we talked about in the Q1 call, we've seen that developed markets were a little weaker than we expected, certainly our performance in developed markets. Part of that drove a lot of noise in the categories that we were comparing against in the last year, part of that driven by our need. We've got more work to do in North America to be sure to continue to drive a sustainable growth, and we've got some good innovation coming in that direction. We're certainly getting far sharper with our promotional plans and how we want to address that market moving forward. So I'm encouraged by that. But if you transition then to emerging, it's been very volatile across emerging, given the pace at which COVID has impacted those markets and the ups and downs that you've seen with the resurgence. As the vaccine gets disseminated across those markets, we think there's going to be a lot more vibrancy coming back in, perhaps to the point that I made earlier, Steve, which is as difficult and punishing as the raw material environment is today, a lot of the emerging markets benefit from that. That will translate into what we believe better GDP growth, more money in people's pockets. You see a lot of populous governments putting more money in the consumer's pocket. So as you see those markets open up and many of them have been through extended lockdowns, you would see the vibrancy, we think, come back into the categories. And we certainly feel we're in a good position longer term given the strength of our business in emerging markets to benefit from that, particularly around the innovation and the channel opportunities that we continue to exploit. And then obviously, as raw materials go and GDP goes, so do the currencies, and we've seen certainly a little bit of pickup on the currency, knock on wood that, that continues to withstand or hold itself through the balance of the year, but overall, emerging markets long term, or at least over the next 3 years, we're quite bullish on.

Great. Just about out of time, but I'll give you the final word. Thank you very much again for your time. Any closing messages for investors in terms of reasons to feel confident in Colgate and its ability to continue to deliver?

No, listen, as I mentioned, nothing comes in a straight line, and this is a company that's withstand and understands volatility, given the fact that we operate in 200 countries around the world. And there's going to -- the purpose of what we've been doing over the last year is long-term sustainable growth and investing behind our powerful portfolio of brands, expanding into new channels, transforming the culture within the company, particularly around innovation and digitization. And all those, we think, are critically important to continue to deliver top-tier TSR for our shareholders, and that's absolutely what we're focused on, Steve.

Great. Noel, thank you again. Thanks to Colgate for participating in today's -- into this week's conference. I wish everybody a great event. Thank you again, Noel. Appreciate it.

Thank you. Be safe, everyone. Thanks.