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

Okay. So good afternoon, everyone. Welcome to the UBS Global Consumer and Retail Conference here in Boston. My name is Peter Grom. I'm the U.S. household products and personal care analyst here at UBS. And we are very excited to have joining us today from Colgate-Palmolive, John Faucher, Chief Investor Relations Officer and newly named Senior VP of M&A. Over the past few years, Colgate has implemented a number of strategic changes that has driven a return to organic sales growth at the high end of the company's 3% to 5% algorithm. In terms of format today, I have a number of questions prepared that I plan to run through for the first 30 minutes or so. And then for those in the audience, I think you have the instructions on how to submit questions. And over the last 15 minutes, I'll be happy to ask questions on behalf of you to John. Before we start, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me and I can provide them to you after the call. So with that, John, thank you and let's get started.

Sounds good.

So I hate to start with something negative, given the strong turnaround in organic sales growth in recent years, but obviously, a lot of investor interest on the current situation in Ukraine. Can you maybe just remind us what your exposure is to the region? And just like any thoughts on the current situation?

So sure. So obviously, along with everyone else, we're very disturbed by what has happened in terms of the invasion of Ukraine. And we obviously hope this ends quickly. Our #1 priority is really the safety of our employees on the ground and we're working to keep them safe and obviously, our thoughts are with them always. In addition to that, we are providing both our products as well as support to people who are displaced. As far as you mentioned, yes, it's -- as we said at CAGNY, it's a low single-digit percentage of our overall sales.

Okay. All right. Let's shift gears to the organic revenue growth. I mean, the turnaround over the last few years has just been pretty impressive, with organic sales above the midpoint for 3 straight years. But despite all that improvement, there still seems to be a lot of skepticism out there. You often hear phrases around COVID beneficiaries, scanner data not great, this is all because of Hill's. But can you walk through the changes the company has implemented around innovation and revenue growth management that has driven this return to mid-single-digit organic sales growth and why the company believes it's sustainable?

Sure. So I think -- I mean, I understand all the issues that you mentioned. I think the key thing for us is, as you look at this, we have delivered net sales growth, organic sales growth in all 4 of our categories over the last 2 and 3 years on both a compounded basis as well as, again, an annualized basis. So as we look at this, we think that highlights the strength of our categories, which are all growing, the strength of our businesses. And yes, we've had some benefits from COVID in 2020, and as we lap those, our household and personal care businesses were down a little bit. But again, on an organic basis and on a net sales basis, they've compounded well. So we're well ahead of where we were back in 2019. And in particular, the home care business, which we think is a really good business, has delivered organic sales growth at a compounded rate in line with our 3% to 5% average. And then you have oral care, which obviously is our biggest category, where we delivered organic sales growth at the high end of mid-single digits in 2021, so we feel good about that. And we can talk about the share dynamics relative to that later. And then obviously, Pet Nutrition, which is a big and growing piece of our business. As you mentioned, Hill's has grown organic sales growth in the double digits over the past several years. So we think the underlying results, again, whether it's 2 years, 3 years, what have you, show that the momentum that we've delivered is real. And I think if you go back to when Noel first presented at CAGNY, and he talked about this in his CAGNY presentation this year, if you go back to Noel's first CAGNY in 2019, he laid out a strategy in terms of how we're going to think about driving growth differently and really sort of attacking areas for growth. And the first thing he laid out was core innovation, right? And one of the problems that big CPG companies have is that you've got these big core businesses that can be maybe 60%, 70% of your overall revenues. And if you don't take care of them and by taking care of them, that means investing in them having real innovation, not just line extensions, those can be your leaky buckets, right? So we started off the first big core relaunch we did was Hill's Science Diet back in 2018, and that has obviously had great results. And that was going back with reformulations, new advertising, new marketing messaging, digital-first packaging. If you take a look at the Hill's packaging right now on Science Diet, we started off looking at the digital shelf. So when consumers go to Amazon, when they go to Chewy, it is really impactful there. Now it has to work on the physical shelf as well. But as we did that, it was a new way of thinking about driving growth in the business. So Hill's Science Diet relaunch in 2018 has driven great results. We relaunched Colgate Total, which was very successful in terms of delivering mid-single-digit organic growth on a business that had been struggling. The formula change worked very well for us and really, again, brought news to the category in the multi-benefit segment. And we've continued with those core innovations. And we're seeing this year, we've got 2 that I'm particularly excited about. One in the U.S. is Irish Spring, which is a great brand in our Personal Care business, new packaging, new scents, new advertising. We had an ad on the Super Bowl, lots of good promotional support. And then we're going to do the Prescription Diet relaunch, which Noel, again, talked about at CAGNY. And so that's taking the other roughly half of our Hill's business and really revitalizing that through -- it's been doing great, but adding new packaging, new communication in terms of how we go to the profession, right, which is the veterinarians so that we can drive incremental growth on Prescription Diet, which is higher priced as well as higher margin because it provides great health benefits to pets. So core innovation was really the key. And that's stuff that's less exciting but important, right? Because if you've got 60% to 70% of your business and you can get more growth out of that core piece, that really allows you to leverage the other pieces that we talk about to drive the real incremental growth. So the first one would be faster growth adjacent categories and segments. And so that would be areas like whitening, where we've really upped our game over the last several years in terms of launching premium-priced whitening products that really drive benefits for consumers as well as new forms like trays and pens, et cetera, so really thinking sort of outside the tube from that regard. And then the third area is what we call faster growth markets and channels. And what we really saw there was an opportunity to move beyond just the Colgate brand. Now the Colgate brand is the #1 most penetrated brand in the world in about 60% of homes. So that is a huge opportunity for us. It's a massive growth driver. It's a real driver per capita consumption, which we think is a huge opportunity for us. But we have an opportunity to take some of our other brands to different markets. So for example, in Europe, in the Germanic countries, we have elmex and meridol, which are highly therapeutic brands, whether that's for cavities, sensitivity or gum issues. And so we've pretty much kept those tightly bound within a small range in Europe. But we have now taken elmex to Brazil, where we've been using to grow in pharmacies, which is a channel where we are underpenetrated, right? So our market share in Brazil is in the mid-70s, but our market share in pharmacies is much lower because they want something that's not sold in big box retailers. So we've given them elmex and we've seen very strong growth. We're building that up over time because we want to build it the right way to drive long-term profitable growth but that's worked very well. We've done a similar thing across Turkey, the Middle East and parts of Africa, including South Africa, with a brand called meridol, which is a gum brand that we have. And so we've done a great job there, again, increasing market share in that pharmacy channel. For example, in the Middle East, pharmacy usually tends to be the biggest channel. And again, we were underdeveloped versus some of our peers, particularly on the therapeutic side. So we've been able to go in there and drive significant market share gains at premium prices. And then finally, on top of that, you would add faster growth channels, right? So those are the markets. From a channel standpoint, e-commerce has obviously been a big area of focus for us, as has club, and I just talked about pharmacies. But Brigitte King, our Chief Digital Officer, presented at CAGNY and then was in the Q&A. And she talked a lot about our digital journey and how we've revamped how we go to market from a digital standpoint. So it's part of what Noel's talked about our digital transformation. And by doing that, we were able to grow e-commerce market share in all 6 of our top e-commerce market share -- e-commerce markets for toothpaste last year. So we think we've been able to go in drive incremental growth and that's why we think it's sustainable because it's built on strategy, it's built on innovation and we can talk more about that. We're doing it the right way in terms of finding these opportunities for growth and really being patient and thorough, right? You're not -- you can drive 100 basis points of incremental growth by doing something 1 year, but can you sustain that and can you do it profitably? And that's what we're focused on, sort of long-term sustainable profitable growth.

That's helpful. And I guess, that's a lot but can you maybe help us understand the share journey, right? We alluded to this earlier. Maybe you're doing a lot of work. It seems like it's accelerating growth, right? It's clearly showing up in the numbers. But maybe help us understand what your share performance looked like before you started all these changes. How it has improved? Are we at a point on a consolidated basis where we're starting to either get to flattish or gain share? And how investors should really think about the sustainability of -- or the potential for improvement of share growth going forward?

Yes. So I mean, I totally understand the question. We get that a lot. So what I would go back to is -- my feeling, and you and I have had this discussion before, market share is an outcome of how you're running your business, right? If you go in and you run your business the right way to drive value, to get consumers, to perceive the benefit of the brands, right, you have to have good brands and we invest behind those brands, that's what's going to drive market share, right? So that's what we're doing in e-commerce, right? And the e-commerce is not included in the market share numbers, but I'll go back to this. So at CAGNY, we showed a chart that says our constant dollar market share has been flat for the last 3 years. So we're down in dollar terms. We're flat in constant dollars. So that's an impact from currency, right? So if you add in the share growth that we have in e-commerce and again, we grew in our 6 largest markets, as we said at CAGNY, we think we grew market share in toothpaste last year. And again, if you're delivering organic sales growth of -- towards the high to mid-single digits, in Oral Care, that's a pretty good chance that you're growing market share because we don't think the category is growing that fast. But part of the stated strategy that I just laid out is we have focused on growth in channels that maybe aren't included in those market share numbers, right? So clubs. We had significant growth in clubs, particularly in the U.S., particularly behind Optic White last year. It's not in the market share numbers. Pharmacies, a lot of pharmacy volume is not in the market share numbers. E-commerce is not in the market share numbers. So we have done well in these unmeasured channels. Now to be fair, we have to do better in the measured channels as well. And we've got some things that we're putting in place, particularly in the U.S., which is really the one market where we've seen some market share weakness and I think we're going to see that fixed. But keep in mind, in the U.S., Nielsen measures 80% to 85% of the market but only 50% of the growth, right? So the other 50% of the growth is in that 15% to 20% that's not in measured channels and that's a huge opportunity for us. Again, we have to get both, right? We can't chase market share from a scanner data standpoint and lose sight of that other 50% of the growth that's in those unmeasured channels. But we need to do better. U.S., the primary issue. Most of the markets, we feel good about our market share trends.

Okay. Maybe moving to the other side of the revenue growth equation, just kind of category growth and just consumer demand in developed markets. And you and I have discussed this in the past, but it's just the sustainability of this mid- to high single-digit category growth you're seeing across HPC. I guess, how do you think about that elevated growth moving forward? Are you seeing any signs of a slowdown as kind of inflation starts to hit the consumers' wallet from all different angles?

Sure. So I think -- look, I think these are, to some extent, expandable consumption categories. If you look at our 4 categories across, we'll sort of keep pet aside because it's a slightly -- pardon the pun, it's a slightly different animal. I'm always disappointed in myself for saying that. If you focus on Oral Care, you're looking at something where population growth plus premiumization, which we've seen, plus per capita consumption, right? So people think about this, well, is there much room for per capita consumption growth in Oral Care? The highest per capita consumption country in the world is Brazil, and that's 1.7, 1.8x per person per day. A lot of developed markets are in the 1.2 to 1.3x. So even in developed markets and even in Latin America, which is generally overdeveloped in terms of per capital consumption, we see opportunity. Now the important thing is that 68% of our addressable population, meaning the population in the markets where we participate in Oral Care, live in countries where, on average, people brush their teeth less than 1 time a day, right? So that's China, that's India, that's most other parts of Asia, parts of Africa. That is a lot of opportunity there. So if we just took those people, that 68% and got them to 1 time a day, that would be a 40% increase in category volume. So per caps are still a big opportunity, and then again as I mentioned, premiumization. So I look at Oral Care and say this is a category that has real opportunities going forward. Personal Care, Home Care, probably slightly slower than that from a category standpoint. Personal Care, in particular, tends to have a little bit more exposure to Europe, which is slightly lower growth. But we've got a big bar soap business in emerging markets that, over time, will translate over to shower gel, right? We've got a dish business that has a couple of key markets where we've got powders, et cetera, paste where that can trade up and form to liquids. So there where you get the rising middle class, right, which is what's going to drive a lot of this behavior change, I think you're going to see additional adoption, move into more beneficial forms, more frequent usage, premiumization. So when I look at our category numbers, yes, you may see some volatility shorter term related to disposable incomes, what have you. We don't necessarily know how that's going to all play out. But I feel like that is a -- that's still a big opportunity. So I look in the context of our 3% to 5% organic sales growth target, 2% to 4% category growth, which is what we highlighted, seems reasonable, even with -- even if there's some short-term headwinds. As far as Pet goes, what I would say to that is, obviously, Pet has grown very nicely. We're well positioned within Pet, right? So the overall category growth has been good. What's been driving more of that growth is specialty distribution, right, so not exposed to food, drug and mass and that's where we play. What has been done -- when you add to that, in particular, companies that are over-indexing in e-commerce, which Hill's is, you and I have talked about this. I think the high end of mass will continue to move to e-commerce and pet food. And since we don't participate in mass, as those consumers go from FDM to Amazon to Chewy, we can capture -- those are entirely new consumers to us. It's not cannibalistic. And then on top of that, we have seen the pendulum swing back towards science, right? So the pendulum swung pretty far towards natural and organics, right? Your chihuahua is a wolf and needs a 100% protein diet. We're seeing that come back towards science and balanced nutrition, and Hill's can help drive that and that's a big competitive advantage for us.

Okay. So maybe shifting gears to a pretty important topic these days is just around commodities inflation. Obviously, oil has moved up a lot here. And John, I think Noel was pretty transparent at CAGNY about the willingness to take additional pricing, focus on cost savings, et cetera, to help protect the bottom line. But can you talk about the current commodity environment? And then more broadly, how you guys are thinking about protecting or managing the P&L, given what we're seeing lately?

Sure. I mean, first off, it's going to depend where things settle out, right? This is a -- it's a completely moving target, given where we're seeing oil trade day by day, right? And so where we were when we reported the fourth quarter is different than where we were when we spoke at CAGNY, which is different than where we were yesterday, which is different than where we are today. And so the question is where are these things going to stabilize and you have to assess when that happens. But there's no question that what we're seeing here is going to have an incremental impact in the raw material situation. It's not just from a pricing standpoint, right? We're getting questions about availability of raw materials, we're getting questions about substitution of raw materials, given availability issues, what have you. So this is all going to create additional volatility and we have to deal with that. And as you deal with that, you end up making choices, right? So the choices are, okay, how do we protect margins versus how do we protect advertising spending versus what's the long-term growth algorithm, et cetera. So we're going to have all these trade-offs, but we will look as much as we can to go out and try to drive additional pricing, additional productivity. Revenue growth management is key because it allows us to go in and figure out how we can drive value from that standpoint. But we know that we've got a lot of levers to pull. And so we're going to work on those in terms of really trying to understand how we get to the right balance there in terms of delivering for our shareholders versus driving the long-term growth versus providing value to consumers.

Okay. And maybe beyond inflation, the company has discussed supply chain issues in the U.S., globally. I think Oral Care was mentioned on the last call. So I mean, have you seen any signs of improvement there? Should that result in a catch-up in shipments moving forward or is it really just too early to tell?

It's a little early to tell. What I would say is I think we feel pretty good about how things are moving and how things are improving. So we think we should -- as we progress, we think we should get out of some of this logistics tightness that you're hearing, not just from us but from other companies as well. And again, it is predominantly a U.S. issue. There are some -- I think there is some retail inventory that can be rebuilt from that standpoint. And as that happens, that should be favorable on top of what we hope is continued solid consumption. And you've seen the consumption move back over the past couple of months. So I think we're optimistic that as the supply chain unwinds, as we continue to see recovery from Omicron, what we will end up with is a situation where we can catch up on some of the volume. And not only that, but the supply chain limitations have limited us, to some extent, in terms of how much we can promote. And I think you'll see a -- even though we're taking pricing, I think there's an ability to go through and promote, again, provides consumers some value as we look at this.

Okay. Would it be fair to say you think maybe some of the supply chain issues are leading to some of the share underperformance we see in the track data?

I think there's a little bit of that. Yes, I think that's relatively safe to say.

Okay. And then you kind of alluded to this earlier, but can you maybe provide some more detail on the global productivity program announced last earnings? I know Noel mentioned the word proactive and it was an acceleration kind of to a degree. But maybe just some background on where you saw the biggest opportunities, how the $90 million to $110 million in pretax savings should flow through from a timing perspective? And maybe just given what we're seeing now, how should we think about the level of reinvestment versus what would flow through or to be a potential offset to the inflation we're seeing?

I mean, I think you would have to look at it and put it in -- at the end of the day, money is fungible, right, left pocket, right pocket. And so you have to look at everything we have at our disposal, RGM, brand support, all these other things will go into those decisions that we look at as we make decisions about the shape of the P&L over the course of the year. What we saw here was an opportunity to accelerate some changes, to accelerate some of the investments we've talked about before in terms of digital as well as making some underlying changes to make our supply chain a little bit more efficient. So what we'd like to do with this is keep it relatively shortened because we think this is where we can go out and create some additional value in the short term and not distract the company, right? One of the key things about having a shorter-term program is that you can get people out there and you don't distract them away from the day-to-day business, which is driving growth. So that's what we're really focused on. And so that's the purpose. But again, it's -- everything is going to be fungible from that standpoint.

Okay. And then maybe just rounding out the inflation topic, but there seems to be like a debate out there around whether some of the inflation that we're currently seeing could prove to be structural rather than cyclical. And so I would just -- how do you think about that? And if, in fact, there is structurally higher inflation, how do you continue to deliver on your profit targets?

I mean, so I think we would view a lot of this inflation as structural. And some of this is a rebound off of levels that came during COVID. Some of this is an increase in -- the increase in biodiesel has driven an increase in tallow and soybean oil, palm oil, palm kernel oil and that will likely stay up. So we have tended to view most of the raw material increases as structural as opposed to temporary. It obviously gets a little more convoluted as we look at the recent increase in the price of oil. So look, I think as that happens, which you -- again, you go back to this, you say, it becomes key in this environment, as you look at structural changes to say, okay, how can we go out and really provide value to consumers, right? And that is focusing on making your products better so that consumers accept the brand and they say, "Okay, this is good value for the money." It's about providing pricing tiers, so if you go on a website in the U.S. and you look at the availability of our products, we're going to have products available for a dollar, right? You need to have products available at all price points so that consumers have choices. And then what you need to do is, again, try to drive value, make consumers realize the value of the brand through advertising or help consumers realize the value of the brand through advertising and then try to drive productivity as well. So it's, again, sort of about pulling all of these levers to deal with, again, the fact that we think this is structural, but we need to come up with solutions for that.

Okay. Maybe building on that one last point you made about having products across all price points, right? I mean, there's just a lot of uncertainty out there in terms of what's going on and whether we're going to head to a recession or not and just given gas prices and inflation and all the uncertainty out there. So maybe can you give us some thought around how the business, maybe Oral Care specifically, has performed during past times of economic uncertainty? And maybe like we discussed this earlier, just walking through how you see the potential for trade down to occur and how you might win in that kind of scenario?

Sure. So we've talked about this a lot, that our portfolio generally indexes below the category, so we average about an 89%, 90% on a global basis versus the category. And I mentioned at the beginning, we have big core businesses and the core businesses tend to be at those relative price points. So we think we offer a lot of good entry-level price points across really all of our geographies. And that's important to us. We want to have the ability to make sure that people -- I mean, this is a category that people are going to stay in. So going back to that situation, people are going to continue to brush their teeth. So we want to make sure that they have the right price points so they can stay in the category. So that's important to us. And so in a theoretical trade down situation, because we tend to under-index versus the category because we have these big core brands, and because private label exposure in this category is relatively limited, which we think goes back to our attractive price points, we think we have the ability to gain share in that type of situation. Now that doesn't mean that there isn't an opportunity for premiumization, right? I mean, we launched the original Optic White back in 2007, 2008, and it did very well. So it's about offering all those different price points to consumers so that they have the choices so we can empower them on the shelf.

Okay. Can we talk about emerging markets, right? I mean, maybe can you walk through what you're kind of seeing? I know the commentary is going to vary maybe country by country, but I think it would be helpful to just kind of get a sense for what's going on in those key markets where we have less visibility?

Sure. So I'm not sure there's anything particularly different going on in terms of emerging markets. They are ones where the revenue growth management programs have been in place and so we've continued to drive that. Retailers allow you to drive that a little bit differently there as opposed to the U.S. and Europe. So I think as we look at it, no real underlying changes there. We're going to see the underlying economies there are going to have price inflation, there's no question. So real wages may get clipped a little bit. But again, given the affordability we have, we feel very strongly that our portfolio is well positioned. I think what we're optimistic about in emerging markets is we haven't seen as much wage growth in emerging markets over the last several years, particularly in Latin America. And so we're optimistic that if commodities does drive increased GDP in those markets, that could show up as additional wage growth, which would be very good for us, given our exposure. So I think right now, I would look at this and basically say, I don't think we're seeing anything unexpected and different versus what we were seeing before.

Okay. And pricing, obviously, another big topic of discussion. Maybe to start, I think it would be helpful to just provide an overview of all the different price levers the company has at their disposal. And just more broadly, what are you seeing in terms of elasticity as more and more pricing continues to come through?

Yes. So on the second question in terms of elasticity, I think we're not seeing anything unexpected from that standpoint. It's still early days in terms of what's going on in the market, and so I think we'll keep watching it. But so far, nothing that we've seen that is particularly surprising or particularly concerning. I think the key here is building up the revenue growth management expertise so that we can use all these different levers, right? So there is promotional prices and shelf prices, and we're focusing on different tiers and all these other tools that we have, again, because at the end of the day, you really have to drive value to the consumer. And so that's our primary focus. So what we want to do is balance focus on entry-level price points, mid-level price points. And if we can get innovation out there at the higher end, that's great because, again, there will be consumers who are looking for that. But what we're going to focus on is making sure that we're driving additional value if, in fact, prices do move up so consumers feel like they're getting good value for the money.

Okay. And what are you seeing in terms of local competition on the pricing front? And I think at CAGNY, both you and Noel, pretty clear that for the most part, local competitors are following. So just an update there. Are you seeing differences in certain markets like Brazil, where they're maybe being slower to follow or maybe your multinational competitors are not following to the same degree?

I think, look, everyone is feeling the same pressures, right? And this is slightly different from, let's say, a currency situation where transactional foreign exchange will hit companies like us a little bit harder. Raw materials, I mean, you're seeing inflation across every line item of the P&L for every company here. And so that pressure, particularly on companies that have lower margins, will be a little bit heavier from that standpoint. So we feel this is a situation where we're all dealing with the same pressures and therefore, you're looking at a situation where some -- I think we're in a situation where the need to figure out how to offset some of these pressures is going to be pretty consistent, and I think that leads to a relatively rational environment from that standpoint.

Okay. And then we didn't spend a lot of time talking about Hill's today but the performance has been tremendous. So can you talk to the sustainability of this kind of high single-digit, low double-digit growth we're kind of seeing longer term? And what gives you confidence in that kind of outlook?

Sure. So I mean, first, again, it kind of goes back to the fundamental issue with Hill's is -- I got all sorts of questions about pet adoptions and all these other factors. But at the end of the day, Hill's was growing quickly before those trends and I think will continue to grow quickly after these trends or as these trends keep going because it's really about the brand. And the key thing for the brand, going back to the organics and natural pieces, Hill's is about science, and it's about using science to give your pet the best health outcomes. And we are single-minded in terms of how we talk about that. We're single-minded in terms of how we talk to consumers, whether it's digital advertising, other types of advertising. It's how we talk to the vets. So we're very focused on basically getting that science message across because it's a differentiating message for us. And it's true because we spend a lot of time focusing on the formulations, et cetera. So if you look at Hill's, the U.S. has been a key growth driver. It's our best market and our market share is mid-single digits on Science Diet. So it's a little higher on Prescription -- it's higher on Prescription Diet. So there's big opportunities for us from a share standpoint in North America, in the U.S. You go over to Europe, big markets, well developed, particularly for premium pet food, we have even lower market shares. So as we look at that, we think there are big opportunities outside of the U.S. that we are more in the early innings in terms of tapping into that. And then as you look more broadly in terms of emerging markets, the categories are still relatively nascent there. And so we have an opportunity there and we're going to do that. We're going to do it the way that we do best, which is we're going to go in, we're going to work with the profession, right? Work with the vets, work with the vet techs to make sure they understand the benefits of the product. And then that will help give us the credibility that we need to go to the consumer. So as we look at this, I think there is a long runway ahead for Hill's. We are investing in advertising. We're investing in capacity. We are focused on growth areas where we are underdeveloped, so things like vet, right? So we're looking at that more aggressively, things like what we call Small Paws, right? So we just recently launched the creation of our Small Paws Center or a small pet wing at our Pet Nutrition Center. And so that's going to be a way for us to go after a segment where we're under-indexed. We tend to do better with big dogs. But small dogs, they eat very differently. They have different biologies than big dogs. They eat more like cats in terms of they tend to roam around and nibble here and there. So we have an opportunity to build up, through science again, a Small Paw business that is really built for them, brings true science and could be an incremental opportunity for us. So I think we feel very good about the long-term future of Hill's.

Okay. I just want to remind everyone, if you have a question, please submit or if you want to just raise your hand, that's fine as well. A couple of last ones for me, John. First off, congrats on the new expanded role as senior VP of M&A. But can you maybe remind the listeners on the line, how Colgate historically has viewed M&A? What's kind of the key criteria for the company? And I guess, do you see any changes to that strategy under your leadership?

So the answer to the second question is no. I think we've got a great view of M&A in terms of how it fits into our capital structure and our capital allocation priorities. And I think that's the key thing is to make sure that we follow our capital allocation priorities. So the most important thing for us is investing back into the business. I talked about Hill's, right? Investing back into capacity is a great way to drive growth and it's a great way to drive returns, right? So we have a high ROIC. And one of the reasons why we have a high ROIC is because we like to invest back in high-growth areas like capacity and productivity. The second piece generally is going to be, we like to pay a strong dividend and that's a decision that the Board makes. So the Board focuses on our dividend, but we've been able to increase our dividend for 59 straight years. We paid a consistent dividend for well over 100 years. So we feel very good about our dividend policy and returning that cash to shareholders. And then -- but we do look at M&A, and the 3% to 5% does not include any impact from M&A. But we see the opportunity as we look at our 4 categories to augment them with additional growth opportunities, whether it's additional brands within Oral Care, additional forms, technologies, what have you, versus our other categories, there is an opportunity there to accelerate but we're going to be fairly disciplined. We generally don't do a lot of M&A. And so when we do it, we like to make sure that we're really focused on growth and making sure that we are the right owners of those assets. And that's really what my role is going to be is making sure, okay, how do we drive real long-term value there? How does this fit into our portfolio? Again, whether it's -- okay, does this go through the profession, right? We look at a lot of businesses where our knowledge of working through the profession can be a real advantage. One of the best examples of that is EltaMD, which is one of our skin health brands, which goes through dermatologists. And so our knowledge of working with dentists and vets really gives us a nice leg up in terms of looking at that channel. So those are the ways that we're thinking about that part of the business.

Okay. And then maybe just building on the last point. When you think about your portfolio, are there other verticals you believe the company should be competing in? Or are there areas you want to be bigger? And kind of maybe flipping the script around, I mean, are there areas of your business you can look to divest?

So we've generally been more of a seller of assets over the history of the company than we have been a buyer of assets. And we used to have a big detergent business around the world. We used to have fabrics -- we've got a great fabric softener business that competes in just a few key markets. We used to have a broader fabric softener business. But we've made choices, again, where we are not the best owner of the asset to say, okay, let's -- we're going to take that asset, give it to somebody else who can generate value and then generate value with the money, with the capital that we get back from selling that business. But there may be a couple of small areas that we could look at where we'd say, okay, someone could be a better owner of this asset or we could better use this capital to drive growth. I don't think it's a huge opportunity, given the amount that we've divested over the years. No real changes in categories, right, Personal Care, Home Care, Oral Care, Pet Nutrition, within those, obviously, the skin health business has been an area of focus. It really came out of some work that we did on Sanex, which is a brand that we bought a number of years ago. A strong brand in Europe, good brand equity around skin health. And we think that skin health with the right channel focus, right, again, focusing on the profession and recommendations is an opportunity for us. So that's one that we'll continue to look at. But I think from that standpoint, relatively close in, we're not looking to dramatically expand our playing field.

Okay. Let me just see if I have anything right here. Just one on Home and Personal Care. So it seems the performance on a longer-term basis has been quite strong, but more recently, you have underperformed your largest competitors there. So can you talk about plans you have in place to accelerate growth as you think about 2022?

Yes. So I think as you look at it in the U.S., we have -- Personal Care, it's a little -- I would actually put it the other way. We lost some share in Personal Care, purely driven by liquid hand soap in 2020, right? So we have a big liquid hand soap business with Softsoap. We grew our business dramatically. But given COVID, what you saw is an even bigger increase in the category growth rate. And so as you saw with many brand leaders in 2020, growth was ahead of our ability to supply. And so what you did see is some secondary and tertiary brands pick up market share in 2020. What we've seen, particularly as we got through 2021, was we picked up share, right? So I feel pretty good about how our market shares are going from a Personal Care standpoint. Home Care, something similar happened in household cleaners. We've lost a little bit of share of dish in the U.S. Outside the U.S., I feel very good about our market shares really in both of those categories. We picked up in Personal Care and Home Care, again, for some of the same reasons I talked about in terms of trusted brands, et cetera. I think we feel pretty good about that. We've got some work to do on Home Care in the U.S., particularly surrounding dish.

Okay. Well, that's it from the audience. So John, thank you for joining us today. It was really great to have you, and we wish you the best of luck going forward.

Thanks, Peter. I appreciate it.

Bye.