Colgate-Palmolive Company ($CL)

All right. Well, good afternoon, everyone. Welcome to the UBS Global Consumer and Retail Conference here in New York City. My name is Peter Grom. I am the U.S. consumer staples analyst here at UBS. And we are very excited to have joining us this afternoon, John Faucher, Executive Vice President and Head of M&A and Chief Investor Relations Officer from Colgate-Palmolive. Over the past few years, Colgate has implemented several strategic initiatives that resulted in improved financial delivery. Recently, the company outlined their 2030 strategy that will help the company deliver strong and top and bottom line growth looking ahead. In terms of format for today, I have a number of questions that I plan to ask John for the first 35 minutes or so for the last 10 to 15 minutes, if there's any questions that you all have, please feel free to submit them. They'll show up here on this iPad, I'd be happy to ask any questions on your behalf. Before we start, however, 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, thanks for joining us today.

Thanks for having me, Peter. Always good to see you.

So maybe starting with the 2030 strategy. And I guess I wanted to start, like just getting your perspective on it, right? You recently completed the 2025 strategy that was really focusing on reaccelerating top line growth volume would have been a more challenging time for Colgate. And I know you touched on some of this at CAGNY, but as we think about the next 5 years, can you maybe compare and contrast the 2030 strategy versus 2025? Is this a continuation of the many changes that you've implemented? Or is this -- are there more meaningful changes, if you will, happening within the organization?

I mean, as always, you'd like to say the answer to that is both, right? There's a lot of meaningful changes. But I think the overall viewpoint is that this is evolutionary, not revolutionary, right? And so we'll start with 2025 and what worked and what we needed to change when we looked at 2030 and then how we see that going forward. So in 2025, we entered the 2025 strategy not really growing, right? We have been growing primarily through FX-driven pricing through the mid-20 teens. And we weren't driving dollar sales growth, we weren't driving bottom line growth. Our EPS had stalled. And so we looked at this and said, okay, how do we create a new growth mindset around the organization. And that was really the language that Noel used in putting together the 2025 strategy. So it was about reaccelerating the top line, building innovation, making progress on digital and data and analytics, scaling those capabilities across the organization and getting back to a solid financial footing where we were delivering, again, dollar-based sales growth, dollar-based EPS growth to deliver on TSR. right? So that was the step function that we needed when we looked at the 2025 strategy, and we think that went really well. We didn't deliver against everything, but if you can deliver against 75% of the strategy, longer term, you're going to be ahead. So as we looked at 2030, it gave us an opportunity because for 2025, we needed to prove to the organization that we could grow again, that we could execute against a strategy. Now we have strong belief within the organization about 2030, which I think allows us to be more aspirational. Again, evolutionary, not revolutionary, but really pushing in terms of some of these areas where we say, okay, we can deliver real change, right? So if you look at how we've talked about this, it's a little more complicated, how we present it internally, but we focused on 5 pillars, which Noel has talked about in a couple of different conferences. And it's really the global strength of our brands, how do we deliver against that. We have Colgate, which is the most penetrated brand in the world. It's in just slightly under 60% of the world's homes. It's a great opportunity for us. We've got high market shares, great brands across the world. We are focused on scaling our capabilities in areas like data, digital, analytics and AI, and AI sort of touches on all of these actually. We are focused on innovation, right? One of the things that we have talked about in 2030 is that we need to deliver more impactful innovation, particularly premium innovation and particularly in the United States. That's a big opportunity for us when you look at what can change going forward versus the last plan. We are going to focus on omnichannel demand generation, right? And that's something that we have talked a lot about. Caroline Chulick, our VP for Growth and Strategy at Hill's talked about how Hill's is putting that type of demand-driven model into place to deliver the right content to the right people in the moments that matter. And then finally, culture. Everyone internally at Colgate understands that we have a very strong corporate culture. So many people have been in the organization for 20, 30, 40 years. How do we tap into that strength of culture and really create a high-impact culture that can help us win. So those are the 5 pillars. I'm sure we can talk about more of them as we go forward. But what it's really doing is, again, getting us aspirational about how we can accelerate change going forward.

Yes. I mean one of the pillars I wanted to touch on was innovation. And I'd be curious, innovation has always been a focus for the company. So what's different as we look out over the next 5 years? And I think as you think about your long-term aspirations on the top line? How big of an impact can this change when you think about the 3% to 5% target?

Sure. So I think innovation will be key to the 3% to 5% target, right? If our categories are growing 2% to 4% longer term, in order to deliver against our 3% to 5% long-term organic sales growth target, we're going to need to gain share, right? And the best way to gain share is to innovate is to drive category growth even faster. We're seeing that in the U.S., right, where the categories are weak, but where you see where there is a -- some of the categories are growing a little bit faster, it's premium innovation that's driving that growth. Body wash being a great example of that. So if you look at innovation, one of the things we talked about with the 2025 strategy was we focused on core innovation, right? So taking those big businesses, 60%, 70% of sales and saying, okay, we can't have leaky buckets. We need to innovate on core. So that's brands like Colgate Total, Science Diet, Palmolive, Protex et cetera, making sure those brands stay healthy. Those are big pieces of our business. They have high levels of household penetration. And once you have those leaky buckets, they become very difficult to stop. Then we also talked about faster growth adjacencies. So what segments of the categories are growing faster, right? And that was basically things like whitening, right? And then we looked at faster growth channels and markets. okay, focusing on things like e-commerce, what have you, as ways to grow the business faster. So those really helped us as we looked at innovation over the last 5 years. But what we've done since then is we brought more process and more strategy into the center, right, because we're run by geographic divisions and a lot of the innovation was happening within the divisions themselves. And we still need to do that, right? You still need to innovate for the local market. But what we felt was there as a way to generate more scale across the organization by doing more of the innovation work from the center. So we've built up the muscle, for example, in enterprise oral care, which is our oral care group in the center that can help drive innovation around the world. And then we developed a new process, and again, Noel talked about this at CAGNY, which starts with strategy. Okay? So strategy is we have to understand our consumers what are their need states, what are they looking for? So the example we talked about at CAGNY was whitening, right, where 66% of consumers in whitening and whitening is a universal need. They have unmet needs within the category. And then we go into discovery, right, which is, okay, how do we discover ways, new products, new concepts that will meet those needs. So that's really the research angle. And that's where we can go in and use AI, for example, to develop new concepts. And we've talked about how we're using AI to develop new product concepts at CAGNY both of the last 2 years, right? So we come up with those concepts and then we're going to test them, right? And we can test them using what we call digital twins, which is where you can basically create AI-generated panels that allows you to get feedback on the concepts so you can see what's going to work. And then the next piece is incubation, and this is something where we are building truly new muscle in terms of incubation. A lot of these truly impactful new products are going to start off small. So you're not launching something that's going to have 1% to 2% market share right off the bat, right? You start small, maybe it can be e-commerce. Maybe it can be brick-and-mortar. Again, maybe we're just testing solely through AI to see how big could this product be. And we understand, okay, how do we iterate, is the concept right? Is the target right? Is the media correct that we're going after. And once you've proven that concept in incubation, that's when you go to scale. Right? And that's when you say here's, again, a company that has -- the Colgate brand has the highest household penetration in the world. We're in 220-plus countries and territories around the world. Scale and scaling fast should be a huge competitive advantage for us. And we're getting better at it. Still a lot of work to do. The best example is probably Colgate Optic White Purple, where we launched this in China, massive hit on Douyin and very simple concept, which is you take Purple toothpaste, most people have a little bit of yellow on their teeth. The purple and the yellow create a temporary whitening effect, really easy to understand, great for social media, great for Gen Z. And so it was a big hit in China. We have now rolled that out to every single division around the world much more quickly. And we're using AI-driven content. So it's an example of how we can get better at that scale piece but still one where we probably need to build the muscle going toward.

That makes sense. And I guess building on some of this AI discussion. An area I wanted your perspective on is just this clean room concept in this promo AI tool where you're driving better personalization, finding ways to optimize purchases, repeat purchases, et cetera. So how big of a concept is this? And what's the opportunity as you scale this across the organization?

Okay. So two separate concepts here in terms of clean rooms and promo AI, and I'll talk about both of them. Right. So but they're both about driving higher ROI on our spending, right? And this is the issue. The best way to deliver growth, and look, we're focused on productivity and all of this, but the best way to deliver margin expansion is to grow the top line faster. And so we're focused on taking the spending that we have and making it more effective. So clean rooms, basically, what we do in Hill's is the best example of this, and Caroline Chulick talked about this at CAGNY. What we do is we take our first-party data and we pair that with the retailer second-party data and then our media partners third-party data. And we combine them in a data privacy-driven environment. So that we can target our media more effectively. And that can be by demographics, that can be by purchase behavior. We can even focus on what media works better with different consumers. And so it creates a very high-level data environment where we can generate significantly greater ROI on that spending. And as Caroline talked about it, we have about 70% of our U.S. media for Hill's that is being spent through clean rooms, which we think is very much at the high end of what's going on in CPG right now. So that's clean rooms, very exciting. We are continuing to work to roll that out across other retailers. Obviously, with Hill's, which has a more bigger digital footprint, you can get more of that media covered, but it's a huge opportunity everywhere. Promo AI is a little separate -- it's a little bit different from that because it's really focused more on the trade spending, right, what we call gross to net. So that's the money that you don't see that's above the net revenue line. And what we know there is we know most of that spending is effective, but it's difficult without taking the spending away to see what the impact is. And obviously, if you take the spending away, you lose that volume. So what we've done there is we've used large language models, and we take our shipment data and we take our retailer category consumption data and we run billions of different scenarios to create a prescriptive output, and that prescriptive output will fall for the variable that we choose. That could be volume. That could be sales, that could be margin. And it will tell us, here's the promotional cadence that you should have to solve for sales or margin or volume, right? So maybe you want to run a 2-week promotion on Max Fresh. The first 2 weeks of the month and you want to be running a 1-week promotion on Optic White, the third week of the month, et cetera. So it will come up with a more prescriptive model for us to implement with our retail partners. And what we're seeing is very strong returns on that. And that is data intensive. It's labor intensive, right, because you have to build these models. But once you've done that, you can continue to learn, right? That's the beauty of these AI models. And over time, it will get better and better as we feed more data in there. So both of them allow us to look at our spending, one above the net revenue line, one in the advertising line and try to maximize that ROI.

No, that makes sense. And I guess on the advertising line, there's a lot of changes that's happened in the last 5 years, next 5 years. But one of the things that I think has allowed the company, and you've talked about this quite a bit, has been the focus on reinvestment and advertising. And I know I guess this is going to be a continued focus even as we think about the years ahead. But a question I often get is just how do we think about it really from here, especially as we were just discussing on the data that AI is allowing you to be more efficient. So how should we think about that percentage of -- or advertising as a percentage of sales longer term?

Sure. So I mean the key on advertising is, are you spending the money effectively? Are you driving higher ROI? Are you delivering growth, right? And so we look at that and we basically say, hey, we can do a much better job of measuring the effectiveness of our advertising spending. We now have tools to raise the ROI on that spending. We think that gives us the ability to spend more money on advertising because we can spend it smarter and with greater results. And so yes, we are seeing a higher return. But if we can deliver the dollar sales growth we need to, the gross profit growth we need to, to fund incremental advertising, while still delivering competitive earnings per share, dollar-based EPS that delivers top-tier TSR. We think that investing back into the business is the right choice. That creates the sustainability, the duration of the organic sales growth, right? And we think it's the market's confidence in our organic sales growth that helps our PE multiple, right? So you want to have confidence in organic sales growth to drive the PE multiple, you want to deliver dollar-based EPS growth. And that's what creates along with the dividend, the competitive TSR that we're looking to deliver. So we want to deliver operating leverage, right? But we want to deliver that through driving the gross margin. We want to deliver that through productivity programs like FTG and SGPP. And we'd like higher advertising to -- we want to fund the advertising while still delivering that margin expansion through other line items.

Makes sense. I guess so maybe pivoting to category growth and I would love just some perspective on what's happened, call it over the last 12 months. Obviously, a lot of moving pieces across your various businesses, geographies what have you. I mean what have been the biggest surprises where maybe things come in better than you would have expected, maybe conversely where things have been more challenging. And I guess when you compare your business to maybe some other consumer staples companies that aren't really facing maybe the same structural challenges. Have you been able to really uncover why demand, maybe more in the developed markets like the U.S. has been a little bit more challenging.

Yes. I mean, so I'll start with sort of a general view of where things are. You said sort of what's better or what's worse, what have you. I mean I'll start with Europe, which is probably the one market where it's been very much in line with our expectations. We've talked about Europe as a market where if we can get slightly positive pricing and slightly positive volume, we think that's a good output. And we have -- our team there has done a tremendous job working with our revenue growth management programs, right, because Europe was a market where we had negative pricing basically for flat or negative pricing for 30 years. And then obviously, with the strong inflation we had in '22, '23 and '24, we delivered mid-single-digit pricing. But we knew that, that wasn't sustainable. So through strong innovation, through great negotiation through a lot of product relaunches, we've been able to continue to get slightly positive pricing, and we think that's likely to continue. Emerging markets have generally, I think, held in well. You look at Mexico, which I think is holding in very well in the context of a weaker U.S., which we can talk about as we go through this. Brazil has been good. There has been a couple of pockets of, I would say, relative softness in Latin America that we've called out before in the Andina region, Central America. We saw a little bit of a blip there in the third quarter. They bounced back in the fourth quarter. We think they're hanging in, not quite as strong as Mexico and Brazil. And then Asia, China has been generally a little bit soft from a category standpoint. We have 2 businesses there. Colgate China has done very well, very e-commerce-focused, social commerce focus. We talked about Purple delivering great innovation, China for China innovation that's driving that e-commerce business at very high premium price points. And then our H&H business, which has struggled a little bit more with the category because it's much more focused on brick-and-mortar. We have improved the execution there. We have new innovation coming through. We have new ODG work being done there. I think HNH is going to get better, but that's still a work in process. So China, from a category standpoint continues to be a little bit soft, particularly in brick-and-mortar, but with e-commerce positive. India, from a category standpoint, had a little bit of a hiccup late last year. On top of that, you had the GST implementation, which created a little bit of extra volatility. Categories in India seem to be okay at this point. So and then after Eurasia, which is a smaller region for us, we're still getting FX-driven pricing in some markets. We're still getting inflationary pricing in some markets and volume demand has held in well. After Eurasia, the results that you see continue to be pretty consistent growth there, the volatility from country to country can be high because of the nature of those markets. But it's a great division for us, and they've done a great job. So the bigger delta has been the U.S. When we spoke a year ago at this conference, the categories were soft and we're trying to determine why. I think there's still a little bit of that from that standpoint. I think we're not seeing population growth, which I think is having an impact. I think there is still consumer concern about prices broadly because you're seeing this expressed in volume, right, not in pricing. And the whole K-shaped economy impact is there. We're seeing growth in premiumization. You look at a category like body wash, where what's growing is the $10, $11, $12 body washes and what's declining is the sort of $2 to $4 body washes. So the consumer seems to be a little nervous. There's not a lot of incremental pricing that's out in the market right now. And so the categories are still a little soft. In the shorter term, we're losing a little market share in toothpaste, you've been able to see that in the numbers. I think that's going to get better as we go into Q2, Q3 as we have more innovation coming in, it's a slightly softer start from that standpoint. But I think between Optic White and some shelf -- some share gains, some shelf share gains on Max White, we think we have an opportunity to change the dynamic there.

No, that's really helpful, John. And maybe to dive into some of those regions a bit more, maybe starting with North America, and you alluded to it, is still a little bit softer. But one of the other dynamics last year was this concept of inventory destocking. And I think there's a lot of debate out there in terms of what that looks like as we lap this. So just any update on that standpoint? And then related, right, clearly, categories are still soft. But when we think about the guidance for this year, what kind of contemplated from like a U.S. category perspective?

Sure. So I'll start with the second one. So the U.S. categories, we were pretty blunt on the Q4 call and then Noel talked about this at CAGNY. We were not building in any material impact, maybe slightly better in the back half of the year. But our guidance -- our organic sales -- our long-term organic sales growth target is 3% to 5%. Our guidance for this year is 1% to 4%. And embedded in sort of the midpoint of that range would be categories continuing at the current pace. And as Noel said at CAGNY, that's kind of what we're seeing now. So categories continuing at that rate. I think as we look out into the back half of the year in the U.S., we're optimistic that I think you're going to see, again, continued innovation. I think everyone realizes that innovation is really the way to drive the categories right now. So we have increased premium innovation, probably the most I've seen in North America in my tenure at the company, that will be kicking in really in the second quarter. And I think you'll see more of that. From an inventory standpoint, I think what we have seen is less what we consider sort of true destocking, which is, okay, we have 8 weeks of inventory, we're going to get down to 6. And I think what we have seen more is which has the same impact, shipments below consumption, right? As retailers look out and say, 6 months from now, 9 months from now, if the category isn't growing, I need less inventory than I had anticipated. So we would argue that's not technically destocking, but the fundamental premise is the same, which is you're probably going to continue to have shipments slightly below consumption from that standpoint.

So even as we start to lap it, you would still anticipate kind of continuing unless we see an acceleration, if you will, in category growth?

I mean, in theory, right, at some point, you start shipping with consumption and that should get better, but this has all lasted a little bit longer than we would have anticipated. So our assumption is steady state until we start to see it. And to be perfectly candid, it's a little bit easier for us to build that level of conservatism to the model because we're seeing stronger growth in emerging markets and because our other big U.S. business in Hill's continues to grow faster than its category.

Yes. I do want to pivot to Hill's in a second. But I guess, just bigger picture, right, you can't fully control category trends. But maybe weaving in some of the commentary we started with and the changes within the organization, is the company better prepared to deal with maybe some of these near-term challenges today versus maybe 5, 6 years ago?

Definitely. So I think the key thing is 5 or 6 years ago, we weren't growing and we weren't winning, right? We didn't have that growth mindset, as I mentioned before. So I think we have a different viewpoint in terms of what it takes to win. And it's different than what it was 10, 15 years ago, right? Back in -- sort of if you think about the early 2010s, our categories kind of grew on their own. You had population growth, you had per capita consumption growth. You had Carrefour growing square footage every year. You had inflation-driven pricing in emerging markets because you had good emerging markets GDP growth. And a lot of that went away over the last 10 to 12 years. And so the need to -- so sitting there and saying the category is going to grow 2% to 4%, 3% to 5%, and we can execute and gain share to grow ahead of the category. That mindset had to shift. So we're much more focused on growing the categories ourselves. So I think we are better set up. The shape of the P&L is dramatically different from that standpoint, right? We have built up the advertising to sales ratio, as you said, and that gives us flexibility to make decisions, right? So if you look at 2025, our advertising to sales ratio was down 20 basis points, and we would have liked it to be flat or up. But it was important for us to deliver in our -- to our aspiration of delivering consistent compounded dollar-based earnings per share growth and having flexibility in the P&L having taken advertising to sales up 150 basis points the year before that really gave us that flexibility to make the right decisions, sustain investment and scale capabilities and yet deliver dollar-based earnings per share growth. So yes, I think we -- I think from a culture standpoint, from a growth mindset standpoint and from a P&L standpoint, we're in much better shape to deal with difficult markets.

Makes sense. Makes sense. So maybe just to round out, and you touched on this a minute ago, but Hill's, right? Love to hear your perspective on kind of the opportunity from here, both U.S. and internationally. You can't fully control category growth rates at a similar point, but this has been a key area of investment. You spent a lot of time getting the supply chain network adjusted and new facilities, capabilities, acquired others, I guess, can you just talk about how these investments are unlocking value for Hill's longer term?

Sure. So one of the things -- so we've talked a lot about advertising to sales. And I think one of the key points going back to when we started this strategy. So if you go back to 2016, advertising to sales was 9% at the company. And within that, we had so much FX pressure that, that really put a lot of pressure on the margins to go up on our dollar-based businesses, right? So if you go back 10 years ago, the North America margin was in the mid-30s and the Hill's margin was in the high 20s, and we weren't spending enough behind either of those businesses. So back then, advertising to sales on Hill's was below the company average. Advertising to sales on Hill's now is above the company average, and we've increased sales dramatically over that time period. So we have made significant investments. On top of that, as we discussed at CAGNY, between the clean rooms and the marketing mix modeling and these other factors, we have dramatically increased the ROI on that spending at Hill's. We have also invested significantly in innovation, and you touched on it. One piece of that was capacity, right? In order to run innovation, you need to basically stop your line so you can produce new products. If you're out of capacity, it's really tough to stop the line. So we added dry capacity through the Red Collar acquisition. We added wet capacity by building our Tonganoxie facility. And now we've been able to innovate in new spaces particularly within wet, right? Pouches, looses, tins, all these other forms that are becoming significantly more important in the context of the category where you've seen a lack of growth in large dog kibble. And you're seeing strong growth in areas like small dog and cat, which are going to have higher prevalence for wet food. So that's given us a big increase. The other piece relates to the capabilities piece that I talked to before, right? We've invested significantly in data and analytics, in digital, omnichannel, AI, across the organization, right, but some of the highest return along with Colgate China on that is going to come from Hill's because of the digital nature of that business. So it's been a great opportunity for us to invest back, going back to the dollar-based revenue and dollar-based earnings growth, Hill's is 2/3 U.S. So it's a great driver of dollar revenue and dollar profit for us, and we continue to see great opportunities there. Hill's has a high single-digit/low single-digit market share in the U.S., and that's its best market, right? There is tremendous opportunity around the world, whether that's in Europe, Latin America, Asia, to drive significant market share growth. And as we build out the relationship with vets, right, because that is a key piece of the business model as we build out the relationship with vets, we can also layer on top of that prescription diet which is the therapeutic side of the business, which provides even greater mix benefits on top.

Great. And then maybe just some commentary on what you're seeing from a category perspective. In pets, what are your expectations as it relates to category growth this year? And then I guess there's a lot of moving pieces, your business is still gaining market share, but you're still kind of lapping this private label dynamic. So as investors think about the growth trajectory of Hill's, like what should we expect over the next, call it, 6 to 12 months?

Sure. So what we've been saying the last couple of quarters is we've given you some insight into how the U.S. business is growing. It's like the Hill's U.S. business, which doesn't include the private label impact. It's been growing about mid-single digits, and we think the category is roughly flattish. We continue to hear more from investors that, I think, than what we tend to see that other companies are a little more optimistic that the category is beginning to slowly improve. For us, there's some noise could be, but I think we would argue for now, we're probably going to call that it's still the same level, which again is kind of flattish. So we're going to focus on gaining share within those segments. So yes, I think that's how we would describe it. I think the key for us going forward is to have more confidence in the category improving. We probably need to see an increase in household formation in the U.S. right? It's large dogs and bags of -- large bags of dry dog food. That's really the declining part of the category right now. So we're still seeing increases. People aren't buying houses, they're staying in apartments longer, so they're adopting small dogs. They're adopting cats. If we start to see people moving into houses, I think you'll start to see a move in the large dog business, and that should help get the category moving a little bit more.

Okay. And then maybe to round out the pet discussion, would love an updated view on kind of fresh. Maybe an update on Prime100, key learnings, thoughts on brand performance, and then just as you think about fresh in the U.S., I mean, is this an area we'd be interested in playing in longer term?

Sure. So on the last part, we're still determining our plans on fresh. And the purpose of buying Prime was twofold. One, it's a great business. And when we took a look at it, the more work we did with the more we realized, its success in the vet channel and its success, particularly in looking at derm as a segment from a therapeutic standpoint was well earned. Very strong formulas, good science behind it, great relationships with the vets. And that's one of the things that made it attractive to us. It's a profitable business, growing nicely, great management team. So it's a great business in Australia. It's coming in ahead of its expectations. And we are learning a lot about the way to do formulation and fresh, the way to do distribution, manufacturing, all those things. Where that leads remains to be seen. And when we have something to announce in terms of geographic expansion, we'll let you all know.

Okay. So why don't we pivot to margins and starting with gross margin. I think despite kind of the inflation, FX pressure, you've been really able to deliver solid gross margin expansion in recent years. And I think part of that has been driven by your productivity program funding to grow. So how much more runway is there in FTG?

FTG is a fascinating program. And one of the things you learn when you come inside is productivity is a lot of work. It really is a lot of work in a program like FTG, you have to have real processes in place that are running year-round because it's not like you can get to December 1 and be like, oh, FTG is done. No, Jan 1, we have to have a full pipeline of FTG. So we do a great job. It's one of the things the organization is incredibly proud of, to create that consistency of the FTG model year by year by year. Again, what you really want is to generate top line growth. That's the best way to generate operating leverage, but you need that consistent productivity effort every single year. And I think we are very confident that we can continue to deliver that. The one thing I would say is it's interesting. FTG is not just a gross margin program. We talk about it in the context of gross margin, but there's FTG for corporate, hope, who works with me, runs the FTG operation for corporate. And FTG can be interest expense, it can be whatever but it's truly ingrained in the organization. So I would expect our guidance included another good year from FTG.

Okay. And then maybe sticking with productivity, but as part of your 2030 strategy, you discussed the new strategic growth and productivity plan or SGPP. How is that different versus your standard cost savings program? Is there a way to frame how incremental this program could be on top of FTG?

Sure. So we will have more discussion about -- so we've talked about the level of charges, which is $200 million to $300 million. We have not given you the savings targets yet. We will when that's appropriate. But we have said returns from this program should be in line with our historical returns. But while funding incremental investment in advertising capabilities, what have you, is part of SGPP and also using it to help deliver dollar-based EPS growth as part of it. There's a big unlock from an organizational standpoint, right? So we talk a lot about omnichannel demand generation or ODG. And fundamentally, there is a blurring of the lines that's going on right now between what is marketing, what is innovation, what is advertising, what is customer development, right? So if you think about selling on TikTok shop, right, TikTok Shop is media, but it's also commerce, right? So how do we have a more integrated view of how we deal with this new environment, right? And that's going to require -- it's a blurring of the lines in terms of organizational structure. And we're very much doing this on the fly, right? And so we have examples of how we're doing it really well with Hill's and with Colgate China, but each market is going to develop differently, right? I mean if you look at the success of Douyin in China, TikTok shop in Europe or TikTok shop in the U.S. isn't going to reach that level of scale anytime soon. But how do we build to that over time. And so we are taking a look at the org structure and saying, how do we create a more flexible, faster organizational structure, building in AI from a productivity standpoint and from a growth standpoint, to drive faster decision-making, drive greater scale across the operation. So we think the key thing is on SGPP is, yes, it will deliver productivity. But to truly succeed, we need a faster organizational structure that can adapt to this new ODG world.

Okay. And then that's really helpful, John. I guess maybe rounding out the margin discussion a bit. You guided the gross margin expansion this year. But the operating environment remains pretty dynamic. So you have benefits from currency. We've just talked about productivity. But can you just remind us what's embedded from a tariff standpoint and an inflation standpoint? And I ask that just in the context, we've seen some pretty volatile input costs, I would say, in recent weeks. So just curious whether any of these recent developments are kind of a cause for concern?

I mean, look, we're obviously going to pay attention to everything that's going on in the world right now, and we're going to run through different scenarios as you would expect. This is the same thing last year when we were dealing with tariffs as a moving target. What we said on tariffs was there would be some rollover impact from tariffs that would hit this year given the timing. There's one incremental tariff, which is Ecuador has put tariffs on Colombia, products coming from Colombia. So that's also having an incremental impact. Raw materials, we had stated there would be less raw material inflation this year than what we saw last year. We saw very high levels of raw material inflation. We're going to need to see what happens with resins, et cetera. Obviously, there is some risk if things stay elevated. It takes a little while for resins to flow through the P&L, as you know. But we're going to keep an eye on that, and we're going to take steps needed. Is there the opportunity to get incremental pricing? Is there -- are there incremental cost savings programs you can put in? It's helpful that we have both FTG and SGPP in this type of environment. The best way to drive operating leverage, as we said, is to drive dollar sales growth. So that's going to be the focus, but we are very good at dealing with raw material volatility, and we've -- it's in our business model, right, Latin America deals with more raw material volatility than pretty much anywhere else in the world. And so we're going to put the plans in place to deal with it, but everything is kind of a moving target right now.

Great. I just want to remind anyone, there's no questions right now, but if anyone wants to submit a question, please feel free to do so in a few minutes we have last here. So John, currency, it's been a while, and I know this can change. But it's been a while since it's been a tailwind. And you mentioned this, the teams have become accustomed to dealing with currency volatility. But curious how it shifts your views on investment levels. It seems like you'd have more flexibility to maybe navigate some of these near-term challenges with that being a tailwind. But more specifically, how are you thinking about maybe reinvesting some of this favorability versus letting it drop to the bottom line.

So we'll have to see what happens, right? We guided to a low single-digit benefit from foreign exchange. And if you look at the dollar, it has moved over the past 1.5 weeks from that standpoint, the dollar has moved back up. So very much a moving target. We will focus on FX in terms of thinking, okay, how do we deliver against our targets, how do we deliver against our aspirational goal of delivering, again, consistent compounded dollar-based earnings per share growth. It's difficult to bank in currency, right? We build it into the model at spot, but currency has been negative 8 out of the last 10 years. And the largest benefit we've seen from foreign exchange has been 1.3%. So we are going to run the model with a way that gives us financial flexibility. And if currency moves, we'll adjust to that. But it's difficult to say, right because it's moving around like with resins and everything else, it's moving around so much right now. But this is why we build financial flexibility into the model. If we can invest back that's what we'd like to do. But again, it's the balance of investing back in the business versus delivering the bottom line.

Okay. Maybe another one here, obviously, if there's any more questions, but as the head of M&A, I think I need to get some thoughts on the company strategy. So are you looking to build capabilities? Are you learning again, exposure to certain categories? I guess what I'm really trying to understand is when something comes across your desk, how do you assess whether that's something you were of interest in or not?

Sure. So let's start with the strategy, right? Because it's important to start with the strategy. Otherwise, M&A can just be a chase for shiny objects. So we do not build M&A into our strategy, right, either from a qualitative standpoint or from a quantitative standpoint in terms of building it into the model. Particularly, because if you build it into the model from a quantitative standpoint, that's when you end up chasing okay, we need to do a deal to deliver against this. Now what we will then do is say, okay, how can M&A be additive to growth or really how can be additive to value creation, right? Because it may not be about growth. It may be about, we can look at capabilities, right? So we bought capacity. And we bought capacity in a way that lowered our gross margin in the short term, created this volatility surrounding private label, right, which will go away at the end of the second quarter. Those were steps that maybe we wouldn't have done before, but we said -- the NPV of this deal is attractive. It allows us to accelerate growth at Hill's. We're going to buy capabilities. You look at Prime100, right? So it's a great brand in Australia, but it lets us learn more about a high-growth segment that potentially could be interesting. I think going forward, one of the things that we're going to -- I would expect us to do more work, more M&A going forward now that we've reestablished that growth trajectory that we're on and say how can we add more to the portfolio, subtract more from the portfolio to truly drive value creation. And again, I think one of the things that's been really successful about the 2025 strategy in terms of it working was we have helped -- I talked about sort of a growth mindset. I think we've gotten a better value creation mindset. Across the organization, understanding how these decisions around M&A, around capital really drive value longer term. And the income statement is a blunt instrument. Right? The cash flow and balance sheet really allow you to drive additional value over time. Stan does a great job getting the organization focused on cash flow. Our leverage levels are attractive here where we have flexibility. But fundamentally, it's going to be how do we drive value and how do we ensure that if we look at something we're the best owner of that asset, right? Anybody can buy something that grows. But how do you ensure that when we buy it, we're going to grow it faster and drive more value than everyone else who's looking at this asset.

Awesome Well, John, why don't we leave it there? On behalf of UBS, everyone in the room, those listening online, thank you so much for taking the time to be with us today. Super helpful as always, and nothing about the best of luck moving forward.

Thanks, Peter. Appreciate it as always. Thanks, everyone.