CL
#Good morning.
This is <UNK>.
I thought before <UNK> jumped into his customary division review, I'll just make a couple of opening comments.
Suffice to say, as we said in the press release, this, indeed, was another challenging quarter.
And as I think we all know, the industry continues to face global market volatility, and we have seen a further slowdown in consumer demand in several key markets, most especially the U.S., Southeast Asia and South Pacific.
On the positive side, that pressure was offset somewhat by strong organic growth in Latin America with a good balance between price and volume and a return-to-positive organic sales growth at Hill's.
My purpose in making the introductory comments now is to give you a sense of where we are focused going forward.
And going forward, we are focused, focused intensely, on returning our business to growth over the balance of the year and improving bottom line performance.
And our focus is heightened and will be heightened on 4 fundamentals.
The first is increased advertising spending behind more impactful creative; the second, innovation across our portfolio of businesses, particularly for Personal Care and Oral Care in the growing naturals segment and especially naturals for toothpaste, which has a particular target of local brands in some key geographies in Eurasia and Asia; third, greater investment behind our high-growth e-commerce business; and fourth, aggressively maximizing productivity up and down our income statement.
Those are the 4 fundamentals we are focusing on for the balance of the year.
And I will be back later with more detail on each and turn the call back now to <UNK> to go through the discussion of the quarter.
<UNK>.
Thanks, <UNK>.
So let me come back to my introductory remarks and say that despite the recent category weaknesses we have seen, we believe a heightened focus on the 4 fundamentals I mentioned, in essence, our focus on brand building and productivity, will allow us to reaccelerate our top and bottom line growth.
So let me talk a bit further about each of them in turn.
The first was, you will remember, increased advertising spend behind more impactful creative.
So we are, as you know from the beginning of this year, committed to more consistent advertising investment sustained across the year with an increase on both a dollar basis and as a percentage of sales.
The year-over-year increase in advertising investment is planned to accelerate in the second half as we lap lower levels of spending in the prior year.
Obviously, part of this advertising will be digital, which is a growing percentage of our working media spend.
And when I talk about quality, we're talking about advertising that is tested to be motivating and persuasive with consumers using testing norms and what it sees is an increase in advertising behind what you might call the equity of the brand or the purpose of the brand advertising behind the base business sustained over time, while we use incremental advertising to launch new products.
That's the most immediate investment effect.
But what I wouldn't want to forget is our increasing investment in building per capita consumption of toothpaste, which, of course, drives sustainable, long-term growth, particularly for Latin America, Asia and Africa.
Our Bright Smiles, Bright Futures program is well on its way to reaching 1.3 billion children and teach them how to brush their teeth by our target year of 2020.
And as you may recall, spending behind this program generates returns that are 3x our return on traditional advertising.
And our analysis has shown that in our top markets outside the United States, 70% of our addressable population brushes their teeth, on average, less than once a day.
The point being, there is significant upside over time in consumption in Oral Care, and so we are investing sustainably to generate that consumption over time.
So advertising for the near term and advertising for the longer term.
Secondly, innovation.
Innovation, of course, across our portfolio for the balance of the year and into 2018, but innovation particularly in the naturals space, which is a growing area of opportunity.
And further than that, specific innovation in the naturals space for toothpaste, which is both an emerging segment and an effective counter, we believe, against local brands in Asia and Eurasia.
Now on the naturals side, beyond Oral Care, <UNK> already spoke about progress with Tom's on UAP.
And obviously, we broadened that Tom's range now into other Personal Care categories, like body cleansing and bar soap.
On toothpaste, we have launched the Colgate Naturals toothpaste line in several markets across 3 of our divisions.
And the rollout of that bundle will continue over the balance of the year, particularly across Asia.
Our consumer innovation centers located in those geographies have allowed us to build bundles that are tailored to meet local needs and preferences.
In other words, a counter to the local brands we find in those geographies and are encouraged by the initial results we see.
Now on top of that, as I have mentioned previously, in terms of regional brands, we continue to see benefit from underlying growth on brands like elmex and meridol in toothpaste in Europe; Darlie in China; and Sanex in Europe.
So that's the second, innovation across the portfolio particularly focused on naturals and especially focused on naturals for toothpaste.
The third is working with retailer partners for growth on our business and specifically greater investment behind the high-growth e-commerce space.
So given the changes that we are seeing in the retail landscape, we continue to aggressively adapt our go-to-market execution to service the very different brick-and-mortar retailers growing in our categories today and, of course, e-commerce.
The focused nature of our portfolio and the industry-leading market shares that we have, make us relevant to the shoppers in the ---+ in those outlets and give us influence in our key categories, and we, of course, are working very closely with our retail partners to help them drive traffic to their stores across all of the different segments of brick-and-mortar retail.
Very importantly, we continue to build our capabilities in e-commerce.
And this, I think, is reflected in our leadership in toothpaste from an e-commerce point of view in our top markets: United States, China and the U.K. And for Hill's, as consumers increasingly move to online shopping, we have the ability to reach an entirely new group of consumers, and we make sure that our presence is structured to provide the information that pet owners need to make a smart decision about which Hill's product is right for their pets.
Interestingly, year-to-date, Colgate's worldwide e-commerce business growth is up 65%, so an area of aggressive focus for the back half of the year.
And finally, the fourth, aggressively maximizing productivity up and down the income statement.
On the cost front, we are, of course, focused on realizing both short- and long-term productivity in order to drive sustainable margin expansion.
Funding-the-growth that you know well continues, we believe, to be a best-in-class productivity program that we use to work down cost on all lines of the income statement.
In 2017, funding-the-growth is delivering significant savings in areas like ocean freight, direct and indirect procurement, co-packing and fragrance and formula harmonization.
We're also tackling long-term cost structure through our Global Growth and Efficiency Program.
We'll continue to see benefits from our hubbing activity and our move to centralize Colgate Business Services and the back-office services that they, indeed, provide.
And we have said consistently over the last 6 to 9 months that in this last year of our Global Growth and Efficiency Program, we are being particularly focused to capitalize on the opportunity it affords us.
And so in the second quarter of this year, we initiated 2 additional projects as part of that program with the goal to better align our cost structure to longer-term trends: one addresses the structure of our European business; and one addresses our corporate infrastructure, both underway.
And these additional projects take us to the upper end of our previously disclosed cost and savings ranges.
And we continue to say that we remain very focused on identifying as many additional projects in the last year of this program.
So those are the 4 areas of heightened focus: Increased advertising spending behind stronger creative; innovation across the portfolio, particularly in naturals and specially in naturals on toothpaste against local brands; sharp focus with our retail partners and particular emphasis on the high-growth e-commerce marketplace; and continuing to aggressively maximizing productivity up and down our income statement with 2 new programs now public in this quarter just closed.
So those are our areas of focus for the back half of the year.
And now I'd be delighted to open the line to questions.
Yes.
Well, a lot in there, <UNK>.
First, I think as we came into this year and we had the 2 quarters we have had, when we talked about the prior quarter, the first quarter, we clearly said we would be below that range.
And now we are saying, based on the first half performance, that our growth this year will be low single digits.
I would not offer comment at this stage on the 4% to 7% range.
I think that's something that we would come back and revisit once we gain more practical experience of how this year unfolds.
I will say there have been a lot of onetime or at least volatile episodes in the last couple of quarters, particularly late in the second quarter, which have been problematic.
And it would be fair to say that the continuing slow consumer demand is worrisome, but there's nothing that we see in the data that suggests that consumer behavior is changing in any way.
As <UNK> said, we have seen pockets of lengthened frequency of purchase, and we are addressing that both strategically with advertising and innovation and also some price point action on the shelf.
The competitive environment is variable.
It can be volatile, and it can be particularly sharp.
And we saw that, for example, in June here in the United States across many categories, heightened competitive activity.
So I think that's going to be a variable.
And our belief, and I think the most important belief here, is that the consumer behavior will see the categories come back.
The only thing we can practically do to address that in the short term is to drive our market shares because then, whatever the category growth is, we will be getting the best return out of the category growth that exists.
And in that regard, I can say that our global year-to-date market shares are better or even with the first quarter shares on all of our priority businesses.
So we are beginning to see our market shares rise.
But I think before one takes a view on longer-term growth rates, one would want to see this year play out and get more information on that consumer behavior, get some practical evidence that, indeed, the consumption patents do return to the norm.
And then when we give guidance for 2018, that would be the time to have the conversation.
Yes.
Well, all good questions.
Suffice to say, the naturals segment is growing faster than the average growth of the category, which is what makes it attractive.
We, of course, have participated in this segment for quite a while, particularly in markets where it's important, Asia or even go back to our now more than decade-ago acquisition of Tom's of Maine here in the United States that continues to grow very, very nicely.
I guess, the point is that the offering we are talking about now is different from the naturals offerings that we have had thus far, much more tailored to brands that now exists that didn't exist when we had our naturals portfolio first in the marketplace competitive with those brands tailored from a flavor point of view, and to the point you made, adding meaningful premium price compared to prior offerings in the marketplace.
So it's more of the tailoring of it than the existence of it because segments, obviously, morph over time.
So I don't think it's a question of missed.
I think it's a question of tailoring the product to the category as it evolves over time.
And the question of cannibalization is a very difficult one to answer in the general.
It varies market by market.
Premiumization tends to reduce the cannibalization, obviously, with lower businesses.
And we will, of course, be supporting our base businesses when we come with this premium innovation.
So we'll be working very hard to keep the cannibalization to a minimum.
But regardless, to the point you made from a cannibalization point of view, this will be accretive from a pricing point of view and, therefore, favorable.
Thanks, <UNK>.
Well, the e-commerce growth of 65% is, indeed, for Colgate in totality.
In other words, it is the Hill's business, and it is all of the Colgate businesses.
And frankly, we don't intend to break out the difference between the 2 nor do we intend to break out the percentage of our business that is e-commerce.
Suffice to say, it is still relatively modest but very, very high growth.
And once it reaches a tipping point, we'll certainly bring that information to the marketplace.
The pricing reaction is actually not mutually exclusive.
The ---+ when we talk about price point adjustment at retail, it is to be competitive on purchase cycles.
And while it applies to all of our categories in promotional pricing, it is less focused on Oral Care, which, of course, is what Noel was talking about.
So they're selective.
They're surgical, and they are less focused on Oral Care, point number one.
Point number two, from an Oral Care point of view, just the prior discussions on the naturals offering, we are also bringing innovation that is materially higher-priced to that business.
And as Noel may have described, in some cases, as we have relaunched literally tiers of our business, T-I-E-R-S of our business in different parts of the world behind that relaunch, we found a way of elevating the value the consumer gets in the pricing of the line to increase the average life ---+ the average price of our entire portfolio.
So I guess, that's the way to answer it.
And yes, revenue management is extremely important.
The topic that Noel talked about remains highly relevant.
And what <UNK> was talking about was surgical activity, less applicable to Oral Care on promotional pricing, not strategic pricing.
Yes.
Interestingly, <UNK>, it kind of works the other way.
What we observed on e-commerce thus far is that the consumer is actually tends to buy more premium.
And even if they're not buying the premium brands, they tend to buy in multiples.
So in fact, the e-commerce behavior is favorable to us from a consumption point of view.
And if you look at the Hill's business, 50% of the Hill's business in the U.S. on e-commerce is subscription.
So that means, once they buy it onetime, they're signing up to regular delivery of that diet over time, which is, we believe, a good business model for our brand.
Yes.
Well, thanks for the question.
<UNK> is your name.
I guess, she [broke off].
The gross profit, as <UNK> said in his remarks, was behind our expectations for the first half of this year largely because of raw material cost increases, which, in fact, was primarily in the area of fats and oils.
Interestingly, the cost of fats and oils has ebbed since the first half of this year.
So as <UNK> also said, we're now moving into a more favorable raw material cost environment and, of course, for this year thus far, and it gets easier against our projections over the balance of the year, there has been less transaction headwind because foreign exchange has not been so negative as it had been in previous years.
So we are looking at what we believe will be a multiple benefit of material costs easing and transaction costs lessening.
And as <UNK> also said, we, therefore, expect to see a sequential improvement in gross margin as the year unfolds.
So I think that's the answer to the question.
Yes, good question.
And I'm glad you got the scale thing on the table.
You're right, for the last couple of years, and I think we were quite expressive about this when we talked about 2017 faced with sharp foreign exchange negative impacts.
And with having no immediate term place to go, we reduced advertising.
And we said, coming into this year, we did not want to do that.
And ---+ but even if foreign exchange were going to run sharply negative for whatever global calamity reason, that we would not go back on our advertising investment.
And our intention at the time we said that, and it remains our intention and our plan, is to continue our advertising investment in the second half at approximately the same level, in other words, sustained advertising that we have seen so far across the first half.
And yes, that will suggest a fairly meaningful step-up in advertising investment.
We think the ROI will be good.
This is now talking to the traditional advertising.
Because, as I said earlier, we have a lot of advertising vehicles now developed that have tested extremely well.
So we know the advertising works very, very hard and is persuasive to consumers.
And interestingly, it is good to have this balance between announcing what's new, and shall we say, supporting and reminding of the reason consumers give trust to the brand in the first place.
And so continuous advertising behind, as we call it, the base, is an important part of that decision.
And you're right, obviously, the Bright Smiles, Bright Futures investment is not a short-term investment.
But as again I tried to spell out, we know the ROI on that is terrific.
We know we get good ROI on our media in general.
And therefore, we're very comfortable with the investment decision.
And of course, it is our expectation that this will be part of the reason to return us to growth as we work our way across the year.
And again, Bright Smiles, Bright Future, we hope, will be part of the reason why we will be able to sustain that growth in the toothpaste category out over time.
Broad question, <UNK>.
Let me try and take it on.
The U.S. dish reset, which I think we have well covered, we now have the products fully in distribution.
They're on the shelf where we want them on the shelf.
We were hit in June, as we've said, by heightened competitive activity, very heightened.
And we are responding to adjust our promotional planning and offerings to jump start progress across the back half of the year.
So yes, in our control and, I think, a plan in place to rebuild growth.
On the decisions that affected customers, I guess, I would focus on the 3 you raised.
You have our decision to move broadly to e-commerce in the United States with our Pet Nutrition business, which we continue to believe is absolutely the right decision, and we're an equal opportunity believer in that space.
In other words, we are just as happy to lean in aggressively with a retailer who has a brick-and-mortar offering and an e-commerce offering as we are with a pure play e-commerce company.
We had a hiccup, shall we say, with a customer in the U.S. That hiccup is now substantially behind us and a return to normal promotional and other consumer engagement activity is recommencing and will, of course, build across the balance of the year.
The European retailer matter, I think, <UNK> covered well.
We are seeing our market shares rebound quite nicely and growing sustainably and sequentially.
And we expect to see that continue across the back half of the year.
In Africa/Eurasia, we made those distributor choices that we again believe are the right choices for the business over the long term.
And we will continue to lap those comparisons until the fourth quarter of this year.
So the third quarter will still be burdened by a difficult comparison.
And then of course, the reality is that even though each of them, we believe, was the right decision, they had a compounded effect all at the same time, which was problematic.
But I think faced with the requirement to make the decisions again, we'd make the same decisions.
The GST ---+ we were just digging out of the demonetization headwind, and then boom, you get the GST, which basically saw the stockists close up shop the last 2 weeks in June.
And we're hopeful, barring another event, that we will see that rebuild across the back half of the year.
So I think, on balance those issues, I think we have identified them before, and I think we are in the process of building them.
The macro environment, looking forward, it really comes down to the categories.
We think the behavior will come back, but we're focused on building our market shares, so that whatever the category growth rate is, we're getting, frankly, more than our fair share of that underlying growth.
So that's the way we're thinking about that, while we get more consumer data in terms of behavior as we work our way through the balance of the year.
Yes, I think that's a very relevant and pertinent point.
And yes, of course, it is within our strategic remit.
It's not, and I know you know this, but it's not as simple as simply taking a product and putting it through a proven distribution system.
When you bring products that people may or may not be familiar with in their entirety, i.
e.
First question, <UNK>, if you won't mind, just a housekeeping one.
In the past, you've been kind enough to supply category growth rates by region, U.S., Europe and E<UNK>
So if we can get an update there.
I think, probably, in aggregate, category growth rates have probably come in about 1 point since 3Q, but an update there would be helpful.
And then the second question more broadly, <UNK>, would be around M&A.
And you talked a lot about areas of focus for the balance of the year, which we well covered on this call.
So I appreciate that.
That's very clear.
But the question is, I guess, given this sharp deceleration, which we haven't seen in your portfolio in a long, long time, does this give you any pause with respect to M&A, which has not been a big part of the company's portfolio strategy.
Had some nice tuck-in deals, of course, with Sanex and Hill's.
But said differently, in a slower growth environment, does this increase your appetite for M&A.
And if so, would you consider pursuing any businesses outside of the current portfolio.
Yes, the ---+ well, category growth, frankly, it's reasonably straightforward.
Certainly, for the last quarter, the emerging markets are still mid single digits in some countries, with much more of a presence now in e-commerce.
China would be the obvious example.
And in the developed world, what we have seen is, Europe and United States or North America were essentially flat.
I mean, that's the way the world splits today.
M&A, do we have appetite.
We've always had appetite.
We're just, I would say, very strategic in our appetites.
And when we look at M&A, we look at it from the point of view of strengthening the portfolio of the company, not meeting a sales requirement, and certainly, not jumping into a new business that we don't know too much about.
And mustard would have been a very expensive one to get into, for example.
So I think you could see us buy on the fringes of the businesses we're in.
We have with Sanex, for example, lotions and creams that we are now expanding in Europe.
But if we were to play in M&A, and we are very keen on expanding our portfolio with the right asset, I think you would see it in the broader definitions of the categories we're already in, in Oral Care, in Pet Nutrition and in Personal Care.
And that's the way we think about it.
We're not going to do anything in a undisciplined way just for a tactical response.
We remain keen.
Okay, <UNK>.
Well, let me start with the Global Growth and Efficiency Program and the SG&A idea.
I mean, you're right, we remain extremely focused on maximizing our opportunity in this final year of that program.
And I think that is reflected in the 2 actions that we talk about in the second quarter, one of which reflected in the costs in our filing.
Both of them are directly and meaningfully in the SG&A space.
They will play out over time in terms of realizing the benefit, but they will afford a benefit and we continue to focus on finding other areas that we could do light without in any way damaging the firepower we need to be successful on the ground.
So yes, it's a very clear area of focus, and I think it's evidenced in the actions that we took.
It's very difficult to come back to this cadence on the quarter.
Again, as <UNK> said, in the U.S., actually, the second quarter, in aggregate, was worse than the first quarter overall, with a combination of a weak April and then a June that traded.
In terms of destocking, we have seen that on a volatile basis.
I guess, the only thing I can repeat is that we are seeing on a year-to-date basis our global market shares in our priority categories better or flat with the first quarter, which gives us a sense that our underlying consumption-driven growth is improving, and we look forward with the 4 areas of focus I mentioned to capitalizing on that fully as we work our way through the back half of the year.
Yes.
The ---+ well, taking it in reverse order.
In pet, we think about it more in terms of the formulation of our products.
We are unabashedly a brand that provides clinic ---+ proven clinical benefits to pets, whether it's preventative or whether it's curative with our Prescription Diet business.
And certainly, on the preventative health line, we have reformulated our products to put proteins first and not give people a reason to switch out of our business, and if they value a particular clinical benefit, to not have a barrier to them trying the Hill's product.
And we think that has been quite successful and conceptually moving into a very, very almost Tom's-like naturals is difficult to do.
We have tried a couple of times with Hill's.
And the heritage of the brand doesn't give you the bandwidth to go pure on naturals.
So we've done it by formulation to eliminate barriers.
I don't think at this stage, given the compounding effect of the slowdown in our markets, trying to do the math on what is the one-off and how does it relate to the underlying category growth is going to be particularly helpful because the expectation is that the category growth will come back.
So the reason the way we're thinking about it is to say, over the year, we expect this year now to be low single digits from an organic sales point of view.
And we continue to be very focused on the consumer, on the consumer behavior.
We've taken some actions that <UNK> mentioned to try and capture the frequency of purchase in some of our businesses.
And as we learn more, we'll be able to respond more authoritatively is the behavior coming back or is there something else driving what we see in the categories.
And we think it would be premature and probably misleading to get into that at this stage.
So I have 2 questions.
One question is, when we talk about those initiatives, <UNK>, that you laid out so eloquently around naturals, local competitors, e-commerce, more ad spend, better productivity or lower SG&A, these are all things you've heard many of us kind of collectively push for and push you on to the path on these conference calls.
I guess, for a while, I mean, I remember 3 years ago about e-commerce were only local competitors.
And all of us were kind of asking these questions.
The ad spend has been an ongoing discussion.
And now you're saying well we got to do something about these things.
So I guess, my first question is, I'm just wondering why it took so long to react.
What was the turning point.
And now it just feels you're behind.
So I guess, why it took so long.
And then the second question ---+ I lay it aside if it's related or not, I guess.
But there's a lot of buzz out there right now, a lot of discussion, and I think, your stock performance today, given the numbers, would suggest that ---+ there's a lot of discussion in the investor community that the numbers today are so bad, the numbers last quarter are so bad that they're actually good for shareholders.
And activists will come in, an acquirer will come in and get involved.
What do you think about that view.
Certainly, it's helped your stock out recently.
But what do you think about that view.
And how hard will you work to specifically prevent a bid or an activist in that context.
Yes.
The ---+ I guess, on the first question, I'm not sure I completely agree.
I think it's fair.
The criticism on the advertising spend and the lack of consistency of advertising, but that we addressed coming into this year's budget.
And I'm just reaffirming that it is playing out the way we expected it to play out.
On e-commerce, we have been very focused on e-commerce for a long time.
We may not have talked about it as eloquently as you find I did this morning, but we have been focused on it.
And I think that's why we have the toothpaste leadership positions in the markets that we talk about and the growth rate and subscription levels on the Hill's business that we talk about, even if we took the pain of making those decisions in the marketplace, which we're now after almost 9 months, nearly 1 year, just working our way out of.
Naturals, again, we have been talking about the naturals for a while.
Yes, it's only coming to marketplace right now.
But when the local brands idea came up, we were saying that, that is our response.
You can chide us on the speed of getting it to marketplace.
And I won't fight that, but in terms of the idea, and that was accounted to the local brands, we feel good about the offering that we're on.
And on the efficiency, I'm not sure you were implying any critique of the productivity.
And I think the action that we have taken in this quarter that we have mentioned was evidence of our focus in that area.
So when we think about going forward, buzz is one thing, and there seems to be increasing buzz in this world about virtually everything, which can become an enormous distraction.
So the only thing I can say, and I won't repeat the remarks I made at Bernstein, but I will say, we are focused on the areas that I have mentioned.
We think these are the right areas to focus on to see a recovery in sales momentum across the back half of the year.
We are focused on the SG&A line in our income statement to get us more productive from a reasonably advantaged base going forward, so we have no blinders in terms of a need to focus on our cost structure, and we will continue to do that.
And if we have more to say in that space, we will say that in a way that we think is consistent with driving growth sustainably over time.
And with or without buzz, we are steadfastly focused on that.
So I'm sorry, I can't sound more energetic.
It seems to fail me.
But I think you can rest assured ---+ well, you don't have to rest assured.
I guess, I'm saying that we very much are focused on growth and on cost structure.
Yes, I think ---+ I don't think it's driven by e-commerce.
I think it's driven by, shall we say, business entrepreneurs who are local.
I think, pleasingly for us, it's driven by ideas that tend to be premium, which are ideas we're happy to compete with rather than, perhaps, in the early years, ideas that were more pricing driven.
In some cases, it's driven by affinity.
So the Yunnan Baiyao brand in China was already a well-established wound healing brand in the country.
You take it into the toothpaste category and say, you stop bleeding gums, well-known brand in the toothpaste category, and they didn't do much advertising in the early years, and the business started to grow.
Patanjali in India takes a very naturalist view of his business.
So these are concepts in the local market.
They tend to be premium-price oriented.
And it means that you have to respond with a very specifically constructed offering that attacks the benefit the consumers are looking for.
Hence, the naturals reaction.
So I think it's more a function of entrepreneurs' concepts, affinity with the local market, which is why we have innovation centers and technology centers in China to be close to the consumer on the ground in that country.
And in the end, the winner over time in these clashes are going to be the companies that best understand the consumer and serve them offerings that they want over time.
And of course, that's what we are resourced and focused on doing.
Well, let me start by saying, you start with a great name.
So that's a good place to start.
Our point on advertising was not to do with the advertising in the first half.
Our point on advertising and the numbers you referred to in the recent historical past was to do with adjustments downward that we made in advertising in response to, unfortunately, foreign exchange very sharply going the other way that your second question was suggesting.
And when we came into this year, what we said was, that isn't what we were going to do.
Advertising north of 10% is a good level of advertising.
And so what we said coming into this year is that we wanted to sustain our advertising across the full year, which means the comparison over the last couple of years is driven by a lower second half in those prior years and what will be a sustained level over the back half of the year, which means the advertising will be meaningfully up versus the prior year.
So it's sustainability rather than a lack of in terms of investment.
And hey, foreign exchange, you look at the last 5 years.
I think the pundits have been wrong coming into basically every single year.
And if foreign exchange does turn positive, we will have a quick round of applause, and then we will bring it back to the business.
Our general historical rule of thumb has been to reinvest some and to bring some to the bottom line.
What we would actually do this time around would be a subject of internal debate, but that rule of thumb has been our historical action.
Yes, the gross profit roll forward.
So prior year gross profit was 60.2%.
As you know, we picked up 40 bps from pricing between the restructuring, which is de minimis and funding-the-growth, positive 170 bps.
Material, negative 180 bps, which was primarily the fats and oils, as I said.
All other, 20 bps.
And that takes you to the 60.7%, which is up 50 basis points year-on-year.
So that's the gross margin roll forward.
I would say, in Latin America, it is a focus on the fundamentals.
It is innovation.
I wouldn't go so far as to say the lower-end innovation is making the difference.
And I would say, markets like Brazil, I'm afraid, remain variable.
So we're very pleased with that bounce back, but we'll be watching very closely in terms of sustainability through the third quarter.
But the fundamentals are the same fundamentals for Latin America across the back half of the year.
Okay, I understand that is the last call.
So thank you for being with us, and we look forward to talking to you again in October.
