Image source: The Motley Fool.
Colgate-Palmolive Co (CL 0.33%)
Q3Â 2018 Earnings Conference Call
Oct. 26, 2018, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, good day and welcome to today's Colgate-Palmolive Company Third Quarter 2018 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgate-palmolive.com. Now, for opening remarks, I would like to turn the call over to the Senior Vice President of Investor Relations, John Faucher. Please go ahead, John.
John Faucher -- Senior Vice President and Investor Relations
Thank you. Good morning and welcome to our third-quarter earnings release conference call. This is John Faucher, Senio Vice President for Investor Relations. Joining me this morning are Ian Cook, Chairman and Chief Executive Officer; and Henning Jakobsen, Chief Financial Officer.
Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC, including our 2017 Annual Report on Form 10-K and subsequent SEC filings, all available on Colgate's website, for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in tables eight and nine of the earnings press release. A full reconciliation to the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate's website.
Ian Cook -- Chairman and Chief Executive Officer
Good morning, everyone. This is Ian, and I'd like to make some introductory comments. You will recall from our previous quarterly earnings call that we talked in some depth and with some urgency around our focus on innovation and building growth in channels where people are shopping and our commitment to advertising and continuing to revive efficiency and capabilities. And I do not intend today to dwell on those areas.
What I intend to focus on is what was a challenging and disappointing quarter for us. Challenging on two levels. First, foreign exchange, which moved sharply negative, particularly so in our large Latin American division. And secondly, the underlying growth in commodity costs partly affected by the transaction impact of foreign exchange. Underlying materials were up over 80%. Oil, as you know, was up 46% quarter on quarter, and as you will hear from John, who will go forward, our margin roll forward, rolling packing materials this quarter were a 390 basis points negative impact against gross margin. And from both material and foreign exchange point of view, we expect that pressure to continue in the fourth quarter, and that is why we took the pricing that we did in the third, which we spoke to you about in the second quarter, and pricing will continue to be an area of necessary focus going forward, as you have heard from some of our competitors quite recently.
The disappointing part of this earnings report is the weak top line, four or six divisions up, but Brazil in Latin America and China and Asia drove our top line from positive to negative. So let me start with Brazil.
In Brazil, the macroeconomics are volatile, including a hangover from the trucker strike in the second quarter, and of course less now, but still uncertainty around the elections. The categories, as you've heard from others in our principal businesses, turned negative in the third quarter, both in volume and in value. We took pricing early, as we said we would, and we have not yet seen retail pricing move up or competitors for our pricing lead. And as you know, and as you have heard from others as well, in situations like this, often there is a gap between the leading moving price and competitors' following. We have, obviously, therefore, seen a volume impact negatively because of the pricing we took, and we reported, you may recall, less of a negative impact from the truckers' strike in the second quarter than our competitors, and then they also have affected our third-quarter performance a little bit as well.
Our market shares continue to hold up well, up year-to-date and holding through our leading pricing action. And our plans going forward remain the same. We are sticking with our commitment to pricing, and we do expect inflation to return to the categories. We are launching the premium new products that we said we would in the pharmacy channel. OrthoGard and PerioGard off to a good start, elmex, just starting to ship right now. And Naturals in toothpaste and personal care moving to the marketplace.
And of course, as we announced at Barclays, and this applies globally, we have the relaunch of our scale core Total business beginning worldwide in the first quarter, and for Brazil particularly, where this is a 17-share business, it will have a favorable impact on growth going forward.
We, I must say, take on Brazil a more guarded view than we have heard from others given the situation we see in our categories. But, if I would offer a glimmer of light, it is fair to say when I look at our category data exiting the third quarter, the declines we saw were easing, which hopefully augurs well as we go forward.
But China is a different set of circumstances. We remain positive on China. There is growth in the category, and our volume share of 34% has held constant over a good number of years. Our value share, slightly lower, represents the area of opportunity as we have spoken about, because there are two big things going on in China. Number one is the premiumization of -- it's led by some of the local brands that we have spoken about. And the second is a very big change in consumption patterns and shopping environments with the explosion of e-commerce in the country.
Now to respond to the premiumization of the category as we have spoken about before, we have brought a premium price Naturals offering to the marketplace. We have done online initiatives like the Dare to Love toothpaste that did so well last year and will be repeated in 11/11 and 12/12 again this year. Elmex, also moving online along with electric toothbrushes and a whitening -- in-home whitening offering for the country, all at a premium price offering.
But as we told you in the second quarter, we have also taken meaningful pricing on over half of our business on both the Darlie brand and with the Colgate brand. Given that with the premiumization of the category in addition to extending our portfolio into premium, we need to move our prices up from mid-tier to the more premium tier. And in doing so, it impacted our volume. Now, we're beginning to see that pricing move through in the direct trade, where it is already impacting our consumption, which is up, but it yet has to move through the indirect trade, which is complicated by the changing consumption patterns in the company -- in the country as I mentioned to you earlier. And we are working down inventory to realize that change through the long tail distribution network over time. That is not going to be fixed immediately, but it should get better from here.
Now to come back to the areas we have been focusing on and the rest of our businesses, we do believe the areas that we have focused on are underpinning our consistent growth now in North America, notwithstanding some of the promotional pressures we have seen and you have seen on toothpaste in that country.
Hill's is rebounding nicely from the troubles we had in prior year, and indeed that growth is led by a strong U.S. business. Europe is continuing to grow quite nicely in a low-growth environment. Africa, Eurasia now having overcome distributor problems, growing for multiple quarters, and India is seeing us grow volume and pricing, and our share performance beginning to improve behind the innovation and the advertising support.
And we do believe that, that consistent focus on advertising and innovation is underpinning those performances and will continue into the future. We are, again, I repeat, focused on pricing going forward, and we do see pricing improving even though we have perhaps begun slightly ahead of our competitors, we see that continuing going forward.
And again, as we announced at Barclays, and this will be a big impact for the world, we will have that relaunch of our scale Total business starting in the first quarter of 2019. So those are the comments I wanted to make specific to Brazil and China, but also on the rest of our business, and I'll now turn it back to John.
John Faucher -- Senior Vice President and Investor Relations
Thanks, Ian. Our net sales declined 3% in Q3 as flat volume and 1% favorable pricing were offset by a 4% negative impact from foreign exchange. Excluding the benefit from our recently acquired professional skincare businesses, EltaMD and PCA Skin, volume was down 1.5% driven by the issues in China and Brazil that Ian discussed.
On a GAAP basis, our gross profit margin was down 100 basis points year over year. Excluding the impact of our Global Growth and Efficiency program, it was down 120 basis points year over year. For the quarter, our 100 basis points of pricing provided a 50 basis point benefit to gross margin. Raw material costs, including the impact of foreign exchange transaction costs, were a 390 basis point drag on gross margin year over year.
Our productivity programs, led by our Funding The Growth initiatives, provided a 220 basis point benefit to gross margin, while there was no impact from other in the quarter. On an absolute basis, advertising investment was down year over year in Q3, driven by foreign exchange. On a percentage-to-sales basis, advertising was up 10 basis points year over year. Despite the challenges we face in certain markets, we continue to invest in advertising our brands to drive brand equity and to build awareness to drive trial for our innovation.
Excluding charges resulting from the Global Growth and Efficiency program, the remainder of our SG&A expenses were down year over year in Q3 on an absolute basis, but up as a percent of sales. Excluding the headwind from increased freight logistics and warehousing costs, our overhead expenses were down in the quarter on an absolute basis and as a percent of sales as we continue to see benefits from our productivity programs.
On a GAAP basis, diluted earnings per share of $0.60 were down 12% year over year in Q3. Excluding charges resulting from our Global Growth and Efficiency program and the provisional charge related to U.S. tax reform. Diluted earnings per share was down 1% at $0.72 as we benefited from a lower tax rate.
Now I'll quick -- take a quick run through the divisions. We'll start off with North America. Net sales in North America increased 8% in the quarter with our recent professional skincare acquisitions contributing 6%. The North American division posted its fourth straight quarter of organic sales growth, with organic sales growth of 2% as we continue to see a nice combination of volume and pricing growth. We saw continued strength in unmeasured channels like e-commerce and club stores.
Year to date, our market shares are flat or up in 8 of our 12 categories in the United States with strong gains in manual toothbrushes, liquid hand soap, and cleaners. The toothpaste category in the United States continues to see high levels of promotion, particularly through electric couponing, although we have maintained market leadership.
As Ian discussed last quarter, we have made adjustments to our promotional plans in reaction to what we are seeing in the marketplace. Latin America had a difficult Q3 driven by a combination of foreign exchange headwinds and category declines in Brazil. Latin America net sales declined 13% in the quarter as volume was down 6%, pricing was up 2.5%, and foreign exchange was negative 9.5%. Our pricing improved in the quarter as we looked to offset continued raw materials inflation as well as the impact of transactional foreign exchange, given the recent weakness in currencies like the Brazilian real and the Argentinean peso.
Outside of Argentina, we generally have not seen similar pricing moods from some of our competitors. We will remain disciplined and rational in regards to pricing as we expect inflation to accelerate going forward. We delivered both volume and pricing growth in Mexico in the third quarter, although we continue to see heightened levels of promotion in several categories, particularly bar soap, dish soap, and toothpaste.
Moving to Europe, net sales in Europe were down 0.5% in Q3. Organic sales were up 0.5% with positive volume growth partially offset by negative pricing. Foreign exchange was minus 1% for the quarter. The UK posted strong volume growth in the quarter, which led to market-share gains in Q3. We are particularly pleased with the performance of our premium business in the UK as Colgate Total and Colgate Max White toothpastes continue to gain share.
Our UK business should be further bolstered by the continued roll-out of our Colgate Natural Extracts toothpaste line, including our latest offering of Charcoal Plus White. Sanex continues to grow market share in the body wash category, behind the Sanex Zero% line as well as the Sanex Physiologic line, which is bringing high-end, premium-priced pharma trends into the mass channel and what continues to be a difficult pricing environment in Europe.
Moving to Asia-Pacific, net sales in Asia-Pacific were down 7.5% in the quarter, driven by volume declines and foreign exchange headwinds. As Ian discussed, inventory reductions in China was the biggest contributor to the weak performance. We continue to be encouraged by the improvement in performance of our India business.
We continue to deliver volume growth with positive pricing, despite high levels of competitive activity. We are encouraged with the market-share performance of our Swarna and Cibaca Vedshakti toothpaste lines. As we see further distribution gains and continue to invest in advertising, we expect our share in the Ayurvedic segment of the toothpaste category to continue to grow. We also launched a new herbal offering in Thailand this quarter, Colgate Naturals Panjaved, further expanding our portfolio in that country in the higher-price Naturals segment.
In Africa Eurasia, positive pricing growth in Q3 was partially offset by slightly negative volume growth. Net sales in the Africa Eurasia division decreased 6% primarily due to a high single-digit negative impact from foreign exchange, driven by weakness in the Russian ruble and Turkish lira. We took additional pricing in the quarter to help offset raw material inflation and foreign exchange transaction cost.
We continue to be encouraged by the return to growth of our Sub-Saharan Africa business, which continues to improve following the distributor issues we dealt with in late 2016 and 2017. Year to date, our toothpaste share is flat or up in 13 of 18 market, and we are particularly pleased with our share performance in Turkey, with the Colgate brand closing in on the market leader. And we'll finish up with Hill's.
Hill's delivered 1.5% net sales growth in the quarter. Volume grew for the third straight quarter, driven by the United States, which also delivered strong pricing growth.
We were further encouraged by a rebound of volume growth in emerging markets, despite some additional pricing we put in place over the past few quarters. The U.S. continues to be led by the Prescription Diet business, which has seen share growth in the vet channel as well as online. We are also seeing share gains in the Science Diet business, with our market shares in pet specialty continuing to improve year over year.
To help continue the improved momentum on Science Diet, Hill's was excited to sponsor NBCUniversal's fourth Clear the Shelters program, which is designed to boost pet adoptions. This year has been the most successful ever, with over 1,200 shelters participating and more than 100,000 pets adopted. We also drove share gains at our Hill's Bioactive Recipe dog food, which uses Hill's knowledge of how dog's biology and genes respond to select ingredients, so the dogs can get the most out of their food.
Now, we'll turn to our outlook for the balance of 2018. As stated in our press release, based on current spot rates, we expect net sales for the fourth quarter to be down low single-digits due to foreign exchange, with low single-digit organic sales growth. We expect the additional pricing taken during the third quarter to flow through, and we expect less of an impact from de-stocking in the fourth quarter.
Based on current spot rates for the full year, we expect gross margin to be down year over year on both the GAAP basis and excluding the impact of our global growth and efficiency program. The continued increase in raw material costs, including the impact of transaction of foreign exchange, will continue to pressure gross margins. We now expect that advertising will be flat on both an absolute basis and as a percentage of sales for the full year versus 2017.
This change is due to some of the macro headwinds in markets like Argentina as well as some divisional mix issues. However, the media portion of advertising is projected to be up on an absolute basis for the full year versus 2017 as we continue to invest behind our brands. And within that, spending continues to shift from non-working media to working media as we drive efficiencies within our marketing budgets.
On a GAAP basis, we still expect our tax rate to be between 26% and 27%. Excluding the impact from our global growth and efficiency program, charges related to U.S. tax reform and the benefit from the foreign tax matter in 2018, we now expect our tax rate to be around 25% for the full year. Based on current spot rates, we expect GAAP earnings per share to be up double-digits for the year. Excluding charges related to the global growth and efficiency program, charges related to U.S. tax reform and the benefit from a foreign tax matter in 2018, we now expect earnings-per-share growth to be 3% to 4% for the year.
And with that, we'll open it up for questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) And our first question is from Dara Mohsenian with Morgan Stanley. Please go ahead.
Dara Mohsenian -- Morgan Stanley -- Analyst
So Ian, as you mentioned in your remarks, you talked to us previously about the plans to drive improving top-line growth in terms of innovation, ad spend, e-commerce focus, etc. And the specifics on Brazil and China weakness were helpful this quarter, but it feels like execution-wise, the changes you guys have made haven't been enough in light of this changing landscape. So I'd love to hear going forward from today, how you manage the business differently, and I'm focused on two areas. A, execution-wise or the things you can do differently going forward to stay ahead of the competition in this changing channel landscape more than you had previously. And B, do you think you might need at some point to reinvest significantly behind some of these areas and increase the level of spend to get the payback you desire from a top-line standpoint? Thanks.
Ian Cook -- Chairman and Chief Executive Officer
Yeah. Thanks for the question, Dara. The -- I think in terms of the way we are advancing the business, we think we are focused on the right things. Innovation is clearly a way to reach today's consumers and tomorrow's consumers. And I think we have lots of examples of innovation that is connecting with those consumers. Interestingly, if we look at our market-share data and household panel data we have, we see that our market shares with millennials are the same as our general market shares in some geographies -- actually, they are high and growing. So we think innovation is a big part of what we need going forward. And we have stepped into now changing the shape over of our portfolio as part of that innovation, and that maybe the transfer of a global brand to a new geography, or a new retail channel as we have described, or indeed the development of a local brands either in response to a competitor like Vedshakti in India now transferred under a name pronounced so well by John into Thailand.
And I think that will continue, and we've also experimented as we talked about the last time with a lot of new leading-edge innovation, which will find its place in the world one day. We think advertising is an important piece of it, and we do believe in those geographies where we are now seeing a consistent rebound and correction from issues we faced earlier, then it is the combination of the advertising and the innovation and indeed our go-to-market execution in the case of Hill's with e-commerce that is making the difference, and that is sustainable going forward.
And finally, I would say in changing the shape of the portfolio, think about the addition of PCA and Elta to our personal care offerings much more in the skin health area, much more linking to the recommendation model that we know so well from our old and pet nutrition businesses. So we think we have quite an array of freshness in what we are bringing to the consumer and are focused on the right areas in terms of where those consumers are making their purchasing decisions, and that will continue. And again, I would like to stress the journey undertaken to get to the relaunch of Total next year, which will be a big shift in a core business in our overall portfolio.
As regards for significant reinvestment, I think given our commitment and our mindset toward growth, we certainly, when we give you our guidance on 2019, will reflect the stance that we have taken. But I must say, our portfolio of activity coming into 2019, only of which Total is public right now, is quite rich, and we will certainly invest at a level that we deem appropriate to drive the top line of the company while making sure that we are taking the pricing and achieving the value necessary with the premiumization of our innovation to continue to build margin and offset commodity costs that we have certainly seen this year.
So a simple summary there, I would say we will do what is right to continue our focus on recovering growth momentum in next year.
Operator
Our next question is from Olivia Tong with Bank of America. Please go ahead.
Olivia Tong -- Bank of America -- Analyst
Great, thanks. Just wanted to get a better understanding of why you expect organic sales to get better in Q4. First, is it coming more from developed or emerging markets, because the developed markets comp, it does get a fair bit more difficult. But I'm also not entirely sure what's going to drive emerging markets better, because broad expectation is for China to slow down. So the retailer really de-stocking or actually managing to a new lower level and in Brazil, you had mentioned the market volatility, and that seems unlikely to abate as well. So while you're spending more, it doesn't seem to have really driven much volume at this point, at least for this quarter. So just if you could elaborate on Q4, that would be great. Thank you.
Ian Cook -- Chairman and Chief Executive Officer
Thanks, Olivia. A lot of questions there. Now of course, when you you take pricing depending on the competitive context, you often see volatility in volume. We have experienced that before, and I guess the point we are articulating is that given the inflationary pressures, pricing will be necessary, and we will continue to focus on that going forward.
As to the fourth quarter. I mean, John commented on it, we do expect to see less de-stocking, whether that is China or Brazil, and that will of course be a factor. We do expect our developed market performance to continue given we think the benefit of the innovation in the advertising driving that. And we see that continuing in the fourth quarter.
So I guess in simple terms, it is improvement from where we are in the emerging, and a continuation of the developed. In China specifically, we do believe its de-stocking, putting inventory to a new level. The category is still growing mid single-digits in China. And although e-commerce generally, as others have said, has slowed in its compounding rate of growth as e-tailers take less inventory at the front end, it still continues to be a very high contributor to growth in China and other geographies.
Operator
Our next question is from Ali Dibadj with Bernstein. Please go ahead.
Ali Dibadj -- Bernstein -- Analyst
Hi guys. So two questions. The first one is easy, and I'm just wondering what Argentina pricing contributed to you. It's about 2% of sales, I think, inflation we've heard 30% to 50%. So, is that the right number to think about? Is that the number to think about? It feels like there is this kind of brewing Venezuela, helping artificially or organic pricing a little bit. So just want to kind of put that one to rest a little bit. And then more broadly... (technical difficulty)
Ian Cook -- Chairman and Chief Executive Officer
Ali, you disappeared.
Ali Dibadj -- Bernstein -- Analyst
Hello, can you hear me?
Ian Cook -- Chairman and Chief Executive Officer
You came back.
John Faucher -- Senior Vice President and Investor Relations
Yeah, you got to the second. Yeah, I didn't hear anything on the second, so start with second again.
Ali Dibadj -- Bernstein -- Analyst
Thank you for that. So yeah, the second one is very helpful commentary at the outset, Ian, about externalities, and there are clearly some really tough ones around packaging costs and transportation cost, FX, destocking, all this sort of stuff. And agree with that, that's at some of your peers as well. But I'm still struggling to find -- accepting all those externalities. Is there anything Colgate didn't do right, is there anything as you look introspectively that you said, gosh, we just didn't do this right? Are they mistakes? Because the environment is tough, but it's tough for everybody, and we're seeing market share losses still for you and a lot of things that are kind of different than some of your peers. So I'm trying to understand as you look at yourself, what did you do wrong. Thank you. Hope you have heard those.
Ian Cook -- Chairman and Chief Executive Officer
Yeah, I did. I heard them very clearly. Thank you. The -- so Argentina. Argentina is not another Venezuela brewing. In Venezuela, as you well know Ali, you had an official exchange rate that was not the operating exchange rate, Argentina is a dollarized economy, and the exchange rate -- is the exchange rate and it will, and is, fixing itself. So your stats are also wrong. Argentina last year was about 1% of our sales, those were the good old days, and the Argentina of today is more than half smaller than it was this time last year and is around 0.5% of our sales.
So basically ex-Argentina, our -- the Argentina contribution overall to our organic growth rounds to zero. But I think the bigger answer to the question is, there is no issue brewing in Argentina -- the exchange will take care of itself.
Secondly, thank you for the constructive nature of the second question, and I mean in terms of recognizing some of the issues that indeed one does face, but if you singularly say, what would we be self critical of, the answer would be not moving as quickly on premiumization as we would want to.
And we are now, as you know, fully engaged in that, but that requires, as I described for China, a bold move beyond simply changing the portfolio to move the pricing of our core businesses, and that brings with it some challenges, which we will work through. So but that focus now on premiumization is very well under-stored and being acted upon with good urgency across our businesses and across geographies. And as we said at Barclays, when we come with the total relaunch, that is a terrific new technology which brings additional benefits to the consumer and is a rich opportunity to deliver value and create value going forward.
So I think that's the way I would respond, Ali.
Operator
Our next question is from Lauren Lieberman with Barclays. Please go ahead.
Lauren Lieberman -- Barclays -- Analyst
Thanks, good morning. You know just reflecting on the fact that I think it's been around six years since you introduced Global Growth and Efficiency Program, and that one thing that I thought about that program was sort of expanding your productivity efforts, pretty demonstrably beyond gross margin and into more SG&A. And so over the ensuing six years, I know there's been macrodynamics, but top-line growth has also has slowed even as you were embarking on this broader productivity path. So just thinking back on some of the savings that you've been able to generate, the areas that you focused on, are there things that maybe efficiencies had the wrong outcome like maybe hubbing was detrimental in some way? I'm just wondering in that, if it's purely coincidental, or as you look back at some of the areas where you've tapped into savings over the last five or six years, if there's been sort of unintended repercussions from a growth standpoint? Thanks.
Ian Cook -- Chairman and Chief Executive Officer
Thanks, Lauren. So for the question, when we started on this journey, we were, in typical Colgate fashion, a little bit conservative. The two drivers that set us on the journey, one, was having the SAT enterprise-wide system that linked us across the world, which sends us down the path of putting more of the administrative back-office services in locations to service multiple geographies, because everybody would be connected by the same technology, therefore have the visibility and that would allow us to be cheaper and more efficient at the same time. And those moves, they're never without their challenges in the implementation of them. But we don't have any, we believe, structural difficulty with them once they're in place. And indeed, what starts to happen is you see your way to bringing more services to those centers around the world. So while we were cautious stepping into it, and we have built it up over the life of the plan, we think that was a correct decision, a good decision and one that is accruing benefit today and will, too, for the future.
Now hubbing, we were particularly sensitive too, because, of course, and this may be the implication of the question, we are really focused on winning on the ground as a company, and that requires agility and focus and capability on the ground. And we -- in the way we do our financials in the way we incentivize people -- we have been very, very careful to maintain both the passion and the economics in terms of compensation focused against that winning on the ground.
And when we started the hubbing, we did it with, I think it was over a decade's worth of experience in a couple of geographies, Nordic and Central America that we were building out from where we had learned the pluses and the minuses. And what hubbing essentially allows you to do is, yes, become more efficient, but it also allows you to have higher quality and higher cost talent on the strategic issues governing now multiple countries, while at the same time having adequate resources on the ground to manage what is managed on the ground, which is customers, and consumers, and brand-building. And indeed in some geographies, we have increased the resources we have on the ground to make sure we keep that contact with customers and consumers.
So I think from its inception, the thinking was soundly based on historical experience and learning, and of course, we have learned our way over the years. The program has been evolving to make sure we executed quite well. So we think on both levels, this has been an appropriate and a wise choice for the company.
Operator
Our next question is from Andrea Teixeira with JP Morgan. Please go ahead.
Andrea Teixeira -- JP Morgan -- Analyst
Thank you and good morning. So I wanted to go back to the competitive environment, so particularly in the U.S. and Europe. So for the U.S., where are you seeing across competitors in terms of couponing for oral care, and specifically in some of your and other major categories in oral care? And for Europe, are you finally cycling some of these -- a couple now -- several quarters of negative pricing? So, do you believe you can finally take some pricing out to hopefully flatten pricing into 2019, or do you believe consumers are still price-sensitive there? Thank you.
Ian Cook -- Chairman and Chief Executive Officer
Yeah. Well, thanks for the questions, Andrea. The, I think we've been quite clear over the last couple of calls that we had seen elevated promotional activity specifically in the United States. And as Jon commented this morning with electronic couponing, as before, we have adjusted our plans for the balance of the year to be more competitive in that space. We obviously will be very attentive to what unfolds in the marketplace going forward, as everybody I think now faces the commodity cost pressures that require some prudence in terms of pricing, whether price increases or lower promotional activity.
So we haven't seen any change yet, but we will be attentive. From the European point of view, Europe has always been quite a challenged environment from a pricing point of view, and that has continued for several years. It is not a new phenomenon in Europe, and some of that has led to tensions with customers over the years, and we believe now we have our European business well positioned in that European context. And as you intimate, obviously our pricing negative were also improving in the third quarter. And clearly, we will be very attentive to try and make sure we can continue that trend as we go forward.
Operator
Our next question is from Bonnie Herzog with Wells Fargo. Please go ahead.
Bonnie Herzog -- Wells Fargo -- Analyst
I had a question on growth. You described this morning the slow category growth, and you've mentioned this on the past few calls. But, I guess I'd like to understand, if category growth has in fact been getting worse, have you noticed any change in the rate of growth versus Q2, or even 1H? And then, given the slow category growth, have you seen any change in the competitive environment in either the U.S. or emerging markets? And just like to hear if the promotional environment is rational.
Ian Cook -- Chairman and Chief Executive Officer
Thanks, Bonnie. If we look at our categories, generally, I think one would say if you take a global snapshot, Europe is flat to modestly up. The U.S. is probably between 2% and 3% if you include -- if you include all channels. That is certainly an improvement from recent history. Latin America is choppy given the economic volatility there, and as we discussed earlier, in Brazil in particular, there has been, as the year has unfolded, a definite slowdown in the categories, both value and volume moving to negative in the third quarter, as we said.
And in the Africa, Eurasia, and Asia parts of the world, I think that mid single-digit 4% to 6% category growth continues to be the case. I will say that, and John talked about it this morning, that in Latin America, we have seen pockets of elevated promotional activity. I intimated it -- to it when I talked about pricing that some competitors take advantage of a leader taking pricing to perhaps grab a little bit of volume in the short term. But I think our assessment is that both inflation will, is and will continue to come back, and secondly, the underlying foreign exchange and commodity cost pressures will demand that competitors in particularly the Latin geographies will need to take pricing to offset those headwinds. And that would be our thinking going forward.
Operator
Our next question is from Wendy Nicholson with Citi. Please go ahead.
Wendy Nicholson -- Citi -- Analyst
Two questions. So much of your commentary, Ian, is kind of what's wrong in the marketplace, what's changing with consumers etc., etc., and how difficult the external environment is. But I'm just shocked by your market-share performance. I mean, the number that you give, it's your own data for the oral care category, it's just so bad. And I just don't remember a time it's ever been so bad.
I mean year to date, last year this time, it was 43.5 in toothpaste, now it's 41.9. I just don't understand why maybe that isn't more alarming to you, because that doesn't strike me as it is an external issue. It seems to me very much this is an internal issue. So, I'm surprised, you are more kind of grabbing the bulls by the horns and saying holy crap, excuse me, holy moly, our market shares stink. So, that's question number one.
And then, question number two is, I mean I listen to the webcast when you were at Barclays, and I thought you pretty clearly said you had your arms around the issues in Brazil, you had your arms around the issues in China. I thought you sounded pretty upbeat. And so, I guess my question is, did I misunderstand that, were you telegraphing that the third quarter was going to be a big miss to consensus expectations, or did this come as a surprise to you at the end of the quarter? That's it.
Ian Cook -- Chairman and Chief Executive Officer
Well, I guess, I'm not surprised you're shocked. I'm surprised you're surprised by my reaction. Let me come back to the market shares. The share you see there on a roll-up basis, the 41.9, on a year-on-year basis, is down something like 130 basis points. The challenge with that, Wendy, and it's been a challenge for us, frankly, over the last five years, is that there is an enormous foreign exchange component in that.
And as the U.S. dollar strengthens, our extremely strong, for example, Latin American market shares become down-weighted as part of that mix. So, there is a foreign exchange mix effect and indeed year on year, our market share is in fact down -- less than half of that 1.3. Secondly, our volume share is down again less than half. Our volume share decline is about 0.3 on a comparable year-to-date basis.
And indeed, from a volume point of view, one in two toothpaste tubes sold are under Colgate ownership around the world. Now, that said, are we happy with any share deterioration? Answer: no, we are not. But, we have said a few things. Number one, that in some parts of the world, I think Mexico, we quoted one time earlier this year, when promotional activity, the point is being cash margin dilutive, we will not match. And when you don't match, you lose market share. The same in the United States.
And in Asia, it was a different matter. In Asia, it was local brands that we have had to meet. And recovering against those local brands is taking some time, but we are encouraged by the progress in India. And if I look at some of our major markets now around the world, as the year unfolds -- John mentioned the UK back to positive share -- we are seeing positive share progression in Russia, we are seeing recent shares up in Mexico, because now the innovation that we are bringing, the consistent support of the advertising, frankly, having to match some of the promotions to a certain extent are seeing us build back shares where we have been under share pressure.
We are absolutely focused on that. And I don't know what else to say other than I take the point, we understand the point, we are all over the point country-by-country, tracking it literally month by month and, much to the pleasure of some, week by week, depending on the geography. And we think, again, that the relaunch of Total at the beginning of next year and all of the oral care activity, we have behind that is another step in maintaining that focus. So, I will promise to be more excitable when I talk about market share in the future.
As for Boston, yes, you didn't hear right. And maybe one needs to be a lot more emphatic in the delivery, but we were quite clear, we thought, in signaling. It was on the slides that foreign exchange was going to be a big headwind, and that commodities were indeed ramping up aggressively, obviously influenced by the foreign exchange impact of transaction costs. So, my answer to your second part of the question is, I guess I'm surprised you missed that.
Operator
Our next question is from Jason English with Goldman Sachs. Please go ahead.
Jason English -- Goldman Sachs -- Analyst
I'm going to stay on the topic of market share, but I am going to zoom in to be a little bit more myopic in just one region. Thank you upfront for the discourse and discussion on what's going on in Brazil, what's going on in China. Europe was a bit of a surprise to me this quarter. I know the headline numbers look fine, but Brazil headline numbers looked fine earlier this year, too, and we saw how it eroded fairly quickly. In your 10-Q, you've highlighted Europe as a source of market share strength with gains throughout the first half of the year. Now, the year to date, a trajectory has faded to flat, suggesting you've actually flipped into some market share donation in the third quarter. Can you delve into that a little bit more and tell us? Clearly, UK is a pocket of strength. Where are these pockets of weakness that have begun to wane your market share there?
Ian Cook -- Chairman and Chief Executive Officer
It's a simple answer, Jason. It's predominantly Germany. And again, without going into too much detail, it is customer related. And again, if I were going to focus on the period shares, the most recent period is beginning to return. It's as simple as that.
Operator
Our next question is from Caroline Levy with Macquarie. Please go ahead.
Caroline Levy -- Macquarie Capital -- Analyst
Just a question on the cost side. I think that you mentioned that you expect similar cost pressures in the fourth quarter. Can you just talk a little bit about any hedging strategies you have on costs, particularly in emerging markets? Which particular items are the issue? Is it PET or is it -- or not PET, but oil related, is it transports? Just a little more detail as to how long do you think this could go on?
Ian Cook -- Chairman and Chief Executive Officer
Yeah. Thanks, Caroline. The -- for the third quarter, the commodity costs were up just over 8%, and our logistics costs were up just over 5%. And yes, you heard correctly, we expect that to continue. And frankly, foreign exchange could be more negative for the balance of the year, and that would see transaction pressure on costs as well. So, we do expect the cost pressure for the balance of this year to continue.
Yes. There is of course the effect of those materials that start life as oil. And we are seeing that, as others are. Hedging, we tend to be light on hedging. Many of the raw materials we buy are not in categories where you can hedge, and we do hedge our Hill's business, materials against the formula on a rotational basis. But for most of the rest, we rely on our ability to price when we need to as the only logical and available offset to cost pressures.
Operator
Our next question is from Stephen Powers with Deutsche Bank. Please go ahead.
Stephen Powers -- Deutsche Bank -- Analyst
Hey, thanks. So, I guess maybe trying to tie a number of things that are running through my head together. I guess last quarter, we talked a lot about the sense of urgency that's been underpinning your recent initiatives. And I think you did a good job at the time communicating that sense of urgency and distinguishing it from panic -- I think that was the word that you used. But at the same time, I think we're now at least eight quarters into what has seemingly been a pattern of organic growth and gross margin pressures.
So, I guess, the question is, if we strip away the macro challenges, which I acknowledge are severe, but is the message underneath at all that from here, you think Colgate needs to be more urgent? Or is there a risk that recent urgency, whether it's the push into e-commerce, the catch-up on premiumization, etc., could actually be compounding your problems? And I guess, if it's not compounding your problems, is there anything incremental in your power to truly fast-track improvement, acknowledging the Total relaunch, etc. But, is there anything significant in your power, or is it more just a question of basic block and tackling over time, hopefully with a bit of macro relief? Thanks.
Ian Cook -- Chairman and Chief Executive Officer
Wow, that's a very deep and philosophical question, Steve. It is -- one has to be careful about the language one uses, I think. I can remember, and I have mentioned this before, there was a time when we were under pressure in a particular geography, and I won't go into the specific details, but our first reaction was, we're not panicking. We're staying calm. And the market read that as, you're not taking this seriously. And, the next time one responded, one said, boy we are really focused on this, and we're going to meet them on the beaches, and the market reaction was, well, now you are panicking, does that mean we should be worried about something else?
So, I think my answer, Steve, would be -- and again, this combination of innovation and advertising, which is the heart of building brands and capabilities and going where the consumers are shopping to make those brands and that portfolio available to them is where we need to be focused. And we need to do everything in our power, and we truly are, to accelerate the return we get from that focus. And I'm afraid, sometimes it's not as quick as people would want; it's not as quick as we would want sometimes. But, I do think, in the end, building the brand so it's a sustainable fix is the right way to go about it. And if we find ways of expanding our portfolio, as we did with PCA and Elta -- that is, on strategy -- we clearly will bring that to bear.
So, I would say a heck of a lot of internal urgency that linked to that urgency is focus, focused on what we believe to be the right things category by category, geography by geography, store by store, etailer by etailer. And again, I think the Total relaunch in the first quarter of next year is a very important part of our oral care business, will be a meaningful step under our control developed over many years to advance that business, and with it, the company.
Operator
Our next question is from Kevin Grundy with Jefferies. Please go ahead.
Kevin Grundy -- Jefferies -- Analyst
Question, Ian. I wanted to pivot to the U.S. pricing environment. Proctor said, they're much more optimistic on its ability to take price. And at a high level, Proctor indicated U.S. retailers are now more receptive to pricing across categories. And that certainly wasn't the narrative among investors earlier in the year. There's a lot of uncertainty, which called into question brand strength and economic, most of these businesses, etc.
And Proctor also indicated plans to take price in oral care. So, the first part, can you comment on how you see the pricing environment shaping up across categories? Do you share Proctor's view that there is a much broader receptivity to pricing that did not exist even a quarter or two ago? Do you plan to follow Proctor's pricing in oral care? Maybe talk a little bit about opportunities take pricing elsewhere. Is it more conducive now, as it seems to be? And then, lastly, I don't expect you to guide, Ian, but margin is down in North America 200 basis points year to date, or something close to it. Should we expect to see margins improve looking out the next year in North America? So, thanks for all that.
Ian Cook -- Chairman and Chief Executive Officer
I guess, as far as one can responsibly go on a call like this, which is a public call, I think the fair way to answer it is, I think it is fair to say that everybody in the industry understands that there are cost pressures. And all players in the industry are going to have to find ways that are consistent with their strategy and their relationships with their retail partners to do that. And that can be a combination of a lot of things, from efficiency to revised promotional calendars, to premium innovation, to different promotional activity. And yes, indeed, to a price increase.
And we obviously partner very closely with our key retailers here in United States. And we are very attentive in working with them to bring value to consumers that they see, and they think it's good value to pay for. And that's what drives our thinking in this space, including the Total relaunch coming next year. And I think we were one of the ones earlier than many, saying this commodity cost trend was real, and the industry would need to be responsive. So, you can rest assured we will be both attentive and responsive.
Operator
Our next question is from Bill Chappell of SunTrust. Please go ahead.
Bill Chappell -- SunTrust -- Analyst
Two hopefully quick ones. One on China. The de-stock seems pretty identical to what happened last year. So, I'm just trying to understand -- is this kind of the way you see it going forward, with e-commerce growing, that we're going to have kind of a one destock per year that's going to affect a given quarter?
And then, the second, on Total, on the relaunch. Should we be thinking -- I know you're not giving guidance, but thinking about kind of a front-end-loaded and a stepped-up marketing and advertising spend behind that, or is that fairly normal within the normal plans in terms of the launch?
Ian Cook -- Chairman and Chief Executive Officer
The -- I think on China, cute question, Bill. No, I don't think we're talking about once a year de-stock in China. I think the emergence of online created turbulence and de-stocking and has now complicated the distribution channels in China, particularly the indirect distribution channels. Because, candidly, some of the online players now have distribution systems themselves. So, retailers in the chain can buy from four or five different sources, which is very different than when the e-commerce phenomenon began in China last year. So, it's a different impact now, really driven by us taking pricing now into a more complicated distribution structure, and needing the pricing to equivalize and work its way through the system before we can get the new pricing on shelf with indirect customers. So, that's a very different reason for the de-stocking. And as I said, this one is going to take a little bit of time in that indirect trade. But we expect it to get better from here.
And when we talked about Total being the first quarter of next year, the way we signaled it at Barclays, Bill, was that the global rollout of this activity would begin in the first quarter of next year. So, that doesn't say that all of the activity is happening in the first quarter. But yes, of course, when we do bring such an important initiative with such technology and greater value, we will be investing very diligently to make sure all stakeholders are aware of and get a chance to try the product.
Operator
And our final question comes from Mark Astrachan with Stifel. Please go ahead.
Mark Astrachan -- Stifel -- Analyst
I'm going to try to ask the appropriate level of spend question in a different way. So, if we fast-forward to 2019, I know you are not going to comment on sales guidance, but let's just say business accelerates toward even the low end of long-term target next year, and if you extrapolate to your trends, perhaps that's where you end up. So, if you get there, given the period share loss you had, or issues had in certain key markets, how would you think about the appropriate level of spend? I mean, what does that mean to you? Are you more likely to want to protect the share that you've started to see improvement upon? Are you likely to think about things in a different way from an overall advertising spend? So, not necessarily that you need to rebase to get back to growth, but let's just say you do get back to growth -- how do you feel about protecting that relative to where you've come from?
Ian Cook -- Chairman and Chief Executive Officer
Mark, look, we think about it, and what we've been trying to telegraph is that advertising builds brands over time. And so, our thinking from a growth point of view is to continue to support our equities and the core and base businesses behind those equities, and of course, build the awareness to generate trial of innovation. So, we will be deploying advertising. Our thinking, we haven't yet begun our budgeting process to what we can measure and regard as effective levels to do the job of maintaining the strength of the underlying equity and building awareness and trial for new products, including the shift to digital and not forgetting commitment to the consumption-building programs that we have in the emerging markets, which deliver benefit over a longer period of time. So, that's the way we tend to think about it. And I would venture to say, as we work our way through our budgeting process, that will be the way we will think about it for 2019.
So, thanks everybody for your questions. And I wish you a good rest of the day. And we look forward to catching up with you in the early part of next year.
Operator
Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Duration: 69 minutes
Call participants:
John Faucher -- Senior Vice President and Investor Relations
Ian Cook -- Chairman and Chief Executive Officer
Dara Mohsenian -- Morgan Stanley -- Analyst
Olivia Tong -- Bank of America -- Analyst
Ali Dibadj -- Bernstein -- Analyst
Lauren Lieberman -- Barclays -- Analyst
Andrea Teixeira -- JP Morgan -- Analyst
Bonnie Herzog -- Wells Fargo -- Analyst
Wendy Nicholson -- Citi -- Analyst
Jason English -- Goldman Sachs -- Analyst
Caroline Levy -- Macquarie Capital -- Analyst
Stephen Powers -- Deutsche Bank -- Analyst
Kevin Grundy -- Jefferies -- Analyst
Bill Chappell -- SunTrust -- Analyst
Mark Astrachan -- Stifel -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
